Poulet Frais Pty Ltd v The Silver Fox Company Pty Ltd [2005] FCAFC 131 (19 July 2005)

Last Updated: 15 September 2005

FEDERAL COURT OF AUSTRALIA

Poulet Frais Pty Ltd v The Silver Fox Company Pty Ltd [2005] FCAFC 131

CORRIGENDUM

POULET FRAIS PTY LTD ACN 059 852 265 AND RICHARD HAMOOD v THE SILVER FOX COMPANY PTY LTD AS TRUSTEE FOR THE BAKER FAMILY TRUST ACN 083 629 225, BRYAN WILLIAM BAKER, BEVERLY ANN BAKER, LENARD'S PTY LTD ACN 010 711 145 AND THE POULTRY SHOP LEASING (SA) PTY LTD ACN 060 052 020


SAD 281 of 2004



LENARD'S PTY LTD ACN 010 711 145 v THE SILVER FOX COMPANY PTY LTD AS TRUSTEE FOR THE BAKER FAMILY TRUST ACN 083 629 225, BRYAN WILLIAM BAKER, BEVERLY ANN BAKER, POULET FRAIS PTY LTD ACN 059 852 265 AND RICHARD HAMOOD


SAD 282 of 2004





BRANSON, NICHOLSON AND JACOBSON JJ
19 JULY 2005 (CORRIGENDUM 14 SEPTEMBER 2005)
SYDNEY (HEARD IN ADELAIDE)

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SAD 281 of 2004

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	POULET FRAIS PTY LTD ACN 059 852 265 FIRST APPELLANT RICHARD HAMOOD SECOND APPELLANT
AND:	THE SILVER FOX COMPANY PTY LTD AS TRUSTEE FOR THE BAKER FAMILY TRUST ACN 083 629 225 FIRST RESPONDENT BRYAN WILLIAM BAKER SECOND RESPONDENT BEVERLY ANN BAKER THIRD RESPONDENT LENARD'S PTY LTD ACN 010 711 145 FOURTH RESPONDENT THE POULTRY SHOP LEASING (SA) PTY LTD ACN 060 052 020 FIFTH RESPONDENT
AND:	THE SILVER FOX COMPANY PTY LTD AS TRUSTEE FOR THE BAKER FAMILY TRUST ACN 083 629 225 FIRST CROSS APPELLANT BRYAN WILLIAM BAKER SECOND CROSS APPELLANT BEVERLY ANN BAKER THIRD CROSS APPELLANT
AND:	POULET FRAIS PTY LTD ACN 059 852 265 FIRST CROSS RESPONDENT RICHARD HAMOOD SECOND CROSS RESPONDENT LENARD'S PTY LTD ACN 010 711 145 THIRD CROSS RESPONDENT
JUDGES:	BRANSON, NICHOLSON AND JACOBSON JJ
DATE OF ORDER:	19 JULY 2005
WHERE MADE:	SYDNEY (HEARD IN ADELAIDE)
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY		SAD 282 of 2004

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	LENARD'S PTY LTD ACN 010 711 145 APPELLANT
AND:	THE SILVER FOX COMPANY PTY LTD AS TRUSTEE FOR THE BAKER FAMILY TRUST ACN 083 629 225 FIRST RESPONDENT BRYAN WILLIAM BAKER SECOND RESPONDENT BEVERLY ANN BAKER THIRD RESPONDENT POULET FRAIS PTY LTD ACN 059 852 265 FOURTH RESPONDENT RICHARD HAMOOD FIFTH RESPONDENT
JUDGES:	BRANSON, NICHOLSON AND JACOBSON JJ
DATE OF ORDER:	19 JULY 2005
WHERE MADE:	SYDNEY (HEARD IN ADELAIDE)

CORRIGENDUM

1 On the Orders page for SAD 282 of 2004 and page 2 of the Reasons for Judgment add the following parties to the cross-appeal:

AND:	THE SILVER FOX COMPANY PTY LTD AS TRUSTEE FOR THE BAKER FAMILY TRUST ACN 083 629 225 FIRST CROSS APPELLANT BRYAN WILLIAM BAKER SECOND CROSS APPELLANT BEVERLY ANN BAKER THIRD CROSS APPELLANT
AND:	LENARD'S PTY LTD ACN 010 711 145 FIRST CROSS RESPONDENT POULET FRAIS PTY LTD ACN 059 852 265 SECOND CROSS RESPONDENT RICHARD HAMOOD THIRD CROSS RESPONDENT

2 On the Orders page delete the words ‘THAT the appeal be allowed’ and replace with the words:

‘THAT:

1. The appeal be allowed.

2. The cross-appeal be dismissed.’

3 In paragraphs 33, 141 and 142 replace the word ‘cross-appeal’ with ‘cross-appeals’.

I certify that the preceding three (3) numbered paragraphs are a true copy of the Corrigendum to the Reasons for Judgment of the Honourable Justices Branson, Nicholson and Jacobson.

Associate:

Dated: 14 September 2005

FEDERAL COURT OF AUSTRALIA

Poulet Frais Pty Ltd v The Silver Fox Company Pty Ltd [2005] FCAFC 131

APPEAL – nature of appeal – finding that conduct misleading or deceptive – role of appellate court – whether appellate court bound by finding of primary judge

TRADE PRACTICES – misleading or deceptive conduct – franchise – need to consider whole of relevant conduct – whether material provided to franchisee conveyed representations alleged – significance of independent legal and accounting advice – significance of acknowledgement that no representations made – whether reliance on representations established – significance of acknowledgement of non-reliance – disclaimer

AGENCY – actual authority – terms of agreement – whether facts fairly disclose that one party is acting for another


Federal Court of Australia Act 1976 (Cth) subs 24(1)
Trade Practices Act 1974 (Cth) s 52, s 75B, subs 84(2)


Allesch v Maunz [2000] HCA 40; (2000) 203 CLR 172 referred to
Bonette v Woolworths Ltd (1937) 37 SR (NSW) 142 cited
Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424 considered
Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 212 ALR 357 applied
Cabal v United Mexican States [2001] FCA 427; (2001) 108 FCR 311 referred to
CDJ v VAJ [1998] HCA 76; (1998) 197 CLR 172 referred to
Coal & Allied Operations Pty Ltd v Australian Industrial Relations Commission [2000] HCA 47; (2000) 203 CLR 194 referred to
Crampton v The Queen [2000] HCA 60; (2000) 206 CLR 161 referred to
Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 referred to
Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 cited
Field v Shoalhaven Transport Pty Ltd [1970] 3 NSWR 96 cited
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 cited
Garnac Grain Company Incorporated v HMF Faure & Fairclough Ltd [1968] AC 1130 cited
Hely-Hutchinson v Brayhead Limited [1968] 1 QB 549 considered
Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 referred to
I & L Securities Pty Limited v HTW Valuers (Brisbane) Pty Limited [2002] HCA 41; (2002) 210 CLR 109 referred to
Keen Mar Corporation Pty Ltd v Labrador Park Shopping Centre Pty Ltd (1989) ATPR (Digest) 46-048 considered
Mark Foys Pty Ltd v TVSN (Pacific) Ltd [2000] FCA 1626; (2000) 104 FCR 61 considered
Minister for Immigration and Multicultural Affairs v Jia Legeng [2001] HCA 17; (2001) 205 CLR 507 cited
Pavich v Bobra Nominees Pty Ltd (1988) ATPR (Digest) 46-039 referred to
Permanent Trustee Australia Ltd v FAI General Insurance Company Ltd (in liq) [2003] HCA 25; (2003) 197 ALR 364 referred to
Petersen v Moloney [1951] HCA 57; (1951) 84 CLR 91 referred to
Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434 referred to
S & I Publishing Pty Ltd v Australian Surf Life Saver Pty Ltd (1998) 88 FCR 354 considered
SAP Australia Pty Ltd v Sapient Australia Pty Ltd [1999] FCA 1821; (1999) 169 ALR 1 considered
Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd [2002] FCAFC 157; (2002) 55 IPR 354 referred to
Warren v Coombes [1979] HCA 9; (1979) 142 CLR 531 referred to


GE Dal Pont, Law of Agency, Butterworths, Sydney, 2001
JD Heydon, Trade Practices Law: Restrictive Trade Practices, Deceptive Conduct and Consumer Protection, LBC, Vol 2, Sydney
C Lockhart, The Law of Misleading or Deceptive Conduct, 2^nd edn Lexis Nexis Butterworths, Sydney, 2003
FMB Reynolds, Bowstead & Reynolds on Agency 17^th edn, Sweet & Maxwell, London, 2001











POULET FRAIS PTY LTD ACN 059 852 265 AND RICHARD HAMOOD v THE SILVER FOX COMPANY PTY LTD AS TRUSTEE FOR THE BAKER FAMILY TRUST ACN 083 629 225, BRYAN WILLIAM BAKER, BEVERLY ANN BAKER, LENARD'S PTY LTD ACN 010 711 145 AND THE POULTRY SHOP LEASING (SA) PTY LTD ACN 060 052 020


SAD 281 of 2004


LENARD'S PTY LTD ACN 010 711 145 v THE SILVER FOX COMPANY PTY LTD AS TRUSTEE FOR THE BAKER FAMILY TRUST ACN 083 629 225, BRYAN WILLIAM BAKER, BEVERLY ANN BAKER, POULET FRAIS PTY LTD ACN 059 852 265 AND RICHARD HAMOOD


SAD 282 of 2004





BRANSON, NICHOLSON AND JACOBSON JJ
19 JULY 2005
SYDNEY (HEARD IN ADELAIDE)

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SAD 281 of 2004

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	POULET FRAIS PTY LTD ACN 059 852 265 FIRST APPELLANT RICHARD HAMOOD SECOND APPELLANT
AND:	THE SILVER FOX COMPANY PTY LTD AS TRUSTEE FOR THE BAKER FAMILY TRUST ACN 083 629 225 FIRST RESPONDENT BRYAN WILLIAM BAKER SECOND RESPONDENT BEVERLY ANN BAKER THIRD RESPONDENT LENARD'S PTY LTD ACN 010 711 145 FOURTH RESPONDENT THE POULTRY SHOP LEASING (SA) PTY LTD ACN 060 052 020 FIFTH RESPONDENT
AND	THE SILVER FOX COMPANY PTY LTD AS TRUSTEE FOR THE BAKER FAMILY TRUST ACN 083 629 225 FIRST CROSS APPELLANT BRYAN WILLIAM BAKER SECOND CROSS APPELLANT BEVERLY ANN BAKER THIRD CROSS APPELLANT
AND	POULET FRAIS PTY LTD ACN 059 852 265 FIRST CROSS RESPONDENT RICHARD HAMOOD SECOND CROSS RESPONDENT LENARD'S PTY LTD ACN 010 711 145 THIRD CROSS RESPONDENT
JUDGES:	BRANSON, NICHOLSON AND JACOBSON JJ
DATE OF ORDER:	19 JULY 2005
WHERE MADE:	SYDNEY (HEARD IN ADELAIDE)

THE COURT ORDERS THAT:

1.	The appeal be allowed.
2.	The cross appeal be dismissed.
3.	Orders 1-4 of the orders made by the primary judge on 3 December 2004 be set aside.
4.	In lieu of the Orders referred to in [3] above there be judgment for the respondents at first instance.

