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Pampered Paws Connection Pty Ltd (ACN 116 460 621) (on its own behalf and in a representative capacity) v Pets Paradise Franchising (QLD) Pty Ltd (ACN 054 406 272) (No 3) [2009] FCA 138 (20 February 2009)

Last Updated: 11 March 2009

FEDERAL COURT OF AUSTRALIA


Pampered Paws Connection Pty Ltd (ACN 116 460 621) (on its own behalf and in a representative capacity) v Pets Paradise

Franchising (QLD) Pty Ltd (ACN 054 406 272) (No 3)

[2009] FCA 138


PAMPERED PAWS CONNECTION PTY LTD (ACN 116 460 621) (ON ITS OWN BEHALF AND IN A REPRESENTATIVE CAPACITY) v PETS PARADISE FRANCHISING (QLD) PTY LTD (ACN 054 406 272), PETS PARADISE FRANCHISING (SA) PTY LTD (ACN 069 620 391), PETS PARADISE FRANCHISING (NSW) PTY LTD (ACN 006 919 222), GLOBAL PET PRODUCTS PTY LTD (ACN 005 666 599), PETS PARADISE (FRANCHISING) PTY LTD (ACN 006 626 455), PETS PARADISE PTY LTD (ACN 005 558 378), PARADISE RETAIL HOLDINGS PTY LTD (ACN 105 253 441) and GARY DIAMOND


SAD 142 of 2008


MANSFIELD J
20 FEBRUARY 2009
ADELAIDE


IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
SAD 142 of 2008

BETWEEN:
PAMPERED PAWS CONNECTION PTY LTD (ACN 116 460 621) (ON ITS OWN BEHALF AND IN A REPRESENTATIVE CAPACITY)
Applicant
AND:
PETS PARADISE FRANCHISING (QLD) PTY LTD (ACN 054 406 272)
First Respondent

PETS PARADISE FRANCHISING (SA) PTY LTD (ACN 069 620 391)
Second Respondent

PETS PARADISE FRANCHISING (NSW) PTY LTD (ACN 006 919 222)
Third Respondent

GLOBAL PET PRODUCTS PTY LTD (ACN 005 666 599)
Fourth Respondent

PETS PARADISE (FRANCHISING) PTY LTD (ACN 006 626 455)
Fifth Respondent

PETS PARADISE PTY LTD (ACN 005 558 378)
Sixth Respondent

PARADISE RETAIL HOLDINGS PTY LTD (ACN 105 253 441)
Seventh Respondent

GARY DIAMOND
Eighth Respondent

JUDGE:
MANSFIELD J
DATE OF ORDER:
20 FEBRUARY 2009
WHERE MADE:
ADELAIDE

THE COURT ORDERS THAT:


  1. The matter be adjourned to 10:15 am on Friday, 27 February 2009 for the parties to confer and to propose the form of orders the Court should make in the light of these reasons.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.


IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
SAD 142 of 2008

BETWEEN:
PAMPERED PAWS CONNECTION PTY LTD (ACN 116 460 621) (ON ITS OWN BEHALF AND IN A REPRESENTATIVE CAPACITY) Applicant
AND:
PETS PARADISE FRANCHISING (QLD) PTY LTD (ACN 054 406 272) First Respondent PETS PARADISE FRANCHISING (SA) PTY LTD (ACN 069 620 391) Second Respondent PETS PARADISE FRANCHISING (NSW) PTY LTD (ACN 006 919 222) Third Respondent GLOBAL PET PRODUCTS PTY LTD (ACN 005 666 599) Fourth Respondent PETS PARADISE (FRANCHISING) PTY LTD (ACN 006 626 455) Fifth Respondent PETS PARADISE PTY LTD (ACN 005 558 378) Sixth Respondent PARADISE RETAIL HOLDINGS PTY LTD (ACN 105 253 441) Seventh Respondent GARY DIAMOND Eighth Respondent

JUDGE:
MANSFIELD J
DATE:
20 FEBRUARY 2009
PLACE:
ADELAIDE

REASONS FOR JUDGMENT

  1. This matter has progressed along a bumpy path to date. This judgment concerns another obstacle or set of obstacles on that rough path. The respondents say that the current obstacles will force the matter off the path in a way which cannot be redeemed. I propose to give the parties, but more particularly the applicant, the opportunity to consider the reasons for my judgment before making further orders. Hopefully, the applicant will present some proposed orders which will ensure that the matter now progresses speedily and efficiently, and which also secures procedural fairness for the respondents.

THE PROCEDURAL HISTORY

  1. The application was commenced on 12 September 2008 under Pt IVA of the Federal Court of Australia Act 1976 (Cth) (the FCA Act) (by application and supporting statement of claim). It was commenced as a representative action on behalf of “current and former Pampered Paws Franchisees” including 11 nominated franchisees. There were a range of causes of action, and a range of sources of relief in respect of the causes of action identified. I shall refer to those claims as expressed in the current amended statement of claim shortly.
  2. On 23 September 2001, the applicant by motion sought interlocutory injunctive relief against the first to fourth respondents restraining them from progressing separate proceedings against members of the group to recover debts allegedly owing to one or more of them, and to restrain the first to third respondents from relying upon a notice of default of 29 August 2008 given to two of the nominated franchisees, Marshelle Pty Ltd (Marshelle) and Whiley Investments (Qld) Pty Ltd (Whiley). Interim orders were made. That motion was dealt with on 24 October 2008. The injunctive relief was refused: see Pampered Paws Connection Pty Ltd (on its own behalf and in a representative capacity) v Pets Paradise Franchising (Qld) Pty Ltd [2008] FCA 1606.
  3. On 3 October 2008, the respondents by motion applied to transfer the proceedings to the Victorian Registry of the Court pursuant to s 48 of the FCA Act. That motion has been stood over from time to time for reasons which are obvious. Depending upon the outcome of the interlocutory issues, including the current motion, it may not be necessary to progress it.
  4. On 10 October 2008, the respondents by motion applied to strike out the application and the statement of claim. That motion too was dealt with in the judgment of 24 October 2008. The statement of claim was struck out and the applicant given leave to re-plead.
  5. Whiley and Marshelle then applied on the previous motion of 23 September 2008 for an interlocutory injunction to restrain the first and third respondents from terminating their respective franchise agreements. The first and third respondents had given notice of intention to do so on the day following the judgment delivered on 24 October 2008, as the Court declined to restrain the first to third respondents from acting on their notices of default referred to above. Again, following interim orders pending the hearing, on 13 November 2008 that application was also refused: Pampered Paws Connection Pty Ltd (on its own behalf and in a representative capacity) v Pets Paradise Franchising (Qld) Pty Ltd [2008] FCA 1716. I was subsequently told that those two franchisees, Marshelle and Whiley had thereafter paid the outstanding alleged indebtedness to their respective respondents, and that their franchise agreements had not been terminated.
  6. On 10 November 2008, pursuant to the leave given on 22 October 2008, the applicant filed and served an amended statement of claim (the ASOC).
  7. There are presently three issues to be addressed:
    1. The respondents, in accordance with and relying on their earlier motion of 10 October 2008, have applied for the ASOC to be struck out;
    2. The respondents also seek to “strike out” the application, so as to prevent it proceeding as a representative action on the grounds that ss 33C(1)(a), (b) and (c) of the FCA Act are not satisfied. The issue as to whether, if that application is unsuccessful, the matter should nevertheless be directed not to proceed as a class action or a representative action by reason of s 33N of the FCA Act was not argued, but for reasons which appear below, I consider that to be an important matter; and
    3. The respondents have also sought the costs of the various interlocutory proceedings to date.
  8. The principal issue argued, at least in terms of the time allocated to it and the relative length of the written submissions, was whether the ASOC should be struck out. The respondents assert, correctly, that they are entitled to know by the ASOC the case they have to meet: see Dare v Fulham [1982] HCA 70; (1982) 148 CLR 658 at 664. It is and always has been a fundamental principle that the opposite party in litigation should be fairly apprised of the nature of the case it is required to meet, so as to ensure a fair trial and to guard against that party being taken by surprise: see Thorp v Holdsworth (1876) 3 Ch D 637 at 639.
  9. For reasons which appear below, issues about the quality of the ASOC are to a degree related to the issue whether the action should proceed as a representative action. Certain of the challenges to the adequacy of the ASOC concerned the allegations directed to the group claims against the group respondents. Others concerned the allegations by the applicant against the first respondent (its franchisor) and the other respondents with whom it directly dealt, before expanding those allegations to the involvement of the respondents. Depending on whether the action is to proceed as a representative action, the ASOC may need to be confined and the former category of alleged inadequacies in the ASOC – that is the group claims against all respondents – may become moot.

