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Federal Court of Australia |
Last Updated: 15 February 2008
FEDERAL COURT OF AUSTRALIA
Bannerhey Pty Ltd v 1800 000 000 Pty Ltd [2008] FCA 53
TRADE PRACTICES – Misleading or
deceptive conduct – representations alleged to be made in relation to sale
of master licences to use
and to licence others the use of a telephone number
and relevant know-how including ‘business systems’, ‘business
models’ and ‘business plans’ – state of knowledge of the
purchasers – reliance by purchasers on representations
found to be made -
Trade Practices Act 1974 (Cth) ss 52, 75B
Trade Practices Act 1974 (Cth) ss 52,
75B
Fair Trading Act (Vic) 1999
Fair Trading Act (Qld) 1989
Fair Trading Act (NSW) 1987
Steutel v Kimple Pty Ltd [2005] VSCA
312 cited
BANNERHEY
PTY LTD and ENGLERT NOMINEES PTY LTD v 1800 000 000 PTY LIMITED, ANTONY JACOBSON
and ANDREW JACOBSON; 1800 000 000 PTY LIMITED,
ANTONY JACOBSON and ANDREW
JACOBSON v BANNERHEY PTY LTD, TERENCE GREGORY GRETTON and JESSICA JANE
GRETTON
NSD 544 OF 2003
DAVID JOHN HORTON and PEGGY-ANN
HORTON v 1800 000 000 PTY LIMITED, ANTONY JACOBSON and ANDREW JACOBSON; 1800 000
000 PTY LIMITED,
ANTONY JACOBSON and ANDREW JACOBSON v DAVID JOHN HORTON and
PEGGY-ANN HORTON
NSD 545 OF 2003
EDMONDS J
8
FEBRUARY 2008
SYDNEY
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JUDGE:
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EDMONDS J
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DATE OF ORDER:
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8 FEBRUARY 2008
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WHERE MADE:
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SYDNEY
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THE COURT ORDERS THAT:
1. The application be dismissed.2. The applicants pay the respondents’ costs.
3. The respondents’ cross-claim be dismissed.
Note: Settlement and entry of orders is dealt with in Order 36 of the
Federal Court Rules.
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IN THE FEDERAL COURT OF AUSTRALIA
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NEW SOUTH WALES DISTRICT REGISTRY
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NSD 545 OF 2003
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BETWEEN:
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DAVID JOHN HORTON
First Applicant PEGGY-ANN HORTON Second Applicant |
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AND:
AND BETWEEN: AND: |
1800 000 000 PTY LIMITED
First Respondent ANTONY JACOBSON Second Respondent ANDREW JACOBSON Third Respondent 1800 000 000 PTY LIMITED First Cross-Claimant ANTONY JACOBSON Second Cross-Claimant ANDREW JACOBSON Third Cross-Claimant DAVID JOHN HORTON First Cross-Respondent PEGGY-ANN HORTON Second Cross-Respondent |
THE COURT ORDERS THAT:
1. The application be dismissed.
2. The applicants pay the respondents’ costs.
3. The respondents’ cross-claim be dismissed.
Note: Settlement and entry of orders is dealt with in Order 36 of the
Federal Court Rules.
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BETWEEN:
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BANNERHEY PTY LTD
First Applicant ENGLERT NOMINEES PTY LTD Second Applicant |
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AND:
AND BETWEEN: AND: |
1800 000 000 PTY LIMITED
First Respondent ANTONY JACOBSON Second Respondent ANDREW JACOBSON Third Respondent 1800 000 000 PTY LIMITED First Cross-Claimant ANTONY JACOBSON Second Cross-Claimant ANDREW JACOBSON Third Cross-Claimant BANNERHEY PTY LTD First Cross-Respondent TERENCE GREGORY GRETTON Second Cross-Respondent JESSICA JANE GRETTON Third Cross-Respondent |
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IN THE FEDERAL COURT OF AUSTRALIA
|
|
|
NEW SOUTH WALES DISTRICT REGISTRY
|
NSD 545 OF 2003
|
|
BETWEEN:
|
DAVID JOHN HORTON
First Applicant PEGGY-ANN HORTON Second Applicant |
|
AND:
AND BETWEEN: AND: |
1800 000 000 PTY LIMITED
First Respondent ANTONY JACOBSON Second Respondent ANDREW JACOBSON Third Respondent 1800 000 000 PTY LIMITED First Cross-Claimant ANTONY JACOBSON Second Cross-Claimant ANDREW JACOBSON Third Cross-Claimant DAVID JOHN HORTON First Cross-Respondent PEGGY-ANN HORTON Second Cross-Respondent |
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JUDGE:
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EDMONDS J
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DATE:
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8 FEBRUARY 2008
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PLACE:
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SYDNEY
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INDEX
1 These two proceedings were heard concurrently with evidence in one being evidence in the other. The applicants in NSD 544 of 2003, Bannerhey Pty Ltd (‘Bannerhey’) and Englert Nominees Pty Ltd (‘Englert’), are companies associated with Mr Terence Gretton, at all relevant times, a director of both companies. The applicants in NSD 545 of 2003, Mr David Horton and Mrs Peggy-Ann Horton (together ‘the Hortons’), are husband and wife. The respondents are common to both proceedings – 1800 000 000 Pty Ltd (‘1800’) being a company associated with Messrs Antony and Andrew Jacobson (together "the Jacobsons’), at all relevant times directors of 1800. I shall henceforth refer to proceeding NSD 544 of 2003 as ‘the Bannerhey matter’ and to proceeding NSD 545 of 2003 as ‘the Horton matter’.
2 The applicants in both proceedings claim damages, declaratory and other relief pursuant to the Trade Practices Act 1974 (Cth) (‘the Act’) alleging that 1800 engaged in misleading and deceptive conduct in contravention of Part V of the Act and alleging that the Jacobsons were persons involved in that contravention within the meaning of that phrase in s 75B of the Act. The conduct allegations in both proceedings are predicated upon certain representations which the respondents are alleged to have made in calling for expressions of interest in and about an exclusive right to use and to license others to use a telephone number, 1800 000 000, and domain names, 1800000000.com and 1800000000.com.au for the States of New South Wales and Queensland in conversations, during meetings and otherwise leading up to the entry by the Hortons into a Master Licence Agreement dated 1 August 2001 (‘the Horton Master Licence Agreement’) for New South Wales and by Bannerhey into a Master Licence Agreement dated 2 August 2001 (‘the Bannerhey Master Licence Agreement’) for Queensland. On the fourth day of the hearing, I gave leave to the applicants in both proceedings to file an amended statement of claim.
3 The respondents filed a cross-claim against Bannerhey and Mr and Mrs Gretton (together ‘the Grettons’) in the Bannerhey matter and a cross-claim against the Hortons in the Horton matter. At the commencement of the hearing, I gave leave to the respondents to file an amended cross-claim in both proceedings. The respondents, as cross-claimants, claim damages, an indemnity against any verdict that may be found against them, declaratory and other relief pursuant to the Act (but only in the Bannerhey matter), the Fair Trading Act (Vic) 1999, the Fair Trading Act (Qld) 1989 (but only in the Bannerhey matter) and the Fair Trading Act (NSW) 1987 (but only in the Horton matter) alleging contraventions of such statutes by Bannerhey and the Grettons in the Bannerhey matter, and by the Hortons in the Horton matter, and claiming a liability on the part of the cross-respondents to indemnify the cross-claimants, against any loss, damage or injury, costs and expenses arising from breaches by Bannerhey and the Grettons in the Bannerhey matter, and by the Hortons in the Horton matter, of any undertaking, agreement or obligation on their part or from any act or omission by Bannerhey or the Hortons, as the case may be, or any agent or employee of the cross-respondents. Towards the end of day nine of the hearing I asked counsel for the respondents/cross-claimants to identify the evidence that was going to be relied on in relation to the cross-claim but nothing was forthcoming other than what might be gleaned from [128] to [131] of the respondents’ submissions. I deal with those submissions, as well as the applicants’ submissions in reply, at [179] below.
4 These proceedings were originally set down for hearing for one week commencing 17 October 2005. By the end of day three, it was obvious that the hearing was not going to finish within the week and arrangements were initially put in place to sit on Monday and Tuesday of the following week to complete the evidence, with the parties subsequently filing written submissions in accordance with an agreed timetable. By end of day six it was obvious that the evidence was not going to be completed by the end of day seven and, unsatisfactory as it was, it became necessary to stand the proceedings over for approximately four weeks to 21 November 2005. That day became three days, 21 – 23 November 2005 inclusive, with the evidence being completed late on 23 November 2005. On that last mentioned day, a timetable for filing and serving written submissions was fixed:
(1) The applicants by 9 December 2005(2) The respondents by 23 December 2005
(3) The applicants in reply by 27 January 2006
with the parties being given, if they so wished, the opportunity to make supplementary oral submissions on a mutually convenient date early in February 2006. None of the parties was able to comply with this timetable and it was subsequently extended and further extended on at least two occasions to accommodate one or more of the parties. In the result, the applicants filed and served their written submissions on or about 23 December 2005, the respondents filed and served their written submissions on 6 April 2006 and the applicants filed their written submissions in reply on 20 June 2006. The parties were then to nominate, within fourteen days, a mutually agreeable date or dates for the hearing of supplementary oral submissions but when they had not done so by early September 2006, I listed the matter for directions on Friday, 15 September 2006. The proceedings were listed for hearing of supplementary oral submission on 5 October 2006 but then, even this date, had to be abandoned at the request of one of the parties. The supplementary oral submissions were ultimately heard on 25 October 2006 and the parties, at their request, were again given the opportunity to file any further written submissions within a timetable which again could not be complied with; ultimately the applicants filed their further written submissions on 6 November 2006 and the respondents filed their further written submissions on 14 November 2006.
RELEVANT EVENTS, COMMUNICATIONS AND MEETINGS
5 I have characterised the following events, communications and meetings as relevant by reference to the pleadings in each matter. Most occur before the conclusion of the relevant Master Licence Agreement, although some occur afterwards and are characterised as relevant by reference to the context they provide.
6 On or about 26 May 2001, 1800 placed an advertisement in the Brisbane Courier Mail (‘the Queensland advertisement’). The Queensland advertisement was headed:
‘1800 000 000QLD MASTER LICENCE OPPORTUNITY’
And read as follows:
‘1800 000 000 is much more than Australia’s best ever telephone number, it is also Australia’s most exciting business marketing and franchise system. 1800 000 000 is taking Australia by storm and revolutionising existing and new business’ corporate identities and business systems.
Consistent with its program of national expansion, 1800 000 000 is seeking to appoint an exclusive QLD Master Licensee to work closely with 1800 000 000 Directors and senior management in establishing the Franchise Services division through a network of unit licensees throughout Brisbane and Queensland.
This is a rare opportunity to play a key role in expanding what is destined to become one of Australia’s most successful franchise systems.
Initial investment requirements of circa $400,000 are expected to generate unmatched returns and business growth.’
The Queensland advertisement provided that:
‘For further information, please callMr Antony Jacobson on 1800 000 000
or visit www.1800000000.com.’
7 A couple of days after reading the advertisement, Mr Gretton phoned Mr Antony Jacobson who referred him to the 1800 website (‘the initial Bannerhey contact’).
8 A few days later, after the initial Bannerhey contact, Mr Antony Jacobson phoned Mr Gretton (‘the second Bannerhey contact’). Mr Gretton’s evidence was that he informed Mr Antony Jacobson that he had read the website and that he was interested in what he had seen.
9 On 30 May 2001, Mr Gretton faxed to Mr Antony Jacobson an application form which he had received from Mr Antony Jacobson and completed.
10 Shortly after Mr Gretton returned the completed application form – seven to ten days after the second Bannerhey contact – Mr Antony Jacobson and Mr Gretton arranged to meet in Brisbane at the Quay West Hotel. The meeting took place in early to mid June 2001 (‘the first Bannerhey meeting’).
11 Shortly after the first Bannerhey meeting, Mr Gretton received some documents from Mr Antony Jacobson including a form of Master Licence Agreement and Illustrative Cash Flow for New South Wales.
12 At the end of June, the Grettons travelled to Melbourne and met with the Jacobsons at 1800’s office at Level 14, 45 William Street, Melbourne, over two days being 26 and 27 June 2001 (‘the Bannerhey Melbourne meeting’). On the second day, the Grettons were taken by the Jacobsons to a call centre at North Carlton in Melbourne.
13 Prior to leaving Melbourne and returning to Queensland, Mr Gretton received at his Melbourne hotel a new Illustrative Cash Flow for Queensland, to take the place of the one he had previously received for New South Wales.
14 Following the Bannerhey Melbourne meeting, Mr Gretton had a number of telephone conversations and at least one email communication with Mr Antony Jacobson during July 2001 in the course of which a number of subjects were raised, including the training conference to be held at Port Douglas at the end of August; the Illustrative Cash Flow for Queensland; Mr Gretton’s premises in Brisbane; the financing of the purchase of the Queensland Master Licence and legal queries raised by Mr Gretton’s solicitor (‘the Bannerhey July communications’).
15 On 2 August 2001, the Grettons attended the Marriott Hotel in Brisbane and met with the Jacobsons when the Bannerhey Master Licence Agreement was executed by 1800 and Bannerhey, when a number of related documents were also signed by or on behalf of the respective parties thereto and when Mr Gretton handed a cheque for $220,000 to Mr Antony Jacobson (‘the Bannerhey completion meeting’).
16 On 14 August 2001, Mr Gretton received an agenda for the Port Douglas conference. On 20 August 2001, the Grettons travelled to Port Douglas where they met with the Jacobsons and their respective wives and the Hortons. Over the next four days, other than 23 August 2001, certain presentations were made and subjects discussed.
17 Some time around the middle of November 2001, before 22 November 2001, Mr Antony Jacobson travelled to Brisbane and met with the Grettons.
18 On 15 January 2002, the Grettons travelled to Melbourne where they met with the Jacobsons and the Hortons. At this meeting the subjects of designing stationery and starting up the business were discussed.
19 By letter dated 11 February 2002, 1800, through the Jacobsons, wrote to the Grettons concerning the inclusion of a National Licence Program as part of the 1800 000 000 Business Model as well as detailing the marketing materials and tools that had been prepared to aid in the roll-out of that program.
20 On 19 February 2002, the Grettons hosted a meeting at their office at 2 Windsor Road, Red Hill. The Jacobsons were present. The subject of lack of progress was discussed, in particular Mr Gretton’s concern and distress that no positive results had been achieved.
21 On 19 March 2002, the Grettons travelled to Sydney to meet with the Hortons and the Jacobsons.
22 In May 2002, Mr Gretton travelled to Melbourne to meet with the Jacobsons.
23 On 24 January 2003, the Grettons gave instructions to lawyers on behalf of Bannerhey to write to 1800 and terminate the Queensland Master Licence Agreement.
24 On or about 29 May 2001, Mr Horton saw an advertisement in the Australian Financial Review (‘the NSW advertisement’) in identical terms to the Queensland advertisement save that the heading read ‘NSW and QLD MASTER LICENCE OPPORTUNITIES’ instead of ‘QLD MASTER LICENCE OPPORTUNITY’ and the body of the advertisement contained the words ‘... is seeking to appoint exclusive NSW and Qld Master Licensees ...’ rather than ‘... is seeking to appoint an exclusive Qld Master Licensee ...’.