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SAD 282 of 2004

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	LENARD'S PTY LTD ACN 010 711 145 APPELLANT
AND:	THE SILVER FOX COMPANY PTY LTD AS TRUSTEE FOR THE BAKER FAMILY TRUST ACN 083 629 225 FIRST RESPONDENT BRYAN WILLIAM BAKER SECOND RESPONDENT BEVERLY ANN BAKER THIRD RESPONDENT POULET FRAIS PTY LTD ACN 059 852 265 FOURTH RESPONDENT RICHARD HAMOOD FIFTH RESPONDENT
JUDGES:	BRANSON, NICHOLSON AND JACOBSON JJ
DATE OF ORDER:	19 JULY 2005
WHERE MADE:	SYDNEY (HEARD IN ADELAIDE)

THE COURT ORDERS THAT the appeal be allowed.

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SAD 281 of 2004

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	POULET FRAIS PTY LTD ACN 059 852 265 FIRST APPELLANT RICHARD HAMOOD SECOND APPELLANT
AND:	THE SILVER FOX COMPANY PTY LTD AS TRUSTEE FOR THE BAKER FAMILY TRUST ACN 083 629 225 FIRST RESPONDENT BRYAN WILLIAM BAKER SECOND RESPONDENT BEVERLY ANN BAKER THIRD RESPONDENT LENARD'S PTY LTD ACN 010 711 145 FOURTH RESPONDENT THE POULTRY SHOP LEASING (SA) PTY LTD FIFTH RESPONDENT
AND	THE SILVER FOX COMPANY PTY LTD AS TRUSTEE FOR THE BAKER FAMILY TRUST ACN 083 629 225 FIRST CROSS APPELLANT BRYAN WILLIAM BAKER SECOND CROSS APPELLANT BEVERLY ANN BAKER THIRD CROSS APPELLANT
AND	POULET FRAIS PTY LTD ACN 059 852 265 FIRST CROSS RESPONDENT RICHARD HAMOOD SECOND CROSS RESPONDENT LENARD'S PTY LTD ACN 010 711 145 THIRD CROSS RESPONDENT

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SAD 282 of 2004

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	LENARD'S PTY LTD ACN 010 711 145 APPELLANT
AND:	THE SILVER FOX COMPANY PTY LTD AS TRUSTEE FOR THE BAKER FAMILY TRUST ACN 083 629 225 FIRST RESPONDENT BRYAN WILLIAM BAKER SECOND RESPONDENT BEVERLY ANN BAKER THIRD RESPONDENT POULET FRAIS PTY LTD ACN 059 852 265 FOURTH RESPONDENT RICHARD HAMOOD FIFTH RESPONDENT

JUDGES:	BRANSON, NICHOLSON AND JACOBSON JJ
DATE:	19 JULY 2005
PLACE:	SYDNEY (HEARD IN ADELAIDE)

REASONS FOR JUDGMENT

THE COURT

INTRODUCTION

1 These two appeals and one cross-appeal were heard together. They each arose from the judgment of a Judge of the Court published on 3 December 2004 in The Silver Fox Company Pty Ltd as Trustee for the Baker Family Trust v Lenard’s Pty Ltd [2004] FCA 1570. In addition to publishing reasons for judgment on that day, his Honour also published related reasons for judgment on 17 September 2004 ([2004] FCA 1225) and 13 October 2004 ([2004] FCA 1310).

2 At first instance The Silver Fox Company Pty Limited as Trustee for the Baker Family Trust (‘Silver Fox’) together with Bryan William Baker (‘Mr Baker’) and Beverly Ann Baker (‘Mrs Baker’) claimed damages under the Trade Practices Act 1974 (Cth) (‘the TPA’) from Lenard’s Pty Ltd (‘Lenard’s’), The Poultry Shop Leasing (SA) Pty Ltd (‘Lenard’s Leasing’), Poulet Frais Pty Ltd (‘Poulet Frais’) and Richard Hamood (‘Mr Hamood’). The dispute between the parties arose out of the acquisition and operation by Silver Fox of a Lenard’s Poultry Shop franchise. Silver Fox and Mr and Mrs Baker alleged that the corporate respondents had engaged in misleading and deceptive conduct in the period leading up to the signing by Silver Fox on 4 September 1998 of a written Franchise Agreement (‘the Franchise Agreement’). Mr and Mrs Baker had guaranteed the obligations of Silver Fox under the Franchise Agreement. Silver Fox and Mr and Mrs Baker further alleged that the corporate respondents had engaged in unconscionable conduct by entering into and subsequently terminating the Franchise Agreement. Mr Hamood was alleged to have been knowingly concerned in the conduct of the corporate respondents and thus a person involved in the alleged contraventions of the TPA by the corporate respondents within the meaning of s 75B of the TPA.

3 Lenard’s cross-claimed against Silver Fox and Mr and Mrs Baker in respect of moneys payable under the Franchise Agreement.

4 The learned primary judge rejected the claim that the corporate respondents had engaged in unconscionable conduct. He also rejected the claim that Lenard’s Leasing had engaged in misleading and deceptive conduct. However, his Honour concluded that the corporate respondents other than Lenard’s Leasing had engaged in misleading and deceptive conduct in contravention of s 52 of the TPA. His Honour further concluded that Mr Hamood had been directly involved in the contravention of s 52 of the TPA. His Honour upheld Lenard’s cross-claim.

5 The orders made by the learned primary judge on 3 December 2004 were as follows:

‘1. There be judgment for Bryan William Baker and Beverly Ann Baker jointly against Lenard’s Pty Ltd, Poulet Frais Pty Ltd and Richard Hamood in the sum of $182,800 plus interest fixed in a lump sum of $33,400.

2. There be judgment for Bryan William Baker against Lenard’s Pty Ltd, Poulet Frais Pty Ltd and Richard Hamood in the further sum of $67,200 plus interest fixed in a lump sum of $17,900.

3. There be judgment for Beverly Ann Baker against Lenard’s Pty Ltd, Poulet Frais Pty Ltd and Richard Hamood in the further sum of $40,200 plus interest fixed in a lump sum of $6,600.

4. Lenard’s Pty Ltd, Poulet Frais Pty Ltd and Richard Hamood pay to The Silver Fox Company Pty Ltd as Trustee for The Baker Family Trust, Bryan William Baker and Beverly Ann Baker costs of the proceedings save that Lenard’s Pty Ltd not be liable for the costs of and incidental to:

(a) the notice of motion of The Silver Fox Company Pty Ltd, Bryan William Baker and Beverly Ann Baker dated 2 July 2001; or
(b) the notice of motion of Lenard’s Pty Ltd and The Poultry Shop Leasing (SA) Pty Ltd dated 13 December 2001.

5. There be judgment for Lenard’s Pty Ltd against The Silver Fox Company Pty Ltd, Bryan William Baker and Beverly Ann Baker in the sum of $21,416 plus interest fixed in a lump sum of $5600.’

6 Poulet Frais and Mr Hamood have filed a notice of appeal by which they appeal from the whole of the judgment of the primary judge on the claim of Silver Fox and Mr and Mrs Baker. Silver Fox and Mr and Mrs Baker have filed a notice of cross-appeal by which they appeal from his Honour’s orders allowing Lenard’s cross-claim and awarding Silver Fox and Mr and Mrs Baker costs on a basis other than an indemnity basis. Lenard’s has filed a notice of appeal by which it adopts the grounds of appeal set out in the notice of appeal filed by Poulet Frais and Mr Hamood and additionally challenges his Honour’s judgment, so far as it affects them, on additional grounds.

7 To avoid confusion it is convenient in these reasons for judgment to describe the parties, where appropriate, by reference to their respective roles at first instance rather than by reference to their various respective roles on these appeals and the cross-appeal.

8 For the reasons set out below we have concluded that each of the appeals should be allowed and the cross-appeal dismissed.

FACTUAL BACKGROUND

9 This outline of the factual background to the dispute between the parties has in large part been drawn from the reasons for judgment of the primary judge dated 17 September 2004. More detailed consideration is given below to aspects of the evidence that was before his Honour.

10 In late 1996 Mr and Mrs Baker began to consider the acquisition of a business that they could operate together. One option that they contemplated was the acquisition of a franchise business. In due course they incorporated Silver Fox as the vehicle by which they would give effect to their plans.

11 Lenard’s is the head franchisee throughout Australia for the ‘Lenard’s Poultry Shop’ franchises (‘Lenard’s shops’). The franchising concept relates to the business of preparing fresh, ready to cook, gourmet poultry and other products for sale in retail outlets. There are many Lenard’s shops in Australia, including, as at April 1997, 12 in South Australia.

12 Lenard’s operates through a series of master franchisees, including Poulet Frais which is Lenard’s master franchisee for South Australia. The relationship between Lenard’s and Poulet Frais is governed by a Master Licence agreement. Under the Master Licence agreement, the master franchisee for a particular territory is obliged to seek prospective franchisees, to identify prospective premises for new Lenard’s shops within the territory and to train, service and support Lenard’s franchisees within the territory. Lenard’s provides to its master franchisees, including Poulet Frais, a Master Manual. The Master Manual deals with a number of topics including guidance for the selection and assessment of potential sites for Lenard’s shops. When Mrs Baker first contacted Lenard’s she was referred to Mr Hamood, a director of Poulet Frais.

13 Lenard’s Leasing is a company controlled by Lenard’s. Lenard’s Leasing leased premises in South Australia secured for the purpose of making available Lenard’s shops to franchisees. When a potential site for a Lenard’s shop was identified, Mr Hamood would negotiate the terms of a lease subject to Lenard’s approval. If that approval was obtained the lease would be taken by Lenard’s Leasing and the property made available to the franchisee.

14 Mr and Mrs Baker first expressed an interesting in acquiring a Lenard’s franchise in April 1997. They looked at several Lenard’s shops in suburbs of Adelaide. In August 1997 Mr and Mrs Baker submitted a deposit to secure a Lenard’s franchise in the Unley Shopping Centre but their deposit cheque was returned. Apparently another potential franchisee was preferred for that site. Nonetheless, Mr and Mrs Baker maintained their interest in securing a Lenard’s franchise some time in the future. Documents provided to Mr and Mrs Baker during 1997 are relevant to the determination of this proceeding.

15 On 29 May 1998 Mr Hamood contacted Mr and Mrs Baker. He discussed with them four possible options including a shop at the Hilton Plaza Shopping Centre at Hilton, South Australia (‘the Hilton shop’). On 29 June 1998 Poulet Frais wrote to Mr and Mrs Baker offering them a Lenard’s franchise at the Hilton shop at a total cost of $192 402. They resolved to adopt that option. They secured the necessary finance through a bank. On 4 September 1998 Silver Fox and Mr and Mrs Baker signed the Franchise Agreement. Silver Fox had in fact commenced to operate the business from that site on 2 September 1998.