THE AMENDED STATEMENT OF CLAIM

  1. It is convenient to break up the ASOC into nine sections, although in fact it has 14 headings.
    1. the applicant and the group;
    2. the respondents;
    3. the Pets Paradise Business;
    4. misleading and deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth) (the TP Act), including involvement of all the respondents in that conduct;
    5. exclusive dealing contrary to s 47(6) of the TP Act, including the involvement of all the respondents in that conduct;
    6. breach of the Franchising Code of Conduct (the FCC), including involvement of all the respondents in that conduct;
    7. unconscionable conduct contrary to ss 51AA and 51AC of the TP Act and involvement of all respondents in that conduct;
    8. breach of contract and interference with contractual relations; and
    9. relief.

1. The applicant and the group

  1. The applicant became a franchisee of a Pets Paradise store at Burleigh in Queensland from 10 March 2006. It is also alleged that at least 72 Pets Paradise franchises had been granted since August 1990 by one or other of the first, second or third respondents. The applicant brings the application on its own behalf and in a representative capacity on behalf of “former and current” Pets Paradise franchisees, including 11 nominated franchisees (including Whiley and Marshelle, which have Pets Paradise franchises, in Queensland and South Australia respectively).
  2. There is no pleading challenge to that part of the ASOC. However, at certain points in the ASOC there is a distinction drawn between all franchisees and current franchisees of one or other of the first three respondents. There is also an assumption that the critical documentation and conduct of one or other of the respondents has relevantly been the same since 1990 to the present time. That may be a deliberate and accurate assumption, but the reference to “current” franchisees tends to suggest that it is not.

2. The respondents

  1. The first to sixth respondents are said to be trading corporations with their holding company being the seventh respondent. The sole director of all the corporate respondents is the eighth respondent. The eighth respondent is also said to be the managing director of each of the respondents. Hence, each of the corporate respondents is a related corporation for the purposes of s 50 of the Corporations Act 2001 (Cth).
  2. By his roles in each of the corporate respondents, the eighth respondent is said to have had knowledge of, and direct involvement in, the commercial conduct and business activities of each of them, and to have directed and authorised the commercial conduct and business activities of each of them. Hence, he is said to have been a person directly or indirectly knowingly concerned in or party to the conduct of the corporate respondents. [I note that paragraphs 12.4, 12.5 and 12.6 of the ASOC refer to him being so involved only with the first six corporate respondents, but I suspect that is simply an oversight and can be readily corrected; the respondents took no point about that.]
  3. The respondents contend that the allegation that the eighth respondent was directly or indirectly knowingly concerned in or party to conduct of the corporate respondents, insofar as it contravened provisions of the TP Act, cannot stand because it assumes that the eighth respondent was, or should have been, aware of the matters about which the complaint is made.
  4. The allegations in para 12.4-.6 are general in nature. However, in my view, they are sufficient to put the respondents collectively on notice as to the case they have to meet and, in particular, the eighth respondent.
  5. In Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661, in the judgment of Mason ACJ, Wilson, Deane and Dawson JJ, their Honours said at 670 that:
There can be no question that a person cannot be knowingly concerned in a contravention [of the TP Act], unless he has knowledge of the essential facts constituting the contravention ... In our view, the proper construction [of the TP Act] requires a party to a contravention to be an intentional participant, the necessary intent being based upon knowledge of the essential elements of the contravention.

In that case, the managing director of a corporate land agent had acted as the mere conduit to convey to the purchaser of a business information as to the turnover of the business which had been conveyed to his company, the land and business agent for the sale. The individual managing director was found not to have been knowingly involved in that contravention because he did not have knowledge of the essential matters which made up the offence.

  1. There remains some debate as to the extent of the knowledge required. It clearly does not involve knowledge of the fact of the contravention, but it does involve knowledge of the facts which constitute the contravention. Whether constructive knowledge, or wilful blindness, is sufficient is still debateable: see Australian Competition and Consumer Commission v IMB Group Pty Ltd [2003] FCAFC 17 at [133]- [135] and compare King v GIO Australia Holdings Pty Ltd [2001] FCA 308; (2001) 184 ALR 98 at [7]- [12].
  2. In this instance, however, in my view the allegations about the eighth respondent are sufficient. The eighth respondent is asserted to have been directly involved in the introduction of what subsequently in the ASOC is called the Pets Paradise Business Model, to have introduced the systems it involved (subsequently no doubt implemented by other staff), and to have been in direct control of the day to day activities of the seven corporate respondents. It is not a matter where there is any scope for striking out that allegation against him because it does not plead actual knowledge of what was done, or where it is appropriate to strike out the allegations because it is not clear to him what case he needs to face or to the respondents as to what case they need to face. He is said to have designed and developed the Pets Paradise Business Model, which all of the corporate respondents then implemented and which resulted in a significant chain of Pets Paradise retail stores throughout Australia, and to have controlled and participated and directed the daily business of each. He is pleaded to have authorised the contents of the Disclosure Documents and Franchise Agreements in which relevant representations are said to have been made. Moreover, his knowledge of those matters is pleaded to be the knowledge of each of the corporate respondents.
  3. In relation to those allegations, the respondents contend that the first respondent was but a mere conduit, and therefore could not be liable for having made them. In relation to that and similar assertions made in the course of the respondents’ submissions, in my view it is clear that the allegations made by the applicant go beyond that. Each of the respondents, that is the corporate respondents, is said to be implementing part of a system through the instruction of its director, the eighth respondent, and as part of the overall system of which they are a member through their proprietorship by the seventh respondent and the control overall of the eighth respondent. In my view, it is at least arguable that in those circumstances each of the corporate respondents was jointly engaged in the conduct complained of, subject to one reservation to which I will refer in the succeeding paragraph.
  4. The reservation is in relation to the direct communication from each of the first, second and third respondents to their respective potential or actual franchisees. At first glance, it is rather a long stretch to say, for example, that the third respondent, that is the franchisor for New South Wales, engaged in the conduct of conveying the disclosure document to the applicant in Queensland.

3. The Pets Paradise business

  1. Under this heading, the ASOC makes allegations as to the respective roles of each of the respondents.
  2. Each of the first three respondents is said to carry on business in Queensland, South Australia and the Northern Territory, and New South Wales respectively granting rights to retail businesses to provide pets and pet accessories under the Pets Paradise name – that is, granting Pets Paradise franchises – and each also operated retail businesses providing pets and pet accessories under that name.
  3. The fourth respondent is the supplier of goods to operators of Pets Paradise businesses.
  4. The fifth respondent is the author and proprietor of intellectual property rights in the Disclosure Document provided to prospective franchisees by the first, second and third respondents in their respective geographical areas, and provides support services by way of legal services, copies of documents including the FCC directly or indirectly to prospective franchisees and franchisees, and from time to time receives payment of franchise fees and legal fees.
  5. The sixth respondent is said to be the proprietor of a series of four registered trade marks in relation to categories of pets and pet accessories, and licenses the use of those trade marks to the first, second and third respondents to enable them to sub-license the use of those trade marks to franchisees. It also assumes liability pursuant to hire purchase agreements to make payments in respect of fixtures and fittings used in the operation of retail businesses which are guaranteed by one or some of the other respondents. It also receives, and presumably assesses, preliminary franchise agreements from prospective franchisees.
  6. The seventh respondent operates, it appears, as a form of head office. It is said to provide legal services, accounts and management staff for the group, including for the purposes of making representations to and dealing with franchisees on its own behalf and on behalf of the first, second, third and fourth respondents.
  7. As noted above, the eighth respondent directly manages the carrying on of the business of each of those corporate respondents by means of daily control and direction of, and participation in, their respective business activities.
  8. The business of franchising retail businesses to provide pets and pet accessories under the Pets Paradise name, and of operating retail businesses itself under that name, is described or defined as “the Pets Paradise Business Model”, which is used to develop and maintain a national business comprising a chain of approximately 100 stores. Each of the corporate respondents contributes to the operation of the Pets Paradise Business Model by the several functions referred to in this section of the ASOC.
  9. The respondents’ written and oral contentions did not attack any part of this section of the ASOC, other than to contend that it was too general, and in particular that the role of the seventh respondent was not sufficiently spelled out because it did not distinguish between work done by its employees, or by its agents. In my view, this section of the ASOC identifying the relevant roles of the respondents and their relationship each with the other, together with the preceding section of the ASOC, operates adequately to put the respondents on notice as to the case they have to meet. I discuss this issue further below.

