Walcan Pty Ltd v Superior Coffee & Cakes Pty Ltd [2003] FCAFC 14 (20 February 2003)

Last Updated: 14 July 2003

FEDERAL COURT OF AUSTRALIA

Walcan Pty Ltd v Superior Coffee & Cakes Pty Ltd [2003] FCAFC 14

WALCAN PTY LTD (ACN 060 592 038), IAN HENRY CANHAM and ROBYN JOY CANHAM v SUPERIOR COFFEE & CAKES PTY LTD (ACN 066 956 081), IAN GREGORY SHORTELL

Q163 OF 2002

FINN, DOWSETT & JACOBSON JJ

20 FEBRUARY 2003

BRISBANE

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	Q163 OF 2002

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	WALCAN PTY LTD (ACN 060 592 038) FIRST APPELLANT IAN HENRY CANHAM and ROBYN JOY CANHAM SECOND APPELLANT
AND:	SUPERIOR COFFEE & CAKES PTY LTD (ACN 066 956 081) FIRST RESPONDENT IAN GREGORY SHORTELL SECOND RESPONDENT
JUDGES:	FINN, DOWSETT AND JACOBSON JJ
DATE OF ORDER:	20 FEBRUARY 2003
WHERE MADE:	BRISBANE

THE COURT ORDERS THAT:

The appeal be dismissed with costs.

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

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	Q163 OF 2002

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	WALCAN PTY LTD (ACN 060 592 038) FIRST APPELLANT IAN HENRY CANHAM and ROBYN JOY CANHAM SECOND APPELLANT
AND:	SUPERIOR COFFEE & CAKES PTY LTD (ACN 066 956 081) FIRST RESPONDENT IAN GREGORY SHORTELL SECOND RESPONDENT

JUDGES:	FINN, DOWSETT AND JACOBSON JJ
DATE:	20 FEBRUARY 2003
PLACE:	BRISBANE

REASONS FOR JUDGMENT

THE COURT:

1 There is one issue raised in this appeal. It involves a challenge to the finding made by the primary judge that the appellants had not established the making of the principal representation (upon which they say they have relied) for the purposes of establishing a contravention of s 52 of the Trade Practices Act 1974 (Cth).

2 The second appellants, Ian and Robyn Canham (Mr and Mrs Canham) were the sole shareholders of the first appellant, Walcan Pty Ltd (Walcan). On 7 July 1999 that company entered into a sub-franchise agreement with the first respondent, Superior Coffee and Cakes Pty Ltd ("Superior"). Under a master franchise agreement with BB's Coffee and Bake Australia Pty Ltd, Superior was able (subject to approval) to franchise outlets for BB's Coffee and Bake. These outlets, located in shopping centres, sold coffee and food. The second respondent, Ian Shortell, was a director of Superior.

3 Both the original and the amended statement of claim in this matter alleged and particularised three separate occasions upon which Mr Shortell purportedly made representations of a financial character to one or other or both of Mr and Mrs Canham concerning a proposed new franchise to be established at the Sunnybank Hills Shopping Centre, which Walcan in the event acquired. The Canhams pleaded reliance upon these representations as a basis for predicting the future gross sales, cost of sales, gross profit and net profit that they would achieve in operating the franchised business.

4 By an amendment permitted to be made on the third day of the hearing, the appellants pleaded a further representation, said to have been made by Mr Shortell to Mr Canham, that "[t]he applicants would achieve gross weekly sales of at least $8,000" ("the $8000 representation"). It is this representation, said to have been made orally, that the trial judge found not to have been established.

5 Before reaching that conclusion, her Honour dealt first with the representations as originally pleaded. It is unnecessary for present purposes either to describe them specifically or to refer to the evidence which led to her Honour's conclusion concerning them. It was that:

"[t]he evidence given by Mr and Mrs Canham, if accepted, went no way towards establishing the case as originally pleaded. It is not possible, in my view, to conclude that some errors were made in translating their versions of events to pleadings and particulars. The pleadings were specific and detailed. The particulars showed that the applicants were apparently able to recall when, and in what circumstances, the figures were provided by Mr Shortell. In any event no explanation was offered.