16 Weekly sales at the Hilton shop did not live up to Mr and Mrs Baker’s expectations. They were unable to maintain payments under the Franchise Agreement. On 12 July 2000 they were given notice of termination of the Franchise Agreement by Poulet Frais through Mr Hamood.

17 As a result of entering into the Franchise Agreement, and by reason of its subsequent termination, Silver Fox and Mr and Mrs Baker suffered significant financial losses. They lost the Hilton shop business and their opportunity to earn a profit from it. Mr and Mrs Baker lost the income that they would otherwise have earned if they had not given up employment to operate the Hilton shop. Further they lost capital that they had introduced into the Hilton shop business to support its continuing operation.

REASONS FOR DECISION OF THE PRIMARY JUDGE

18 As mentioned above, the primary judge rejected the case of the applicants to the extent that it was based on a claim of unconscionable conduct. The primary judge also rejected the case of the applicants to the extent that it was based on allegations that the corporate respondents engaged in misleading and deceptive conduct by making oral representations that were untrue. These two aspects of his Honour’s reasons for judgment are not challenged and need not be further considered, except insofar as the applicants’ failure on the oral representations is relevant to the question of whether they could have relied on the written representations.

19 The primary judge upheld the applicants’ case to the extent that it was based on allegations that Poulet Frais and Lenard’s had engaged in misleading and deceptive conduct in contravention of s 52 of the TPA by providing certain documentary material to Mr and Mrs Baker. It was accepted before his Honour that if Poulet Frais were found to have contravened s 52 of the TPA in the ways alleged Mr Hamood would be a person involved in these contraventions of s 52 of the TPA within the meaning of s 75B of the TPA. His Honour concluded that two material representations were made to the applicants by the documentary material given to them by Poulet Frais before they signed the Franchise Agreement. His Honour called the first of these representations ‘the sales/profitability representation’ and the second of these representations ‘the site quality representation’. We will refer to the representations as found by his Honour in the same way.

20 The sales/profitability representation was constituted by two sub-representations which his Honour framed as follows:

(a) ‘provided [the applicants] complied with the Lenard’s system, a representative and reasonable weekly gross sales target was $8,000 per week, and was achievable, and that a representative and reasonable net operating profit was $50,000 per annum and was achievable’; and

(b) ‘a minimal performing Lenard’s shop selected by Poulet Frais would produce a weekly gross sales figure in the order of $8,000 per week and an annual net operating profit in the order of $50,000, and that a higher performing shop would produce considerably higher outcomes.’

21 His Honour framed the site quality representation as a representation that ‘the respondents choose locations carefully, and in this instance, chose the Hilton shop for a Lenard’s franchise carefully’. His Honour’s reasons for judgment record that the making of the site quality representation was not really in dispute. His Honour’s view in this regard was challenged in both appeals.

22 The primary judge found that the applicants relied upon both the sales/profitability representation and the site quality representation in entering into the Franchise Agreement.

23 His Honour characterised the sales/profitability representation as a representation with respect to a future matter. He concluded that Poulet Frais did not have reasonable grounds for making it. His Honour found that it was not reasonable for Poulet Frais to extrapolate from the performance of other Lenard’s shops to the Hilton shop because the newness of the Hilton Plaza Shopping Centre and the socio-economic composition of the surrounding residential areas required that separate consideration be given to the Hilton shop.

24 His Honour was satisfied that Poulet Frais engaged in misleading conduct in contravention of s 52 of the TPA in making the sales/profitability representation and that Mr Hamood was a person involved in that contravention within the meaning of s 75B of the TPA.

25 The primary judge did not characterise the site quality representation as a representation with respect to a future matter. Rather his Honour characterised it as a ‘continuing representation’ and noted that Mr Hamood maintained throughout his evidence that he had carefully chosen the Hilton shop for a Lenard’s franchise.

26 The primary judge concluded that Mr Hamood did not consider carefully the selection of the Hilton shop site. His Honour found that Mr Hamood appreciated only in a general way the significance of the lower socio-economic grouping of the catchment area. His Honour further found that by offsetting the significance of the grouping against the prospect of younger people wishing an inner-city lifestyle moving into the area, Mr Hamood failed to recognise that, probably for a number of years but certainly in the first year of operation of the Hilton shop, custom would be sought from existing residents. His Honour additionally found that Mr Hamood’s extrapolation from existing Lenard’s shops to the Hilton shop of trading levels failed to take into account the newness of the Hilton Plaza Shopping Centre and consequently failed to take into account that there would be a period during which growth of business to the shopping centre would develop. His Honour concluded that the Hilton shop was not likely to perform to its full sales potential in the first year or two of its operation and that ‘[t]o suggest to the Bakers that the Hilton shop had been carefully chosen without the qualification that it was not likely to reach its sales potential for some time was misleading’. Additionally, his Honour concluded that Mr Hamood did not give proper account to existing patronage of and client loyalty to a nearby shopping centre and did not give real consideration to the comparatively small size of the Hilton Plaza Shopping Centre.

27 Accordingly the primary judge found that Poulet Frais engaged in misleading and deceptive conduct in contravention of s 52 of the TPA in making the site location representation and that Mr Hamood was a person involved in that contravention within the meaning of s 75B of the TPA.

28 The primary judge concluded that Poulet Frais was the agent of Lenard’s, but not of Lenard’s Leasing, for the purpose of providing documents to potential new franchisees. His Honour thus found that Lenard’s was also liable to the applicants in respect of the contraventions of s 52 of the TPA.

29 His Honour noted that the applicants did not dispute that they had failed to pay Lenard’s for goods supplied to them and for certain advertising fees payable under the Franchise Agreement. He concluded that Lenard’s was entitled to judgment on its cross-claim.

GROUNDS OF APPEAL

30 Regrettably the notices of appeal did not provide the framework for the appellants’ submissions to this Court (see Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd [2002] FCAFC 157; (2002) 55 IPR 354 per Branson J at [5] (‘Sydneywide v Red Bull’)). It is thus more helpful to outline the cases of the appellants on appeal by reference to their respective submissions, which contain only token references to the grounds of appeal, than by reference to the grounds of appeal as set out in the notices of appeal.

31 Poulet Frais and Mr Hamood contended that on the evidence before the primary judge his Honour erred in finding that the sales/profitability representation, or either aspect of it, was made and in finding that the site quality representation was made. Further Poulet Frais and Mr Hamood contended that, even if representations in the terms identified by his Honour were made, they were not misleading or deceptive. Finally, Poulet Frais and Mr Hamood challenged his Honour’s finding that the applicants had relied on the sales/profitability representation or the site quality representation in entering into the Franchise Agreement.

32 Lenard’s adopted the contentions of Poulet Frais and Mr Hamood. Additionally Lenard’s contended that the primary judge erred in finding that Poulet Frais acted as Lenard’s agent in providing documents to the applicants. Further Lenard’s contended that his Honour erred in concluding that the site quality representation was not a representation with respect to a future matter within the meaning of s 51A of the TPA which Lenard’s had reasonable grounds to make.

33 Ultimately the cross-appellants did not press their cross-appeal and it need not be further considered.

34 In each of the appeals the applicants filed a notice of contention. Ultimately the contention contained in the notices was not pressed. It also need not be considered further.

ROLE OF APPELLATE COURT

35 This appeal is brought under subs 24(1) of the Federal Court of Australia Act 1976 (Cth). It is an appeal by way of rehearing on the evidence adduced before the primary judge (Minister for Immigration and Multicultural Affairs v Jia Legeng [2001] HCA 17; (2001) 205 CLR 507 (‘MIMA v Jia’)).

36 Consideration has been given in many cases to the proper role of an appellate court where the appeal is by way of rehearing. S & I Publishing Pty Ltd v Australian Surf Life Saver Pty Ltd (1998) 88 FCR 354 (‘S & I Publishing’) and Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424 (‘Branir’) are two such cases. Mr Sullivan QC, senior counsel for Poulet Frais and Mr Hamood, argued that the decision of the Full Court in Branir is in conflict with the earlier Full Court decision in S & I Publishing and two other Full Court decisions which followed S & I Publishing. He identified the other two decisions as SAP Australia Pty Ltd v Sapient Australia Pty Ltd [1999] FCA 1821; (1999) 169 ALR 1 and Mark Foys Pty Ltd v TVSN (Pacific) Ltd [2000] FCA 1626; (2000) 104 FCR 61.

37 S & I Publishing is of particular significance to these appeals as it gave consideration to the role of an appellate court is a case concerning s 52 of the TPA. At 359-361 their Honours said:

‘Once the primary facts have been found, the question whether conduct is misleading or deceptive or likely to mislead or deceive is a conclusion of fact. No doubt the question whether conduct is capable of being misleading or deceptive or likely to mislead or deceive would involve a question of law. It has recently been said by Lord Hoffmann (with the agreement of all other members of the House of Lords) in Biogen Inc v Medeva plc (1996) 36 IPR 438 at 452 that even where primary facts are not in dispute an evaluation of facts not depending on assessment of credibility, requires appellate caution in reversing the trial judge's findings. ...

... There have been some suggestions originating in the area of copyright law where the issue is whether one work is a reproduction of another in a material form that particular respect should be paid to the decision of a primary judge. So in SW Hart & Co Pty Ltd v Edwards Hot Water Systems [1985] HCA 59; (1985) 159 CLR 466 at 478 per Gibbs CJ, with whose reasons Mason J agreed, said:

"The nature of the issue, involving as it does matters of impression, is one in which particular respect and weight should be given to the decision of the trial judge unless some error in his judgment has been demonstrated."

...

There is some considerable similarity between the questions of infringement arising in the copyright and design area on the one hand and the question of misleading and deceptive conduct on the other. Both involve questions of judgment and degree. ...

...

We think that while what was said by Gibbs CJ in Edwards Hot Water Systems is apposite in a case such as the present, it does not preclude the appellate court from reaching a different conclusion from the trial judge if it forms the view that conduct is not misleading and deceptive which was found to be so by the trial judge; a fortiori if a conclusion at first instance involves a question of principle. What was said in Edwards Hot Water Systems is no more than a salutary reminder that questions of fact and degree involving judgment may be such that minds may differ so that in a doubtful case an appellate court should give weight to the views of the trial judge. It is not a fetter on an appellate court reaching its own conclusion where it is of a contrary view to that taken by the trial judge.’

38 In SAP Australia Pty Ltd v Sapient Australia Pty Ltd at [38] the Full Court noted that in S & I Publishing the Full Court had accepted the proposition that ‘on questions of fact and degree involving matters of judgment and impression, minds may differ, so that in a doubtful case the court should give respect and weight to the views of the trial judge’. The Full Court observed that the general approach accepted in S & I Publishing is not a fetter on the appeal court’s giving effect to its own conclusion where it is definitely of a contrary view to that taken by the trial judge.

39 In Mark Foys Pty Ltd v TVSN (Pacific) Ltd at [37] the Full Court observed that it is well settled that it is open to a Full Court sitting on appeal to come to a different view from a trial judge as to whether the conduct of the respondent is misleading or deceptive. The Full Court cited S & I Publishing at 361 in support of its observation.