25 Mr Horton phoned the telephone number and left a message. Shortly afterwards, he received a call from Mr Antony Jacobson (‘the initial Horton contact’). Mr Horton told Mr Antony Jacobson that he was interested to learn more about the business. Mr Antony Jacobson said that he was coming to Sydney on 1 June 2001 and that he could meet with Mr Horton and tell him more. Mr Antony Jacobson faxed a non-disclosure agreement and an application form to Mr Horton which he completed and signed on or about 31 May 2001 and faxed to Mr Antony Jacobson.
26 On 1 June 2001, Mr Horton met with Mr Antony Jacobson at the Regent Hotel in Sydney. The meeting lasted about 50 minutes (‘the first Horton meeting’). Mr Horton made some brief notes during the course of the meeting.
27 During the first week of June 2001 there were exchanges of emails and faxes between Mr Horton and Mr Antony Jacobson. On or about 7 June 2001, Mr Horton received the following documents from 1800 in the mail:
(1) a proposed Master Licence Agreement;(2) a Disclosure Document together with extracts from the Franchising Code of Conduct; and
(3) a Franchise Services Business Plan including a document entitled Franchise Division – Illustrative Cash Flow Model (NSW).
28 On 12 June 2001, Mr Horton travelled to Melbourne and met with the Jacobsons at the offices of 1800 (‘the first Horton Melbourne meeting’).
29 On or about 19 June 2001, Mr Horton received a letter from 1800 enclosing:
(1) a Master Licence Agreement;(2) a draft Unit Licence Agreement; and
(3) enlarged copies of the terms of the draft Unit Licence Agreement.
30 Between 25 June and 3 July 2001, Mr Horton had email and mail communications with Mr Antony Jacobson as well as telephone conversations.
31 On 3 July 2001, Mr Horton met with his accountant, Mr Brian Mayeh.
32 On 4 July 2001, Mr Horton travelled to Melbourne and met with the Jacobsons at 1800’s offices (‘the second Horton Melbourne meeting’). The meeting continued into the next day. Mr Horton took to the meeting notes of matters which he wished to discuss with the Jacobsons. On the second day Mr Horton was taken to a call centre.
33 On 10 July 2001, Mr Horton again travelled to Melbourne, this time with his wife, and met with the Jacobsons (‘the third Horton Melbourne meeting’).
34 Between 11 and 31 July 2001 there were telephone conversations and email and mail communications between Mr Horton and the Jacobsons.
35 On 1 August 2001, Mr Horton attended a meeting with the Jacobsons at the Regent Hotel in Sydney (‘the Horton completion meeting’). The Horton Master Licence Agreement was signed and he took the document home for signing by his wife. Mr Horton handed a cheque for $440,000 to the Jacobsons. On the same day Mr Horton inspected three prospective offices in Sydney with the Jacobsons.
36 On 14 August 2001, the Hortons located office premises in Jones Bay, Pyrmont.
37 On the same day, Mr Horton received an agenda for the Port Douglas conference. On 20 August 2001, the Hortons travelled to Port Douglas where they met with the Jacobsons and their respective wives and the Grettons. Over the next four days, other than 23 August 2001, certain presentations were made and subjects discussed.
38 During the period from September to December 2001 there were numerous email communications between Mr Horton and Mr Antony Jacobson.
39 On 17 October 2001, the Hortons met with Mr Andrew Jacobson when he was in Sydney.
40 On or about 28 November 2001, the Hortons met with the Jacobsons at 1800’s office in Melbourne (‘the fourth Horton Melbourne meeting’). Mr Horton conceded that at this meeting Mr Andrew Jacobson offered to return the money Mr Horton had paid in exchange for cancelling the master licence but Mr Horton declined to take up the offer. In re-examination he said that he declined because he did not take it to be a serious offer.
41 On 15 January 2002, the Hortons travelled to Melbourne where they met with the Jacobsons and the Grettons. As this meeting the subject of designing stationery and starting up the business were discussed.
42 By letter dated 11 February 2002, 1800, through the Jacobsons, wrote to the Hortons concerning the inclusion of a National Licence Program as part of the 1800 000 000 Business Model as well as detailing the marketing materials and tools that had been prepared to aid in the roll-out of that program.
43 On 19 February 2002, the Hortons, together with the Grettons, met with the Jacobsons in the Grettons’ office in Brisbane.
44 On 19 March 2002, the Hortons met with the Grettons and the Jacobsons in Sydney.
45 In April 2002, there were numerous email and telephone communications between Mr Horton and Mr Antony Jacobson.
46 On 2 May 2002, Mr Horton’s solicitors sent a letter to 1800 and over the next few months there were a number of communications between the solicitors for both parties.
47 On 24 January 2003, Mr Horton’s solicitors wrote to 1800 confirming that the Hortons had treated the Horton Master Licence Agreement as terminated since July 2002.
48 In their amended statement of claim the applicants identified five representations ([7], [9], [10] [12] and [13]) which they pleaded Bannerhey relied upon ([14]) in entering into the Bannerhey Master Licence Agreement and granting Englert a sub-licence. They pleaded ([26]) that at no time did 1800 have or make available to Bannerhey a business system or method which was capable of exploiting the telephone number 1800 000 000 or the domain names allocated with it in the manner represented in [7], [9], [10], [12] and [13] and that each of the representations made in these paragraphs constituted conduct that was misleading or deceptive or likely to mislead or deceive ([35]).
The Unique Business System Representation: [7]
49 On and after May 2001, 1800 was or claimed to be the owner of a unique business system and methods comprising confidential information, trade secrets, and know how throughout Australia involving an exclusive right to use and to licence others to use a telephone number 1800 000 000 and domain names 1800 000 000.com and 1800 000 000.com.au together with goodwill attaching to those rights (the ‘Master Licence Business’).
PARTICULARS
The claim by 1800 was made during meetings and conversations referred to in paragraphs 9, 10, 12 and 13 of the Amended Statement of Claim. The claim was also set out in Recital ‘A’ of the Master Licence Agreement (refer to Answers to Particulars provided by the Applicants in a letter dated 16 July 2003). The claim was also made in 1800’s website.
50 In June 2001 Mr Antony Jacobson, on behalf of 1800, at the Quay West Hotel in Brisbane, represented to Mr Gretton on behalf of Bannerhey that:
(a) the 1800 000 000 number was fast becoming the most called number in Australia;(b) a comprehensive business system and model had been developed by 1800 for Australia and Queensland;
(c) the area of Brisbane had been divided into 10 distinct territories;
(d) the Applicant would have its investment back within the first few months of operating the Master Licence Business; and
(e) each State would be licensed to a master franchisee with the exception of Victoria and possibly Tasmania which would be company operated.
PARTICULARS
The June Representations were made orally by Mr Antony Jacobson at the said meeting.
The 26 June Representations: [10]
51 On 26 June 2001 the Jacobsons, on behalf of 1800, at the 1800’s offices at Level 14, 45 William Street, Melbourne, represented to Mr Gretton on behalf of Bannerhey that:
(a) 1800 had developed the business system and plan over the previous 2 years which was ready to launch the Master Licence Business;(b) the Master Licensee would have very high returns from large corporations with little risk as a result of the value of the 1800 000 000 number;
(c) extensive market research had been conducted by 1800 over the previous two years which showed a good market for the 1800 number;
(d) the Jacobsons had very good contacts in the corporate world and Bannerhey would be easily able to secure corporate customers, in particular Mitre 10, once the Master Licence Business was launched; and
(e) the 1800 business model and method would be revealed at the training conference to be held at Port Douglas.
PARTICULARS
The 26 June
Representations were made orally by the Jacobsons at the said meeting. The
representation at (b) was also made in writing
by Mr Antony Jacobson by way of a
document entitled ‘Queensland Illustrative Cash Flow’ provided to Mr
Gretton at the
said meeting.
The June/July representations: [12]
52 Between 26 June 2001 and 1 August 2001 the Jacobsons, on behalf of 1800, represented to Mr Gretton on behalf of Bannerhey that:
(a) they had developed a system, based upon overseas market research and statistical information, for the promotion and development of the 1800 000 000 number in Australia;(b) the system referred to in (a) above and the supporting material consisting of overseas market research and statistical information would be revealed at the training to be given to successful applicants who had contracted to become a master licensee;
(c) Bannerhey would recoup its money within a few months of operating the Master Licence Business;
(d) the Master License Business would definitely generate the income in the Revised Queensland Illustrative Cash Flow;
(e) all the protocols had been developed for the call centre and that the necessary software needed in the call centre had been sourced; and
(f) comprehensive training and support would be provided to educate Bannerhey in relation to 1800’s protocols and system’s and to enable them to launch, develop and operate the. Master Licence Business.
PARTICULARS
The June/July Representations were made orally by the Jacobsons by way of telephone communications.
The 2 August Representations: [13]
53 On or about 2 August 2001 at the Marriott Hotel in Brisbane the Jacobsons, on behalf of 1800, represented to the Grettons on behalf of Bannerhey that:
(a) training in the business model would be provided in Port Douglas at the end of August;(b) everything was organised for Bannerhey’s launch of the Master Licence Business;
(c) all the material and information required to commence the Master Licence Business including market research, statistical information, modelling, advertising proposals and overseas data would be revealed at the training conference in Port Douglas;
(d) the training in Port Douglas and the material to be provided at the course would enable Bannerhey to commence operation of the Master Licence Business within a few weeks of the training conference; and
(e) Englert should not continue to work with Ricoh in Brisbane as everything was organised to operate the Master Licence Business and it would only be a couple of weeks until Bannerhey would commence operating the Business.
PARTICULARS
The 2 August Representations were made orally by the Jacobsons at the said meeting.
54 The applicants pleaded ([26], [30A] and [31] – [34]) that:
(1) The Unique Business Systems Representation was misleading or deceptive or likely to mislead or deceive. At no time did 1800 have or make available to Bannerhey a business system or method which was capable of exploiting the telephone number 1800 000 000 or the domain names associated with it in the manner represented in paragraphs 7, 9, 10, 12 and 13.(2) The June Representations were misleading or deceptive or likely to mislead or deceive in that:
(a) the 1800 000 000 number was not fast becoming the most called number in Australia;(b) a comprehensive business system and model had not been developed by 1800 for Australia and Queensland;
(c) the area of Brisbane had not been divided into 10 distinct territories;
(d) Bannerhey did not have its investment back within the first few months of operating the Master Licence Business; and
(e) the only other State licensed is New South Wales and there are no states being company operated.
(3) The 26 June Representations were misleading or deceptive or likely to mislead or deceive in that:
(a) 1800 had not developed a business system and plan over the previous 2 years which was ready to launch the Master Licence Business;(b) the Master Licensee did not have very high returns from large corporations with little risk as a result of the value of the 1800 000 000 number;
(c) extensive market research had not been conducted by 1800 over the previous two years which showed a good market for the for the 1800 number;
(d) the Jacobsons did not have very good contacts in the corporate world and Bannerhey was not able to secure any corporate customers, in particular Mitre 10, once the Master Licence Business was launched; and
(e) the 1800 business model and method was not revealed at the training conference held at the Port Douglas Conference.
(4) The June/July Representations were misleading or deceptive or likely to mislead or deceive in that:
(a) a system based upon overseas market research and statistical information had not been developed for the promotion and development of the 1800 000 000 number in Australia.;(b) the system for the promotion and development of the 1800 000 000 number in Australia and the supporting material consisting of overseas market research and statistical information were not revealed at the training at the Port Douglas Conference;
(c) ample material consisting of market research, statistical information, modelling, advertising proposals and overseas data was not revealed at the training to be given to successful applicants who had contracted to become a master licensee;
(d) Bannerhey did not recoup its money invested within a few months of operating the Master Licence Business;
(e) the Master Licence Business did not generate the income in the Revised Queensland Illustrative Cash Flow;
(f) all the protocols had not been developed for the call centre and the necessary software needed in the call centre had not been sourced; and
(g) comprehensive training and support was not provided to educate Bannerhey in relation to 1800’s protocols and systems and to enable them to launch, develop and operate the Master Licence Business.
(5) The 2 August Representations were misleading or deceptive or likely to mislead or deceive in that:
(a) training in the business model was not provided in Port Douglas at the end of August 2002;(b) everything was not organised for Bannerhey’s launch of the Master Licence Business;
(c) all the material and information required to commence the Master Licence Business including market research, statistical information, modelling, advertising proposals and overseas data was not revealed at the training conference in Port Douglas; and
(d) the training in Port Douglas and the material to be provided at the course did not enable Bannerhey to commence operation of the Master Licence Business within a few weeks of the training conference; and
(e) 1800 was not organised to start operating the Master Licence Business after two weeks.
55 Bannerhey further pleaded ([36]) that the representations in [7], [9(d) and (e)], [10(b) and (e)], [12(b), (c), (d) and (f)] and [13(a), (c) and (d)] were representations as to a future matter and 1800 did not have reasonable grounds for making such representations.
56 In their defence the respondents:
(1) Effectively admitted the Unique Business System Representation.(2) As to the June Representations, said that a meeting of Mr Antony Jacobson and Mr Gretton took place in Brisbane on 3 June 2001, said that Mr Antony Jacobson was at all material times acting as a director or agent of 1800, and in relation to the alleged representations:
(a) Denied the representation alleged.(b) Said that 1800 represented to Mr Gretton that a business system and model had been developed for use by 1800, but save as aforesaid denied the representation alleged.
(c) Said that 1800 represented to Mr Gretton that it was intended to divide Queensland into at least 10 sub-territories based on the size and spread of the population of Queensland, but save as aforesaid denied the representation alleged.
(d) Denied the representation alleged.
(e) Said that 1800 represented to Mr Gretton that it was the intention of 1800 to retain at least Victoria and Tasmania to be operated by 1800 but save as aforesaid denied the representation alleged.
(3) As to the 26 June Representations, admitted that a meeting of the Jacobsons with the Grettons took place in Melbourne on 26 June 2001, said that the Jacobsons were at all material times acting as directors or agents of 1800, and in relation to the alleged representations:
(a) Admitted that 1800 represented that a business system and plan had been developed since 1999 but save as aforesaid denied the representation alleged in (a).(b) Denied the representation alleged.
(c) Denied the representation alleged.(d) Denied the representation alleged.
(e) Said that 1800 represented to Mr Gretton that 1800 planned to provide initial training to State Master Licensees to further explain to the Licensees and to discuss and consult with the Licensees as to the operation of the 1800 Business in accordance with the 1800 Business Model but save as aforesaid denied the representation alleged in (e).
PARTICULARSThe Franchise Services Business Plan including the Queensland Illustrative Cashflow was in writing and was forwarded by 1800 to Mr Gretton in mid June 2001. The Disclosure Document for Franchise or Prospective Franchise was in writing and was forwarded by 1800 to Mr Gretton in mid June 2001.
(4) As to the June/July Representations, admitted that a number of communications occurred between the Jacobsons and other servants or agents of 1800, and Mr Gretton and servants or agents of Mr Gretton and Bannerhey including accountants and legal advisors acting for the Grettons and Bannerhey, during June and July 2001 and said that the Jacobsons were at all material times acting as directors or agents of 1800, and in relation to the alleged representations:
(a) Said that 1800 represented that a system had been developed for the promotion and development of the 1800 000 000 number in Australia but save as aforesaid denied the representation alleged.(b) Denied the representation alleged.
(c) Denied the representation alleged.
(d) Denied the representation alleged.
(e) Denied the representation alleged.
(f) Said that 1800 represented that 1800 planned to provide initial training and ongoing support to State Master Licensees to further explain to the Licensees and to discuss and consult with the Licensees as to the operation of the 1800 Business in accordance with the 1800 Business Model but save as aforesaid did not admit the representations alleged in (f).