The case set up against the respondents was that the applicants and their accountant [Mr Hartmann] had based their assessment of the prospective business on figures representing all the key aspects of a business. The case is now much different and limited only to a representation on one occasion. It would appear that what was originally undertaken was to attribute most of the figures in Mr Hartmann's projections to Mr Shortell. Clearly Mr Shortell was not the person who calculated those sums, let alone conveyed them. A conclusion that the case was concocted in these respects seems inescapable.

The effect of these findings upon Mr and Mrs Canham's credit is substantial. A review of the evidence does not assist them. The evidence does not suggest that the representation now alleged to have been made by Mr Shortell was likely to have been made." Emphasis added.

6 The circumstances in which the $8,000 representation was said to be made were as follows. At a meeting in June 1999 at the shopping centre at which the business was to be located between Mr Shortell and Mr and Mrs Canham and their daughter, Mr Shortell is alleged:

(i) to have told Mr Canham "this will help you make up your mind; this store will do at least $8,000 per week"; and

(ii) handed Mr Canham three graphs which showed the average monthly takings of BB's stores in Queensland, New South Wales and Victoria for the period July 1997 to June 1998.

The Trial Judge's Finding

7 A variety of matters informed her Honour's conclusion quite apart from that of the Canham's credit. The first related to the actual sum of $8,000 said to have been represented. This sum had some currency in the proceedings. In a projection of the income and expenditure of the proposed franchise, the Canham's accountant, Mr Hartmann, identified $8,000 as the amount of gross sales which the business would need to make each week. The same figure was, in turn, near the mid-range of the figure for average sales for a one week period in the 1997-1998 financial year for BB's franchises both in Queensland and nationally. These figures had been supplied to Mrs Canham by Mr Shortell on 3 June 1999 as part of a "Disclosure Document" provided to a prospective franchisee. That document did not purport to guarantee that a franchise would achieve such figures in its conduct of the business.

8 In light of the above, her Honour observed:

"[t]he possibility that the figure of $8,000 per week for gross sales was given by Mr Shortell is no more likely than the possibility that they were working on average figures, it seems to me. Indeed on an overall view of the evidence the latter emerges as the more likely. The likelihood that they undertook an assessment of their own is supported by Mr Hartmann's evidence that they were to satisfy themselves that $8,000 could be achieved and further that they determined that they might achieve $10,000 in the future. Against the possibility that Mr Shortell did provide the figure is to be weighed the fact that the Canhams at no time advised Mr Hartmann that he had done so."

9 Secondly, her Honour had regard to the inconsistent versions Mr and Mrs Canham gave as to the timing of this meeting at which the representation was said to have been made relative to the meeting they had with their own accountant, Mr Hartmann. Mr Canham said the meeting was before he saw Mr Hartmann; Mrs Canham, that it was several weeks after the Hartmann meeting. The primary judge emphasised in this that "it was following, or soon after, the meeting with Mr Hartmann that they said they made their decision to purchase".

10 Thirdly, her Honour questioned whether a representation that gross sales of $8,000 would be made every week of operation for a business with no trading history, was likely to have been made. It was likewise questioned whether a potential purchaser with a background in business (such as the Canhams had) might take such an assertion as seriously made and to be acted upon.

11 Fourthly, in relation to the graphs said to have been handed over at the time of the $8,000 representation and said by the Canhams to support that representation, her Honour noted (a) that while it might show monthly averages in the order of $32,000, it suggested considerable variations in earnings and not a steady rate of sales each week; and (b) it was not site specific and definite as to turnover each week. Additionally the evidence concerning it suggests it was produced sometime after the time at which the information was compiled upon which it was based and that was after February 2000.

12 Fifthly, it was regarded as of "some importance" that the Canhams did not disclose to their accountant Mr Shortell's alleged assurance as to the sales which could be achieved. No explanation was given of their reason for not doing so.

13 Sixthly, one of the documents executed severally by the Canham's at the time of entering into the sub-franchise was a "Prior Representations Deed". The answers they gave to the questions asked in relation to prior representations made were characterised by her Honour as "of significance". In that deed Mrs Canham, for example, identified the Disclosure Document of 3 June alone as providing information about turnover but as having no influence on the Canhams' decision. She likewise indicated that no statement was made to them concerning the income, profit or profitability of the business.