40 Branir was not itself an appeal concerning s 52 of the TPA. However, the observations made in Branir concerning the role of an appellate court were adopted by the Full Court in Sydneywide v Red Bull which was an appeal concerning s 52 of the TPA.

41 In Branir, Allsop J, with whom Drummond and Mansfield JJ agreed, gave extensive consideration to authorities touching generally on the role of an appellate court. His Honour noted at [22] that it is plain from what the High Court said in CDJ v VAJ [1998] HCA 76; (1998) 197 CLR 172 at [111], Allesch v Maunz [2000] HCA 40; (2000) 203 CLR 172 at [22], Coal & Allied Operations Pty Ltd v Australian Industrial Relations Commission [2000] HCA 47; (2000) 203 CLR 194 at [14] and Crampton v The Queen [2000] HCA 60; (2000) 206 CLR 161 at [147] that the task of a court on an appeal by way of rehearing is the correction of error. We do not understand the Full Court in S & I Publishing to have suggested to the contrary.

42 In Branir at [23] Allsop J cited a passage from Cabal v United Mexican States [2001] FCA 427; (2001) 108 FCR 311 from which we extract the following:

‘In general on an appeal by way of rehearing from a judge sitting without a jury an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge. In deciding what is the proper inference to be drawn, the appellate court will give respect and weight to the conclusion of the trial judge. However, once having reached its own conclusion it will not shrink from giving effect to it.

Notwithstanding the fact that the learned primary judge's review was conducted on the papers, and without any opportunity to consider the demeanour of the witnesses, the weight to be accorded to the evidence of the experts was primarily a matter for his Honour to determine. This Court can consider whether he fell into appealable error in that regard but it will not approach that evidence as though this were a rehearing de novo in which his Honour's views count for nought. If, after giving full weight to his Honour's views, we are persuaded that the conclusions which he reached were erroneous we must set aside his finding of fact. We cannot however simply substitute for his Honour's findings of fact those findings which we would have made had we been the judges on review who determined this matter at first instance.’

43 Allsop J at [24]-[25] observed:

‘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 ....

This is not to elevate ordinary factual findings to the protected position of those based on credit, but it is to make clear, first, the advantages of the trial judge and, secondly, the need for demonstration of error. The inability to identify error may arise in part from the unwillingness of the appeal court to be persuaded that it is in as good a position as the trial judge to deal with the issues, because of the kinds of considerations referred to in [24] above. Or, it may be that the nature of the issue is one such that (though not a discretion) there cannot be said to be truly one correct answer. In such cases the availability of a different view, indeed even perhaps the preference of the appeal court for a different view, may not be alone sufficient .... In circumstances where, by the nature of the fact or conclusion, only one view is (at least legally) possible (for example, the proper construction of a statute or a clause in a document, where, although, as often said, minds might differ about such matters of construction, there can be but one correct meaning ... the preference of the appeal court for one view would carry with it the conclusion of error. However, other findings and conclusions may be far more easily open to legitimate differences of opinion eg valuation questions ....’ (Citations omitted)

44 We do not agree that there is any material difference between the conclusions reached by Allsop J in Branir and the approach adopted in S & I Publishing. A determination of whether particular conduct is misleading or deceptive will ordinarily involve, to use the language of Allsop J, ‘elements of fact, degree, opinion or judgment’ (Branir at [24]). In a particular case an appellate court might conclude that only one view is reasonably open. In such a case the adoption by the appeal court of that view will, as Allsop J observed in Branir at [25], ‘carry with it the conclusion of error’ if the primary judge adopted a different view. The Full Court expressed the same principle in S & I Publishing when it observed at 361 that an appellate court is not precluded from reaching a different conclusion from the trial judge if it forms the view that conduct is not misleading or deceptive which was found to be so by the trial judge. However, in a less clear case, the preference of the appellate court for a view other than that adopted by the trial judge may be insufficient to demonstrate error.

45 Importantly both Branir and S & I Publishing recognise that an appeal by way of rehearing is not simply a rehearing of, or second go at, the trial. The appellate court does not consider the matter de novo but, exceptional cases aside, sits to correct error made at first instance. Evidence additional to that adduced in the court below is not ordinarily received (O 52 r 36 of the Federal Court Rules). An appellant is ordinarily precluded from raising on appeal a point not argued at first instance (Multicon Engineering Pty Ltd v Federal Airports Corporation (1997) 47 NSWLR 631). An appellant is required to specify the grounds on which the appeal is brought.

46 The proper approach in the context of a case concerning an alleged contravention of s 52 of the TPA can, in our view, be restated in the following way. Where the determination of whether particular conduct was misleading or deceptive is not straight-forward, but rather involves elements of degree, opinion or judgment, a simple preference in the appellate court for a view different from that taken by the trial judge may not carry with it the conclusion of error. The appeal court might conclude either that there could not be said to be only one possible correct determination or that the trial judge had a particular advantage, not shared by the appellate court, in assessing critical matters of nuance and judgment. In such a case, in determining whether or not the trial judge fell into appealable error, the appeal court should not proceed as though on a hearing de novo in which the views of the trial judge carry no weight. Rather the appeal court must give appropriate weight to the views of the trial judge and set aside his or her finding only if persuaded that the finding is wrong. However, if an appellate court is persuaded that particular conduct, found by the trial judge to be misleading or deceptive, was not in fact misleading or deceptive, it thereby identifies error in the decision of the primary judge. Similarly where an appellate court is persuaded that conduct which the trial judge did not consider misleading or deceptive is in fact misleading or deceptive.

47 In our view the above restatement is entirely consistent with the principles enunciated in Warren v Coombes [1979] HCA 9; (1979) 142 CLR 531 at 552-553 by Gibbs ACJ and Jacobs and Murphy JJ and apparently approved in MIMA v Jia at 533 by Gleeson CJ and Gummow J.

THE RELEVANT CONDUCT OF POULET FRAIS

48 A corporation contravenes s 52 of the TPA if, in trade or commerce, it engages in conduct that is misleading or deceptive. It is clear that all of the relevant conduct of Poulet Frais upon which the applicants placed reliance was conduct in trade or commerce. It is thus necessary to consider only whether his Honour correctly concluded that Poulet Frais, in its dealings with the applicants, engaged in misleading or deceptive conduct.

49 In challenging his Honour’s conclusion that Poulet Frais engaged in misleading and deceptive conduct the respondents placed considerable reliance on Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 212 ALR 357 (‘Butcher v Lachlan Realty’). We note that this judgment of the High Court was published one day before the publication of his Honour’s judgment and is unlikely to have been available to him when he prepared his reasons for judgment.

50 Consideration of whether Poulet Frais engaged in misleading or deceptive conduct requires examination of the conduct of Poulet Frais towards the applicants in the period leading up to the signing of the Franchise Agreement (Butcher v Lachlan Realty at [36]-[37] per Gleeson CJ, Hayne and Heydon JJ), not merely the construction of individual documents. Nonetheless it is necessary to give careful consideration to the documents provided to the applicants by Poulet Frais because his Honour found that the sales/profitability representation and the site quality representation were made to the applicants by those documents.

51 The following documents were provided by Poulet Frais to the applicants:

• a pamphlet entitled ‘Profit from Our Experience’ – provided to Mr and Mrs Baker in about April 1997;

• an information package (‘Information Pack’) – provided to Mr and Mrs Baker on about 26 June 1997;

• a disclosure document dated 4 March 1997 with annexures and explanatory notes (‘Disclosure Document 1’) – provided to Mr and Mrs Baker on about 6 August 1997;

• a disclosure document dated 22 May 1998 with annexures and explanatory notes (‘Disclosure Document 2’) – provided to Mr and Mrs Baker on about 16 June 1998;

• a letter of offer dated 29 June 1998 with enclosures (‘Letter of Offer’); and

• the Lenard’s Franchise Agreement for the Hilton Shop which was executed on 4 September 1998.

52 The primary judge did not consider that the pamphlet entitled ‘Profit from Our Experience’ had other than introductory significance because of the general nature of the information contained in it. It was not submitted to his Honour that this document contained anything that was misleading or deceptive. It need not be further considered.

53 The Information Pack was provided to Mr and Mrs Baker under cover of a letter dated 26 June 1997 from Poulet Frais signed by Mr Hamood. The first substantive page of this document is headed ‘Financial Requirements’. This page contains information concerning, amongst other things, the initial cost of establishing a Lenard’s shop, the possible availability of finance and certain ongoing costs. It ends with the following paragraph:

‘Return on Investment

Projected operating profit is determined by many factors including location of the store, commitment of the franchisee, gross sales, rent and occupancy costs, wages and other miscellaneous costs. It would be imprudent for Lenard’s to generalise on this issue, however, a realistic return on investment has been proven to be achievable.’

54 The second substantive page of this document is headed ‘What’s Next’. This page details actions that a person interested in becoming a Lenard’s franchisee would need to take. It concludes with the following paragraph:

‘Before signing any contracts Lenard’s will require that you seek professional legal and accounting advice. Lenard’s invite your solicitor and accountant to contact either Lenard’s or its company solicitors direct regarding any queries. We highlight the importance of the involvement of your expert advisers to ensure that all questions are answered and that any potential for misunderstanding is eliminated.’

55 Additionally the Information Pack has a page headed ‘The Lenard’s Advantage’. The opening paragraph of this page contains the material upon which his Honour relied in holding that Poulet Frais had made the site quality representation. The paragraph reads as follows:

‘The viability of Lenard’s Poultry Shops can be attributed to a number of key factors. Innovative product development and product quality ensure consumer satisfaction; superior merchandising enables the product to be marketed effectively and obtaining maximum yield from the whole bird offers the highest return to the operator. In addition, Lenard’s choose shop locations carefully, selecting quality shopping centres and areas within those centres which are close to supermarkets so that the distinctive Lenard’s Poultry Shop display windows gain maximum exposure.’

56 Disclosure Document 1 purports to be accurate as at 4 March 1997. Items (vii), (x) and (xii) of Disclosure Document 1 are expressed as follows:

‘(vii) List of components making up a typical franchise purchase will be provided in a six [sic] page financial information package. This package will be specific to the proposed franchise store and will including operating profit targets, estimated working capital required, estimated costings, previous twelve months trading results of all stores in the Territory and detailed explanatory notes (These are estimation only and the components and amounts of costs may change and the Franchisee must satisfy themselves as to the trading potential and working capital requirements of the franchise). This package will not be supplied where the franchise in question relates to an existing store.

...

(x) Written financial information with respect to sales targets, gross/net profit targets subject to various assumptions and parameters for a new outlet will be provided in the Six Page Financial Information Package (this will not apply with respect to the sale or assignment of an existing outlet). There is no guarantee that a Franchisee will achieve the same results as contained in any targets given, nor is it intended that a Franchisee should rely on them as a projection. A FRANCHISEE IS REQUIRED TO MAKE HIS/HER OWN INQUIRIES AND INVESTIGATIONS AND IS TO SATISFY HIMSELF/HERSELF AS TO POTENTIAL SALES, INCOME AND GROSS/NET PROFITS.