PARTICULARSBannerhey and the Grettons were represented by solicitors and accountants in Queensland. Amendments were made to the Agreement on a number of occasions at the request of Bannerhey, and Mr Gretton and at the request of solicitors acting on their behalf Messrs. Cranston McEachern and also at the request of accountants acting on their behalf, prior to it being executed.
(5) As to the 2 August Representations, admitted that a meeting took place with the Jacobsons and the Grettons in Brisbane on 2 August 2001, said that the Jacobsons were at all material times acting as directors or agents of 1800, and in relation to the alleged representations:
(a) Said that 1800 represented to Bannerhey that 1800 planned to provide initial training to State Master Licensees in August 2001, to further explain to the Licensees and to discuss and consult with the Licensees as to the operation of the 1800 Business in accordance with the 1800 Business Model, but save as aforesaid did not admit the representation alleged in (a).(b) Denied the representation alleged.
(c) Denied the representation alleged.
(d) Denied the representation alleged.
(e) Admitted that after the Agreement was executed, Mr Andrew Jacobson when asked by Mr Gretton whether he should give notice to Ricoh then, said that it might be a breach of Mr Gretton’s duties to his employer if he were to attend Port Douglas or to commence operating the 1800 000 000 Business in Queensland while he was in full time employment and that he may be required under his contract with Ricoh to give four weeks notice and that this may require Port Douglas to be postponed to which Mr Gretton replied that less notice would be sufficient. Mr Gretton also represented on occasions that he was very unhappy with employment at Ricoh. Save as aforesaid the respondents did not admit the representation alleged in (e).
PARTICULARSThe matters in (a) and (e) were oral.
(6) Denied the June Representations, the 26 June Representations, the June/July Representations and the 2 August Representations were misleading or deceptive or likely to mislead or deceive in the ways respectively referred to in [31] – [34], inclusive of the amended statement of claim.
57 In response to the applicants pleading at [14] of the amended statement of claim that Bannerhey relied upon the five identified representations in entering into the Bannerhey Master Licence Agreement and granting Englert a sub-licence, the respondents admitted that Bannerhey entered into the Bannerhey Master Licence Agreement with 1800 on 2 August 2001 and that the Grettons guaranteed the obligations of Bannerhey but otherwise denied the facts alleged in [14] of the amended statement of claim.
58 In response to the applicants’ pleading at [26] of the amended statement of claim that at no time did 1800 have or make available to Bannerhey a business system or method which was capable of exploiting the telephone number 1800 000 000 or the domain name associated with it in the manner represented in [7], [9], [10], [12] and [13], the respondents denied these allegations.
59 In response to the applicants’ pleading at [35] that each of these representations made in these paragraphs constituted conduct that was misleading or deceptive or likely to mislead or deceive, the respondents denied these allegations.
60 In response to the applicants’ pleading at [36] that the representations in [7], [9(d) and (e)], [10(b) and (e)], [12(b), (c), (d) and (f)] and [13(a), (c) and (d)] were representations as to a future matter and 1800 did not have reasonable grounds for making such representations, the respondents denied these allegations.
61 In their amended statement of claim the applicants identified five representations ([4], [6], [7] [8] and [9]) which they pleaded they relied upon ([10]) in entering into the Horton Master Licence Agreement. They pleaded ([19]) that at no time did 1800 have or make available to them a business system or method which was capable of exploiting the telephone number 1800 000 000 or the domain names allocated with it in the manner represented in [4], [6], [7], [8] and [9] and that each of the representations made in these paragraphs constituted conduct that was misleading or deceptive or likely to mislead or deceive ([27]).
The Unique Business System Representation: [4]
62 On and after May 2001, 1800 was or claimed to be the owner of a unique
business system and methods comprising confidential information,
trade secrets,
and know how throughout Australia involving an exclusive right to use and to
licence others to use a telephone number
1800 000 000 and domain names 1800 000
000.com and 1800 000 000.com.au together with goodwill attaching to those rights
(the ‘Master
Licence Business’).
PARTICULARS
The claim by 1800 was made during meetings and conversations referred to in paragraphs 6, 7, 8 and 9 of the Amended Statement of Claim. The claim was also set out in Recital ‘A’ of the Master Licence Agreement (refer to Answers to Particulars provided by the Applicants in a letter dated 16 July 2003). The claim was also made in 1800’s website.
The 1 June Representations: [6]
63 On 2 June 2001 Mr Antony Jacobson, on behalf of 1800, at the Regent Hotel in Sydney, represented to Mr Horton on behalf of both Applicants that:
(a) a full business system and model had been developed by 1800 for Australia and NSW;(b) NSW had been divided into 15 distinct territories;
(c) already as a result of the advertisements in the Sydney Morning Herald and Financial Review there were already persons interested in taking unit licences in NSW; and
(d) each State would be licensed to a master franchisee with the exception of Victoria and possibly Tasmania which would be company operated.
PARTICULARS
The 1 June Representations were made
orally by Mr Antony Jacobson.
The 12 June Representations: [7]
64 On 12 June 2001 the Jacobsons, on behalf of 1800, at 1800’s offices at Level 14, 45 William Street, Melbourne, represented to Mr Horton on behalf of the applicants that:
(a) 1800 had developed the business system and plan over the previous 2 years which was ready to launch the Master Licence Business;(b) the Master Licensee would have very high returns from large corporations with little risk as a result of the value of the 1800 000 000 number; and
(c) Mr Antony Jacobson had many contacts that would sign up immediately once the Master Licence Business was launched.
PARTICULARS
The 12 June Representations were made orally by the Jacobsons. The representation in (b) was also made in writing and was contained in a document entitled, Franchise Service Business Plan, including an Illustrative Cash Flow Model (NSW) (see Exhibit DJH 6 to the Affidavit of David Horton dated 9 June 2004).
The 4 July representations: [8]
65 On or about 4 July 2001 in Melbourne the Jacobsons, on behalf of 1800, represented to Mr Horton on behalf of the applicants that:
(a) there existed ample material consisting of market research, statistical information, modelling, advertising proposals and overseas data to support the statements made in a document entitled ‘1800 Marketing Plan’, part of which in photocopy format was provided to Mr Horton for his inspection on 4 July 2001;(b) material consisting of market research, statistical information, modelling, advertising proposals and overseas data to support the statements made in a document entitled ‘Marketing Plan’, would be revealed at the training to be given to successful applicants who had contracted to become a master licensee;
(c) the Master Licence for NSW was cheap and that a buyer would recoup their money within 6 months but more likely 4 months;
(d) an offer had been made in the millions to buy the 1800 number and that the licences could be sold for a lot more than shown in the business plan;
(e) all the protocols had been developed for the call centre and that the necessary software needed in the call centre had been sourced;
(f) comprehensive training and support would be provided to educate the applicants in relation to 1800’s protocols and systems and to enable them to launch, develop and operate the Master Licence Business; and
(g) that the applicants would be provided with the material referred to in (a) and (b) during their initial training.
PARTICULARS
The 4 July Representations were made orally by the Jacobsons.
The 10 July Representations: [9]
66 On or about 10 July 2001 in Melbourne the Jacobsons, on behalf of 1800, represented to the applicants that:
(a) the Queensland Licensee had already paid $350,000.00 for the Master Licence Business for Queensland;(b) the Queensland Licensee paid the full price in one instalment;
and Mr Antony Jacobson, on behalf of 1800, represented to the applicants that:
(c) the 1800 business model was proven; and(d) the licence fee would be returned in the revenue received within three months of signing an agreement to become a Master Licensee for New South Wales.
PARTICULARS
The 10 July Representations were made orally by the Jacobsons.
67 The applicants pleaded ([23] – [26]) that:
(1) The 1 June Representations were misleading or deceptive or likely to mislead or deceive in that:
(a) a full business system and model had not been developed by 1800 for Australia and NSW;(b) NSW had not been divided into 15 distinct territories;
(c) there were not any persons interested in taking unit licences in NSW; and
(d) the only other state licensed to a master franchisee is Queensland and there are no states being company operated.
(2) The 12 June Representations were misleading or deceptive or likely to mislead or deceive in that:
(a) 1800 had not developed a business system and plan which was ready to launch the Master Licence Business;(b) the applicants did not have very high return from large corporations with little risk as a result of the value of the 1800 000 000 number; and
(c) Mr Antony Jacobson did not have many or did not make available contacts that were in a position to sign up immediately once the Master Licence Business was launched.
(3) The 4 July Representations were misleading or deceptive or likely to mislead or deceive in that:
(a) there was not ample material consisting of market research, statistical information, modelling, advertising proposals and overseas data to support the statements made in a document entitled ‘1800 Marketing Plan’;(b) material consisting of market research, statistical information, modelling, advertising proposals and overseas data to support the statements made in a document entitled ‘Marketing Plan’, was not revealed at the training;
(c) the Master Licence for NSW was not cheap and the Applicants did not recoup their money within 4 or 6 months;
(d) no offer had been made to buy the 1800 number in the millions and the licences could not be sold for a lot more than shown on the business plan;
(e) all the protocols had not been developed for the call centre and the necessary software needed in the call centre had not been sourced;
(f) comprehensive training and support was not provided which educated the applicants in relation to 1800’s protocols and systems and which enabled them to launch, develop and operate the Master Licence Business.
(4) The 10 July Representations were misleading or deceptive or likely to mislead or deceive in that:
(a) the Queensland Licensee had contracted to pay $350,000.00 for the Master License for Queensland and had only paid $200,000.00; and(b) the Queensland Licensee was paying in instalments;
(c) the model was not proven;
(d) the licence fee was not returned in revenue within three months of signing the Master Licence Agreement.
68 The applicants further pleaded ([28]) that the representations in [4], [6(d)], [7(b)] and (c)], [8(d), (f) and (g)] and [9(d)] were representations as to a future matter and 1800 did not have reasonable grounds for making such representations.
69 In their defence the respondents:
(1) Effectively admitted the Unique Business System Representation(2) As to the 1 June Representations, said that a meeting of Mr Antony Jacobson and Mr Horton took place in Sydney on 1 June 2001, said that Mr Antony Jacobson was at all material times acting as a director or agent of 1800, and in relation to the alleged representations:
(a) Said that 1800 represented to Mr Horton that a business system and model had been developed for use by 1800, but save as aforesaid denied the representation alleged.(b) Said that 1800 represented to Mr Horton that it was intended to divide New South Wales into at least 15 sub-territories based on the size and spread of the population of New South Wales, but save as aforesaid denied the representation alleged.
(c) Denied the representation alleged.
(d) Said that 1800 represented to Mr Horton that it was the intention of 1800 to retain at least Victoria and Tasmania to be operated by 1800 but save as aforesaid denied the representation alleged.
(3) As to the 12 June Representations, admitted that a meeting of the Jacobsons with Mr Horton took place in Melbourne on 12 June 2001, said that the Jacobsons were at all material times acting as directors or agents of 1800, and in relation to the alleged representations:
(a) Admitted that 1800 represented that a business system and plan had been developed since 1999 but save as aforesaid denied the representation alleged in (a).(b) Denied the representation alleged.
(c) Denied the representation alleged.
PARTICULARSThe Franchise Services Business Plan including the New South Wales Illustrative Cashflow was in writing and was forwarded by 1800 to Mr Horton in mid June 2001. The Disclosure Document for Franchise or Prospective Franchise was in writing and was forwarded by 1800 to Mr Horton in mid June 2001.
(4) As to the 4 July Representations, admitted that a meeting of the Jacobsons with Mr Horton took place in Melbourne on 4 July 2001, say that the Jacobsons were at all material times acting as directors or agents of 1800, and in relation to the alleged representations:
(a) Denied the representation alleged.(b) Denied the representation alleged.
(c) Denied the representation alleged.
(d) Denied the representation alleged.
(e) Denied the representation alleged.
(f) Said that 1800 represented that 1800 planned to provide initial training and ongoing support to State Master Licensees to further explain to the Licensees and to discuss and consult with the Licensees as to the operation of the 1800 Business in accordance with the 1800 Business Model but save as aforesaid did not admit the representations alleged in (f).
(g) Denied the representation alleged.
(5) As to the 10 July Representations, admitted that a meeting of the Jacobsons with the Applicants took place in Melbourne on 10 July 2001, said that the Jacobsons were at all material times acting as directors or agents of 1800, and in relation to the alleged representations:(a) Denied the representation alleged.
(b) Denied the representation alleged.
(c) Denied the representation alleged.
(d) Denied the representation alleged.
(6) Denied the 1 June Representations, the 12 June Representations, the 4 July Representations and the 10 July Representations were misleading or deceptive or likely to mislead or deceive in the ways respectively referred to in [23] – [26], inclusive, of the amended statement of claim.
70 In response to the applicants pleading at [10] of the amended statement of claim that the applicants relied upon the five identified representations in entering into the Horton Master Licence Agreement, the respondents admitted that the applicants entered into the Horton Master Licence Agreement with 1800 on 1 August 2001 but otherwise denied the facts alleged in [10] of the amended statement of claim.
71 In response to the applicants’ pleading at [19] of the amended statement of claim that at no time did 1800 have or make available to the applicants a business system or method which was capable of exploiting the telephone number 1800 000 000 or the domain name associated with it in the manner represented in [4], [6], [7], [8] and [9], the respondents denied these allegations.
72 In response to the applicants’ pleading at [27] that each of these representations made in these paragraphs constituted conduct that was misleading or deceptive or likely to mislead or deceive, the respondents denied these allegations.
73 In response to the applicants’ pleading at [28] that the representations in [4], [6(d)], [7(b) and (c)], [8(d), (f) and (g)] and [9(d)] were representations as to a future matter and 1800 did not have reasonable grounds for making such representations, the respondents denied these allegations.
74 Nearly all of the pleaded representations alleged to have been made by the respondents in both proceedings were said to have been made orally over a period approaching three months. There were a few exceptions. In both proceedings, the ‘Unique Business System Representation’ was said to have been made in physical form – on 1800’s website and in Recital A of the respective Master Licence Agreements – as well as orally during the meetings and conversations identified in the respective amended statements of claim; and the representation that ‘the Master Licensee would have very high returns from large corporations with little risk as a result of the value of the 1800 000 000 number’ was in both proceedings, alleged to have been made in a document entitled ‘Illustrative Cash Flow Model (Qld)’ provided to the Grettons (as well as having been made orally at the Bannerhey Melbourne meeting) in the case of the Bannerhey matter and in a document entitled ‘Illustrative Cash Flow Model (NSW)’ provided to the Hortons (as well as having been made orally at the first Horton Melbourne meeting) in the case of the Horton matter.
75 In both proceedings, the Unique Business System Representation was effectively admitted but in the case of all other alleged representations, the vast majority were totally denied. There is thus a preliminary issue as to whether the representations were made and because they are, in nearly every case, said to have been made orally, this inevitably raises issues of credit.
76 At the commencement of the hearing I directed that all evidence in chief of what was said by the Grettons on the one hand and the Jacobsons on the other up to and including the Bannerhey completion meeting on 2 August 2001 and all evidence of what was said by the Hortons on the one hand and the Jacobsons on the other up to and including the Horton completion meeting on 1 August 2001 should be adduced orally. Counsel for Bannerhey indicated some surprise at this, however, I had, at an earlier directions hearing, indicated that was what I proposed to do.
77 Moreover, in the interests of efficiency in cross-examination of witnesses called on behalf of the applicants, all parties agreed that in the Bannerhey matter, as between the Grettons, Mr Gretton was the principal negotiator/decision-maker and that in the Horton matter, as between the Hortons, Mr Horton was the principal negotiator/decision-maker.
