Re Copperart Pty Limited v Reidar Erling Floan; Patricia Ruth Floan and Konrad Erling Floan [1991] FCA 34; 20 IPR 519 (18 February 1991)

FEDERAL COURT OF AUSTRALIA

Re: COPPERART PTY. LIMITED
And: REIDAR ERLING FLOAN; PATRICIA RUTH FLOAN and KONRAD ERLING FLOAN
No. G498 of 1990
FED No. 128
Trade Practices
[1991] FCA 34; 20 IPR 519

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Morling(1), Wilcox(2) and Foster(3) JJ.

CATCHWORDS

Trade Practices - franchise agreement - representations by franchiser to franchisee - representation as to future advertising - whether proof that representer did not intend to carry out future advertising - whether proof that representer had no basis for making statement of intention - no question of principle

Trade Practices Act 1974, S.52

HEARING

SYDNEY
18:2:1991

Counsel for the appellant: J.D. Heydon, QC with S.D. Robb Instructed by: Baker and McKenzie

Counsel for the respondents: J. De Meyrick, D.L. Warren Instructed by: Johnston Vaughan

ORDER

Appeal allowed.

Orders made by Einfeld J set aside.

Judgment for the appellant.

Respondents to pay appellant's costs of the trial and of the appeal.

Respondents granted a certificate under s.6 of Federal Proceedings (Costs) Act 1981.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

This is an appeal from a decision of a judge of the Court in proceedings in which the respondents sought damages from the appellant in respect of conduct alleged to have contravened s.52 of the Trade Practices Act. As originally framed the proceedings embraced claims for alleged breaches of contract, and of ss. 57 and 59 of the Act, but at the trial the respondents confined their allegations to alleged breaches of s.52.

2. The appellant carries on business in various parts of Australia through a number of franchised retail outlets known as Copperart stores. By a written agreement dated 30 May 1985, but not executed by the respondents until August 1985, the respondents entered into a franchise agreement with the appellant. The agreement related to the establishment of a store in Claremont, a suburb of the city of Perth. The respondents actually entered into possession of the store and commenced business in March 1985 before the franchise agreement was executed following upon some months of negotiations and discussions with the appellant. During those negotiations and discussions, the appellant is alleged by the respondents to have made a number of representations which induced them to enter into the franchise agreement and to open the business at Claremont. It was some of those representations which formed the basis of the respondents' allegations that the appellant had infringed s.52 of the Trade Practices Act, with consequent loss to them.

3. The respondents led evidence at the trial in support of their case that several representations were made to them and were not honoured. It is unnecessary for the purposes of disposing of the appeal to refer to all of the allegations. Some, but not all, of the respondents' allegations were found to have been established. However, his Honour's finding that the appellant was liable in damages to the respondents was founded upon a conclusion that the respondents were induced to commence business and enter into the franchise agreement "by representations that they would be joining an established centralised business which would assist them to obtain profitability and acceptability in the Perth community by a fully fledged advertising and promotion campaign." His Honour was of the opinion that the non-fulfilment of this promise contributed to, but did not cause, the failure of the respondents' business. He found that this failure was due to the respondents' complete inexperience in setting up and conducting a commercial enterprise such as they conducted at Claremont.

4. There was a good deal of evidence at the trial as to the appellant's plans for expanding its business in Western Australia and, in particular, its plans to open a number of stores in that State. It is quite apparent that the respondents were given the impression that the appellant was intending to expand its business in Western Australia to a significant degree by entering into a number of franchise agreements with other persons. Had these plans eventuated, there would have been a number of Copperart stores trading in and around the city of Perth. I have no doubt that the expectation that this would be the case was a factor which influenced the respondents in deciding to open the store at Claremont. Nevertheless, it is plain from his Honour's judgment that the only respect in which the appellant was found to have contravened s.52 of the Trade Practices Act was the making of the statement in the course of negotiations with the respondents that it would conduct, as his Honour found, "a fully fledged advertising and promotion campaign."

5. His Honour was of the opinion that there was much less advertising and promotion than the respondents were told would occur. He was of the opinion that this occurred, at least in part, because there was only one Copperart store operating in Perth, with the result that the revenue base to pay for the cost of advertising and promotion was much less than it otherwise would have been had there been a number of stores operating in that city. The cost of advertising and promotion was to be defrayed by making a levy on the turnover of stores being conducted under similar franchise agreements.