...

(xii) CAUTION – this disclosure document should help you make up your mind. While it includes some information about your Contract/Franchise Agreement don’t rely on it alone to understand your Contract. Read all of your Contract carefully. Buying a franchise is a serious undertaking. Take your time to decide You are also required to have the contract explained to you by a solicitor and should seek accountancy and financial advice on the franchise proposition.’ (Emphasis in original)

57 Each of Mr and Mrs Baker acknowledged receipt of Disclosure Document 1 on 5 August 1997 by signing a copy of it before a witness.

58 Disclosure Document 1 includes spreadsheets that his Honour described in the following way:

‘The monthly comparison records related to three (unidentified) shops covering the period from 7 July 1996 to 20 April 1997. They produced percentage information on a monthly basis (apparently for the 12 month period to 30 June 1997), comparing average sales, and itemised expenditure items against a national average. There were then three sheets again apparently dealing with each of three unidentified shops. They are described as weekly operating reports. They record on a weekly basis the gross sales, the gross profit, items of expenditure, the operating profit and other information for each shop. In respect of the three shops, the gross sales varied between $794,217, $624,880 and $489,032 for the 12 months to 30 June 1997. The gross profit respectively was $383,133, $281,509 and $221,794. The gross profit percentage varied between 48.2 per cent and 45 per cent and 45.3 per cent respectively. The operating profit for each of the three shops for that year after identifying the expenses deducted (wages, rent, other and franchise and advertising levels) was $196,380, $88,983 and $52,253 respectively, identified also as a percentage operating profit on sales of 24.7 per cent, 14.2 per cent and 10.6 per cent.

Certain of that information was then extracted, and incorporated into the historical reports covering the same period, and the previous 12 months to compare those items with the previous 12 months. In each case the sales and gross and operating profits had increased.’

59 Annexed to Disclosure Document 1 is a five-page financial package. The cover sheet of the financial package bears the words ‘This five page financial package contains information which you must read’. The first substantive page of the financial package sets out hypothetical target operating net profit outcomes derived from five different targets for gross weekly sales (ie $8000, $10 000, $12 000, $14 000 and $16 000). The page is headed as follows:

‘	SALES TARGET FOR THE INITIAL 52 WEEKS FOR LENARD’S POULTRY SHOP – XYZ

Please find below a series of sales targets and hypothetical operating profit and loss outcomes if the shop realises the various targets. See the attached explanatory notes for comments regarding the sales targets and the various items mentioned below.

Lenard’s can give no guarantee, warranties, or assurances in relation to the potential of the gross sales or the profitability, if any, of this shop. You must select your own financial targets. Lenard’s takes no responsibility for any variance from the estimates you may experience as Franchisee after taking up the Franchise.’

60 The explanatory notes contained in the financial package include a statement under the heading ‘Gross Sales’:

‘Neither Lenards nor any other persons guarantees your success, the gross sales or profitability in the franchised business. These matters are subject to a number of factors which are beyond the control of Lenards including (but not limited to) the following ...’

Thereafter fourteen factors are identified including the location of the shop in the shopping centre, the location and catchment area of the shopping centre and the other tenants of the shopping centre. The explanatory notes also include a statement under the heading ‘Gross Profit’:

‘Based on the experience of other Lenard’s stores a gross profit of 47% after product costs is achievable BUT other factors such as the competition, your pricing strategy and the prevailing market will influence your retail prices and in turn will affect the level of gross profit.’

61 On 6 August 1997 each of Mr and Mrs Baker signed the following statement which appears on the fifth page of the financial package:

‘I acknowledge receipt of this five page package which includes target sales and profit and loss and other information on the basis that I acknowledge that:

1. I have undertaken, or will undertake, my own investigations about the proposed franchise business and its potential for me;

2. I have taken or will take independent legal, accounting and/or franchising consultant advice; and

3. I have not relied and will not rely upon this material.

4. I understand that the figures contained in this document are given as a sample only and do not constitute forecasts. After having obtained professional advise [sic] and made my own independent inquiries I will choose my own target figures.’

62 Disclosure Document 2 is in the same form as Disclosure Document 1. However, it purports to be accurate as at 22 May 1998. Items (vii), (x) and (xii) are in the same terms or similar terms in the two documents but it is appropriate to note the following differences. First, in item (vii) of Disclosure Document 2 the warning concerning the nature of the figures to be provided in a financial information package is highlighted by being printed in bold type and introduced by the words in upper case lettering ‘PLEASE NOTE’. Secondly, item (xii) of Disclosure Document 2 is printed in italics and bold type. Each of Mr and Mrs Baker acknowledged receipt of Disclosure Document 2 by signing a copy of it before a witness.

63 The five-page financial package annexed to Disclosure Document 2 is in similar form to that annexed to Disclosure Document 1. However, it purports to be a financial package concerning the Hilton Shop rather than a hypothetical shop. There is no evidence as to whether Mr and Mrs Baker signed this version of the financial package but they gave evidence that they had read it.

64 Mr and Mrs Baker received a copy of a franchise agreement under cover of the letter of offer dated 29 June 1998 sent to them by Poulet Frais. The letter asked Mr and Mrs Baker to return the document once they and their solicitor had perused it. It is not disputed that this copy franchise agreement was in the same form as the Franchise Agreement.

65 Clause 3.1 of the Franchise Agreement provides:

‘This Agreement is subject to and conditional upon:-

(a) The Franchisee, its solicitor and its accountant/financial adviser completing and providing to the Master Franchisee certificates in the form set out at the front of this Agreement.’

66 Three certificates are set out at the front of the Franchise Agreement. The first is headed ‘Certificate of Franchisee’. By executing this certificate Silver Fox, amongst other things, certified that it had read a disclosure document received by it not less than seven days prior to signing the Franchise Agreement. It further certified that, prior to signing the Franchise Agreement, it had the Franchise Agreement and associated legal and business risks explained to it by a solicitor. Additionally, by executing this certificate Silver Fox certified that prior to signing the Franchise Agreement it had the financial aspects relating to the Franchise Agreement and the franchised business and the associated financial risk explained to it by an accountant, financial or investment adviser or other suitable person.

67 The second certificate set out at the front of the Franchise Agreement is headed ‘Certificate of Solicitor’. By signing this certificate a solicitor of the Supreme Court of South Australia certified that he acted for Silver Fox in relation to the Franchise Agreement. He further certified that, prior to Silver Fox executing the Franchise Agreement, he had fully explained to it, and it appeared to understand, the contents and effect of the Franchise Agreement, its obligations and the associated risks.

68 The third certificate set out at the front of the Franchise Agreement is headed ‘Certificate of Accountant/Financial Advisor’. By signing that certificate a chartered accountant certified that he acted for Silver Fox and Mr and Mrs Baker in relation to their respective business affairs. He further certified that he had fully explained, and they appeared to understand, the financial aspects of entering into the Franchise Agreement and the business and associated risks.

69 Clause 26.4 of the Franchise Agreement is in the following terms:

‘The Franchisee and Guarantor respectively acknowledge that:

(a) Neither the National Franchisor, Leasing nor the Master Franchisee have made any representation nor given any warranty to the Franchisee or to the Guarantor or to any person on behalf of the Franchisee or Guarantor that the Franchised Business will be successful and produce turnover, gross or net profits at any particular level or rate or at all and that any material made available by the National Franchisor, Leasing and/or the Master Franchisee and any statement made by the National Franchisor and/or the Master Franchisee were the National Franchisor and/or the Master Franchisee’s own personal material and/or estimates and the Franchisee has in entering into this agreement relied on its own personal assessments and enquiries with respect to the Agreement and the business proposed.

(b) They have understood the need to carefully read and consider the terms of this Agreement and to obtain independent legal and accounting and financial advice on the meaning of the provisions of this Agreement and their legal and practical effect before entering into this Agreement or conducting the Franchised Business.’

70 Clause 33 of the Franchise Agreement is in the following terms:

‘This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter of this Agreement and merges all prior discussions between them and none of the parties shall be bound by any covenants, agreements, conditions, definitions, restrictions, provisions warranties or representations with respect to the subject matter of this Agreement other than as expressly provided in this Agreement or as expressly agreed by the parties in writing.’

71 Schedule 1 of the Franchise Agreement is headed ‘Agreement Details’. Item 16 of the schedule shows a minimum performance figure of $6000 per week. An earlier unexecuted version of the Franchise Agreement showed by Schedule 1 a minimum performance figure of $7000. The primary judge accepted Mrs Baker’s evidence that when she came to sign the Franchise Agreement she did not notice that the minimum performance figure was $6000 rather than $7000. His Honour concluded that Mrs Baker had reasonably inferred from the figure of $7000 seen by her in Schedule 1 that Poulet Frais and Mr Hamood expected that the Hilton shop would in the ordinary course have a gross weekly turnover comfortably in excess of $7000 per week. His Honour was of the view that the change in the figure did not indicate any underhanded conduct by Mr Hamood or any attempt to conceal information from Mr and Mrs Baker.

72 Mr and Mrs Baker signed the Franchise Agreement as guarantors in the presence of their solicitor as witness.

WAS THE CONDUCT OF POULET FRAIS MISLEADING OR DECEPTIVE?

Sales/Profitability Representation

73 The reasons for judgment of the primary judge do not explicitly identify the documentary material which, on the view that his Honour took, conveyed the sales/profitability representation. His Honour reviewed all of the documentary material which Poulet Frais provided to Mr and Mrs Baker. Subsequently, in a section of his reasons for judgment headed ‘Findings on Liability’, his Honour recorded his finding as to the sales/profitability representation in the following way:

‘I find ... that the material to which I have referred did convey to the Bakers the representation that, provided they complied with the Lenard’s system, a representative and reasonable weekly gross sales target was $8000 per week, and was achievable, and that a representative and reasonable net operating profit was $50 000 per annum and was achievable. I also find that the material to which I have referred did convey to the Bakers the representation that a minimal performing Lenard’s shop selected by Poulet Frais would produce a weekly gross sales figure in the order of $8000 per week and an annual net operating profit in the order of $50 000, and that a higher performing shop would produce considerably higher outcomes.’

74 It must, we think, be assumed that his Honour placed particular weight on the financial package annexed to each of the disclosure documents. As mentioned above, the financial packages set out five different targets for gross weekly sales. The lowest target in each case was $8000. The lowest annual net operating profit shown in the financial packages is in the order of $50 000.

75 Whether or not a corporation has contravened the norm of corporate conduct established by s 52 of the TPA is a question of mixed fact and law. It is not necessarily answered by asking whether someone was in fact misled, although evidence to that effect might be highly relevant. Where, as here, the conduct in question is conduct relating to particular individuals the whole of the relevant conduct of the corporation towards those individuals must be considered having regard to the circumstances in which that conduct took place (Butcher v Lachlan Realty at [37]).

76 In this case the documents provided by Poulet Frais to Mr and Mrs Baker were claimed to have conveyed certain misrepresentations to them in their capacity as intending purchasers, through their company Silver Fox, of a franchise and as intending guarantors of the performance of Silver Fox as franchisee. The issue of whether the conduct of Poulet Frais was in the circumstances misleading or deceptive was required to be determined by reference to what a reasonable person in the position of Mr and Mrs Baker would have made of those documents (Butcher v Lachlan Realty at [50]-[51]).