78 The principal witness called on behalf of Bannerhey was Mr Gretton. Mr Gretton swore four affidavits:
(1) Affidavit sworn 9 June 2004 – Ex. 1(2) Affidavit sworn 11 March 2005 – Ex. 3
(3) Affidavit sworn 7 June 2005 – Ex. 4
(4) Affidavit sworn 19 October 2005 – Ex. 9
79 I was not impressed with Mr Gretton as a witness. In his evidence in chief, his recall of what he said to the Jacobsons and what each of them said to him at the meetings and telephone conversations they had prior to the signing of the Bannerhey Master Licence Agreement was extremely poor; indeed, in some cases, it was non-existent. He even had difficulty in recalling the subjects discussed during some of the meetings. Moreover, as indicated at [84] below, there is one aspect of his evidence in chief I cannot accept.
80 His evidence in cross-examination was not much better although he was able to deny or confirm that certain things were said to him or by him during the course of these meetings and telephone conversations. On the other hand, I formed the impression that some of his responses were evasive in the sense of concealing more than they disclosed. This was particularly so when he was cross-examined on subjects where an unqualified or forthright response may not have been in his interests.
81 The alleged lack or absence of a business system or model which Bannerhey could work with in promoting sales of sub-licences seemed to permeate the totality of Mr Gretton’s evidence and was at the forefront of his complaint that Bannerhey had been misled in representations made by the Jacobsons on behalf of 1800. I found this whole concept of a business system or model to be elusive. It was never explored with Mr Gretton in chief with the consequence that it was not possible to draw any conclusion as to, or articulate, what exactly it was that was represented to be forthcoming but was not. At one level it was nothing more than the ideas and concepts that the Jacobsons had in mind as to how the telephone number 1800 000 000 might best be promoted and marketed to maximise returns. At this first level, the system or model not only existed, but its structure and content were largely conveyed to Bannerhey via Mr Gretton prior to the signing of the Bannerhey Master Licence Agreement. At another level, it was the manifestation of those ideas and concepts in a material form which could be utilised as promotional and marketing tools – to assist State licensees, such as Bannerhey, in their selling enterprises. At this second level, they did not exist at the time of the signing of the Bannerhey Master Licence Agreement although they did by early 2002. The elusive nature or character of the system or model stemmed from the impression drawn from Mr Gretton’s evidence that a system was represented to exist, but was not forthcoming, at a higher level, although this higher level was never articulated. I deal with these different levels below.
82 At the first Bannerhey meeting, Mr Gretton’s evidence was that in response to his question to have the system explained to him, Mr Antony Jacobson said that the intention was to divide Queensland into a number of different areas, within the Brisbane metropolitan area on the one hand and the rest of Queensland on the other, with sub-licences being sold to both big and small businesses in each area. This was the system, or part of it, at the first level.
83 At the Bannerhey Melbourne meeting, Mr Gretton’s evidence was that he could only recall one subject being raised by him on the morning of the first day, namely, his requests for an explanation of the system all of which he said were met with the response that all would be revealed once the agreements have been signed. This was despite the fact that the meeting on the morning of the first day was over a period of three hours. He could recall that, in response to a question his wife raised over lunch, it was explained that the software for the system was not finished; but he could not recall anything that was discussed after lunch. While he met again with Mr Antony Jacobson on the second day after visiting a call centre at North Carlton, the only subject he could recall discussing with Mr Antony Jacobson was the cost of calls coming in from around Australia.
84 Mr Gretton could recall a number of the subjects that were discussed during several telephone conversations that took place as part of the Bannerhey July communications but had little or no recall of the actual conversations. The subjects included the system, the Port Douglas training conference, the illustrative cash flow for Queensland and the premises in Brisbane. In relation to the illustrative cash flow for Queensland, I asked Mr Gretton whether he had asked Mr Antony Jacobson any questions. His evidence was that he had asked whether the figures in the cash flow were realistic and that Mr Antony Jacobson had told him that they were. He further said that he believed him. When I asked him whether his belief was based on the face value of the cash flow document, he answered in the affirmative. In the light of Mr Gretton’s evidence in cross-examination, I cannot accept his evidence on this point.
85 Mr Gretton could not recall much of what occurred at the Bannerhey completion meeting other than that he again raised the question of whether the system was ready to go, to which he said Mr Andrew Jacobson answered in the affirmative and that the Jacobsons insisted that he should leave Ricoh immediately as the system was virtually ready to roll out. In context, I take this to mean the system at the second level.
86 Mr Gretton was cross-examined at some length as to his knowledge of the existence of 1800’s business, if any, both prior to and at the time Bannerhey entered into the Bannerhey Master Licence Agreement. He confirmed that he knew that the business of 1800 he was considering purchasing was untried and untested in the marketplace; and that 1800 had not sold the concept at all in Australia or indeed anywhere else in the world. He qualified in a variety of ways his responses to questions seeking admissions that he knew that the 1800 business was not yet up and running, that it was a start-up business, that Bannerhey was getting involved in a speculative business venture and at the entry level of establishing a new business, but the thrust of his evidence despite the qualifications was that he knew these things prior to Bannerhey entering into the Bannerhey Master Licence Agreement. This was confirmed when in response to a question I put to him he said that he understood that there was no business, as opposed to Bannerhey buying a business as a going concern:
‘I thought I was buying a system ... that was already in place. Lots of contacts to be contacted. Lots of people to sell to, and all I had to do was provide my sales expertise because everything was ready and running to go.’
Perhaps this was the articulation of the system at its next level.
87 Returning to the first level, Mr Gretton conceded in cross-examination that at the Bannerhey Melbourne meeting he was told a number of things about the system and how it would operate. Again he sought to qualify his answers by saying the theory was right, but that he never saw the practice. When pressed, he conceded that the various subjects were discussed with him by the Jacobsons.
88 Mr Gretton conceded in cross-examination that he would have read the disclaimer on the fifth page of the Illustrative Cash Flow Model for Queensland after the figures on the first four pages for years 1 – 4 inclusive and that he understood the meaning of the words in the disclaimer:
‘This Cash Flow model is for illustrative and analytical purposes only. 1800 000 000 Pty Ltd does not warrant, represent or predict that any assumption predicating this model or that any circumstance, performance, or event depicted in this model is correct, substantially accurate or will eventuate. This model is not based on historical performance of a similar business and the actual performance of the Licensed Operation is dependent on many factors which 1800 000 000 Pty Ltd is unable to predict.1800 000 000 Pty Ltd shall not be liable for any error or omission in this Cash Flow model.’
89 Mr Gretton was asked a number of questions concerning the assumptions, 1 to 18, appearing underneath the disclaimer, and his responses to the pertinent questions were evasive in the sense to which I have referred. His responses to questions going to the warranties and other provisions in cl 7 of the Queensland Master Licence Agreement were more forthright. Ultimately he conceded that he fully appreciated that at no stage leading up to the execution of the Queensland Master Licence Agreement was 1800 vouching for the accuracy of the information contained either in the cash flow document or in any oral statements made to him.
90 Mr Gretton conceded in cross-examination that by November/December 2001 a lot of work had been done by the Jacobsons to ensure that the 1800 000 000 concept would be as successful as possible, but claimed that this was work that should have been done before 1 August, 2001. In particular, he referred to brochures, both large and small, letterheads and business cards. His evidence was that once these things were finalised, he would be content to go out into the marketplace and sell the product which, in his own words, was ‘the phone number’. This is what I have called the delivery of the system at its second level.
91 When I questioned Mr Gretton on what the phrase ‘this extraordinary business system’ in the larger of the brochures referred to, or whether it was just access to a telephone number, he responded: ‘the things that need to go on behind the scenes; like once that phone number is called, where it ends up; who answers it’. That’s what he understood it (the system) to be. This was repeated a little later in cross-examination. This is what I called the system at its first level.
92 Mr Gretton’s evidence was that he sent the brochures out to potential customers and, to his knowledge, so did Mr Horton. When I asked him, he conceded that the sentence: ‘1800 000 000 is rapidly becoming one of Australia’s most frequently called numbers and the first choice alternative to paper telephone directories’ in the smaller of the brochures, was not factually true.
93 Mr Gretton’s evidence was that by 30 January 2002 he was ready to hit the market; he finally had something to go to the marketplace with. In recognition of the length of time involved in preparing the marketing materials (the delivery of the system at its second level), the Expiry Date under the Queensland Master Licence Agreement was extended to a date being five years from 1 February 2002. But by the end of April 2002 Mr Gretton realised the Queensland market was ‘as dead as a doornail’. Nothing was happening and despite suggestions to Mr Antony Jacobson as to other ways to make money, nothing did happen.
94 The other witness called on behalf of Bannerhey was Mrs Gretton. Mrs Gretton swore an affidavit on 9 June 2004 – Ex 2.
95 In chief she said that she accompanied Mr Gretton on his visit to Melbourne in late June 2001. She recalled that at the Bannerhey Melbourne meeting, Mr Antony Jacobson had said that the Brisbane metropolitan area was to be divided up into 10 areas. Apart from some discussion about computers, computer programming including call centres and connecting people up, Mrs Gretton could not recall any other subject being discussed or the conversations that occurred during the morning of the first day (2-3 hours), at lunch (although she recalled that Mr Antony Jacobson had said he and Andrew had a lot of information to help them sell to the franchisees) or during the course of that afternoon. However, she had a clear recollection about a question she put to Mr Antony Jacobson concerning ‘the system’. In response to a question as to what was said, she said:
‘I asked, have you got any more information for me and he said that there was a system but he couldn’t reveal the system until after Terry and I had signed a master licence.’
96 Mrs Gretton could recall visiting the call centre at Carlton with her husband and the Jacobsons on the second day but her recall of subjects discussed and details of conversations at the call centre, afterwards at 1800’s office, at lunch and in the afternoon was almost non-existent.
97 Mrs Gretton repeated Mr Gretton’s evidence as to what was said at the Bannerhey completion meeting, in particular that Mr Antony Jacobson had said:
‘... within two to three weeks of signing up this business system would be ready to go and that Terry and I needed to be available at that time to start.’
98 In cross-examination, Mrs Gretton’s recall of subjects discussed and details of conversations was, apart from certain family matters, just as poor.
99 It was suggested to Mrs Gretton that her ability to recall what Mr Antony Jacobson said about the system at the Bannerhey Melbourne meeting – that it wouldn’t be revealed until the Master Licence Agreement was signed when all would be revealed – when her recollection of other matters discussed was almost non-existent, was because of conversations she had had with her husband about this matter leading up to the hearing, however, she rejected this suggestion. I have to say that I have some difficulty in accepting her evidence on this matter in the face of her inability to recall much of anything else.
100 The principal witness called on behalf of the Hortons was Mr Horton. Mr Horton swore four affidavits:
(1) Affidavit sworn 9 June 2004 – Ex 5.(2) Affidavit sworn 20 May 2005 – Ex 6.
(3) Affidavit sworn 18 October 2005 – Ex 11.
(4) Affidavit sworn 7 April 2005 – Ex 12.
Mr Horton was a more impressive witness than Mr Gretton although I got the impression that he had prepared for his testimony by recent reference to the pleadings in the amended statement of claim. He certainly had little independent recollection of what was otherwise said and by whom at the various meetings during which the representations pleaded were alleged to have been made. This is, perhaps, best exemplified by his evidence in relation to the third Horton Melbourne meeting.
101 In chief, at the first Horton meeting, Mr Horton could recall the questions he raised with Mr Antony Jacobson and Mr Jacobson’s responses to those questions. Most of Mr Horton’s questions went to the operation of the 1800 000 000 system – how it was structured and how it would operate. He also gave clear and precise evidence of the matters which were the subject of the notes he made at that meeting.
102 Mr Horton’s evidence of what was said at the first Horton Melbourne meeting was that the subject of his discussions with the Jacobsons principally concerned operational matters, but that other matters were discussed including competition, anticipated revenue streams and possible changes to the terms of a draft of the Horton Master Licence Agreement. He also asked for information on the marketing plans that the 1800 business system had in place to which he was told that they (the Jacobsons) would think about it. Shortly afterwards, he received a letter which included a paragraph in the following terms:
‘On reflection, please be advised that due to the confidential nature surrounding both our marketing initiatives and the budgetary allocation relating to same, we feel it appropriate to release this sensitive information only to appointed 1800 000 000 master licensees. On formalising our proposed relationship we would of course be pleased to make full details of our marketing program, budget and schedule available to you.’
103 Mr Horton’s evidence of what relevantly occurred at the second Horton Melbourne meeting is detailed at [160] below.
104 Mr Horton’s recollection of what occurred at the third Horton Melbourne meeting was far less clear. Indeed, apart from recalling what was said when he first arrived concerning the representations pleaded, Mr Horton could not recall anything that was said prior to lunch, during lunch or after lunch.
105 From Mr Horton’s evidence, it seems that little was discussed by him with the Jacobsons at the Horton completion meeting apart from their stressing the importance of his wife attending the training conference later that month. In Mr Horton’s words, apart from signing the relevant agreements and handing over a cheque for $440,000, it was a very short meeting.
106 In cross-examination Mr Horton conceded that he believed from the start that the simplicity of the telephone number had market appeal and could make money. He conceded that as at 1 August 2001 he knew that the Jacobsons were not actively operating the 1800 franchise services division or making money; that the 1800 service was not being offered to anyone in Australia in any way, shape or form as a business. He conceded that he knew that anything contained in the illustrative cash flow model that he had received was without any warranty as to its accuracy by 1800. His evidence was that he sought and obtained a six month extension of the term of the Horton Master Licence Agreement because of the delay in delivering some sales brochures to enable him to take the concept to the market.
107 Mr Horton conceded that no matter how much documentation with statistics, models, plans, research and modelling he received from 1800, none of them would establish conclusively whether the concept would make money in New South Wales; the proof of whether or not the concept would succeed or not was ultimately and could only be determined when the product or concept went to the market.
108 Mr Horton’s evidence was that at the third Horton Melbourne meeting Mr Antony Jacobson said to him that the 1800 model was proven. However he conceded that this was contrary to his own knowledge that it was not proven. In questions I subsequently put to him he said that he did not think he had made that concession, but he clearly did.
109 Mr Horton’s evidence was that under the contract, he didn’t get what he contracted for. In responses to some questions I put to him he said:
‘My understanding of the contract that I made with the Jacobsons included the master licence and what would be delivered to me under the method that they would be delivering as a business opportunity and a plan that was well developed. That’s what I thought I was getting ....
I thought I was getting access to their know-how in the communications industry, the software that they developed for the interfaces of the call centres, their understanding of the way that the telephony worked in the modern world, the development of the processes and procedures that needed to be implemented as part of that to actually bring it to a real opportunity, a real business in the marketplace.’
110 When I put to Mr Horton that what he was complaining he contracted for but did not get really fell under the umbrella of know-how he agreed, but it was never articulated with any greater precision. It was left hanging similar to Mr Gretton’s system at the higher level which he said was represented to exist, but was not forthcoming: see [81] and [86] above.
111 I put a further series of questions to Mr Horton going to why he would sign an agreement that says that there’s a business when there was no business. He said that he saw himself starting a business in New South Wales and that he treated the statements in the documents that there was a business as referring to the ‘business model developed by the Jacobsons’. Mr Horton’s admission that he was starting a business in New South Wales does not sit easily with his claim that the Jacobsons represented to him that they had developed a proven business model.