6. His Honour characterised the statements made in respect of advertising and promotion as being expressions of intention or opinion, and not of fact. In this respect he was plainly correct. He also correctly observed that misleading and deceptive conduct within the meaning of s.52 of the Act is not established merely by proving that an earlier expressed intention was not carried out or that an opinion turned out to be incorrect. He said, and I agree, that in respect of the case before him it was required to be established that the appellant did not truly have the intention which it said it had, or that it did not hold the opinions which it expressed qua future advertising and promotion. Alternatively, as his Honour observed, it would have been sufficient for the respondents to show that the appellant had no basis for its intention or for holding the opinions which it did hold as to the extent of future advertising. The facts which gave rise to the proceedings before his Honour occurred prior to the insertion into the Trade Practices Act of s.51A which, in effect, provides, that where a corporation makes representation with respect to any future matter the representation shall be taken to be misleading unless the corporation has reasonable grounds for making the representation, the onus being upon the corporation to adduce evidence that it did have reasonable grounds for making the representation.

7. Mr Heydon QC, senior counsel for the appellant, submits that the learned trial judge made no finding that the appellant did not intend to carry into effect its stated intention of conducting an advertising and promotion campaign and did not make a finding that there was no basis for the making of the statements of intention. He further submits that the learned trial judge was in error in finding that the appellant failed to carry out its stated intentions as to future advertising and promotions. He also submits that, in any event, the damages awarded by the learned trial judge, namely $100,000, were excessive.

8. Mr De Meyrick, counsel for the respondents, who argued every point in the respondents' favour, did not seek to challenge the correctness of the trial judge's statement of what was required to establish a breach of s.52 where the alleged breach consists of the making of a statement of intention or opinion regarding future events. As he said in his careful written submissions, "to succeed in relation to a representation as to future events or conduct the Court must be satisfied; (a) that the opinion was not held; or (b) there was no true intention to carry out what was said to be carried out; or (c) that the representations were made with reckless indifference to their accuracy".

9. Mr de Meyrick frankly conceded that nowhere in his reasons did the learned trial judge make findings to this effect. He was unable to refer this Court to any references in the evidence upon which any such findings could have been made.

10. Had I been of the opinion that the learned trial judge's failure to make the necessary findings occurred per incurim and that the evidence would have justified the finding that the appellant did not intend to carry out the future advertising and promotion campaign or recklessly stated that it intended to do so, I would have been minded to allow the appeal and to remit the matter for further consideration to his Honour. However, nothing in the references to the evidence to which we have been taken by Mr de Meyrick persuades me that would be the proper course to take. There is simply no evidence which would have supported findings that the appellant did not intend to undertake an advertising and promotion campaign or that it was reckless in stating that it had such an intention.

11. Mr Leigh Kelly, the officer of the appellant who dealt with Mrs Floan in pre-contractual negotiations, swore an affidavit in which he recounted a conversation with Mrs Floan in which he said that the appellant proposed to produce six catalogues in 1985, not eight as alleged by Mrs Floan. He said that at the time he made this statement the appellant did plan to produce six catalogues. He was not challenged in cross-examination on this statement. Indeed, the cross-examiner put in issue only the number of catalogues which the appellant intended to produce. It was not suggested in cross-examination that the appellant did not intend to embark upon an advertising campaign.

12. Mr van Roest, an director of the appellant, said in evidence that up until 1986 the appellant relied almost exclusively upon catalogues to promote its products. The catalogues consisted of colour printed matter inserted in newspapers and in letterbox deliveries. He said the results from this type of advertising and promotion were not entirely acceptable in that the cost/benefit from the exercise was "not good". He said the Mother's Day catalogue issued in May 1985 was "very disappointing" as also were other catalogues issued in 1985. One catalogue was described by him as "a total disaster". He said that it became clear to the management of the appellant that something had to be done quickly to remedy the situation and that a decision was taken to advertise in a magazine known as "New Idea" as an alternative to distributing catalogues. The survey showed that "New Idea" was seen by some 2.5 million housewives and that the magazine was otherwise widely read. He said that "New Idea" magazine had the same target audience as Copperart's target shopper, i.e. the Australian housewife, and that in both the appellant's opinion and the opinion of its advertising agent's more of the target audience would read about the company's products through "New Idea" than through reading catalogues. He said, inter alia:
"63. Pages in "New Idea", backed up with coverage in major newspapers