77 Nothing in the evidence before his Honour suggested that Mr and Mrs Baker were other than competent and mature individuals. They read the disclosure documents which made it plain that Poulet Frais did not guarantee that a franchise would achieve the same result as contained in any targets given or that a franchise would succeed. They signed the statement reproduced in [61] above in respect of Disclosure Document 1 and read the same statement in respect of Disclosure Document 2. They took advice, as Poulet Frais required them to do, from a solicitor as to ‘the contents and effect of the Franchise Agreement, its obligations and the associated risks’ (see [67] above). The Franchise Agreement included clauses 26.4 and 33 (see [69] and [70] above). They took advice from a chartered accountant, as Poulet Frais required them to do, as to the ‘financial aspects of entering into the Franchise Agreement and the business and the associated risks’ (see [68] above). They were not required to, and did not, make their decision to sign the Franchise Agreement in a hurry.

78 In our view, a reasonable person in the position of Mr and Mrs Baker could be expected to take for granted, for example, that the information contained in the Information Pack about the initial cost of setting up a Lenard’s shop was based on fact. Such a person could also be expected to take for granted that the spreadsheets in Disclosure Document 1 were what they purported to be; that is, spreadsheets derived from the trading figures of actual Lenard’s shops. Additionally he or she could be expected to take for granted that the hypothetical target operating net profit outcomes set out in the financial packages were based on realistic assumptions. His Honour made no adverse findings about the documents in any of these respects.

79 In our view, however, no reasonable person who had read and considered the whole of the documentary material provided by Poulet Frais to Mr and Mrs Baker could have been under any illusion that Poulet Frais was representing to him or her that, provided the franchisee complied with the Lenard’s system, any particular weekly level of gross sales would be achieved or any particular level of annual net operating profit would be achieved. It is not easy to see how Poulet Frais could have made more clear than it did that it was making no representations to Mr and Mrs Baker touching on the likely profitability of the Hilton shop and that Poulet Frais expected them to obtain their own advice on that issue. This was stated in plain terms in Disclosure Document 1 and Disclosure Document 2 and, indeed, Mr and Mrs Baker signed an acknowledgement to that effect in August 1997.

80 Moreover, part of the conduct of Poulet Frais towards the applicants was its conduct in providing to Mr and Mrs Baker a copy of the Lenard’s standard franchise agreement more than two months before the Franchise Agreement was executed. Mr and Mrs Baker were advised to take legal advice in respect of the standard form agreement and they did so. The standard form agreement included the clauses that became clauses 26.4 and 33 of the Franchise Agreement (see [69] and [70] above). The terms of those two clauses served to emphasise what was, in any event, apparent from the terms of the Information Pack and the disclosure documents, namely that Poulet Frais was not giving any guarantees or assurances as to the turnover or profitability that Silver Fox would experience as a franchisee.

81 In the circumstances, to find that the sales/profitability representation was made would be to ignore the statements on the fifth page of the financial packages that formed part of the disclosure documents. It would also be to ignore the effect of the certificates signed by the applicants, their solicitor and their accountant that the Franchise Agreement and attendant risks had been explained. A significant aspect of the Franchise Agreement, as the applicants must be assumed to have understood, was that by entering into it the applicants acknowledged that no representations had been made to them ‘that the Franchised Business [would] be successful and produce turnover, gross or net profits at any level or rate or at all’.

82 His Honour referred to evidence given by Mr and Mrs Baker that they did not feel empowered to dispute the inclusion of clause 26.4 in the Franchise Agreement and that they were aware that Poulet Frais was the source of, and therefore knew of, earlier communications to them. His Honour also observed that, notwithstanding the ‘strictures’ in the documents provided to Mr and Mrs Baker, the information in the documents must have been conveyed to them for the purpose of informing them. His Honour, with respect, is plainly right in this regard. As mentioned above, if that information was not what it purported to be, Poulet Frais would have engaged in misleading and deceptive conduct in providing it to Mr and Mrs Baker. Poulet Frais must be understood, in our view, to have held out the information provided in the financial packages as information upon which Mr and Mrs Baker’s financial adviser could place weight. It does not follow, however, that by giving them that information Poulet Frais made any representation as to an achievable weekly gross sales target or as to a reasonable annual net operating profit for the Hilton shop.

83 Nothing compelled the applicants to do business with Poulet Frais. A Lenard’s franchise, while attractive to Mr and Mrs Baker, was not the only business opportunity reasonably open to them. A case may one day arise in which it will be necessary for a court to decide whether a corporation that, in circumstances such as those outlined above, knowingly executes a contract that contains clauses in terms such as those of clauses 26.4 and 33 of the Franchise Agreement will be found to have contravened s 52 of the TPA should its conduct in doing so prove to be misleading. We are not required to decide this question.

84 Since we have come to the view that the sales/profitability representation was not made, we do not need to consider his Honour’s finding that Poulet Frais did not have reasonable grounds for making it. Nevertheless, it is to be noted that his Honour’s reasons for arriving at that finding were based upon his view that the site quality representation was misleading; see [212]. For reasons set out below, we do not consider that his Honour’s finding that the site quality representation was misleading can stand. It would follow that even if the sales/profitability representation was made, the matters which Mr Hamood took into account having regard to his experience of Lenard’s shops in South Australia would have supported a finding of reasonable grounds.

Site Quality Representation

85 The site quality representation as found by his Honour was that ‘the respondents choose locations carefully, and in this instance, chose the Hilton shop for a Lenard’s franchise carefully.’ This representation was plainly derived by his Honour from the final sentence of the paragraph from the Information Pack which is set out in [55] above. In that paragraph the viability of Lenard’s shops is said to be attributable to a number of key factors, including that ‘Lenard’s choose shop locations carefully, selecting quality shopping centres and areas within those centres which are close to supermarkets so that the distinctive Lenard’s Poultry Shop display windows gain maximum exposure’.

86 The assertion made by the Information Pack that ‘Lenard’s choose shop locations carefully’ is properly understood in the context in which it is found as an assertion about Lenard’s practice in respect of the choosing of shop locations. It was not, as Lenard’s contended, a representation with respect to a future matter within the meaning of s 51A of the TPA.

87 The contention that the Information Pack, by the relevant paragraph, asserted no more than that Lenard’s selected shop locations carefully to ensure that they were close to supermarkets in quality shopping centres involves, in our view, an unrealistically strict reading of the paragraph. The relevant sentence is open to be read by a reasonable person in the position of Mr and Mrs Baker as conveying rather more. In the context provided by the Information Pack, the assertion that Lenard’s choose shop locations carefully carried with it the message that Lenard’s choose shop locations with an eye to identifying sites where Lenard’s considered that Lenard’s shops might be expected to operate profitably. However, the references in the relevant sentence to quality shopping centres and sites close to supermarkets are important in that they inform a reasonable reader about the sorts of judgments that it is Lenard’s practice to make when selecting a site.

88 The warnings and qualifications contained in the documentation provided to Mr and Mrs Baker were not apt to place them on notice that they were not intended to rely on the assertion in the Information Pack that Lenard’s choose locations carefully. In this regard, the conduct of Poulet Frais, so far as it concerned the site quality representation, was different from its conduct in respect of the sales/profitability representation.

89 In our view, a reasonable person in the position of Mr and Mrs Baker would have assumed that Poulet Frais would continue to select shops in accordance with the practice to which the Information Pack referred. The Hilton shop location was selected as a potential site for a Lenard’s shop, on his Honour’s findings, approximately four months earlier than the date upon which the Franchise Agreement was executed. Mr and Mrs Baker had not at this time received a copy of the standard form franchise agreement. It would, in our view, have been misleading for Lenard’s to depart from the practice of which Mr and Mrs Baker had been advised by the Information Pack in the case of the Hilton shop without letting them know.

90 His Honour apparently accepted that Mr Hamood believed that he had selected the Hilton shop site carefully. His Honour was satisfied that Mr Hamood had considerable experience in selecting sites for Lenard’s shops.

91 His Honour did not find that the Hilton Plaza Shopping Centre was not a quality centre. Nor did his Honour find that the Hilton shop was not close to the supermarket in that centre. It is thus necessary to consider the evidence on the topic of whether Mr Hamood chose the Hilton shop site carefully within the meaning reasonably conveyed by the Information Pack. In this regard it is important, in our view, that the assertion in the Information Pack was that ‘Lenard’s choose shop locations carefully’, not that Lenard’s engages strategic property advice consultants, urban and regional planners or academics in the discipline of marketing to assist in the selection of shop locations. These disciplines represent the areas of specialised knowledge of those who gave expert evidence before his Honour on the issue of whether Mr Hamood had selected the Hilton site carefully. Nor did the respondents guarantee that a Lenard’s shop operating from a site selected by them would experience any particular weekly level of gross sales or would necessarily be profitable.

92 His Honour summarised what Mr Hamood did to select the Hilton shop site in the following passage from his Honour’s reasons for judgment of 17 September 2004:

‘... He focused on shopping centres. He looked for an anchor tenant, generally a supermarket. He looked for complementary traders. He looked at the location of the potential site in the shopping centre. He looked at the physical layout of the proposed site. He looked at the quality of, and general facilities in, the shopping centre. And he looked at the proximity of and retail mix in other shopping centres in the surrounding areas to assess the potential competition.

...

Mr Hamood became interested in the Hilton shop as a possible site for a Lenard’s shop during construction of the Hilton shopping centre. In April 1998, he inspected the centre when it was nearing construction. He learned of the prospective tenants including Woolworths, Baker’s Delight, a newsagent, a pharmacy and Smokemart. He contacted Baker’s Delight to confirm its interest. He learned no butcher’s shop tenancy was proposed, so the direct competition for a Lenard’s shop would only come from poultry and meat sales in Woolworths.

Mr Hamood then entered into negotiations with the managing agent for a lease of the Hilton shop. During that period, he obtained demographic information focusing on a radius of 2 km from the shopping centre. ... Mr Hamood recognised that the general profile of the nearby population was older first generation migrants, but he thought that demographic was changing to a younger working group seeking a lifestyle close to the city. He considered the latter group is well disposed to the sort of products provided by Lenard’s. He looked at the area to confirm there were no natural barriers to access to the shopping centre from neighbouring areas.

In the negotiating period, Mr Hamood completed and sent to Lenard’s the site assessment form. The shopping centre was described as a neighbourhood one (the lowest of the four classifications on the form: ‘major/regional/community/neighbour’. The form noted the car parking facilities as very satisfactory. It noted no customer counts were possible as it was a new shopping centre. It noted the fine location of the Hilton shop in relation to the Woolworths supermarket, and the estimated annual sales of the Woolworths supermarket as provided by the shopping centre’s agent. It noted that the area is the ‘up and coming area where older ethnic families are being replaced with young couples’. The positive was recorded as the absence of other major shopping centres in the area other than the supermarket at Henley Beach Road, Torrensville, but the negative was the high degree of loyalty to that supermarket. It noted the proposal for a Baker’s Delight shop also to be established in the shopping centre. The section headed ‘Physical Site’ estimated weekly sales by circling the ‘low’ and ‘medium’ options and not the ‘high’ option.’