14 The trial judge acknowledged that the deed could not bar a claim based upon misrepresentation. Nonetheless it was considered that:

"[t]he fact that an applicant says they were not induced by particular representations may bear upon the question whether they should be believed when they later assert that they were. Here, tellingly, Mr and Mrs Canham responded in some detail to the questions posed. This is not a case where it can be discerned that they rushed through the document and were not focussed upon the questions. ... It is the applicant's own case, on this aspect of the evidence, that they lied. That is always a difficult point from which to start, but is sometimes susceptible of an explanation. To accept the effect of their argument, that they selected areas to identify as influential and therefore deflected attention from the information they considered had influenced them, would seem to me tantamount to concluding that they were devious. It is sufficient to conclude that their answers detract further from an acceptance of their evidence that influential representations were made. The likelihood is that they were honest in their answers to the questionnaire."

15 Finally, her Honour indicated that she had also considered the lack of complaint by the Canhams after they went into the business as inconsistent with reliance upon anything Mr Shortell had said to them.

16 Her Honour's conclusion was that the Canhams failed on their own case. It was unnecessary to analyse Mr Shortell's evidence in detail. It did not support the applicants' case and it was not shown to have any major shortcoming. Her Honour commented, finally, that:

"[a]n acceptance of their evidence was rendered very difficult when one compares the case pursued at the conclusion of the hearing when it is compared with the allegations originally made. They lacked a foundation in fact. There was no independent evidence to suggest that the critical representation was likely to have been made. The evidence for the applicants was itself inconsistent, unreliable and lacking in necessary explanation."

The Notice of Appeal and the Appeal as Prosecuted

17 The Notice of Appeal is a quite deficient and unilluminating document. Nine of what are said to be the trial judge's findings are alleged to be "against the weight of evidence" and these errors resulted so it is claimed in error in the findings on credit. For the most part the errors ascribed to her Honour related to findings not actually made by her. It is unsurprising that the respondents were put to difficulty in making submissions responding to them.

18 The day before the hearing of the appeal written submissions were filed for the appellants that focussed only upon the finding that the $8,000 representation had not been established. It is claimed that the reasoning behind her Honour's finding is flawed and that the trial miscarried. This is said to be demonstrated in three matters. (i) Her Honour misunderstood the significance of the source of the information contained in the three graphs said to have been given to Mr Canham at the time of the $8,000 representation. (ii) Her Honour misunderstood the evidence concerning the representation. (iii) Her Honour overlooked Mr Canham's evidence that he did complain to Mr Shortell after the business was acquired.

19 At the hearing of the appeal the grounds stated in the Notice of Appeal were abandoned and leave was given to amend to raise the above three matters, each of which is said to demonstrate that her Honour's finding was based on a misunderstanding of the evidence. At the hearing of the appeal it was conceded by the appellants that (a) the second matter (relating to the effect of the representation) was misconceived, and (b) the appeal could only succeed if the first matter (relating to the graphs) was made out.

20 Before considering that matter it is appropriate to re-emphasise the role of this Court in an appeal. Accepting that an appeal to this Court is by way of rehearing, it is nonetheless necessary for an appellant to demonstrate error in the trial judge's findings or conclusion before this Court can proceed to give effect to its own conclusion, assuming it then considers that the error so demonstrated is such as to require correction. And as Allsop J indicated in Branir Pty Ltd v Owston Nominees No 2 Pty Ltd [2001] FCA 1833 at [24]:

"What is error in any given case depends, of course, not only on the evidence, but also on the nature of the findings or conclusions made by the primary judge. The demonstration of error may not be straight-forward where findings or conclusions involve elements of fact, degree, opinion or judgment or when the findings or conclusions in question can be seen as made with the advantage of hearing the evidence in its entirety, presented as it unfolded at the hearing with the opportunity over the course of the hearing and adjournments for reflection and mature contemporaneous consideration and assessment, in particular in a long and complex hearing."