4. Misleading and deceptive conduct

  1. There are separate sections of the ASOC dealing with each of the five causes of action alleged. This section dealing with contravention of s 52 of the TP Act attracted more criticism by the respondents than the others.
  2. It starts by addressing the representations made to the applicant. They are said to be:

(a) representations in the Disclosure Document given to the applicant: the relevant parts of the document are identified, and then

(i) four express representations, and

(ii) two implied representations,

are asserted and (in only general terms) the facts are pleaded to support the claim that those representations were misleading and deceptive;

(b) representations in the proforma Franchise Agreement: again the relevant parts of the document are identified, and then five express representations are specified and (in general terms) the facts are pleaded to support the claim that those representations were misleading and deceptive. These representations are also pleaded as continuing representations, and are said to enliven s 51A of the TP Act. It is unclear whether that applies only to the applicant or to all the group members.

The Disclosure Document and the Franchise Agreement are said to have been authored and reproduced by or with the authority of the fifth respondent, and provided to the applicant or its promoter on or after September 2005 by the first respondent at the instigation of the sixth respondent. To the extent that the respondents say that the first respondent was a mere conduit of (presumably) the fifth respondent, I reject the claim that therefore the first respondent made no representations to the applicant. As appears elsewhere in these reasons, each respondent is said to have had the knowledge of the eighth respondent, and to have been part of the Pets Paradise Business Model. The eighth respondent is said to have established that model, including the role of the first respondent.

  1. Then the applicant pleads its reliance on those representations including by incorporating the applicant, by paying the deposit, by entering into the Franchise Agreement on 6 February 2006, by entering into a Supply Agreement with the fourth respondent on about the same date, by entering into a rental agreement with IT Visions Business Systems Australia Pty Ltd (IT Visions Business), by leasing its shop from 9 March 2006 from Trust Company of Australia Ltd (TCA), by entering into a fitout agreement with Budget Shopfitters Pty Ltd (Budget Shopfitters) on about 6 March 2006, and then by paying the fees for those services and various fees to the first, fourth and fifth respondents and to IT Visions Business and to TCA, and also by giving a bank guarantee to TCA. The applicant alleges it thereby suffered loss and damage. No particulars of the loss and damage are given.
  2. The ASOC then addresses the group members’ claims.
  3. Each was given the Disclosure Document and the Franchise Agreement (with the variation that, depending on the location of the particular franchisee, the provider was one or other of the first three respondents). Implicitly it alleges that each received the same representation, and that each was misleading. Each relied on the representations, by entering into the same sort of agreements (including generically where the Pets Paradise business was an existing franchise by paying to purchase that business) and by making the same sort of payments.
  4. There are necessarily some further variations which the ASOC seeks to accommodate. Occupancy of business premises is acquired through “leases with third parties or licence agreements with companies” related to the first or second or third respondents. Fitout agreements are with unspecified entities. Not all the group members had fitout agreements: some are said to have assumed the sixth respondent’s liability, guaranteed by the other respondents (except the seventh respondent), to make hire purchase payments to third party financiers for existing fitouts. The allegation of consequential loss and damage remains totally unparticularised.
  5. Finally, the ASOC alleges that each of the respondents was directly and knowingly concerned in, and a party to, the misleading and deceptive conduct pleaded through their participation in the Pets Paradise Business Model. The eighth respondent’s role is said to have been authorising the contents of the Disclosure Document and the Franchise Agreement and their provision to potential franchisees, and the daily control and direction of the business activities of the corporate respondents. No further particularity of the role of the other respondents is provided at this point.
  6. Not surprisingly, that part of the ASOC has attracted significant criticism from the respondents. The express representations from the Disclosure Document are, it was agreed, not properly pleaded as misleading or deceptive because their crux is adverbial or adjectival. That is so: the pleaded representations and why they are said to be misleading and deceptive include claims of a “sophisticated” computer reporting system; and a “strong” corporate image, including in respect of “many” exclusively packaged group products. That does not necessarily mean that the representations in those terms were not made, or were not misleading. It would not give effect to s 52 to rule, at least at this point in the proceeding, that an adjectivally expressed description of a product or of a service may not amount to a representation or may not be misleading or deceptive. That is so, whether the adjective is qualitative or quantitative. Each case will turn on its particular facts.
  7. However, as in many other acknowledged instances, the pleading is far too general for the respondents to know the case they have to meet. For example, the applicant will have to specify in a proper way why the computer reporting and management system was not “sophisticated”. I do not need to make that point repeatedly in relation to other pleas. It was a point acknowledged by senior counsel for the applicant. In the light of more specific allegations, it will be clear to the respondents what case they have to meet, if indeed in every instance where the allegations are presently too general the applicant seeks to maintain them, or the respondents simply, in effect, demur.
  8. The respondents also contend that the implied representations pleaded are simply not sustainable. In my view, the applicant’s claims in that regard are arguable and should be permitted to stand. The passages from the Disclosure Document setting out in detail the establishment costs of the applicant’s franchise, the ongoing costs and fees to be incurred, and the agreements to be entered into arguably provide a foundation for the assertion that it was represented, by implication, that it was comprehensive.
  9. The respondents’ next complaint concerned the pleaded reasons why the implied representations were misleading and deceptive. The applicant says that on about 6 February 2006 it entered into a Supply Agreement with the fourth respondent, under which it was required to accept and pay for goods ordered by the fourth respondent on its behalf. I do not accept that the fact that, subsequent to the making of a representation that (for example) no further agreements would be required which may incur significant costs, such an agreement is entered into, means that the representation was not made or was not misleading at that time. They may not be, depending on all the circumstances. It is not appropriate to speculate further, but I reject the respondents’ contention on the point.
  10. Again, proper particularity is lacking. But the primary allegations – subject to considering one further issue – are sufficient at present not to regard the applicant’s claim on this topic as untenable.
  11. The further issue arises from the respondents’ contention that two of the “related agreements” which the applicant says were required but were not disclosed were in fact disclosed. They are the “guarantee, indemnity and acknowledgement” in favour of the fourth respondent, and the “agreement to create a charge” in favour of the first respondent (ASOC paragraphs 24.2.2 and 24.2.3). My attention was drawn to two clauses in the Disclosure Document by senior counsel for the respondents. I do not consider that cl 9.1(c) of the Disclosure Document discloses the requirement of a franchisor to grant a “guarantee”, indemnity and acknowledgment” in favour of the fourth respondent. Nor does cl 18.1(c) of the Disclosure Document in terms require a franchisee to create a charge in favour of the relevant franchisor, in the applicant’s case the first respondent. For the reasons given, the subsequent reference to such documents in the Franchise Agreement – if they are clearly there disclosed – does not necessarily lead to those paragraphs of the ASOC being struck out. I would allow ASOC paragraphs 24.2.2 and 24.2.3 to remain.
  12. The next allegations in the ASOC concern the contents of, and representations by, the Franchise Agreement. That the fifth respondent was its author does not mean that, in the light of the relationship of the respondents as pleaded, that the first respondent did not make those representations. It is arguable that it did so. Certain of the alleged representations are said by the respondents not to have been made by the Franchise Agreement, and more particularly by its contents as identified in the ASOC. Those pleaded representations are not taken directly from the words of the Franchise Agreement. As there is no other relevant communication pleaded, it is a matter of careful consideration of the Franchise Agreement to determine whether those pleaded representations were made. Although in some instances, it is appropriate to make such judgments on a pleadings issue, I decline to do so beyond the point of deciding, as I do, that it is arguable that such representations were made by the Franchise Agreement. To do otherwise, where the evidence and submissions will clearly traverse the content of the Disclosure Document and the Franchise Agreement and the conduct of the parties at relevant times, including after the Franchise Agreement was entered into, would run the risk of the applicant being prevented from contending for a conclusion that is arguably available (and might be restored by appeal). On the other hand, the anticipated nature of the evidence is such that it will work no real injustice to the respondents if their contention is ultimately successful. The length or complexity of the evidence is not likely to be significantly prolonged by the arguable pleading being allowed to stand.
  13. My comments about the inadequacy of the pleaded contravention of s 52, that is, why the pleaded representations were misleading and deceptive, in relation to the Disclosure Document apply equally, if not forcefully, to the allegations that the pleaded representations based on the Franchise Agreement were misleading and deceptive. The pleading in ASOC paragraph 27 is more assertive. Unless the allegations can be properly pleaded, so that the respondents know the case they have to meet, they should not be pursued. Clearly, as expressed, that paragraph of the ASOC cannot stand alone. There are obviously considerable obstacles to the applicant being able to properly express and maintain each of those assertions, whereas I suspect the individual experiences of franchisees varied not merely as to their turnovers and profitability, but dependent on other matter such as the relative skills and commitment of the respective franchisees or their staff and the extent of competition within a particular area. There are likely to be many other such variables. Those are matters for the applicant to consider.
  14. I have previously remarked upon the inadequate specificity in the ASOC. It extends to the allegations of loss and damage, and to the allegations upon which the claim for loss and damage is founded. That was acknowledged on behalf of the applicant.
  15. The applicant acknowledges that the ASOC dealing with the other group members claims against the respondents for contravention of s 52 of the TP Act is general. The same representations are pleaded, based upon the same documents. The same very general allegations that the representations were misleading and deceptive are made. The same very general allegations of reliance, consequential conduct (allowing for individual circumstances) and loss and damage are made. The same acceptance as to the inadequacy of particulars has been given, although for reasons given above the deficiencies may not be merely a lack of particularity. In general, though, the concerns of the respondents about those allegations in the ASOC have been addressed above.
  16. Finally, in this section of the ASOC, are the allegations by which the applicant seeks to involve each of the respondents in the conduct contravening s 52 of the TP Act alleged against the first respondent. For the reasons already given at [21] above, I do not propose to strike out these paragraphs of the ASOC.