93 Mr McArdle, a consultant in strategic property advice, gave evidence that the Hilton shop site was suitable for the operation of a Lenard’s shop. He also expressed the view that the extensive investigations suggested by an expert called by the applicants, whilst ideal, were not necessarily fully adopted in practice, where reliance on experience and business judgment was an acceptable component of the selection process.

94 Ultimately, relying on expert testimony given by witnesses called by the applicants, his Honour concluded that Mr Hamood had not selected the Hilton shop site carefully. His Honour referred to four factors in support of this conclusion. First, his Honour considered that Mr Hamood did not sufficiently appreciate the significance of the lower socio-economic grouping of the catchment area. Secondly, his Honour considered that Mr Hamood, who had not established a Lenard’s shop in a new shopping centre before, had failed to take account of the newness of the Hilton Plaza Shopping Centre. Thirdly, his Honour considered that Mr Hamood did not properly take into account the loyalty of the clientele of another shopping centre in the general vicinity of the Hilton Plaza Shopping Centre. Finally, his Honour considered that Mr Hamood did not really consider the size of the Hilton Plaza Shopping Centre, which was the smallest shopping centre in which a Lenard’s shop had been located.

95 In our respectful view, his Honour formed a view on whether Mr Hamood selected the Hilton shop site ‘carefully’ by assessing the steps taken by him against a higher standard than was apt in the circumstances. None of the respondents held itself or himself out as an expert in a discipline relevant to retail shop site selection. Nonetheless they, and particularly Mr Hamood, had considerable experience in selecting sites for Lenard’s shops. His Honour did not find that that experience was not brought to bear in selecting the Hilton shop site. With the advantage of hindsight, and the evidence of experts, his Honour was able to identify deficiencies in the selection process. However, the evidence did not establish, in our view, that Mr Hamood selected the Hilton shop site carelessly. Rather, in our view, the evidence established that Mr Hamood selected the site carefully, albeit that he did not take every step that was open to be taken and made a judgment without according certain factors the level of appreciation that an expert in the field of selecting retail sites might have done. Of course, a lack of care was not established merely by the fact that a heavily geared franchisee experienced difficulties in profitably operating a Lenard’s shop on the site in the first twenty-two months that the shop was open.

96 We conclude that the applicants did not establish that the respondents did not select the Hilton shop site carefully. In our respectful view, his Honour erred in finding that Poulet Frais engaged in misleading or deceptive conduct because it selected the Hilton shop other than in accordance with the site quality representation.

Conclusion

97 We conclude that the primary judge erred in concluding that Poulet Frais engaged in misleading and deceptive conduct towards Mr and Mrs Baker in contravention of s 52 of the TPA.

WAS THE LOSS ‘BY’ CONDUCT OF POULET FRAIS?

98 Since we have come to the view that Poulet Frais did not engage in misleading or deceptive conduct it is, strictly, unnecessary for us to consider the question of reliance. Nevertheless, we will do so shortly.

99 The applicants’ claim for damages was made in reliance on s 82 of the TPA. They were required to establish that they had suffered loss or damage ‘by’ conduct of the respondents. That is, they had to establish a causative link between the conduct of which they complained and the loss or damage that they sought to recover.

100 His Honour found that the applicants had relied upon both the sales/profitability representation and the site quality representation. He made these findings ‘[n]otwithstanding the strictures’ in the disclosure documents; see at [166]. His Honour’s reference to the ‘strictures’ was apparently to the repeated statements in the documents that the applicants were to make their own investigations of the profitability of the site, and to their acknowledgments that they would do so. To this may be added the applicants’ express acknowledgments in relation to the disclosure documents and in the Franchise Agreement that they did not rely on any representation made by Poulet Frais about the profitability of the franchise.

101 As the learned author of Trade Practices Law: Restrictive Trade Practices, Deceptive Conduct and Consumer Protection observes at [11.720], there are numerous authorities for the proposition that clauses seeking to exclude liability for contraventions of s 52 of the TPA are not effective but the authorities admit of the possibility that in some circumstances such a clause may be operative (JD Heydon, LBC, Vol 2, Sydney; see also C Lockhart, The Law of Misleading or Deceptive Conduct, 2^nd edn Lexis Nexis Butterworths, Sydney, 2003 at [10.17]-[10.18]).

102 We do not need to resolve the divergent explanations given in the cases. It is sufficient to say that the authorities recognise that reliance is a question of fact and that the existence of an exclusion or qualification clause is relevant to a determination of the question of whether an applicant has established reliance.

103 In Keen Mar Corporation Pty Ltd v Labrador Park Shopping Centre Pty Ltd (1989) ATPR (Digest) 46-048 (‘Keen Mar’) Morling and Wilcox JJ were of the view that a well-drafted disclaimer, drawn to the attention of the contracting party and acknowledged in writing to have been made, was sufficient to negate reliance. Their Honours reversed a finding of reliance made by the primary judge (see at  53,147 and  53,151). As in the present case, there was evidence that the applicant had legal advice.

104 Here the disclosure documents contained numerous exhortations to Mr and Mrs Baker and Silver Fox to make their own investigations of the potential profitability of the franchise. There were also acknowledgments in the disclosure documents and the Franchise Agreement in the clearest terms that the applicant did not rely on any representation as to the turnover or profits of the franchise. The acknowledgments were more numerous than in Keen Mar and were in clear words.

105 Judicial warnings have been sounded about the opportunistic nature of evidence given after the event (see Permanent Trustee Australia Ltd v FAI General Insurance Company Ltd (in liq) [2003] HCA 25; (2003) 197 ALR 364 at [29]; Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434 at [155] and [214]; Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 at 560 and 581). Nonetheless, in some cases an appellate court will be constrained by a finding of reliance made at first instance. However, here the suggestion of reliance on profitability assessments is quite inconsistent with the applicants’ numerous written acknowledgments to the contrary. It seems to us to follow that his Honour’s finding of reliance on the sales/profitability representation cannot be sustained.

106 In any event, we do not consider that the applicants established the necessary causal connection between the sales/profitability representation and their loss or damage. Accepting that the sales/profitability representation was made, or at least that Mr and Mrs Baker believed it to have been made, the effect of it was that the Hilton shop would generate minimum weekly sales of $8000. But, as his Honour said at [68], it was common ground that the applicants’ accountant had told Mr and Mrs Baker that they would need a turnover of about $11 000 per week in order to have a profitable business. Indeed, the applicants’ case before the primary judge was that an oral representation had been made to them that the site would produce turnover of $10 000 or $11 000 per week. Although his Honour did not find that this representation was made his Honour found that Mr and Mrs Baker were credible witnesses. Consequently it may be assumed that Mr and Mrs Baker believed that they had been told that the Hilton shop would produce turnover of $10 000 or $11 000 per week and placed reliance on this information. In the circumstances, it is difficult to accept that Mr and Mrs Baker additionally placed reliance on a representation as to a significantly lower figure.

107 His Honour found, at [78], that the applicants did not seek the advice of their solicitor or accountant as to the accuracy, reliability or reasonableness of the information provided in the disclosure documents. It may well be that their failure to do so amounted to conduct which destroyed any possible causal connection between a contravention of s 52 and loss or damage (see Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 at [13] and [140]; see also I & L Securities Pty Limited v HTW Valuers (Brisbane) Pty Limited [2002] HCA 41; (2002) 210 CLR 109 at [85] in which McHugh J referred with approval to the decision of French J in Pavich v Bobra Nominees Pty Ltd (1988) ATPR (Digest) 46-039). We do not need to decide this question.

108 The expectations that the applicants would make their own enquiries about profitability and the acknowledgments that they did not rely upon the financial information supplied to them would not necessarily defeat the applicants’ averment of reliance on the site/quality representation. It is sufficient to dispose of the issue of the site/quality representation on the basis that we do not consider it to have been misleading or deceptive.

WAS POULET FRAIS THE AGENT FOR LENARD’S?

Agency – Factual Background and the Primary Judge’s Findings

109 Lenard’s challenged certain aspects of the finding made by the primary judge at [228] that Poulet Frais was the agent of Lenard’s for the purpose of providing the documentary materials to Mr and Mrs Baker in which the misrepresentations were said to have been made. We do not need to consider the issue because of the view that we have reached that Poulet Frais did not engage in misleading or deceptive conduct. Nevertheless, in deference to the submissions of counsel, we will deal with it.

110 No challenge was made to his Honour’s finding insofar as it extends to the provision of the Information Pack in 1997. Nor was there any challenge to the finding insofar as it relates to the provision of Disclosure Documents 1 and 2. However, Mr Nicholas SC, counsel for Lenard’s, did challenge the finding insofar as it covers the provision by Poulet Frais to Mr and Mrs Baker of the financial packages annexed to the disclosure documents.

111 His Honour’s finding was that there was actual agency, no case of ostensible or apparent agency having been run by Mr and Mrs Baker at the trial; see at [226]. Lenard’s attacked the finding on the basis that there was no evidence of actual authority. It relied on the express terms of the Master Licence agreement between Lenard’s and Poulet Frais as well as on a term of the Franchise Agreement, all of which were said to be inconsistent with actual authority. It also relied on Mr Hamood’s evidence which was to the effect that he prepared each of the financial packages on behalf of Poulet Frais, having regard in particular to the experience of South Australian franchisees.

112 The effect of Lenard’s challenge to his Honour’s finding was to put in issue the question of whether the sales/profitability representation was made by Poulet Frais as agent for Lenard’s. Lenard’s did not attack the finding that the site quality representation, if made, was made by Poulet Frais as Lenard’s agent.

113 The learned primary judge referred to the principal provisions of the agreement between the parties, namely clause 4.32 of the Master Licence agreement and Clause 10.1 of the Franchise Agreement. He found at [224] that the financial packages and the Disclosure Documents were prepared by Lenard’s but that the financial packages were vetted by Mr Hamood and adapted by him to reflect the experience of South Australian franchisees. He found at [227] that neither Poulet Frais nor Mr Hamood was authorised by Lenard’s to create legal relations with potential franchisees (see Petersen v Moloney [1951] HCA 57; (1951) 84 CLR 91 at 94-95). But he considered that it was open to him to find that Lenard’s gave actual authority to Poulet Frais or Mr Hamood to provide the Disclosure Documents and the financial packages to Mr and Mrs Baker; see [227]. He came to the view at [228] that, in ‘reality’, Poulet Frais was the agent of Lenard’s for the purpose of providing the Disclosure Documents and the financial packages to the Bakers.