112 Mr Horton’s evidence was that as at December of 2001 he believed that there was, what is described in the larger of the sale brochures that had by that time been produced, an ‘extraordinary business system’ but by January 2002 he did not hold this belief because ‘the complete business system I expected to get to run the New South Wales system had not been delivered to me’; ‘I did not receive a unique business marketing system to develop the 1800 business in New South Wales including detailed marketing and sales plans and directions and a systemised approach which is what you get from a licensor or franchisor’. He went on to say that by about April 2002 he was of the view that he ‘had been deceived by the Jacobsons’ although nothing changed between January and April 2002.
113 In cross-examination, it was put to Mr Horton that during the initial Horton contact, the first Horton meeting, the first Horton Melbourne meeting, the second Horton Melbourne meeting and the third Horton Melbourne meeting and at other times statements were made by him and by the Jacobsons. He denied most of them, said he could not recall whether some of them had been made and conceded a few had been made, if not in the form put, in a similar form.
114 The other witness called on behalf of the Hortons was Mrs Horton. Mrs Horton swore an affidavit on 9 June 2004- Ex 7.
115 Mrs Horton accompanied her husband to Melbourne on 10 July 2001 and attended the third Horton Melbourne meeting, but only in the morning. Her evidence was that Mr Antony Jacobson, in response to a statement from Mr Horton that $400,000 is a lot of money to pay for a business, had said: ‘We have a proven business system and model’. Her evidence was that when she asked for proof of this ‘proven system and model’, he said: ‘That is confidential information, and will not be disclosed until after a contract was signed’.
116 When Mrs Horton was asked in cross-examination what precisely she understood was being said to her that had been proven she said:
‘I believe they had a system and they had a model; and that had been tested, that they had done tests, and they had the documentation to prove that and that that would not be revealed to us until after a contract was signed and a training, and that’s what I believed. I believed there was a system in place for us to use and to work with after we’d signed the contract.’
117 Mrs Horton agreed that Mr Antony Jacobson had said to her: ‘If the business is successful then the licence will be worth a lot more than $400,000’.
118 Two witnesses were called on behalf of 1800, the Jacobsons. Mr Antony Jacobson affirmed three affidavits, two in the Bannerhey matter:
• Affidavit affirmed 2 December 2004 – Ex. A• Affidavit affirmed 2 December 2004 – Ex. C
and one in the Horton matter:
• Affidavit affirmed 2 December 2004 – Ex. E
Mr Andrew Jacobson affirmed two affidavits, one in the Bannerhey matter:
• Affidavit affirmed 2 December 2004 – Ex. B
And one in the Horton matter:
• Affidavit affirmed 2 December 2004 – Ex. D.
119 Mr Antony Jacobson gave evidence in chief about the conversations that took place between he and Mr Gretton during the initial Bannerhey contact, the second Bannerhey contact and the first Bannerhey meeting. He was able to recall what was said by Mr Gretton and by himself on each of these occasions with remarkable precision; down to the finest details and in a manner which can rightly be described as an exercise in spontaneity. Strangely though, he could not recall the date on which the Grettons first came to Melbourne for the Bannerhey Melbourne meeting. I am not convinced that Mr Anthony Jacobson’s evidence as to the conversations that took place between Mr Gretton and himself during these early contacts is entirely based on an excellent recall; some of it may be, but I have been unable to get away from the impression, an impression I had at the time Mr Antony Jacobson gave his evidence, that a lot of it was what he wanted to believe occurred on those occasions. Having said that, to the extent of any inconsistency, I prefer the evidence of Mr Antony Jacobson to that of Mr Gretton.
120 While he could not recall the date of the Bannerhey Melbourne meeting, he again displayed remarkable recall in the topics that were discussed with the Grettons during that meeting over the two days and the terms of the conversations that took place between himself on the one hand and the Grettons on the other. Such recall on his part was also exemplified in his evidence about the Bannerhey July communications although when I asked him again about his recollection of the date of the Bannerhey Melbourne meeting his recollection failed him.
121 Mr Antony Jacobson also gave evidence in chief about the conversations that took place between he and Mr Horton during the first Horton meeting and the first Horton Melbourne meeting and again his recollection was remarkably precise. In response to questions put to him by his counsel, Mr Antony Jacobson repeatedly referred to his discussions with Mr Horton as encompassing the ‘business model’. When I asked him whether this business model was manifested in writing, he said that it was – the whole business model was on the website; and 1800 had a Franchise Service Business Plan (Annex ‘DJH6’ to Ex. 5). Mr Antony Jacobson’s evidence was that all elements of the model were encompassed in those two documents and the Hortons had access to all elements of the model, as did Mr Gretton, from the time of his discussions with them. When I asked him whether a system of marketing was included in that, he said that the marketing strategy – confidential marketing system and intended marketing slogans – which were in the Marketing Plan (‘DJH14’ to Ex. 5), were not initially disclosed, but that he allowed Mr Horton to review the Marketing Plan when he came to Melbourne on 4 July 2001 for the second Horton Melbourne meeting (see [93] below). Apparently Mr Gretton was not shown this Marketing Plan because he never asked to see it and it was never an issue raised by him.
122 In Mr Antony Jacobson’s words:
‘...the model was extremely simple. ...the model was we use the best phone number. ...a call came in and then we referred it to the plumber, or pizza or locksmith in that area. ... I explained [to Mr Horton] ... that the 1800 000 000 model was very similar to a Yellow Pages type corp connect type business that existed and that is a consumer has a need for a service. They have a need for a plumber or a locksmith. As opposed to trying to remember a number that they can’t forget, you know, let’s say such and such is the Yellow Pages ......
The fact is at the moment the model ... most consumers prefer, when they need a service ... as opposed to using the internet, the telephone is the most widely used interactive medium in the world and certainly here in Australia. A business such as the Yellow Pages knows that, they respect that and they understand it, which is why they’re trying to develop their call connect service. The Yellow Pages has one significant downside, and that is that no consumer in Australia, or very few can remember the Yellow Pages phone number, that’s despite the fact that they’ve invested 10s of millions of dollars into advertising. And to prove that I asked David, "Can you remember the Yellow Pages’ phone number?" And he said, "No." And I said, "You know something, I can’t even remember it, despite the fact that I have ... looked at it so much.
...
So, I explained to David that the model of the business is, when someone dials a phone number, 1800 000 000, a call centre answers that call and then they put that call through to a specific – industry specific licensee in a particular area in that state. I explained to David that how our system varies from a system like Call Connect, and one of the main aspects of this model, was it’s a licensing based model, in that when someone asks for a pizza, you know, in Blacktown, they’re not simply getting someone that pays an advertising fee, they’re being referred to a pizza licensee that’s supports – rights to use a 1800 000 000 phone number in Blacktown. "So, the model is, David, the advantage you get is in theory the pizza licensee, if you’re successful in selling to that pizza licensee in Blacktown, they’ll pay you an up-front fee and they’ll also pay you an ongoing fee.
...
I said [to Mr Horton], "The model was all those industry specific classifications that you see in our website, so the plumbers and the pizza and the locksmiths, and so forth ...would either in theory desire to buy an individual geographic licence. For example, a certain part of, let’s say, Melbourne or Sydney or Brisbane, so it might be three or four postcodes clustered together, or they may want – they might think it’s just so great, and they might want to really ...monopolise, or at least try and really increase their market share in a whole city, so they may want to buy the rights for the whole of 1800 for Melbourne or Sydney or Brisbane. So effectively not just simply buy a postcode licence, but buy ...a whole licence for the whole area. ... So, for argument’s sake, if, let’s say, in Brisbane each territory the up front fee per industry specific classification, so to keep it simple, David, if you’re a plumber and you want to buy the rights for Sydney, for the whole city, as opposed to only Blacktown, as opposed to, let’s say, spending 15 times 20,000, let’s say, which would be $300,000, under our model we give you a 30 per cent discount, or in that case it would be 90,000, so - so the plumber would pay $210,000 for the plumbing rights, you know, for the whole area, not just one postcode, but for the city of Sydney itself.
...
I explained that in terms of an up-front fee the licence model was they would get a three year licence, so the unit franchisee would get a three year licence and then they would get the right to renew that – that licence down the track. In addition to the up-front fee there would be obviously ongoing call revenue. And that, at the end of the day, was where I saw the great benefit of this business.’
123 I put to Mr Antony Jacobson that there had been no marketing model or methodologies developed as to how State licensees would go into the marketplace and sell in that marketplace and he responded: ‘Correct. Exactly right.’ He was then asked by his counsel:
‘Did you discuss on 12 June marketing with Mr Horton ? ---Yes
What did you say?---Mr Horton asked me if he could have a look at our marketing plans for how the 1800 system was going to be advertised to consumers ... Mr Horton said to me, "You’re making bold statements. How, in theory... is [1800] going to be successful to get the market share ...let’s say from the Yellow Pages?" And I said, "We ...have developed what I believe are very sound and very sensible and very sophisticated strategies from a consumer marketing point of view but I just don’t feel comfortable to show you that now because, quite frankly, if you don’t buy the licence and the Yellow Pages ...got a hold of these slogans, it would actually put the business at a disadvantage.
...
After the first meeting on June 12 in Melbourne ... David had asked me again if I would show him the marketing plan and I agreed to show ... those to him [when he was next in Melbourne], and I explained to David at that stage that there was a range of slogans ...in the marketing plan and that they were effectively consumer based marketing strategy and I obviously looked forward ...to get his input on those, and at the same time there were slogans that I thought that we could use to potential licensees, and I mentioned some of those slogans, but I said, "At the end of the day, as far as licensing on a State basis, that is something that I really do look forward to the input of State based licensees to strategise ...at some stage when we can all get together to really cement the ...principles and the methods that we all feel will be most appropriate to market this business because at the end of the day, David, you have a greater understanding of New South Wales". And at this point it was a State-based campaign, so it was prefaced on the fact of the State-based licensee really doing the majority of State-based advertising within their territory, hence the reason that, "David, you know, when I told you initially that you need to have a $100,000 marketing budget to expend on how you’re actually going to recruit individual unit licensees".’
124 In cross-examination by counsel for Bannerhey, Mr Antony Jacobson was asked a number of questions about the claims made for the 1800 business on 1800’s website. Were those creative and effective marketing techniques and methods on foot at the time the website was posted, to which he said yes and that they were detailed in the Marketing Plan. He absolutely rejected the proposition that there was no business system:
‘You put the most unforgettable phone number out there in the marketplace, someone dials it, and then they are placed through to an industry specific licensee ... of course, it’s a system. And its augmented and backed up by sophisticated franchising and licensing systems, of course, it’s a system. It’s a system I worked on for two and a half years.’
He referred specifically to pages 4 and 5 of 11 pages that is ‘TGG5’ of Ex. 1 as detailing what the business system is.
125 In response to questions which I put to him, Mr Antony Jacobson said that the information on the website was pitched to investors, such as the Hortons and the Grettons, who might buy State licences; that such marketing techniques which had been developed for use by State licensees were in the Marketing Plan; but that further marketing strategies were to be developed in conjunction with State licensees.
126 In cross-examination by counsel for Bannerhey, Mr Antony Jacobson was asked:
‘What know-how were you going to impart or did you have to impart to the [Grettons] in establishing, promoting, operating a national marketing contact business referral and administrative network?’
And he responded:
‘...I can answer that question in the following way ... your clients were master franchisees. They were buying a licence to operate the master franchise. Certainly from my own point of view ... as far as the know-how that I had, and I signed this agreement with absolute confidence that I could assist your clients operate the master franchise in Queensland and Mr Gooley’s clients in New South Wales ... I believe I had sufficient know-how to assist your clients sell unit licensees in their territory, which is why we worked together ... designed the brochure and the letter, and which is why we got together ... and had meetings and why I flew up a number of times to meet with your client ... in Brisbane. I gave them ... the know-how. I mean ... I thought I had the know-how to assist them sell unit licences and your client thought he had the know-how to sell these licences ... in Queensland ... And what a shame for some reason that no one bought the product that we were offering, because I know your client and us ... we both believed in this product 110 per cent. As far as the know-how that I had, I’ve got great know-how in being able to assist ... a master licensee operate that business and then segment that market ... into selling unit licensees, which is why we developed this.’
He was further asked:
‘Well in a practical way what did you develop at the time of executing this contract?’
To which he responded:
‘...As far as a system? Well, ... the system was very developed as far as selling unit licences. It was so ... developed, sir, as far as the price up-front that a unit licensee was going to pay, it ... talked about the exact amount – the marketing split between up-front fee and going ... then into a marketing ... contribution. It talked about the ongoing call cost that unit licensees were going to pay. ...it’s not as though they went to a meeting and said, "I’ve got this great phone number but I can’t tell you how it’s going to work." Of course, your client knew how it was going to work because they described it in great detail ... in the letters. Your client went out there, and as he said in his evidence ... and actually talked to ... prospective unit licensees about how the system was going to work. The fact that they didn’t buy, that doesn’t mean the system didn’t exist. It means that it wasn’t accepted by the market. But it existed.’
127 During the course of his cross-examination by counsel for Bannerhey, Mr Antony Jacobson:
(1) Denied that at the first Bannerhey meeting he said to Mr Gretton –‘1800 is fast becoming one of Australia’s popular used number. In fact 1800 is taking Australia by storm.’
‘You’ll easily get your money back from the initial outlay within the first few months.’
‘You’ll get your money back from the outer regions before you even start your metropolitan business.’
(2) Denied that at the Bannerhey Melbourne meeting he said to Mr Gretton –
‘Sorry, we cannot talk about the system. Everything at the moment is confidential until we get people to sign up.’
(3) Accepted that when he sent an illustrative cash-flow model to Mr Gretton he wanted Mr Gretton to get an idea of how much, as far as Mr Jacobson was concerned, he (Mr Gretton) could make in the future and, to a degree, excite Mr Gretton’s interest in the business.
(4) Denied that the endeavour was a flop because nothing had been done that was promised to be done or because he had failed to provide what he had represented he had.
128 In cross-examination by counsel for the Hortons, Mr Antony Jacobson, after some reluctance on his part, conceded the words in the advertisements appearing in the Financial Review and the Brisbane Courier Mail: ‘1800 is taking Australia by storm and revolutionising existing new business corporate identities and business systems’, was absolutely false, but would not concede that the claim that ‘1800 000 000 was Australia’s best ever telephone number’ was false; that was his view, as with the claim that it was ‘Australia’s most exciting marketing and franchise system’.
129 During the course of his cross-examination by counsel for the Hortons, I asked Mr Antony Jacobson whether the last paragraph of the advertisement: ‘Initial investment requirements of circa 400,000 per State are expected to generate unmatched returns in business growth’, was predicated on the illustrative cash flow models for Queensland and New South Wales and he said: ‘Yes ... it is. Absolutely.’ In the light of his earlier evidence that the illustrative cash flow figures were nothing more than a projection, not based on historical data because there was none and that these figures were, in the words of Mr Andrew Jacobson, nothing more than an illustration of how the model would work as between interested parties including State Master Licensees, not an illustration of what the business model would achieve, it would be unsound to read too much into this response. The projection was nothing more than a prediction and no reasoned or rational prediction can ever be made in relation to a non-existent business.
130 In cross-examination by counsel for the Hortons, Mr Antony Jacobson was also asked some questions about certain statements appearing in the Franchise Service Business Plan (Annex ‘DJH6’ to Ex. 5) including the statement at page 7 that the 1800 000 000 franchise system ‘... had been purpose developed to take advantage of ... the opportunity for unparalleled income generation ...’. He denied that the illustrative cash flow model was proof of that statement, but said it was supportive of that statement on certain assumptions:
‘...I think it’s supportive that, assuming a master licensee could sell the number of unit licences that the model is predicated on; and assuming that the phone number, once it was advertised by unit licensees, got the response that the model was predicated on; and assuming that the expenses in the model could be curtailed at the level that the model was predicated on; and assuming that the roll-out of competing – I won’t say competing numbers, but assuming that the government didn’t introduce a new sequence of phone numbers unbeknown to us that would in some way compete with the uniqueness of 1800 000 000, I believe that was the basis for the confidence in that statement.’
