Guirguis Pty Ltd & Anor v Michel's Patisserie System Pty Ltd & Ors

This recent decision has implications for the effectiveness of prior representations deeds. The appellants in this case complained of various misrepresentations as to future matters. However, none of the alleged representations relied upon at trial were contained in the relevant prior representation deed which they had executed. The primary judge determined the appellants’ lack of entitlement to relief largely on this basis. The Court of Appeal held that the prior representation deeds are only one part of a much wider body of evidence which the primary judge ought to have had regard to on this question of causation. The Court of Appeal also observed that the primary judge had dealt with the issue of causation without first making determinations as to whether the representations had been made and whether they were in fact misleading. In the result, therefore, the Court of Appeal allowed the appeal and ordered a new trial as the question at issue had not been properly tried and adequate findings of fact and of credit had not been made.

Fraser and McMurdo JJA and Boddice J

9 May 2017

The case concerned a written franchise agreement dated 28 May 2012 under which the first respondent granted a franchise to the first appellant to operate a “Michel’s Patisserie” business. The second appellants guaranteed the first appellant’s obligations under that agreement. [1]. Eventually the appellants commenced proceedings for damages pursuant to s 236 of the Australian Consumer Law and other orders including that the franchise agreements be set aside, alleging misrepresentations as to future matters including such matters as delivery and quality of stock damages. [2], [4]. Additionally, the appellants relied upon non-disclosures of five alleged events occurring immediately prior to the commencement of their franchise agreement, including that there was an apparent lack of suppliers and that a key bakery supplying 56 franchisees had been placed in administration and was unable to meet orders. [5], [6].

The Prior Representations Deed

At first instance, much weight was afforded to answers given in a Prior Representations Deed executed by the appellants, in which they omitted to refer to any of the alleged representations. That document clearly directed each franchisee and guarantor to complete it as comprehensively and accurately as possible, specifying that its purpose was to ascertain “all statements made to you, and information provided to you, which influenced your decision to execute Franchise Grant Documentation”, and directed that, “[w]here applicable, you must specify any such statement or information, who provided it to you and whether it influenced your decision to proceed as aforesaid”. [12], [15].  That said, none of the 24 topics in the Questionnaire in the Deed of Prior Representations described the subject matter of any of the pleaded representations and non-disclosures. [14].

The primary judge determined that the franchisee did not rely on the alleged representations. [17].

On appeal, the Court of Appeal took the view that the Prior Representations Deed was only one part of a much wider body of evidence that the primary judge ought to have addressed in relation to the issue of causation. [32]. In the lead judgment, Fraser JA (McMurdo JA and Boddice J agreeing) considered that the trial actually miscarried as a result of the methodology adopted by the primary judge. The court clarified:

“Contractual provisions such as clauses of the Franchise Agreement and the Deed of Prior Representations (including the second appellants’ answers in the Questionnaire) that are inconsistent with claims that the appellants sustained loss by entering into contracts because of misleading conduct may be relevant in the fact finding process but they are not legally effective to preclude such claims.” [28].

Whilst acknowledging that the primary judge had identified the correct test (see Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, and Juniper Property Holdings No 15 Pty Ltd v Caltabiano (No 2) [2016] QSC 5), the court noted that he failed to follow it.  Fraser JA found that the primary judge had departed “from the conventional methodology of making findings about causation only after first having made findings about the logically anterior questions whether the respondents had engaged in the pleaded conduct and whether that conduct should be characterised as misleading … the primary judge made no findings about what, if any, of the alleged conduct had occurred and whether that conduct or any of it should be characterised as misleading”. [31].

In addition to the above, the court observed that the primary judge inaccurately re-stated some of the pleaded representations; [39] made legal errors in rejecting the appellants’ arguments about the pleaded non-disclosures; [45] and erred in law by not providing reasons for his determination that the allegations of non-disclosures alleged “a failure to supply product at all and not an inability to supply product from the Brisbane bakery”. [47]. Those matters, coupled with his fundamental error in deciding the causation issue effectively resulted in his failing “to fulfil the duty of a trial judge to consider and reflect upon the entirety of the evidence viewed as a whole”. (See Fox v Percy (2003) 214 CLR 118, [23]). [48].

Orders

The matter was remitted to a retrial, with the proviso that it be conducted by a judge other than the primary judge given the findings as to credibility which had been previously made, and the respondents were ordered to pay the appellants’ costs of the appeal. [62].

A de Jersey