5. Exclusive Dealing

  1. Section 47(1) of the TP Act prohibits a corporation, subject to the other provisions of s 47, from engaging in exclusive dealing in trade or commerce. The ASOC identifies s 47(6) as the relevant exclusive dealing.
  2. As each of the corporate respondents are related bodies corporate, s 47(6) as now in force and s 47(12) in its present form apply. They were substantially altered by the Trade Practices Legislation Amendment Act (No 1) 2006 (Cth), which came into force from 1 January 2007. In effect, s 47(1) does not apply to conduct by a corporation restricting dealings by or to another corporation if those corporations are related. Because the pleaded conduct concerns tying arrangements between related bodies corporate, the applicant accepts that it relies on conduct of the respondents as between themselves only up to 31 December 2006.
  3. Again, the pleaded conduct firstly concerns the applicant. On 7 October 2005, the first respondent offered it a Pets Paradise franchise on the condition that it executed a Supply Agreement with the fourth respondent, and that it install and use the “IT Visions Point of Sale system”.
  4. It is alleged that under the Supply Agreement, the applicant was required to accept and pay for goods ordered by the fourth respondent on the applicant’s behalf, and from about 10 March 2006, the fourth respondent in fact ordered goods and supplied or caused them to be supplied to the applicant. No particulars of that conduct are given. Clearly, they should be. Whether their absence should lead to the striking out of the ASOC, or that part of it dealing with exclusive dealing is a matter I shall defer for the time being. However, I consider that there is a sufficient pleading of material facts to enliven s 47(6) of the TP Act as in force up to 31 December 2006, if those facts are made out, so the conclusionary allegations in paragraph 42 of the ASOC should not be struck out as having no substantial factual basis.
  5. The same conclusions apply in respect of the particular allegations in the ASOC concerning the installation and use of the “IT Visions Point of Sale system”. The applicant pleads the source of the obligation and the fact of its implementation by a rental agreement of about March 2006. Again, there is barely enough pleaded to sustain the allegation, and obviously insufficient particularity. “IT Visions” is not further identified in that part of the ASOC or earlier defined. There is earlier reference to IT Visions Finance Pty Ltd (said to be identified in the applicant’s franchise agreement) and to IT Visions Business already referred to. Whether either of those entities is “IT Visions” is unclear; I suspect it is the latter.
  6. Why it is accepted by the applicant that tying its acceptance of the Franchise Agreement and the consequential services from the respondents or some of them to the acceptance of services from “IT Visions” is not conduct caught by s 47(6) in its present form is unclear. Presumably it is accepted that “IT Visions” is a body corporate related to the respondents, but how that is so is not explained.
  7. The subsequent allegations convert the applicant’s circumstances to those of the group members. I consider they are sufficiently, albeit very generally, pleaded so as to sustain a cause of action by each of them. That is, it is alleged that each group member received an offer of supply of services upon the same terms, so that it may have enlivened s 47(1) and (6). Each entered into a Supply Agreement and received stock pursuant to it, and entered into a rental agreement with “IT Visions”. There is no particularity of any of those claims. Clearly, the offer of supply may have come from one of the first to third respondents, depending on the geographical location of the particular group member.
  8. In all the instances, there is an unparticularised allegation of consequential loss and damage.
  9. The next part of the ASOC dealing with exclusive dealing moves from the offer to supply, to the supply of services or goods under the Franchise Agreement.
  10. The applicant has pleaded the relevant terms of the Franchise Agreement, the provision of an “Approved Stock List” and a “Store Standards Manual” prescribing the mix of stock to be maintained, and that – with some exceptions – the fourth respondent was the only approved supplier. It has pleaded the provision of stock by the fourth respondent pursuant to its obligations. Consequently, it alleges breaches of s 47(1) and (6) of the TP Act up to 31 December 2006 and consequential, but unparticularised, loss and damage.
  11. The ASOC then makes allegations about conduct of the seventh respondent of 15 November 2007, purporting to vary the Supply Agreement to require the applicant to pay in advance for stock provided by the fourth respondent as a condition of the supply of stock generally. In a way that is not readily apparent to me, especially having regard to the amendment to s 47 in effect from 1 January 2007, that is said to constitute further contravention of s 47(6) of the TP Act. At present, I am disposed to strike out paragraphs 56 to 58 of the ASOC. There may be further material facts which are not yet pleaded but which may be pleaded and which justify its retention.
  12. The respondents contend that this section of the statement of claim fails to disclose a cause of action for misleading and deceptive conduct and should be struck out for that reason. They also contend that it does not indicate the case they have to meet with sufficient detail to enable a fair trial of those issues. Apart from paragraphs 56 to 58 of the ASOC, I think sufficient detail is identified to allow the claim to stand, but it must be properly particularised.
  13. Similar allegations are made by the applicant in the ASOC by reason of the first respondent’s alleged requirement on 7 October 2005 that the applicant install and use the IT Visions Business Point of Sale System. It is said to amount to the supply of services under the Franchise Agreement on a condition which contravened s 47 of the TP Act. A like contravention is alleged to arise from the terms of the Franchise Agreement under which the applicant was required to acquire the fitout of its shop from Budget Shopfitters, and so had to pay a copyright licence fee in respect of animal pens which were part of the fittings.
  14. The respondent quite properly complains of the lack of detail to support those claims. However, I think the material facts are sufficiently spelled out to let the respondents know the case they have to meet. It appears to be a straightforward one, although I express no view as to its prospects of success (other than to say that it appears arguable). The respondents’ complain that the starting point, namely that the requirement of 7 October 2005 preceded the execution of the Franchise Agreement by some months and so “cannot stand” may go to issues of causation and thus loss. But I do not accept that, because the Franchise Agreement was signed much later (6 February 2006, according to the ASOC), the communication of 7 October 2005 could not have been an ongoing requirement.
  15. The ASOC then, briefly, refers to the other group members. Each is said to have entered into a Franchise Agreement with the same relevant terms (wrongly referring to paragraph 62 instead of paragraph 63), and the Supply Agreement as allegedly varied on 15 November 2007 and to have acquired stock, the IT Visions Business Point of Sale system, and their fitouts (or the takeover of existing fitouts), with an indemnity to the sixth respondent in respect of its liability under the relevant hire purchase agreement. As to that category of group members, that is described as being required to indirectly acquire financial services from financial services providers pursuant to the Franchise Agreement. Those matters are said to give rise to contraventions of s 47 of the TP Act.
  16. Clearly, no particulars of those claims on behalf of group members are given. Their particular circumstances would have differed, depending upon whether they acquired a new or an existing franchise. No details of loss and damage are given, in relation to any group member. The attempt by the applicant to accommodate the particular circumstances of each group member in such general terms does not do much to inform the respondents of the case they have to meet, and the case they have to meet save for the most fundamental factual issues will obviously vary from one group member to the next.
  17. Although those allegations may effectively cover the group members, they may conceal some real issues. The applicant accepts that 1 January 2007 is a critical cut off date. Does it affect all of the group members, ie did any of them become franchisees only after that date? Paragraph 68.6 of the ASOC seems to adopt for group members the allegations in paragraphs 56 to 58 which, presently, I would strike out. It too should be struck out. There is a need to distinguish in a more specific way those group members who had to fit out a new shop from those who acquired existing premises with their fitout beyond that expressed in paragraph 68.8, at least for the purposes of the claim based on a contravention of s 47 of the TP Act. Presumably, the latter category negotiated with the outgoing franchisee, and some only took over visiting fitout lease obligations involving commitments to one or other of the respondents. In addition, there is an acknowledged lack of adequate particularity of the allegations which will have to be addressed in due course.
  18. As with the allegations concerning a cause of action based on contravention of s 47 of the TP Act, the ASOC then pleads the involvement of all the respondents in exclusive dealing. It largely mirrors the earlier allegations; the status and role of the eighth respondent (in effect by directing the actual contravening conduct pleaded as part of the Pets Paradise Business Model) gave him the necessary knowledge and the necessary degree of activity to be knowingly involved in the alleged contraventions, and the other respondents – to the extent they did not directly participate in the contravening conduct through the knowledge and actions of the eighth respondent in accordance with the Pets Paradise Business Model in which they were participants. However, as I have previously remarked, there is in my view sufficient allegations about the role and activities and responsibilities of the eighth respondent, and about the Pets Paradise Business Model, to enable the respondents to know what is being alleged against them.