114 The critical findings are at [228], which reads as follows:-

‘The relationship between Poulet Frais and Lenard´s contemplated Poulet Frais would seek out potential new Lenard´s franchisees. Both Poulet Frais and Lenard´s would benefit by the appointment of new franchisees. Lenard´s provided to Poulet Frais documents which it was authorised to supply to potential new franchisees. The reality, in my judgment, is that Poulet Frais was the agent of Lenard´s for the purpose of providing those materials to prospective franchisees. The agency clearly did not extend to formally appointing franchisees, but that is a further step in the process. It is the making of the representations, through the documents emanating from Lenard´s and provided to the Bakers by Poulet Frais as Lenard´s intended, which is the step which is said to have been done by Poulet Frais on its own behalf and as agent for Lenard´s. In reaching that factual conclusion, I have of course given great weight to the terms of the documents to which I have referred: Massey v Crown Life Insurance Co [1977] EWCA Civ 12; [1978] 2 All ER 576 at 580; Australian Mutual Provident Society v Chaplin (1978) 18 ALR 385 at 389. Ultimately, it is the substance of the relationship which I must address: Jones v Bouffier [1911] HCA 7; (1911) 12 CLR 579 at 611.’

115 Before considering whether his Honour’s finding that Poulet Frais was the agent of Lenard’s for the purpose of providing the financial packages to Mr and Mrs Baker can stand, it is necessary to refer to the terms of the relevant agreements and to Mr Hamood’s evidence.

116 Clause 3.9 of the Master Licence agreement bound Lenard’s to support Poulet Frais in its efforts to promote the licensed business. That is, in Poulet Frais’ efforts to seek out and obtain prospective franchisees for South Australia and to provide disclosure material to be made available to persons such as Mr and Mrs Baker.

117 Clause 4.1 obliged Poulet Frais to seek prospective franchisees to be approved by Lenard’s. The specific duties of Poulet Frais in carrying out this over-riding obligation included a duty to make available to prospective franchisees disclosure material provided by Lenard’s; see clause 4.1(b) of the Master Licence agreement.

118 Clause 4.32 of the Master Licence agreement was headed ‘No agency or partnership’. The relevant subclauses are as follows:-

‘No agency or partnership –

The Licensee [Poulet Frais] agrees with the National Franchisor [Lenard’s] throughout the term
...

(a) not to describe itself as agent or representative of [Lenard’s] except as expressly authorised by this agreement.

...

(d) except as provided herein, in all correspondence and other dealings relating directly or indirectly to entry into franchise agreements clearly to indicate that it is acting as principal.

...’

119 Clause 10.1 of the Franchise Agreement reads as follows:-

‘The National Franchisor, the Master Franchisee and the Franchisee are each independent contractors. They are not and shall not be considered as joint venturers, partners or agents of each other and no fiduciary relationship shall be deemed to exist between them.’

120 The Franchise Agreement was not signed until 4 September 1998, some months after the alleged making of the sales/profitability representation. However, the primary judge found at [225] that a copy of the draft was provided to the Bakers ‘at least during July 1998’.

121 Mr Hamood’s evidence of the preparation of the disclosure documents supports his Honour’s finding that they were prepared by Poulet Frais as agent for Lenard’s. Indeed, they have the names of Poulet Frais and Lenard’s in their headings.

122 Nevertheless, Mr Hamood’s evidence of the preparation of the financial packages distinguished those documents from the disclosure documents to which they were attached. He said that the financial package sent with Disclosure Document 1 was adapted from a template provided to him by Lenard’s so as to relate the financial information to the experience of South Australian outlets. Thus, the estimated gross operating profit percentage and the outgoings were based on averages for South Australian franchises.

123 The financial package sent with Disclosure Document 2 were adapted from the financial package sent the previous year. They were amended so as to reflect the anticipated outgoings for the Hilton shop.

Actual Authority - Legal principles

124 Actual authority requires the consent of both the principal and the agent but the manifestation of consent may be express or implied. Regardless of the terms of the agreement between the parties, if the facts fairly disclose that one party is acting for another with that person’s authority then agency is established. The scope of the agency is to be ascertained by applying the ordinary principles of construction of contracts but also by reference to any proper implication from the course of business between the parties (see Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 at 132-133; Field v Shoalhaven Transport Pty Ltd [1970] 3 NSWR 96 (‘Field’) at 103; Garnac Grain Company Incorporated v HMF Faure & Fairclough Ltd [1968] AC 1130 at 1137; Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 502; GE Dal Pont, Law of Agency, Butterworths, Sydney, 2001 [4.3] – [4.5] and [7.1] – [7.2]; FMB Reynolds, Bowstead & Reynolds on Agency 17^th edn, Sweet & Maxwell, London, 2001 [2-028] – [2-033]).

125 In Bonette v Woolworths Ltd (1937) 37 SR (NSW) 142 (‘Bonette’) at 150, Jordan CJ said:

‘Whether any authority has been given, and if so what is the scope of the authority, are questions of fact to be determined by evidence. Evidence that a person is purporting to do acts on behalf of a principal in some capacity in such circumstances that the knowledge and approval of the principal may fairly be inferred is evidence that the principal has authorised him to act in the particular capacity. If there is evidence justifying such an inference, it justifies the further inference that the person has authority to do such acts as would be done, as a matter of ordinary business practice, by a person acting in such a capacity.’

126 Hely-Hutchinson v Brayhead Limited [1968] 1 QB 549 (‘Hely-Hutchinson’) is an example of implied actual authority. The chairman of a company, though not formally appointed to the office of managing director, had assumed that role without dissent from the board. His authority to commit the company to contracts was implied from the conduct of the parties including the fact that he had acted as chief executive, committing the company to contracts without the knowledge of the board and reporting to the board at the next convenient meeting.

Whether Poulet Frais had authority to provide the financial packages

127 Clause 4.32 of the Master Licence agreement merely precludes Poulet Frais from describing itself as agent for Lenard’s except as expressly authorised. It does not stand in the way of a finding of actual authority to provide the financial packages if that is to be found, expressly or impliedly, in the terms of the Master Licence agreement.

128 Clause 4.1(b) confers express authority upon Poulet Frais to make available to prospective franchisees ‘disclosure material’ prescribed by Lenard’s. Disclosure Documents 1 and 2, insofar as they comprise disclosure statements by Lenard’s, would fall within this clause. But it cannot extend to the financial packages because there was nothing to suggest that Lenard’s prescribed or directed that those documents in the terms prepared by Mr Hamood be made available to Mr and Mrs Baker.

129 Clause 3.9 of the Master Licence agreement does not assist. It does not on its proper construction contain a consent, either expressly or by necessary implication, to the delivery by Poulet Frais, on behalf of Lenard’s, of financial information prepared by Mr Hamood (for Poulet Frais) to Mr and Mrs Baker as prospective franchisees.

130 Senior Counsel for Mr and Mrs Baker relied on a number of statements in the Lenard’s Master Manual. The stated objective of the Master Manual was to provide ‘systems and tools’ to Master Franchisees to enable them to manage the relevant territory and to service existing outlets as well as to establish new ones.

131 Section Two of the Master Manual, under the heading ‘Disclosure Documentation’, states that a franchisee ‘must receive both a copy of your disclosure and Lenard’s Pty Ltd’s disclosure’. It tells the Master Franchisee to ‘ensure that the appendices are attached to your disclosure document, they include ... promotion fund statement ...financial package ...’.

132 There is force in the submission of senior counsel for Lenard’s that the Master Manual was not relied on by Mr and Mrs Baker at the trial in support of the proposition now advanced. But even if it was, there is nothing in the paragraphs to which we were taken that suggests consent to the delivery of documents on behalf of Lenard’s other than Lenard’s own Disclosure Documents or appendices prepared by Lenard’s for delivery to Mr and Mrs Baker.

133 It is true, as the learned primary judge observed, that the question is one of the ‘reality’ of the relationship. This is implicit in the words of Asprey JA in Field that, regardless of the terms of the contract, the facts must ‘fairly disclose’ the necessary authority. But as Jordan CJ said in Bonette, there must be facts from which it can fairly be inferred that the principal has authorised the agent to act in the particular capacity.

134 Although the question was one of fact for the primary judge, we are in as good a position to decide on the proper inferences to be drawn from the established facts (see Branir at [23]).

135 In our view, it was not open to draw an inference from the evidence of Mr Hamood or from the nature of the relationship between Poulet Frais and Lenard’s that Lenard’s consented to, or authorised, Poulet Frais to deliver to Mr and Mrs Baker the financial packages prepared, not by Lenard’s, but by Mr Hamood for Poulet Frais as Master Franchisee of the South Australian franchise territory.

136 There was nothing, as in Hely-Hutchinson, to amount to a course of dealings from which the necessary authority could be implied. Indeed, Senior Counsel for Mr and Mrs Baker did not point to implied authority. Nevertheless, we should add for completeness that since there was nothing to give rise to a fair inference that the alleged principal had authorised the act it was not, and could not be, suggested that Poulet Frais had authority as a matter of ordinary business practice.

137 Finally, although the Franchise Agreement was not signed until after the alleged representations were made, the existence of Clause 10.1 in the draft document sent to Mr and Mrs Baker in July 1998 is a further factor telling against the existence of actual authority.

138 It follows, in our view, that even if the sales/profitability representations were made in the financial packages, it cannot be said that those representations were made by Poulet Frais as agent for Lenard’s.

139 Senior Counsel for Mr and Mrs Baker relied, in the alternative, on subs 84(2) of the TPA. He did not address us as to how this would advance the position.

140 It seems to us that the short answer to this is that the financial packages were prepared by Mr Hamood for Poulet Frais and that they were sent by him on behalf of that company. Accordingly, he did not engage in conduct on behalf of Lenard’s within the meaning of the opening words of subs 84(2).

CONCLUSION

141 For the reasons given above the appeals will be allowed. In the appeal brought by Poulet Frais and Mr Hamood orders 1-4 of the orders made by the primary judge on 3 December 2004 will be set aside. In lieu thereof it will be ordered that there be judgment for the respondents. The cross-appeal will be dismissed.

142 We will hear the parties on the issue of costs but indicate that we incline to the view that Silver Fox and Mr and Mrs Baker should pay the costs of Poulet Frais, Mr Hamood, Lenard’s and Lenard’s Leasing before the primary judge and on the appeals from his Honour’s judgment and that there be no order in respect of the costs of the cross-appeal.

I certify that the preceding one hundred and forty-two (142) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Branson, Nicholson and Jacobson.

Associate:

Dated: 19 July 2005

Counsel for Poulet Frais Pty Ltd and Richard Hamood:	A Sullivan QC and S Milazzo
Solicitor for Poulet Frais Pty Ltd and Richard Hamood:	DMAW Lawyers
Counsel for Lenard’s Pty Ltd and The Poultry Shop Leasing (SA) Pty Ltd:	J Nicholas SC and A Lyons
Solicitor for Lenard’s Pty Ltd and The Poultry Shop Leasing (SA) Pty Ltd:	Phillips Fox
Counsel for The Silver Fox Company Pty Ltd, Bryan William Baker and Beverly Ann Baker:	P Heywood-Smith QC and J Birchall
Counsel for The Silver Fox Company Pty Ltd, Bryan William Baker and Beverly Ann Baker:	Lisacek & Co
Date of Hearing:	11, 12 May 2005
Date of Judgment:	19 July 2005