131 I then asked Mr Antony Jacobson:
‘In regard to those statements then, that evidence you’ve just given, would you say that the investment in a State master licence agreement of the kind which the Hortons and Bannerhey entered into ... was totally speculative?’
And he responded: ‘Well, yes, I would’.
132 During the course of his cross-examination by counsel for the Hortons, I asked Mr Antony Jacobson to explain why he described 1800’s business system, as distinct from the telephone number, as unique and he responded, because, to his knowledge ‘... this was the first licence system anywhere in the world in the directory services market’. In re-examination he was asked to elaborate on how a licence system in the directory services market in August 2001 differed from how business was otherwise transacted in that industry and he responded:
‘At that time all other directory service based operations or businesses were operated in a traditional way in that they were corporately owned or company owned structured [sic] where employed salespeople would simply go out and attempt to sell space, for example, in directories ... and so forth, or salesmen would go out and try and sell space on internet search engines and so forth. So it was very unique in the sense that it was the first time anywhere in the world that a directory based business and a licensing system were combined or married off, so to speak. If I can provide an example. For example, if you take the lawn mowing industry, there was nothing unique about hiring someone to mow your lawn or mow your grass but the first time Jim set up franchise businesses and called it Jim’s Mowing or Jim’s Gardening it was a very unique way of moving [sic] lawns and it was a very unique way to grow a lawn mowing franchise or a business.’
133 In cross-examination by counsel for Bannerhey, Mr Andrew Jacobson gave evidence that he was responsible for legal matters and for technical matters like call centres and that Mr Antony Jacobson was responsible for marketing and sales – including the marketing plan. He conceded that the statement –
‘Australia’s premier telephone number 1800 000 000 is fast becoming Australia’s largest telephone portal’
was not correct or accurate at the time it was first published, nor at the time that the parties executed the master licence agreement.
134 Mr Andrew Jacobson was asked about the statement:
‘The 1800 000 000 business will rapidly build strength and dominance by virtue of –
The creative and effective marketing techniques and methods forming part of the 1800 000 000 business system’
and, in particular, was there an effective marketing technique and methods forming part of the business system at the time the website was posted or at the time that the master licence agreement was executed and, if so, where it may be found, to which Mr Andrew Jacobson responded:
‘...I’ve suggested the marketing plan, I’ve suggested to an extent the franchise service business plan, I’ve suggested to an extent the master licence agreement. I think the primary source would be the marketing plan.’
135 I put to Mr Andrew Jacobson that the evidence had been that everything in written form that had to be imparted in consequence of the master licence agreement had been imparted before it had been executed. He responded:
‘I will try and be precise, I will try and clarify it for your Honour. In the case of Mr Horton, that’s right, he had received the marketing plan as well, and Mr Gretton hasn’t. In terms of had we imparted everything that we could have in writing, yes, in the sense that everything we had in writing – say the marketing plan – we gave them everything we had but I mean, we could have reduced more of our knowledge into writing and given it to them but we had never reduced it to writing.’
136 I asked Mr Andrew Jacobson whether the telephone number 1800 000 000 and the domain name had been allocated to 1800 at the time the master licence agreement had been executed. He responded:
‘...No, it was allocated to a company called Barclay Administration, which effectively sold it to 1800 but we didn’t transfer it but upon request it would be transferred but it was decided to keep it in Barclay which is also controlled by Antony and I. We sold it to 1800 in February 2001 but we just thought it would be safer to keep it in the name of Barclay unless 1800 requested that it be transferred over.’
I raised the following further questions to which I received the following further answers:
Where’s the evidence of that?---Well, I didn't understand it was ever in dispute.
What about the domain names?---The same again. It's not in evidence, but - - -
So what you’re saying to me in response to my question is that the company which contracted with Bannerhey and the Hortons did not have that telephone number or those domain names allocated to it by the provider of the relevant service?---I think that domain names may have been in 1800 or may have been in Barclays, I’m not sure, but the phone number was definitely in Barclays.’
137 During the course of his cross-examination by counsel for Bannerhey, Mr Andrew Jacobson was questioned at length about the Queensland illustrative cash flow model. The nature of those questions, the responses of Mr Andrew Jacobson and their relevance to the pleadings is best understood by reproducing part of the transcript dealing with this particular subject:
‘Is it fair to say that the whole basis upon which this cash flow is predicated is the number of either master or regional franchisees and unit franchise fees that are able to be sold during that period?---No.
It is not predicated on that?---No, of course not. I mean it is entirely hypothetical.
Yes, but the model is predicated upon the sale of those units, isn’t that right?---Well, I don’t think so, the model is predicated on the sale of units. It is the other way around really. I think it is that the hypothetical figures are provided to pick the model, not the other way around. The model is not there to depict the figures.
All right. Well, the figures depict that these amount of unit franchisees will be sold, isn’t that right?---The model depicts that they would be? No, that is not right.
No, doesn’t the model - you see if you go to the dollar signs, that is to say the net cash receipts, or net receipts?---Yes.
How did you arrive at those net receipts?---Sorry, I’m just trying to find net receipts, net cash flow, are you talking about net cash flow?
Yes?---Net cash flow, how did we arrive at them? Well, it is obviously arithmetically.
Exactly but to do that arithmetically you had to have as an assumption, isn’t that right, an assumption that these amounts of units would be sold?---No. I mean if you look at the assumptions it actually states the contrary.
Where?---I mean, it says it is for illustrative and analytical purposes only - - -?---
I am not worried about the disclaimer at the moment, Mr Jacobson. I want you to take this as a document which depicts, if you want to call it for illustrative purposes for the moment, all right, but it depicts that a certain amount of cash flow will arise over the first four years rising in the fourth year to $2.2 million?---Yes, see I don’t agree with that. I agree that there is a level of cash flow depicted but I don’t think that it will arise.
I didn’t ask you that?---Well, I believe you did. It is the only words - - -
I’m asking you that this document, as a model, makes assumptions?---Yes, it does.
And it makes assumptions, doesn’t it, that a certain amount of units will be sold at a certain price?---Yes.
Now how did you arrive at the hypothetical, if you like, number of unit franchisee sales?---Antony, my brother, provided me with those figures.
Did you adopt them?---Well, I included them in the model. I certainly didn’t adopt them.
So as far as you are concerned all you had to rely on was your brother giving you these figures?---The level of sales figures?
Yes?---Yes.
Did you have any other reference to determine how many unit sales would be made over the four year period?---No.
If I take you to the disclaimer page?---Yes.
You state there that the cash flow model is for illustrative and analytical purposes only?---Yes.
Continuing:
The 1800 Pty Ltd does not warrant, represent, or predict that any assumption predicating this model or that any circumstances, performance or event depicted in the model is correct, substantially accurate or will eventuate. This model is not based on historical performance of a similar business and the actual performance of the licensed operation is dependent on many factors.
?---Yes.
And finally you say:
The company will not be liable for any error or omission.
?---You left out one part, I don’t know if that is of any bearing. You left out the part about:
Many factors which 1800 is unable to predict -
I think.
Yes. This really is, isn’t it, a forecast?---Definitely not.
Or a projection?---No.
Well, what was the purpose of providing this document?---To explain how the model would work if there was a level of sales and if things went well that is how we foresaw things would be likely to operate in terms of how money would be split up and how money would be divided and how it should be allocated and what type of costs that might be incurred, but subject entirely to the disclaimer and the assumptions and as it says, many factors which we couldn’t predict.
This disclaimer makes virtually this document useless, doesn’t it?---Well, I don’t think so. What it says is that don’t fixate on the actual levels of sales or the dollar amounts for unit licence sales or master sales but in approximate terms if you have some level of sales, if you have something that, you know, approximately this is would be how it would work in terms of division of royalties and so on. It is there to explain the model not what the model will achieve.’ (Emphasis added.)
138 In cross-examination by counsel for the Hortons, it was put to Mr Andrew Jacobson that that part of the last paragraph of the NSW and Queensland advertisements which read –
‘Initial investment requirements of circa $400,000 are expected to generate unmatched returns ...’
had no basis at all. He responded:
‘Probably not; I don’t think so’.
139 It was also put to Mr Andrew Jacobson that the third paragraph under the heading Franchise Service in the Franchise Service Business Plan –
‘The 1800 Franchise Service Division will progressively dominate the lead generation and referral sector in Australia’
had no basis at the time. He ultimately responded:
‘Well, as I said, that was the plan and the ambition and I think it was based on intuitive belief in the model and as I said really, I hope that with diligence and care and with the right people that it could come to fruition but I can’t say any more than that.’
140 I asked Mr Andrews Jacobson whether the fact that the telephone number 1800 000 000 had been allocated to Barclay Administration Pty Limited and not 1800 had been disclosed to the Hortons or the Grettons. He said it had not. When I asked whether there was any particular reason why it wasn’t disclosed, he said:
‘Well, just because, as I say, I was apprehensive to keep it one step removed from 1800.
Why was that?---Because - well, two reasons. One, as I was saying, with a telephone number, it remains with a particular carrier. We could say because it was instant number portability, we had the option of saying, it’s with Telstra now but we’re sick of Telstra, we’re going to move it to Optus or to Powertel or whoever but for the time being we kept it with Telstra which it had been since we originally acquired it and at that time, I had two causes of concern. One was, because it’s just with a carrier and their safeguards aren’t in place, I didn’t want some - I suppose, meddler or mischievous person to call up, particularly if we’re in operation. If you can imagine if we’re actually operating down the track and we’re potentially receiving a large amount of calls and our whole business is predicated on the phone number, someone calls up Telstra and says, you know, I’m from 1800 000 000, can you, you know, just change our answering location, or something like that, it could potentially destroy our whole business. So I wanted to, in a sense, I suppose, keep the number a little bit further removed from 1800 for the time being. The other reason was - it sounds ridiculous now but at the time, we saw Telstra and Pacific Access as our potential rival and yet we had the telephone number at that time with Telstra as a carrier. So I didn’t really want to put it in to 1800 000 000 whilst it was with Telstra because I felt that it kind of puts it on the radar so to speak and it kind of alerts Telstra to what we were trying to do which was grab the market share from Yellow Pages but, I mean, now it sounds foolish to think that Telstra was concerned about us but at the time that’s what I thought.’
I then asked him why the application for the Australian trade mark in his and his brother’s name had been disclosed in the disclosure document but not the fact that the telephone number was in the name of Barclay Administration Pty Limited nor the existence of an agreement between 1800 and Barclay Administration Pty Limited in relation to the number and his response was that clause 7.1 of the disclosure document ‘... only refers to disclosure of any patent, design or copyright and the telephone number obviously isn’t any of those items.’
141 Counsel for the Hortons put to Mr Andrew Jacobson that as at 30 April 2001 the business had not traded. He responded:
‘Well, that is an interesting proposition. That begs the question what is trading. I mean when does trade commence? We had since, you know, January or February 2001 we had office premises, we employed personnel. We were entering into contracts and I think it is your own pleading that we made the representations in trade and commerce, but I accept that we hadn’t actually sold anything, we hadn’t earned a dollar.’
Later it was put to him by counsel for the Hortons that as at 1 August 2001 the Franchise Service Division of 1800 had not traded and he said that was right.
142 I asked Mr Andrews Jacobson:
‘Mr Jacobson, do I take it from your evidence that the business systems and models which you said 1800 000 000 Pty Limited had and which it agreed to impart to the Hortons and the Grettons ... under the master franchise agreements had. as a result of the Port Douglas conference [been] abandoned?’
He responded:
‘Varied I would say, your Honour....
How was it varied, well if you look at the terms and conditions of the master licence agreement there is no provision to collaborate in the sense that under the terms of the master licence agreement Queensland was responsible for Queensland. New South Wales was responsible for New South Wales and we of course were responsible for the remainder of Australia. There is no provision for the respective parties to collaborate and sell on a national level. So we could sell within Victoria of course and Mr Horton and Mrs Horton were at liberty to sell within New South Wales. So once we had decided to sell to national corporations it required a much greater degree of co-operation and collaboration, I would say.’
The following questions and answers followed:
‘Was the master franchise agreement altered to accommodate this variation?---No, your Honour.
Why not?---Well, because I suppose really - I suppose because anybody has the right to co-operate and to the extent that you have three business[es], effectively, us, the Queensland licensee and the New South Wales licensee, and we’re all prepared to co-operate with a mutual interest and, I suppose the same interest and the same intentions. I suppose that was sufficient to give a foundation to the relationship in terms of approaching national licensees, but perhaps, your Honour is right, we probably should have formally - - -
Well, it just occurs to me that you were, according to your evidence, fairly careful and prudent in what was disclosed to the other parties?---Yes.
In terms of a business system and a business model prior to the signing of the agreement and yet this appears to have undergone some massive variation as a result of the Port Douglas conference and the only documentation of it seems to be a letter which was sent, which Mr Gooley just took you, dated 11 February 2002, which says well we’re now ready to roll what we varied in Port Douglas back in August last year?---That’s true, your Honour, that’s correct.
So there was no changes made to the transaction or documentation?---None at all.
Was any asked for?---No.’
143 When these proceedings were re-listed for hearing on 25 October 2006 I indicated to the parties at the outset that while my mind was not foreclosed and that it was open to any party to persuade me that I should not ultimately make any of three findings, these were findings which, following my review of the evidence and each party’s submissions, I was disposed to make.
144 First, at the time the master licence agreements were entered into on 1 and 2 August 2001, the Grettons, and through them, Bannerhey, and the Hortons knew that 1800’s business had not commenced save for its activity, through its directors, of marketing State licences for New South Wales (purchased by the Hortons) and Queensland (purchased by Bannerhey). The evidence in support of this finding was overwhelming, coming as it did from both Mr Gretton and Mr Horton, and this no doubt explains why no attempt was made, in the oral supplementary submissions made that day and in the further written submissions that were filed, to persuade me that the finding was not open or that I should not otherwise make it.
145 Second, at the time the master licence agreements were entered into on 1 and 2 August 2001, the Grettons, and through them, Bannerhey, and the Hortons knew that they were to be the instrumentalities through which 1800’s business was to be commenced in Queensland and New South Wales respectively. No attempt was made, in the oral submissions made that day, to persuade me that this finding was not open or that I should not otherwise make it. Indeed, counsel for the Hortons agreed the finding ‘... can’t be disputed’ and that ‘... your second point, we don’t cavil with that...’. The further written submissions that were filed on behalf of the applicants in both proceedings indicated that the applicants did not concede this second finding. It was submitted that having regard to Recital B in the master licence agreements and indeed the general tenor of those agreements, the intention prior to entering into the master licence agreements was that each master licensee would operate on ‘its own behalf’ throughout the territory (namely Queensland for Bannerhey and New South Wales for the Hortons) using and applying the business system and methods, which the respondents represented that they had, which the applicants could use to establish, promote and operate their own business which involved the right to use and licence to others the telephone number 1800 000 000 and the domain names.
This is really ‘splitting hairs’. There is no issue that each master licensee for Queensland and New South Wales would be carrying on its own business, but that is not inconsistent, indeed it is totally consistent, with the finding that the applicants knew, at the time they entered into the master licence agreements, they were to be the instrumentalities through which 1800’s business was to be commenced in Queensland and New South Wales.