6. Breach of the Franchising Code of Conduct

  1. Section 51AD of the TP Act makes it unlawful for a corporation, in trade or commerce, to contravene an applicable industry code. The FCC is a mandatory industry code to which s 51AD applies: Trade Practices (Industry Codes – Franchising) Regulation 1998 (Cth). The FCC has been amended from time to time thereafter, but the submissions do not suggest that those amendments operate in any material way.
  2. As previously, the ASOC then focuses on the applicant. The allegations are based upon the Disclosure Document and the Franchise Agreement. The sources of the alleged disclosure obligations are specified. Then (apart from unexplained allegations that the fourth and eighth respondents were “associates” of the first respondent) it is alleged that there was a failure to disclose –
  3. That non-disclosure is said to have therefore contravened the FCC and s 51AD of the TP Act, and to have caused the applicant and members of the group unspecified loss and damage.
  4. There is an acknowledged inadequacy of particulars.
  5. The respondents assert also that the obligations to the fourth respondent were disclosed in the Disclosure Document (clause 9) and in the Franchise Agreement (clause 9), and in any event are not imposed by the first respondent and so did not require disclosure under the FCC.
  6. In clause 9.1 of the Franchise Agreement, the applicant acknowledged that only approved stock should be sold, and so it must be acquired either from the first respondent or suppliers approved in writing by the first respondent. Clause 9 of the Disclosure Document indicates that the applicant must acquire stock only from approved suppliers (or otherwise with written approval), and that it is not required to purchase goods from the fourth respondent. I do not consider that those provisions necessarily provide a complete answer to the applicant’s allegations. In other words, I consider it arguable that, notwithstanding those provisions, the first respondent did not disclose that it was required to accept and pay for stock ordered on its behalf by the fourth respondent. The alternative contention of the respondents may also be arguable, but I do not regard the applicant’s claim that the disclosure obligations under the FCC extended to the Supply Agreement with the fourth respondent as not reasonably arguable.
  7. The respondents also contend that the allegation that the obligation of its directors to guarantee its debts, secured by a charge over their personal assets, was disclosed. Clause 16.1(m) of the Disclosure Document referred to clauses 23.1, 23.2 and 23.3 of the proposed Franchise Agreement, included with the Disclosure Document. Those clauses of the Franchise Agreement relate to the obligations of the applicant to the first respondent, not to any obligations of the directors of the applicant.
  8. However, the obligation of the applicant to provide such security, by tracing the references from the Disclosure Document to the Franchise Agreement, is disclosed. The applicant has not suggested that disclosure by that referral or tracing process (where the Disclosure document enclosed and referred to the proposed Franchise Agreement) was not permitted by the FCC. In those circumstances, that allegation, in my view, is not arguable. Paragraph 99 of the ASOC is struck out. However, I do not think that the disclosure extended to the alleged obligation under the Supply Agreement to provide security to the fourth respondent for any debt owing to it.
  9. The ASOC then refers to the position of “current” group members. Those group members who are “former” Pets Paradise franchisees from 1990 are, for some reason, excluded. Each current member received the Disclosure Document with its failings. The obligation of the franchisee to “enter into a security arrangement” with its franchisor (one of the first three respondents) was disclosed for the reason I have given. I would strike out the part of paragraph 104.5 of the ASOC which refers to the first, second or third respondents. The “members” of the group – not confined to current members – are thus alleged to have suffered loss by reason of the contravention of s 51AD of the TP Act.
  10. Those pleadings are only in the most general of terms.
  11. There is an additional allegation on this aspect. The first respondent, “relying upon the agreement to charge property” allegedly obtained in contravention of s 51AD has lodged caveats over certain real property of the applicant’s directors in Queensland, and “the respondents and associated corporations” have done so over real property of group members and their directors. That conduct of lodging caveats is said to amount to contraventions of s 51AD of the TP Act. Clearly, that conduct of itself does not contravene s 51AD. The contraventions (if there are any) are the contraventions of the FCC. Paragraphs 106, 107 and 108 of the ASOC will be struck out. If it was intended only that the matters so pleaded are steps taken to increase the applicant’s or the group members’ losses, then the pleading is insufficient.
  12. Finally, under this cause of action, the involvement of the other respondents in the pleaded contraventions is referred to. In the same general way as previously, the eighth respondent and each of the corporate respondents, are said to have been knowingly concerned in the unlawful conduct of the other respondents within the meaning of s 75B of the TP Act. For the reasons already given, I think the respondents know the case they have to meet. I would not strike out that part of the ASOC.

7. Unconscionable Conduct

  1. The ASOC follows the same structure in relation to this cause of action.
  2. In relation to the applicant, the first respondent with the fourth respondent engaged in the pleaded misleading conduct and exclusive dealing despite (it is said, and only in the most general of terms) the fourth respondent supplying goods to the applicant that it did not want or need, that were of poor quality or faulty, that were highly priced compared to alternative but comparable goods available from other suppliers, and that were similar or identical to goods available from the retailers. Then there is a series of pleaded conclusions, that the conduct involved:

Hence, the conduct is said to be unconscionable in contravention of ss 51AA or 51AC of the TP Act and to have caused the applicant loss and damage.