together with television advertising, would, Copperart
considered, form a viable alternative to catalogues.
64. I also thought that Perth, being a single store, would benefit
more from advertisements in `New Idea' rather than catalogues.
`New Idea' would promote Copperart throughout the whole of
Western Australia, rather than promotion of the store in the
Claremont area alone by distribution of catalogues in the
suburbs around the store.
65. Further, unlike Copperart stores in other States, Mrs Floan was
the only Copperart store in the whole of Western Australia. She
should therefore have reaped all of the benefits of the
advertising in her store. I remember recalling at the time of
my own experience in operating the first Copperart store
Blackburn South in Melbourne. Even though that was only a
`strip shop' ie it was not in a shopping centre, after its first
full page advertisement in the Melbourne Sun newspaper it
achieved in one week turnover in excess of $80,000.
66. Copperart had used advertisements in `New Idea' in a small scale
in the past, partly for mail orders and partly direct
advertising. There had been noticeable increases in turnover in
stores following these small `New Idea' advertisements.
67. Copperart took a total of seven pages in `New Idea' during the
months of October, November and December 1985.
There was also some press advertisements in metropolitan
newspapers, and some television advertising in the eastern States.
68. The result of this change in advertising medium was immediate
and quite substantial. Although total Copperart sales in 1985
were slightly down on the incredible success that the company
had in 1984 sales were still very substantial. During the high
period of December most stores averaged about $60,000 for the month."

13. Mr van Roest was cross-examined on this evidence but nowhere was he cross-examined to suggest that the company did not intend to advertise in accordance with its stated intentions at the time it first made its intentions known. Indeed, it would have been futile for the cross-examiner to put any such suggestion to Mr van Roest. The every fact that the appellant did carry out a fairly extensive advertising and promotion campaign in 1985 was, in a sense, the best evidence that it intended, at an earlier point of time, to carry out that campaign.

14. It should be added that the extent and cost of the campaign was not inconsiderable. Evidence was given by Mr Maurice Tulk, an advertising executive, that his company handled the appellant's advertising account in 1985. He produced a list of advertising carried out in Western Australia during 1985. Between March and December of that year there was advertising on about ten occasions, including a full page in the "West Australian Perth Daily News", a full page in the "Subiaco Post", inserts in the "Perth Sunday Times" on three occasions and two colour pages in "New Idea" in October, four colour pages in "New Idea" in October, four colour pages in "New Idea" in November, and another colour page in the same magazine in December. Mr Tulk produced a schedule showing the cost of this advertising and, depending on how national advertising costs are allocated to Western Australia, the cost varies between $23,000 and $51,000. Mr Tulk was not cross-examined on his affidavit.

15. In my opinion, having regard to the totality of the evidence, the respondents had a virtually impossible task at the trial of showing that the appellant did not intend to carry out a proper advertising and promotion campaign at the time it stated it intended to do so. As I have observed, there was uncontradicted evidence that it intended to do so, and perhaps as importantly, there was irrefutable evidence that it did in fact carry out a substantial advertising campaign.

16. In my opinion it would not have been open to the trial judge to find on the evidence that the appellant did not intend to carry out an advertising campaign at the time it stated its intention of doing so. In these circumstances, there would be no point in returning the matter to the trial judge for a re-hearing.

17. What I have so far said necessary leads to the conclusion that the appellant was entitled to succeed at the trial. I therefore find it unnecessary to deal with the appellant's argument that the representation as to future advertising was not, in fact, fulfilled by the advertising that was carried out by the appellant.

18. The question of damages does not arise.

19. I would allow the appeal with costs.

20. The appeal is allowed. The orders made by Einfeld J are set aside and in lieu thereof there is to be judgment for the appellant. The respondents are to pay the costs of the trial and of the appeal, but are granted a certificate under the Federal Proceedings (Costs) Act 1981.

I agree.

I likewise agree.