146 Third, at the time the master licence agreements were entered into on 1 and 2 August 2001, the Grettons, and through them, Bannerhey, and the Hortons knew that they were purchasing no more than an exclusive right to use and to licence others to use the telephone number 1800 000 000 and the domain names and corporate names in Queensland and New South Wales respectively as well as the right to access the know-how, that is, the ideas, the concepts and the proposals of the Jacobsons as to how the potentiality of this number might best be exploited to generate the greatest amount of revenue. The further written submissions that were filed on behalf of the applicants in both proceedings submitted that the applicants were ‘purchasing’ more than an exclusive right to use and license others to use the telephone number 1800 000 000 and the domain name and were purchasing more than just the right to ‘access’ the know-how, that its, the ideas, concepts and proposals of the Jacobsons as to how the potentiality of the number might best be exploited to generate the greatest amount of revenue. The applicants submitted that what the applicants expected to ‘purchase’ was, at the very least, a marketing model or methodology and the associated protocols, which the respondents had represented had been developed by them, to market the 1800 000 000 number and domain name. That is, the applicants expected that they were purchasing, at the very least, a marketing model or methodology by which the master licensees would go into the market and sell in that marketplace the 1800 000 000 number. At the time that the applicants entered into the master licence agreements no such model or methodology or protocols existed nor was any such model provided by the respondents.
147 There are at least two difficulties with this submission. First, the applicants never pleaded that the respondents made a representation which even referred to a marketing model or methodology by which master licensees would go into the market and sell the 1800 000 000 number, let alone a representation that such a model or methodology existed and would be provided to the applicants. In those circumstances, if the applicants had any such expectation of the kind submitted, it had its source or provenance otherwise than in a pleaded representation; perhaps in Mr Gretton’s case, his experience with Ricoh for whom he worked for many years and, in Mr Horton’s case, his ‘special experience’ in franchising. Second, the references to systems, models and methodologies in the pleaded representations were invariably expressed in generic terms as a ‘business’ system, method or model; sometimes, but not always, refined as a ‘unique’, ‘full’ or ‘comprehensive’ ‘business’ system, method or model. Indeed, it was the generic form of the pleading which made the concepts of ‘a business system’ or ‘a business model’ or ‘business methodologies’ so elusive in the sense that, in the absence of evidence which provides a greater degree of specificity as to what is being represented, it is impossible to reach a concluded view as to whether what was or was not provided made the relevant representation misleading or deceptive. This is exemplified by the fact that at, what I called in [81] above, the first level, a business system or model not only existed, but its structure and content were largely conveyed to both Mr Gretton and Mr Horton prior to the signing of the Bannerhey and Horton Master Licence Agreements. At the second level, its manifestation in a material form which could be utilised as promotional and marketing tools to assist State licensees in their selling enterprises was delayed until early 2002. But it is the applicants’ claims that a system was represented to exist, but was not forthcoming, at a higher level where the difficulty of reaching a concluded view arises. The higher level was, until the filing of the further written submissions, never articulated. Its articulation in the further written submissions as an expectation on the part of the applicants that they were purchasing a marketing model or methodology by which the master licensees would go into the market and sell in that market place the 1800 000 000 number has no foundation in the evidence that was led by them or was adduced in their cross-examination of the Jacobsons. Indeed, its provenance and subsequent articulation in the further written submissions filed on behalf of the applicants in both proceedings had more to do with a question I put to Mr Antony Jacobson referred to at [123] above, to which he responded that no such marketing model or methodologies had been developed.
148 For these reasons, I am not persuaded to depart from these three preliminary findings of fact.
ANALYSIS OF THE PLEADED REPRESENTATIONS IN THE FACE OF THE EVIDENCE
The Unique Business System Representation
149 This representation was at the forefront of the case advanced by both Bannerhey, through the Grettons, and the Hortons and was said to have been made orally by Mr Antony Jacobson or by the Jacobsons during meetings or conversations identified in the respective amended statements of claim and in recital A of the respective master licence agreements and on 1800’s website. This representation was effectively admitted, so despite the respondents’ submissions that there is no evidence that establishes any such representation, in terms, being made orally by 1800 or by the Jacobsons and that recital A of the respective master licence agreements did not constitute a ‘representation’, the substantive issues in relation to this representation is not whether it was made, but whether it was relied on by the applicants in entering into their respective master licence agreements and, if so, whether it was misleading and deceptive or likely to mislead or deceive. For present purposes, I propose to proceed on the basis that the admitted representation was relied upon by the applicants in entering into their respective master licence agreements even though that was denied: [14] of the Bannerhey Defence; [10] of the Horton Defence. This leaves the issue of whether the representation was misleading and deceptive or likely to mislead or deceive. The only relevant pleading in respect of this issue was that at no time did 1800 have or make available to Bannerhey ([26]) or the Hortons ([19]) a business system or method which was capable of exploiting the telephone number 1800 000 000 or the domain names associated with it.
150 Having regard to the evidence, that latter pleading has no foundation whatsoever. 1800 clearly had a business system or model and this was made available to Bannerhey and the Hortons prior to their entering into their respective master licence agreements. It may not have been as ‘full’ or ‘comprehensive’ a business system or model as they expected based on the respective previous experiences of Mr Gretton and Mr Horton but as indicated above, the generic form of the pleading prevents any qualitative assessment. Moreover, the evidence establishes that the system that existed and was made available was "unique’. Mr Antony Jacobson’s evidence referred to at [132] above, was not challenged.
151 Furthermore, there was no evidence that the business system or model that was provided or made available was not capable of exploiting the telephone number 1800 000 000 or the domain names associated with it. The fact that Bannerhey and the Hortons as the respective State licensees for Queensland and New South Wales were unable to generate any sales revenue from the sale of unit licences in their respective States does not mean that the system they were provided with was incapable of exploiting the telephone number and the associated domain names. Indeed, it says more about the underlying concept itself than any methodology, model, system, structure or organisation through which the exploitation of the concept was to be effected. So much was conceded by Mr Horton in his cross-examination noted at [107] above: the relevant passage from the transcript illustrates the point:
‘And whatever documentation you had received from the Jacobsons that documentation did not demonstrate that 1800 was proven in Australia as a saleable commodity, did it?---No.
It didn’t prove or establish that anyone in Australia would commit to purchasing a unit licence in New South Wales?---No.
And it did not establish whether the concept would sell at all once it was launched?---No.
You could have been drowned in statistics and models and plans and research and modelling and overseas data and none of it would have established whether or not 1800 and that concept would make any money when it was put to the market in ...New South Wales?---You’ll have to break it up for me I’m sorry.
What I’m suggesting to you is that you could have been drowned in all sorts of statistics and models and plans and research and modelling but none of it would establish conclusively whether the concept would make any money in New South Wales?---Conclusively no.
The proof of whether or not the concept would succeed or not was ultimately and could only be determined when the product or concept went to the market?---Yes.’
152 In their written submissions, the respondents point to the fact that the alleged inadequacies of the business system or model were not a matter which seemingly precluded both the Hortons and the Grettons from marketing the business to the market from February 2002 onwards in a variety of ways to sell unit licences for large sums to members of the business communities in Queensland and New South Wales. According to the respondents, the most crucial issue, which both applicants have purposely left unanswered, is what precisely were both applicants content to sell if, as they now claim, there was no content in existence to their knowledge when they themselves went to the market? It was submitted that trade practices law does not offer protection in this situation. Either:
(a) the applicants knew in February 2002 that the 1800 business had no business systems, know-how etc. yet attempted to sell unit licences irrespective of this knowledge, which, if true, is a major factor in this Court’s assessment of the applicants’ credibility; or(b) the applicants both experienced some moment of epiphany in May/June 2002 and discovered, for the first time then, that no business systems existed; or
(c) the applicants’ knew precisely what comprised the 1800 system and, after three months of not earning income, decided to pull out of the venture and assert, ex post facto, that it had no content and that they were deceived.
The respondents submitted that the third scenario is the only one open on the evidence and I agree.
The Other Bannerhey Representations
153 (a) The representations that ‘the 1800 000 000 number was fast becoming the most called number in Australia’, if it was made, was totally false. However, in the face of the first preliminary finding of fact in [144] above, Mr Gretton knew it was false at the time Bannerhey entered into the Bannerhey Master Licence Agreement; it follows that, at that time, it could not be characterised as misleading or deceptive.(b) The representation that ‘a comprehensive business system and model had been developed by 1800 for Australia and Queensland’ has already been the subject of analysis under the Unique Business System Representation and, for the reasons there given, is not misleading or deceptive, even if made in full.
(c) I find that the representation ‘the area of Brisbane had been divided into 10 distinct territories’ was not made in those terms. I find that Mr Antony Jacobson represented to Mr Gretton that it was intended to divide Queensland into at least 10 territories and no evidence was adduced to suggest that this was not his intention; indeed, Mr Gretton’s evidence was that this is what Mr Antony Jacobson told him at the first Bannerhey meeting.
(d) While Mr Gretton’s evidence was that Mr Antony Jacobson represented at the first Bannerhey meeting that ‘the Applicant would have its investment back within the first few months of operating the Master Licence Business’, in cross-examination Mr Antony Jacobson vehemently denied this. For the reasons given at [79], [80], [84] and [119] above, I prefer the evidence of Mr Antony Jacobson on this particular issue, and find that the alleged representation was not made.
(e) No evidence was led through Mr Gretton that at the first Bannerhey meeting Mr Antony Jacobson represented to Mr Gretton that ‘each State would be licensed to a master franchisee with the exception of Victoria and possibly Tasmania which would be company operated’. In its defence, 1800 said that it represented to Mr Gretton that it was the intention of 1800 to retain at least Victoria and Tasmania to be operated by 1800 but otherwise denied the representation alleged. In the circumstances, I am not prepared to find that a representation in the terms alleged was made; and even if it was, I would not be prepared to find that Bannerhey entered into the Bannerhey Master Licence Agreement in reliance upon it.
154 Having regard to the evidence of the Grettons, or rather the lack of it, as to what was said by the Jacobsons at the Bannerhey Melbourne meeting, reference to which is made in [83], [95], [96] and [99] above, the evidence does not support findings that any of the representations comprising the 26 June Representations (a) to (e) inclusive were in fact made at the Bannerhey Melbourne meeting. In its defence, 1800 admitted that it represented that a business system and plan had been developed since 1999, but otherwise denied the representation alleged in (a); it also said that it represented to Mr Gretton that 1800 planned to provide initial training to State Master Licensees to further explain to the Licensees and to discuss and consult with the Licensees as to the operation of the 1800 business in accordance with the 1800 Business Model, but otherwise denied the representation alleged in (a). Under the heading Particulars, it was alleged that representation (b) – ‘the Master Licensee would have very high returns from large corporations with little risk as a result of the value of the 1800 000 000 number’ – was also made in writing by Mr Antony Jacobson by way of a document entitled ‘Queensland Illustrative Cash Flow’ provided to Mr Gretton at the Bannerhey Melbourne meeting. I have been unable to find in this document anything even resembling such a representation.
155 Again, there was little or no evidence from Mr Gretton to support findings that the representations in (a), (b), (c), (e) and (f) were made. There was some evidence from Mr Gretton which might be seen as supporting a finding that the representations in (d) were made – ‘the Master Licence Business would definitely generate the income in the Revised Queensland Illustrative Cash Flow’ – but as I have already indicated at [84] above, I do not accept that evidence. There was also some evidence from Mr Gretton that Mr Antony Jacobson told him there was to be a training session and conference in Port Douglas, but that is as far as his evidence went; it certainly did not support a finding that a representation in terms of (f) was made. In its defence, 1800 made the same admissions in respect of the representations alleged in (a) and (f) as it made in respect of the representations alleged in (a) and (e) of the 26 June Representations.
156 Again there was a dearth of evidence from the Grettons as to what was said by them and the Jacobsons at the Bannerhey completion meeting. Perhaps little was said; Mr Gretton said in cross-examination that the meeting was not long – about half an hour, an hour. In its defence 1800 made the same admission in respect of the representation alleged in (a) as it made in respect of the representation alleged in (e) of the 26 June Representations and in (f) of the June/July Representations. It also admitted that after the Bannerhey Master Licence Agreement was signed, Mr Andrew Jacobson, when asked by Mr Gretton whether he should give notice to Ricoh then, said it might be a breach of Mr Gretton’s duties to his employer if he were to attend Port Douglas or to commence operating the 1800 000 000 business in Queensland while he was in full time employment and that he may be required under his contract with Ricoh to give four weeks notice and that this may require Port Douglas to be postponed, to which Mr Gretton replied that less notice would be sufficient. In her evidence, Mrs Gretton confirmed that the subject of Mr Gretton leaving Ricoh was only raised after the Bannerhey Master Licence Agreement was signed so that whether a representation was made in the form alleged in (e), or whether what was said on the subject was confined to 1800’s admission, I am satisfied that in neither case was it relied upon by Bannerhey in entering into the Bannerhey Master Licence Agreement.
157 The same applies to the other alleged representations. There is some evidence which points to the representations in (a), (b), (c) and (d) having been made, but the evidence of the Grettons as to what was said and by whom at the Bannerhey completion meeting was so vague and imprecise that such evidence could not, alone, support any finding that any such representation was made in the terms alleged. That aside, I am not persuaded that if representations in the terms alleged in (a), (b), (c) and (d) of the 2 August 2001 Representations were made at the Bannerhey completion meeting, that they were relied upon by Bannerhey in entering into the Bannerhey Master Licence Agreement. The Grettons came to the Bannerhey completion meeting to purchase the master licence for Queensland and with a cheque to be handed over in payment of the purchase price. That is what occurred and in so doing I find that nothing that was said at that meeting was relied upon by the Grettons in coming to and making that decision.
The Other Horton Representations
158 (a) The representation that ‘a full business system and model had been developed by 1800 for Australia and New South Wales’ has already been the subject of analysis under the Unique Business System Representation and, for the reasons there given, is not misleading or deceptive, even if made.(f) I find that the representation ‘New South Wales had been divided into 15 distinct territories’ was not made in those terms. I find that Mr Antony Jacobson represented to Mr Horton that it was intended to divide New South Wales into at least 15 territories of 30 categories and no evidence was adduced to suggest that this was not his intention; indeed, Mr Horton’s evidence was that this is what Mr Antony Jacobson told him at the first Horton meeting.
(g) Mr Horton gave evidence that in response to a question he put to Mr Antony Jacobson, Mr Antony Jacobson had said to him that they had received in excess of 300 phone calls as a result of the advertisement Mr Horton had seen in the Australian Financial Review. In cross-examination Mr Antony Jacobson denied this. Irrespective of whose story I accept, there is nothing in the evidence to suggest that these callers were persons interested in taking unit licences in New South Wales, which lies at the heart of the representation alleged in (c). On the basis of that evidence, I am unable to find that a representation in the terms alleged in (c) was made.
(h) Mr Horton gave evidence that in response to a question put to Mr Antony Jacobson, Mr Antony Jacobson said that, in addition to the master licences in New South Wales and Queensland, they would be licensing the rest of Australia, except for Victoria which they would keep for themselves and Tasmania. This is largely consistent with the admission in the respondents’ defence, however, I would not be prepared to find that the Hortons entered into the Horton Master Licence Agreement in reliance upon such a representation. There is nothing in the evidence to suggest that it was in any way relevant to their decision-making process.