  1. The next part of the ASOC also directly relates to the applicant, and to contravention of ss 51AA and 51AC. The same misleading and deceptive conduct is said to have induced the applicant to enter into the Franchise Agreement, under which the benefits to the first respondent (being initial franchise fee, service fees and advertising contributions) “exceeded the value of services” received by the applicant. It also induced the applicant to enter into the Supply Agreement, under which the benefits to the first respondent (it is not said to be benefits to the fourth respondent) directly or indirectly (being the entitlement to receive payment for stock) exceeded the “value of what was received” by the applicant under that agreement. Thirdly, it induced the applicant to contract with Budget Shopfitters for the shop fitout and equipment which gave benefits to the first and eighth respondents (being the entitlement to receive the purported copyright licence fees) which were not disclosed by any of the respondents.
  2. The third category of relevant conduct, as pleaded, relates to the applicants Pampered Pets business at Burleigh. It has built up “valuable personal goodwill”. Upon termination of the Franchise Agreement, it is said, for “purported non-payments” to any of the respondents or to nominated third parties, no rebate or refund of “any money paid by the Applicant” is payable by the first respondent, and termination may be effected in accordance with the Franchise Agreement without regard to the loss or damage such termination may cause to the applicant. Thus, by termination, the first respondent acquires and appropriates the applicant’s goodwill in its business and does not have to account to the applicant for it. That, it is further said, is a “penal” provision in its “nature and effect”. Again, the consequence is a contravention of ss 51AA and 51AC of the TP Act, and loss and damage to the applicant.
  3. The last category of conduct in relation to the applicant said to attract ss 51AA and 51AC of the TP Act is the term of the Franchise Agreement under which, if it is terminated, the applicant must transfer or surrender its lease of the premises as directed by the first respondent. It has executed an assignment of its lease to the first respondent, which is held in escrow by the first respondent. Thus, the applicant gets no benefit for the value of the lease, if the Franchise Agreement is terminated. Hence, also (it is said) the term is a penalty.
  4. The ASOC allegations, seeking to enliven ss 51AA and 51AC of the TP Act on behalf of the other group members are even more general. The pleaded misleading and deceptive conduct and the pleaded exclusive dealing induced each group member to enter into a Franchise Agreement under which the payments made (initial franchise fee, service fees and advertising contributions) exceeded the value of the services received. And that conduct induced each group member to enter into a Supply Agreement under which the payments made (for stock) exceeded the value of the stock received. Further, that conduct induced each group member to enter into a fitout agreement with a shopfitter or to acquire the fitout – it does not say from whom – so that there were benefits to one or more respondents for purported copyright licence fees in relation to the fittings. Then, that conduct induced each group member to guarantee the liability of certain of the respondents to make hire-purchase payments in respect of shopfittings to third party financiers so as to confer benefits on those respondents in the form of payment of the purported copyright fees in relation to those fittings. Next, each group member is said to have built up valuable personal goodwill in their respective businesses and to have leased the premises from which their respective businesses are conducted (or to have licensed their occupation of the business premises from one of three related corporations to the respondents Pets Paradise (Qld) Pty Ltd, Pets Paradise (SA) Pty Ltd or Pets Paradise (NSW) Pty Ltd in the nature of subleases, but where under the Franchise Agreement if terminated, that lease or licence must be assigned or surrendered at the direction of the franchisor.
  5. The knowing involvement of the eighth respondent, and of the other corporate respondents, in those circumstances so as to attract the application of s 75B of the TP Act is pleaded in similar general terms as in relation to the other causes of action.
  6. The respondents say that, assuming the conduct alleged, it cannot amount to unconscionable conduct within s 51AA or s 51AC of the TP Act.
  7. Section 51AA prohibits unconscionable conduct within the meaning of the unwritten law, from time to time, of the States and Territories, but does not cover conduct prohibited by ss 51AB or 51AC. Section 51AB does not provide a relevant carve-out as it is confined to unconscionable conduct in the supply of personal, domestic, household goods or services: s 51AB(5). Section 51AC relevantly prohibits conduct that is, in all the circumstances, “unconscionable” in connection with the supply or possible supply of goods or services. Subsection 51AC(3) identifies, in a way that is not comprehensive, matters to which the Court may have regard when determining whether a corporation has engaged in conduct which, in all the circumstances, is unconscionable. Its operation extends to the supply or possible supply of goods or services for the purpose of trade or commerce: s 51AC(7). Hence, it is a provision which is available to the applicant (and the group members) if they can engage its prohibition in all the circumstances.
  8. It is apparent from the ASOC that the applicant has adopted the matters in s 51AC(3)(b), (d), (g), (i), (j) and (k) of the TP Act as the ASOC claims that the alleged contravening conduct had that character, using words extracted from those subclauses of s 51AC. As conclusions, the foundation for them is not adequately spelled out. It must be assumed that no other material facts (as distinct from particulars) will be sought to be proved, for the pleading of material facts is, of course, the essence of a pleading.
  9. It is not possible to say whether the misleading and deceptive conduct pleaded amounted to requiring the applicant to comply with conditions that were reasonably necessary for the protection of the legitimate business interests of the first and fourth respondents. The exclusive dealing pleaded in the further circumstances alleged did impose contractual obligations on the applicant. The pleaded facts could not show that those conditions were not reasonably necessary for the protection of the legitimate business interests of the first and fourth respondents. The pleaded facts about the quality and price of the goods supplied might, however, support such a conclusion in relation to those conditions. Whether they would, in fact, do so is a matter to be later determined. The concept of “unfair tactics” has not, so far as I am aware, been the subject of considered judicial decision. Whether the mere contravention of s 52 inducing a contract is unfair tactics, or more critically unconscionable, is an arguable one. I note that the existing authorities contemplate something more than the mere contravention: see eg Automasters Australia Pty Ltd v Bruness Pty Ltd [2002] WASC 286; Monroe Topple & Associates Pty Ltd v The Institute of Chartered Accountants in Australia [2002] FCAFC 197; (2002) 122 FCR 110; Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Pty Ltd [1999] FCA 1842. The invocation of s 51AC(3)(i) – unreasonable failure to disclose intended conduct – without more, in my view, is too long a bow and is not reasonably arguable. I would strike out par 115.3 of the ASOC. The contravention of the FCC by that conduct is not pleaded earlier; it is non-disclosure which is said to give rise to its contravention. However, I understood the ASOC to be saying, albeit liberally understood, that the pleaded non-disclosure of the obligations complained of adds to the picture of unconscionability. Arguably, it may do so. There are no pleaded facts to support the claim of an unwillingness to negotiate the terms and conditions of the Franchise Agreement. Paragraph 115.5 of the ASOC should be struck out. The pleaded lack of good faith is, I infer, based on the respondents’ relevant conduct being somehow deliberate or reckless. That is not pleaded. In my view, a lack of good faith requires a mental state which is not presently pleaded. Thus, at present, I would also strike out paragraph 115.6 of the ASOC. Overall, however, in my view, the pleading is sufficient to disclose an arguable case that s 51AC has been contravened.
  10. Obviously, as was acknowledged, this part of the pleading is only in very general terms. It is not adequately particularised.
  11. The further parts of the ASOC dealing with unconscionable conduct are also very general. The comparison of the values received and the monies paid under the Franchise Agreement, and the Supply Agreement, is assertive only. It does not disclose to the respondents the case they have to meet. Hence, at present, I would strike out paragraphs 117 and 118 of the ASOC.
  12. I have real doubts whether the alleged misrepresentations about the obligation to Budget Shopfitters, involving the undisclosed liability for copyright licence fees for the use of animal pens, is sufficient to amount to unconscionable conduct without more. The same comments apply to the disclosed terms of the Franchise Agreement, even if it was induced by misrepresentations, about what would happen in the event of default by the applicant and its termination. There is not sufficient detail to support or quantify the claimed “goodwill” built-up so that its loss – assuming some reason for the applicant’s default apart from the business not generating sufficient income to meet its liabilities – is penal in character. There is not sufficient detail to understand why the forfeiture or takeover of a lease of a business, without more, is penal in character. It may be that, with greater particularity those concerns would be allayed. Presently, the ASOC in those respects is not sufficient to put the respondents on notice as to the case they have to meet.
  13. Those defects in the ASOC flow through to the allegations against the respondents on behalf of other members of the group.
  14. Indeed, it would be surprising if the circumstances of each member of the group were the same or similar in relation to the claim based upon ss 51AA and 51AC of the TP Act. I would anticipate each group member had a different level of attention to the terms of the Franchise Agreement, different degrees of advice before signing it, different degrees of business advice, different stock levels and different turnovers and expenses. The very generic allegations on their collective behalf are therefore, I suspect, not really informative of the cases of each of them that the respondents have to meet.

8. Breach of contract and interference with contractual relations

  1. The ASOC alleges that, under the Franchise Agreement, the first respondent would take reasonable steps to maintain the integrity of the “System” (not defined). It alleges breach of that obligation by the failure to act when the fourth respondent supplied to the applicant poor quality or defective goods, or goods that were higher priced than goods of comparable quality available from other suppliers, or were similar to goods available from other retailers, or when the eighth respondent in 2004 launched the “competing Pet Goods Direct franchise” supplying similar goods. That alleged breach of contract caused the applicant loss and damage.
  2. The primary conduct, for example the supply of defective goods, is not said to give rise to the breach of the pleaded term of the contract, but only the failure “to act” by the first respondent when the fourth respondent engaged in that primary conduct. What was the first respondent supposed to do? Clearly, that pleading is inadequate. The respondents must guess about what they must confront. How the breaches alleged are inconsistent with maintaining an undescribed system, and indeed what “system” is referred to is not exposed.
  3. The same very general allegations concerning each group member are also too unclear to stand. One would expect the experiences of the various group members, the effect upon their goodwill of whatever allegedly inadequate conduct of the first (or second or third) respondent to have varied. So too, as earlier pointed out, would one expect the alleged failings of the fourth respondent to have been different in some material ways in relation to the various group members.
  4. The remainder of this part of the ASOC comprises the claims, in much the same terms as earlier, that the other respondents were knowingly involved in the business activities of one of the first, second or third respondents, and of the fourth respondent, because the eighth respondent “had actual knowledge that the omissions would cause [the respective franchisors] to breach their Franchise Agreements”. Thus, it is pleaded that he knowingly and intentionally interfered with the contractual relations of each of the franchisor respondents with their respective franchisees to cause them each loss, and each of the other corporate respondents also engaged in that conduct. Clearly, that pleading is inadequate. The respondents did not submit that it was untenable, perhaps because they need to be able to understand it to decide whether to challenge it on that basis.