21 Because it conveniently encapsulates the burden of an appeal court's responsibility, a further statement of Allsop J (at [28]) should be noted:

"First, the appeal court must make up its own mind on the facts. Secondly, that task can only be done in the light of, and taking into account and weighing, the judgment appealed from. In this process, the advantages of the trial judge may reside in the credibility of witnesses, in which case departure is only justified in circumstances described in Abalos v Australian Postal Commission [1990] HCA 47; (1988) 171 CLR 167; Devries v Australian National Railways Commission [1992] HCA 41; (1993) 177 CLR 472 and SRA v Earthline, supra. The advantages of the trial judge may be more subtle and imprecise, yet real, not giving rise to a protection of the nature accorded credibility findings, but, nevertheless, being highly relevant to the assessment of the weight to be accorded the views of the trial judge. Thirdly, while the appeal court has a duty to make up its own mind, it does not deal with the case as if trying it at first instance. Rather, in its examination of the material, it accords proper weight to the trial judge's views. Fourthly, in that process of considering the facts for itself and giving weight to the views of, and advantages held by, the trial judge, if a choice arises between conclusions equally open and finely balanced and where there is, or can be, no preponderance of view, the conclusion of error is not necessarily arrived at merely because of a preference of view of the appeal court for some fact or facts contrary to the view reached by the trial judge."

22 The essence of the principal ground advanced by the appellants can be put shortly. The three graphs said to be handed over at the time of the representation were based on information in the possession of the master franchisor, BB's Coffee and Bake Australia Pty Ltd, and correctly stated average monthly takings. They had in consequence some legitimacy and, if provided at the time claimed, provided some independent support for the representation claimed by the appellants. In the context of all of the evidence the strong inference to be drawn (though not by her Honour) was that the documents must have come from Mr Shortell.

23 There is a variety of responses that can properly be made to this submission. A fair reading of her Honour's reasons indicates that she initially addressed the question whether the graphs, of themselves, supported or strengthened the actual representation said to have been made. Her Honour gave reasons for saying they could not: the Queensland graph showed only average monthly sales; it suggested considerable variations in earnings and not a steady rate of sales each week; and the representation alleged was specific to the site in question and definite as to weekly turnover. Having come to this negative conclusion, her Honour commented that "[a]dditionally" the evidence concerning the graph suggested that it was produced some time after the compilation of the information on which it was based, ie after February 2000.

24 It is unsurprising that her Honour dealt with the matter in this way given (a) the state of the evidence on the provenance of the graphs and on the possible manner in which and when they might have come into Mr Canham's hands and (b) her Honour's general view of the Canhams' credibility.

25 Mr Shortell denied providing the graphs to Mr Canham. His evidence was that he did not at the time have the information relating to the monthly sales in New South Wales and Victoria. And he pointed out that they may have been created by someone and provided to the Canhams at anytime during the period in which they operated the coffee shop. Ms Jennings, the person who in February 2000 compiled a document showing the monthly sales figures for every BB's store on an annual basis, denied ever having seen the graphs. She considered that the figures she calculated may have been used to create the Queensland graph that Mr Canham obtained.

26 Far from there being a "strong inference" reasonably to be drawn from the known facts: cf Holloway v McFeeters [1956] HCA 25; (1956) 94 CLR 470 at 477; that the graphs were supplied by Mr Shortell to Mr Canham at the June 1999 meeting, the more likely deduction - if any deduction could reasonably be made at all - would have been consistent with what her Honour suggested may have been the case, ie it occurred after February 2000.

27 The trial judge's conclusion that the Canhams had not established that the $8,000 representation had been made was based upon a complex of matters, as has been noted earlier in these reasons. Her Honour's comments upon the graphs were not directed at the question whether that representation was made but rather at whether, as suggested by the Canhams, the graphs supported or strengthened the alleged representation. Other matters were relied upon to justify the conclusion that the representation was not established. Not the least of these was the unreliability and inconsistency of the Canhams' own evidence. Short of challenging successfully the credibility findings made, this appeal had no prospects of success. No such challenge was made.

28 The appeal should be dismissed with costs.

I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.

Associate:

Dated: 20 February 2003

Counsel for the Applicant:	Mr P J Davis
Solicitor for the Applicant:	Lynch & Company Solicitors
Counsel for the Respondent:	Mr Freeburn
Solicitor for the Respondent:	Quinn Box & Muller
Date of Hearing:	18 February 2003
Date of Judgment:	20 February 2003