159 (a) In its defence, 1800 admitted that a business system and plan had been developed since 1999, but otherwise denied the representation alleged in (a). The evidence of Mr Antony Jacobson in relation to the time it had taken to develop the business system and plan was consistent with this representation and he was not challenged in respect of it. Accordingly, if the representation was made, there is no evidence to suggest that it was false. The system itself was ready to launch the Master Licence Business even if the promotional and sales material for use in that business had not been prepared and published.(b) The representation alleged in (b) – ‘the Master Licensee would have very high returns from large corporations with little risk as a result of the value of the 1800 000 000 number’ – was said to have been made in writing, as well as orally. The writing was said to have been contained in a document entitled ‘Franchise Service Business Plan’, including an Illustrative Cash Flow Model (NSW) (Exhibit DJH6 to the Affidavit of David Horton dated 9 June 2004). There was some evidence from Mr Horton that Mr Antony Jacobson made a representation along these lines, although not in the precise terms, but this was vehemently denied by Mr Antony Jacobson. I have been unable to find anything resembling such a representation in the written documents identified, the closest being:
‘The 1800 000 000 franchise system provides franchisees with the opportunity of unprecedented business demand and has been purpose developed to take advantage of:
...
i. The opportunity for unparalleled income generation and business growth ...’
A long way from the representation pleaded. In the circumstances, I prefer the evidence of Mr Antony Jacobson.
(c) The allegation that Mr Antony Jacobson represented that he ‘...had many contacts that would sign up immediately once the Master Licence Business was launched’, had some support in the evidence of Mr Horton although, again, not in the precise terms of the pleading. The evidence of Mr Horton was that Mr Antony Jacobson said that only some of these contacts would sign up. Again, the representation was denied by Mr Antony Jacobson and again I prefer his evidence. In the face of the failure of the Hortons to sell any unit licences in New South Wales in the February – April 2002 period when they went to the market there is no evidence to suggest that Mr Horton raised with or queried the Jacobsons on the whereabouts or identity of the many contracts they had who were going to sign up.
160 These representations were all denied save that in the case of the representation in (f) it was admitted that 1800 represented that it planned to provide initial training and ongoing support to State Master Licensees to further explain to the Licensee and to discuss and consult with the Licensees as to the operation of the 1800 business in accordance with the 1800 Model. It is instructive to compare the alleged representations with Mr Horton’s evidence as to what he said to Mr Antony Jacobson and what Mr Antony Jacobson said to him on the occasion of the second Horton Melbourne meeting. He was asked by his counsel whether he recalled what was said when the meeting first started and he said:
‘Well, I recall some of it. I recall one of my questions to Antony Jacobson was, What would I get as master licensee for $400,000, it seems to be a lot of money to pay for a five year licence? Antony Jacobson said to me that – he said it was excellent value for the $400,000. He said that they had been offered millions for this – just for the number, and that coupled with the business systems that they had developed that the number and the business system was obviously worth a lot more, so the $400,000 for New South Wales was excellent value. He also said to me that it’s excellent value because a master licensee will get their money back in six months with the revenue stream that will accrue from this and even in fact maybe four months. He also said to me that the $20,000 for the unit licensees was actually a conservative figure and that he would have no problems actually selling it for more than that, so in fact the business model, in a financial sense, was a very conservative number. I asked Antony Jacobson, Well, that’s all very fine, Antony, but what have you got to back up this claim of this wonderful business model and business system? Antony said to me that they had a whole business system developed, that it consisted of the marketing plans which within the marketing plans were all the sale criteria, the sales methodology, that the advertising proposals had been developed, that they had proprietary technology, that they had software interface, that they had business systems and documentation put together and that all of that had come about because of the years of work that they had done on the business system that they were offering. I asked Antony Jacobson whether I could see the material but again I was told that this material was confidential and sensitive information, commercial information, in fact the IP, intellectual property of the company, and that it would only be released again to master licensees once they were signed up. However, as Antony said to me, he said, You will be getting comprehensive training, you would have noticed in the master licence agreement that we offer five days comprehensive training followed up by I think it was two or three days extra training after that comprehensive training at your premises if you’re the master licensee. During that comprehensive training all of this material and back up and all of these studies and all of the methodologies that we have in place will be revealed to you. I said, Well, Antony that’s fine except that I would need some evidence that there is some of these systems in place and I particularly would like to look at some of your marketing plans. Antony once again said to me, I cannot disclose our full marketing plan to you, it is sensitive information as I’ve said, however what I will do for you, David, is give you some copies to look at of our summary marketing plan, which he did give me some copies but he said to me, You can’t take this material away with you.’
161 Mr Horton’s evidence was that he was given part of the Marketing Plan (pages 426 to 432 of the bundle) to read, not the whole of the document entitled Marketing Plan (pages 422 to 433 of the bundle). Mr Antony Jacobson’s evidence was that he gave him the whole document. Again, I prefer the recollection of Mr Antony Jacobson; there is nothing on pages 422 – 425 and 433 which would explain why they were withheld.
162 Mr Horton was asked about his discussions with Mr Antony Jacobson concerning what it was he was allowed to read and he said:
‘I recall asking Antony Jacobson about the different elements of the licence initiatives, sales force initiatives because I wasn’t clear on what they were.
And what did he say to you?---He explained to me that there were various levels of licensing. There were the licences for the unit licences of each category of business in each territory. Then there were state licences where a business would take a licence for the whole of the state to utilise their 1800 business system and that there was a licence system for a corporation that wished to take it for the whole of Australia. He said that they had developed, particularly the advertising plans around tapping these target areas and he took me through the licence to print money slogan and the like that is in the rest of this plan.
...
And do you recall asking any further questions about this extract of the marketing plan document that you were given on that occasion?---I do recall asking a question about how this was going to be delivered as far as advertising goes and Antony Jacobson told me at the time that they were hoping to get Cathy Freeman involved in one of these advertising programs.
Do you recall how long the discussions lasted during the meeting on 4 July 2001 on the marketing plan matters?---I recall that the marketing and sales side of things occupied the best part of that morning.
Now was there anything else, if you want to look through those pages please avail yourself of the opportunity, is there anything further that you recall that you can assist his Honour on in relation to things that might have been said in relation to the marketing plan at that meeting?---I did say to Antony that it was interesting to see that they had already developed some concrete advertising to support what he said was in the business system but Antony said there were other initiatives involved in the sales and marketing as well that would only propel things even further than that would. ...’
163 Mr Horton was then asked whether any other documents had been shown to him during the third Horton Melbourne meeting and he referred to the franchise services business plan. He was asked:
‘How long was the discussion about the contents of the franchise services business plan during the 4 July meeting?---I can’t recall the length of it.
Do you recall anything further said about that document?---I did again ask Antony and I think Andrew was there when I asked this question as well, I asked what was the research and the back up data and material that supported the statements made in the franchise services business plan and I was assured by Antony Jacobson that he said, we have had that extensive research done and the business plan has actually been put together on the basis of the opportunity of the number that we purchased and own and the business systems that we have developed from those studies.’
164 In relation to his visit to the call centre, Mr Horton was asked:
‘Now who accompanied you to this call centre on 5 July?---Antony, sorry, Andrew Jacobson went with me to the call centres, centre and he introduced me to the call centre manager and I was taken for a tour to see what was actually in a call centre and partly how it operated.
Do you recall having any conversation with Mr Andrew Jacobson on 5 July while visiting the call centre?---I recall asking Mr Jacobson how the call centres would interface with the 1800 business system and Mr Jacobson said that they, meaning the 1800 Pty Limited, would have some software developed or an interface of software that would fit with a call centre to enable the 1800 business system to operate as far as the technological side of it went and that’s basically the only discussion I recall about the actual system fitting together with a call centre.’
165 From the evidence of Mr Horton referred to at [160] above there is some evidence to support the allegation that the representation in (b), if not (a), was made although the evidence does not go so far as to support the representations in their full detail. I draw here a distinction between his evidence concerning the Marketing Plan at [160] with which the alleged representations in (a) and (b) are concerned and his evidence concerning the Franchise Service Business Plan referred to at [163] above. As noted in [160] above, the Jacobsons denied having made these representations but even if they were made, I do not think they were relied upon by Mr Horton in the process of deciding to enter into the Horton Master Licence Agreement. What was important to Mr Horton and relied upon by him in his decision-making process, at least according to his own evidence, was the material in the Marketing Plan which, until the second Horton Melbourne meeting had been withheld from him in its entirety. On the occasion of that meeting, according to Mr Horton’s evidence, a substantial part, but not the whole, of that plan was disclosed to him. It was his reading and consideration of the material in the Marketing Plan that led him further. So much is to be gleaned from his evidence at [160] above:
‘Well, Antony that’s fine except that I would need some evidence that there is some of these systems in place and I particularly would like to look at some of your marketing plans.’
After reading and considering what I prefer to believe was the whole of the Marketing Plan, there was apparently no further complaint as to the material it contained until the particularisation of the Unique Business System Representation came to the surface in the amended statement of claim.
166 The representations in (c) and (d) are denied although Mr Horton was quite categorical in his evidence, referred to at [160] above, that Mr Antony Jacobson had made these representations at the second Horton Melbourne meeting. But if they were made, it is quite clear from Mr Horton’s own evidence that he did not rely on them in deciding to enter into the Horton Master Licence Agreement. In responses to these representations, Mr Horton’s evidence was that he said to Mr Antony Jacobson:
‘Well, that’s all very fine, Antony, but what have you got to back up this claim of this wonderful business model and business system?’
167 I have been unable to identify any evidence in support of the allegation that a representation in terms of (e) was made; it is denied, and in the absence of any evidence to the contrary, I am not persuaded it was made.
168 As noted in [160] above, the representation in (f) was admitted to the extent therein indicated. There was no evidence to support a conclusion that the admitted representation was false and even if the alleged representation in (f) was made, I am not persuaded, for the reasons advanced in [165] above, that it was relied on by Mr Horton in entering into the Horton Master Licence Agreement.
169 Mr Horton gave evidence – see [160] above – that would support a conclusion that a representation along the lines of (g), if not in its precise terms by reference back to (a) and (b), was made but again I am not persuaded, for the reasons advanced in [165] above, that it was relied on by Mr Horton in entering into the Horton Master Licence Agreement.
170 These representations were all denied. Mr Horton’s evidence as to what was said and by whom at the third Horton Melbourne meeting was less than satisfactory for the reasons referred to at [100] and [104] above. Mr Horton gave evidence that the representation in (a) was made by Mr Antony Jacobson, not by the Jacobsons as pleaded. There was no evidence to support the making of the representation in (b). But even if the representations in (a) and (b) were made by the Jacobsons as pleaded, they were not, in my view, relied upon by the Hortons in entering into the Horton Master Licence Agreement for New South Wales.
171 Mr Horton knew that any representation in terms of that alleged in (c) – the 1800 business model was proven – was false. According to his evidence, even his wife knew it was false.
172 The representation in (d) is not supported by any evidence; it fell, presumably, within Mr Horton’s ‘fading memory bank’, but in any event its character and standing is no different from the representation alleged in (c) of the 4 July Representations as to which see [166] above.
173 After considerable deliberation which has taken too long, principally because I allowed the parties too much latitude in the submissions they made, both in terms of the time I allowed them and their sheer volume – the applicants filed 290 pages of submissions and the respondents 97 pages – I have come to the conclusion without any real doubt and notwithstanding the time my deliberation has taken, that the applicants’ claims in both proceedings by reference to their respective pleadings and the evidence adduced, or rather not adduced, in support of those pleadings, have no foundation.
174 Moreover, pleadings aside, during the course of hearing the evidence I formed a view, a view which despite having heard oral, and having read voluminous written, submissions, I have not been able to dispel, that the applicants in both proceedings entered into their respective Master Licence Agreements not in reliance on misleading and deceptive conduct on the part of the respondents, but in reliance on their attraction to the telephone number and their respective perceptions, based on their successful experiences in franchise operations, of its potential to make money. There is no doubt that their attraction and interest in this regard was fostered and promoted, indeed flamed, by the enthusiasm of the respondents for the number and the underlying concepts and ideas the respondents had in mind for its exploitation, in particular the unit sub-licensing system. But it was only when the applicants in both proceedings realised that that potentiality was as ‘dead as a doornail’, to use the words of Mr Gretton, that they formed the view they had been misled and deceived. Prior to that time they were ready, willing and able to sell ‘the product’ into the market in respect of which their monopoly existed, and attempted to do so.
175 I have no doubt that the respondents, if not both of them, then certainly Mr Antony Jacobson, through his enthusiasm for ‘the product’ and his belief in what he perceived to be its inevitable success made boasts in relation to its potentiality which went beyond the truth. But I also believe that the applicants in both proceedings recognised these boasts for what they were and did not rely on them for that reason or because they knew them to be false. The unique business system representation illustrates the point, as the respondents concede in their written submissions: ‘There is no question that the initial advertisements and discrete statements contained in 1800 000 000’s website (and Franchise Services Business Plan) were untrue to the extent they asserted that 1800 was a fast growing business’. The evidence establishes that at the time the Master Licence Agreements were executed both applicants knew that this was not so and hence cannot be held to have been deceived.
176 But I am not prepared to find that the initial false claim, known to be such by the applicants in both proceedings at the time they entered into their respective Master Licence Agreements, in some way infects or otherwise stains the findings I have otherwise made on the balance of the pleadings in the face of the evidence.
177 I was referred to a passage from the reasons of Nettle JA in Steutel v Kimple Pty Ltd [2005] VSCA 312 which seems to me to be apposite to this case. At [43] his Honour said:
‘But as Chernov JA makes plain, conduct is only misleading or deceptive if it is capable of inducing error. Whether it is misleading or deceptive is therefore a question of fact to be determined in the context of the known facts and circumstances. In the end, conduct cannot be characterised as misleading or deceptive unless it conveys a misrepresentation. And if the circumstances of its communication, and the state of knowledge of the recipient, are such as to prevent misrepresentation, it matters not that in other circumstances the result could have been different.’
178 In each proceeding the application must be dismissed with costs.
179 No substantive attempt was made by 1800 and the Jacobsons to press their amended cross-claims against Bannerhey and the Grettons or against the Hortons, apart from four paragraphs at the conclusion of the respondents’ written submissions, and even they were confined to the alleged undischarged obligations of the applicants to pay the amounts to the respective Territory Promotion Funds pursuant to clause 14.16.1 of the respective Master Licence Agreements - $50,000 in the case of Bannerhey and $100,000 in the case of the Hortons. The applicants both submitted that the cross-claims were baseless given the respondents misleading and deceptive conduct. Effectively, there was no other submission.
180 No evidence was called by either side in either proceeding and, indeed, no evidence was put on other than the respective Master Licence Agreements and evidence going to the non-payment of the amounts payable to the respective Territory Promotion Funds.
181 In the circumstances, I propose to dismiss the amended cross-claims but
without any order as to costs.
Associate:
Dated: 8
February 2008
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Solicitor for the Applicants in NSD 544 of 2003:
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Baybridge Lawyers Pty Ltd
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Counsel for the Respondent NSD 544 of 2003:
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Mr G A Sirtes
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Solicitor for the Respondent NSD 544 of 2003:
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Jacobsons Lawyers
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Counsel for the Applicants in NSD 545 of 2003:
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Mr J V Gooley
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Solicitor for the Applicants in NSD 545 of 2003:
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Baybridge Lawyers Pty Ltd
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Counsel for the Respondents NSD 545 of 2003:
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Mr G A Sirtes
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Solicitor for the Respondents NSD 545 of 2003:
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Jacobsons Lawyers
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Date of Judgment:
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URL: http://www.austlii.edu.au/au/cases/cth/FCA/2008/53.html