(9) The relief claimed

  1. The respondents made no separate submissions about adequacy of the ASOC in relation to the relief claimed.

WHETHER THE PROCEEDING MAY STAND AS A REPRESENTATIVE ACTION

  1. The respondents contend that the requirements of each of subs 33C(1)(a), 33C(1)(b), and 33C(1)(c) of the FCA Act are not met by the application and the ASOC. Those provisions respectively require that –
  2. Section 33C(2) makes it clear that a representative proceeding may be commenced even if the claims for damages would require individual assessment, or if the relief claimed for each person represented is not the same, and whether or not the proceeding is concerned with separate contracts or transactions between the respondent and the individual group members, or involves separate acts or omissions of the respondent in relation to individual group members.
  3. Section 33N enables the Court, on its own motion, to order that a proceeding competently commenced as a representative action, no longer so continue where it is satisfied in the interests of justice that it should not do so because of the costs likely to be incurred, or that the relief claimed can be obtained in a separate proceeding, or that the representative proceeding is not an efficient and effective means of dealing with the claims of group members, or it is otherwise inappropriate for the proceeding to continue as a representative action.
  4. Where there are several respondents, as here, special issues arise.
  5. It is clear that, as the ASOC now stands, the applicant has claims against each of the respondents for contraventions of ss 47 and 52 of the TP Act, albeit (in its case) largely dependent upon s 75B of the TP Act in relation to the second, third, fifth, sixth, seventh and eighth respondents. The ASOC, if it stands in substantially its present form, indicates that, with one reservation, each group member similarly has claims against each respondent. The reservation is that it is not clear that all group members received the Disclosure Document and the Franchise Agreement, and entered into the Supply Agreement. It is assumed those documents have been in use in their current form, since 1990. As noted, at least on one occasion in the ASOC there is a distinction drawn between all group members and current franchisees. That will need to be clarified.
  6. That, in my view, is sufficient to satisfy s 33C(1)(a).
  7. The five causes of action relied upon by the applicant are also pleaded in the ASOC to be common to the other group members.
  8. In relation to the pleaded breaches of s 52 of the TP Act, the ASOC indicates that the Disclosure Document and the Franchise Agreement were provided in the same relevant terms to each member of the group. They are the source of the express and implied representations (ASOC paragraphs 21, 23 and 26). The representations are said to be misleading in (as the respondents’ written submission expressed it) a “generic” way. But why the representations are misleading is said to be, and is apparently, also common to each group member (ASOC paragraphs 22, 24 and 27). Each group member is said then (if it did at all) to have relied on the representations to engage in conduct similar to that of the applicant: the Franchise Agreement, the Supply Agreement, a rental agreement with IT Visions Business, the lease or licence to occupy its premises and the payment of the initial franchise fee, service fees, advertising contributions, for stock, rent, and other outgoings (and in some instances also an agreement to purchase an existing business), and a fitout agreement or an agreement to guarantee the obligations under a hire purchase agreement for an existing fitout.
  9. Clearly, group members in different States and Territories would have different franchisors, one of the first, second or third respondents. But, their claims under s 52 of the TP Act against all respondents arise out of similar or related circumstances. The common foundation for those claims is the alleged standard content of the Disclosure Document and the Franchise Agreement, and that the representations allegedly made by those documents were not accurate in the common respects alleged. Even if certain of those aspects, for example some of the more general ones in ASOC paragraphs 22.1 to 22.3 and 27.1 to 27.5 are unable to be sufficiently particularised to be maintainable in the face of attack, I think the other allegations in paragraphs 22.4 and 24 are sufficiently clear to be maintainable, notwithstanding any ongoing issue about the adequacy of particulars.
  10. Nor does the need to address the individual circumstances of each group member, on issues such as the detail of the documents, reliance, particular aspects of the way the respective obligations under the relevant Franchise Agreement were performed, and loss and damage, mean that those claims of members of the group do not arise out of the same, similar or related circumstances.
  11. The same conclusion is reached in relation to the cause of action based upon a contravention of s 47 of the TP Act.
  12. The ASOC indicates that the applicant and the other group members each entered into a Supply Agreement relevantly in the same terms, and each acquired stock under the relevantly same terms in the Franchise Agreement, including each receiving the same “Approved Stock List” and the same “Store Standards Manual”, apparently at about January 2005 or later in respect of the later franchisees. Each is said to have had the same variation of the Supply Agreement notified by the seventh respondent on 15 November 2007. Each is said to have been required to install and use the Point of Sale system provided by and leased by IT Visions Business. In my view, these claims of the applicant and the other group members arise out of similar or related circumstances.
  13. Again, the group members would have directly dealt with one only of the first, second or third respondents. But I have concluded that each group member has pleaded, and has an arguable basis for maintaining, this claim against each respondent. There will no doubt be individual variations in the precise quantity of the allocated stock, or the rental agreement with IT Visions Business, or the volume of stock, and perhaps in other respects. The ASOC recognises that not all fitouts were imposed through Budget Shopfitters, and that not all franchisees were required to arrange a fitout of their shop because some took over existing businesses and were required to guarantee existing obligations under the relevant hire purchase agreement (and in practice to take over those payments). Each is said, under the arrangements concerning fitout, to have been restricted in the same way about the style of the fitout or any changes to it, and to have been required to pay copyright licensing fees for the animal pens which were part of the fitout. It is also clear that there will be individual elements of the cause of action to be addressed: the precise terms (including dates) of relevant documents, reliance, and loss and damage, as well as the detailed transactions between the particular group member and one or more of the respondents.
  14. I do not consider that those matters remove these claims of the applicant and the other group members from being in respect of or arising out of similar or related circumstances. They are the types of issues which s 33C(2) generally contemplates.
  15. Again, in the light of my observations about the adequacy of the ASOC, further specification of the individual claims will be necessary. But I think sufficient detail is disclosed in the ASOC to be satisfied, in respect of this cause of action, that s 33C(1)(b) is satisfied. Of course, as with the whole of these reasons, I make no comment about the prospects of success of the applicant or any group member succeeding in the claims made, except to the extent that it has been necessary to address the contention that the claim is clearly untenable and so should be dismissed in any event.
  16. The cause of action based upon breach of the FCC, and contravention of s 51AD of the TP Act largely attracts the same reasons for concluding that the claims of the applicant and other group members come within s 33C(1)(b) in relation to it. I shall not repeat them. The allegedly non-disclosed obligations, which it is said were required to have been disclosed, flow from the terms of the common Disclosure Document.
  17. The applicant’s cause of action based upon unconscionable conduct, seeking to involve ss 51AA or 51AC of the TP Act, is one which for the reasons already given is not so clearly maintainable in any event. The allegations of fact do not naturally lead to a conclusion of unconscionability on the part of any of the respondents, or therefore the knowing involvement of the others in such conduct. The ASOC, based upon the primary allegations on behalf of the applicant, then uses the expressions in certain of the subclauses of s 51AC(3) to tie the alleged conduct to the concept of unconscionability as used in s 51AC(1), but the connection is not obvious. However, with some exceptions, I have allowed the applicant’s allegations to stand at present.
  18. I accept, for present purposes, that each group member was exposed to the same or similar misrepresentations and to the same or similar exclusive dealing and to the same or similar breaches of the FCC. However, at present (as I have indicated) the allegations in paragraphs 131.5 and 131.6 of the ASOC – which effectively mirror paragraphs 117 and 118 of the ASOC on behalf of the applicant – are so imprecise or lacking in real content to be allowed to stand. The added allegations at ASOC paragraph 114.3 (see [81 above) are not repeated in the pleadings on behalf of the other group members, so the enlivening of certain subclauses of s 51AC(3) by those allegations (see [82] above) are not presently pleaded to arise generally in relation to all group members. Their claims are said to arise then upon exposure to the conduct comprising the three causes of action referred to, together with the allegedly undisclosed obligation (that is, undisclosed in the Disclosure Document) to pay copyright licence fees to one of the respondents for use of certain animal pens which were a compulsory part of any fitout or to guarantee (and in practice to assume the obligation to pay) existing and continuing hire purchase commitments on an existing fitout, and finally to being exposed to the loss of any goodwill in the particular group member’s business and/or its occupancy rights in the premises in which its business is conducted in the event that its Franchise Agreement is terminated for its default in making payments required by the Franchise Agreement. I have commented elsewhere about the prospects of such allegations, even if made out, giving rise to a contravention of either s 51AA or s 51AC of the TP Act.
  19. More relevantly for present purposes, any claim based upon unconscionable conduct so as to enliven those sections is necessarily an individual one. “Unconscionability” for the purposes of s 51AA requires attention to the specific equitable doctrines developed by the courts of equity: see Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51, and see the principles explained in cases such as Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362; Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447; and Louth v Diprose [1992] HCA 61; (1992) 175 CLR 621. Whilst the outer limits of unconscionable conduct in the unwritten law have not been set, I have serious doubts that the present very general allegations made on behalf of the group members could bring them within those limits, and although the allegations on behalf of the applicant in ASOC paragraph 114 may be allowed to stand and take its position a little further, I have similar doubts about the applicant’s claim.
  20. I have the same reservations about the group members’ claims under s 51AC. Its limits have not been explored. But it would be a long stretch to say, as the present ASOC alleges, that contravention of ss 47 or 52 of the TP Act or failure to disclose as required by the FCC of itself can amount to unconscionable conduct for the purposes of s 51AC, where the alleged non-disclosure necessarily became apparent to those who chose to read their terms in the Franchise Agreement and in the Supply Agreement and where there is no allegation that any particular group member did not have access to independent advice or was somehow at a special disadvantage in deciding to enter those arguments.
  21. However, that is for the applicant and the group members to consider. Clearly, for the reasons explained, as the contraventions of ss 47 and 52 of the TP Act and the failure to disclose certain information in the Disclosure Document as required by the FCC is said to underpin or comprise relevant primary conduct to support the claim based on ss 51AA and 51AC of the TP Act, there is in my view (if those pleadings are allowed to stand or are properly reconstituted) a state of affairs where all the group members’ claims are in respect of and arise out of similar or related circumstances.
  22. The necessarily idiosyncratic differences in each group member’s claim under those sections may provide a reason why the power under s 33N should be exercised, but I consider that should be deferred until the applicant has indicated how it wishes to progress the matter generally.
  23. Finally, and briefly, I make the same comments about the allegations in the ASOC seeking to establish either breach of contract or interference with contractual relations, as I have made about that part of the ASOC dealing with unconscionable conduct. Indeed, as I observed above, the allegations on behalf of the applicant in paragraph 136 (see [96] above) are far too general and should be struck out. The ASOC very briefly at paragraph [140] simply says that the relevant franchisor “failed to act in the manner alleged at paragraph 136” in relation to each group member. But, as noted, there is no allegation on behalf of each group member that, for instance, the fourth respondent supplied it with goods which were “of poor quality or faulty”. No other commonality is pleaded, apart from the relevant term of the Franchise Agreement. If these allegations are sought to be restructured and maintained, I suspect that unless all or all of a significant category of supplied goods are said to be faulty, the breach of contract between a franchisee and the fourth respondent will be an individual one. The “failure to act” of the relevant franchisor will also be an individual one, depending on the communications with the particular franchisee. The alleged consequences necessarily will vary significantly between franchisees.
  24. It remains to consider s 33(1)(c) of the FCA Act. In my view, at least in respect of the causes of action based upon breaches of ss 47 and 52 of the TP Act and non-disclosure in the Disclosure Document so as to contravene the FCC, the above consideration shows that there are substantial common issues of fact in relation to those claims. See generally Wong v Silkfield Pty Ltd [1999] HCA 48; (1999) 199 CLR 255. Depending upon any defence, there may also arise substantial common issues of law. The defence will indicate whether the apparently common issues of law arising from the pleaded facts are substantial or are unlikely to arise in any significant way. At present, my satisfaction in terms of s 33C(1)(c) is based upon the substantial common issues of fact which are apparent from an analysis of the ASOC.
  25. By reason of those conclusions, I do not need to address the significance of any difference in the views of the Full Court in Philip Morris (Australia) Ltd v Nixon [2000] FCA 229; (2000) 170 ALR 487 and Bray v F Hoffman-La Roche Ltd [2003] FCAFC 153; (2003) 130 FCR 317.

COSTS

  1. The respondents successfully resisted the interlocutory relief sought by the motion of 23 September 2008. They succeeded on their motion of 10 October 2008 to have the statement of claim struck out. Judgment was given on both those issues on 24 October 2008. They also successfully resisted the application of Whiley and Marshelle to restrain the first and third respondents respectively from terminating their franchise agreements. Judgment was given on that issue on 13 November 2008.
  2. I see no reason why the respondents should not be entitled to the costs of those issues. The real dispute is as to the precise form of those costs. In respect of the two injunction applications, it remains to be seen whether the applicant (or Whiley or Marshelle) will succeed on their respective claims. In those circumstances, I will order that the respondents’ costs be their costs in the cause. If the respondents succeed, they will recover those costs. If they do not, there will in effect be no costs awarded in relation to those issues. I do not see why the costs of the injunctive orders unsuccessfully sought by Whiley and Marshelle should not be ordered against them individually, but as all respondents were represented by the same solicitors and counsel, and as the principal claims are against all respondents, I will order those costs be the costs of all respondents. There was no submission to the contrary on that latter issue.
  3. I propose to order the costs of the issue regarding the striking out of the statement of claim against the applicant and in favour of the respondents. Although the motion of 10 October 2008 also sought the dismissal of the proceeding, the respondents through senior counsel really accepted that, whatever the outcome, the applicant would be given an opportunity to replead. That opportunity was, in fact, given to the applicant.
  4. I will not make formal orders as to costs at present, simply for the reasons set out in [1] above, and discussed elsewhere in these reasons. When formal orders are made, I will make the following orders:

I note that, pursuant to the liberty to apply, each of those motions has been further stood over and may be availed of, if appropriate, for further interlocutory applications. I note also that the respondents’ motion of 3 October 2008 is also stood over to a date to be fixed when appropriate.

CONCLUSIONS

  1. As I indicated at the start of these reasons, I do not presently propose to make particular orders. How the matter might proceed is to be the subject of further consideration and orders which will be made after the parties have had an opportunity to consider these reasons.
  2. It is apparent that the ASOC has clear deficiencies. The action cannot be allowed to proceed with the ASOC in its present form. However, I think that the applicant and the group members – perhaps refined depending on further instructions on matters raised in these reasons – may maintain a representative action. The causes of action for breaches of s 47, 51AD (based on contravention of the FCC) and s 52 of the TP Act may proceed, but will need refinement. I am less sure that the causes of action for unconscionable conduct in contravention of ss 51AA and 51AC of the TP Act may be sustainable, and in any event these are a series of pleadings skirmishes. It has now been on foot for nearly six months without much progress. There may be alternative ways by which the detail of the applicant’s claim can be exposed to the respondents without further descending into such issues. The applicant, no doubt, has provided a detailed witness statement in proper form and other witness statements are also no doubt in the process of preparation. Whilst the notification process in respect of the group members occurs, perhaps the ASOC can be refined and supported by particulars through the means of providing proposed evidence documents and witness statements. There may be other options.
  3. Finally, although the applicant accepts that the claims on behalf of the other group members require further particularisation, at least in some respects that process may be better left to the filing of individual documents separately on behalf of each once the group members have formally been notified of the claim and have decided what, if any, role they wish to take in relation to it. That observation, of course, would not apply to the more fundamental allegations on their behalf.
  4. The matter is therefore stood over to 10:15 am on Friday, 27 February 2009 for further directions, at which time amongst other orders I will make the costs orders which I have indicated.
I certify that the preceding one hundred and thirty-three (133) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.

Associate:


Dated: 20 February 2009


Counsel for the Applicant:
NG Rochow SC with LJC Detmold


Solicitor for the Applicant:
Piper Alderman


Counsel for the Respondents:
P O'Sullivan with C Munt


Solicitor for the Respondents:
Leonard Legal

Date of Hearing:
17 December 2008


Date of Judgment:
20 February 2009

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