Robert Mario Ferfolia and anor v Master Education Services Pty Ltd & ors [2009] NSWIRComm 17 (24 February 2009)

Last Updated: 27 February 2009

NEW SOUTH WALES INDUSTRIAL RELATIONS COMMISSION

CITATION :
Robert Mario Ferfolia and anor v Master Education Services Pty Ltd & ors [2009] NSWIRComm 17



FILE NUMBER(S):
IRC 4847

HEARING DATE(S):
25/08/08, 26/08/08, 27/08/08, 28/08/08, 29/08/09,
01/09/08, 23/10/08
Written submissions: 6 October 2008 and 17 October 2008


DATE OF JUDGMENT:
24 February 2009

PARTIES:
FIRST APPLICANT:
Robert Mario Ferfolia

SECOND APPLICANT:
Vicki Anne Ferfolia

FIRST RESPONDENT:
Master Education Services
Pty Ltd

SECOND RESPONDENT:
Robert Athol Ollis

THIRD RESPONDENT:
Suzanne Gai Ollis








CORAM:
Haylen J


CATCHWORDS: Unfair contract - Industrial Relations Act 1996 - s 106 - franchise agreement - student tuition business - representations made before and during contract concerning success of business and assistance to be provided by franchisor - business fails to attract sufficient students to become financially viable - representations as to expected number of ongoing pupils not realised - representations as to business assistance to be provided to franchisee not met - unfairness found in contract as entered and by conduct of the respondents in the operation of the contract - applicants did not receive what they paid for - applicants' lack of clean hands not established - limited application of clean hands principle - franchise agreement voided ab initio - orders made regarding return of franchise purchase price and franchise fees


LEGAL REPRESENTATIVES

APPLICANT: (Mrs V A Ferfolia)
Mr S J Burchett of counsel
SOLICITORS:
Mr G Gilmour
Mason Lawyers

(No appearance for Estate of Mr R M Ferfolia)


RESPONDENTS:
Mr V Bedrossian of counsel
SOLICITORS:
Mr P Meehan
Meehans Solicitor Corporation



CASES CITED:
A & M Thompson Pty Ltd v Total Australia Ltd (1980) 2 NSWLR 1
Gow v Cronulla Sutherland Leages Club Ltd (2002) 119 IR 122
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 268
Westpath Services Pty Ltd v Joseph [2007] NSWIRComm 211; [2007] 166 IR 135

LEGISLATION CITED:



TEXTS CITED:




JUDGMENT:

INDUSTRIAL COURT OF NEW SOUTH WALES

CORAM: HAYLEN J

24 February 2009

MATTER NO IRC 4847 of 2004
ROBERT FERFOLIA AND ANOR v MASTER EDUCATION SERVICES PTY LTD AND ORS
Application under s 106 of the Industrial Relations Act 1996

JUDGMENT
[2009] NSWIRComm 17

INTRODUCTION
1 In early 1999, Mrs Vicki Anne Ferfolia and her husband Robert were giving consideration to entering a franchise agreement to provide tuition to school students. Mrs Ferfolia was employed by the Department of Education and Training. In 1995, the couple had moved to Bathurst to enable Mr Ferfolia to take up an appointment as a Quality Assurance Manager with a company that became known as Devro-Teepak. As at 1999, Mrs Ferfolia was engaged as a casual teacher but was seeking a permanent teaching placement. Mr Ferfolia was an Honours Graduate in Science and had worked for a variety of companies as a development chemist, senior chemist, quality control manager and quality assurance manager. While he had tutored in classical guitar he had never worked as a teacher, either in the private or public school system.

2 On or about 15 June 1999, Mr and Mrs Ferfolia entered into a franchise agreement with Master Education Services Pty Ltd ("Master Education Services"). Prior to entering into the agreement, Mr and Mrs Ferfolia, but particularly Mrs Ferfolia, had a number of discussions with the director of Master Education Services, Mr Robert Ollis. Mr Ollis and his wife Suzanne Ollis worked in the business of Master Education Services and were directors of the company. Mr and Mrs Ferfolia borrowed money in order to purchase premises in the Lake Macquarie area to run a coaching college. Money was also borrowed to pay the $57,000 franchise fee and to finance their move from Bathurst to their new home in Mount Hutton within the Lake Macquarie area from which they proposed to operate their franchise.

3 By approximately mid-August 2003, the Ferfolias were disillusioned with the operation of the franchise and were experiencing continual financial difficulties. Proceedings had been commenced by Master Education Services to recover the unpaid portion of a $15,000 loan given to assist the applicants to take up the franchise as well as interest and they had been served with a notice of termination of the franchise. By mid-August 2003, the Ferfolias had written to solicitors acting for Master Education Services stating that various nominated breaches of the agreement had been accepted as a repudiation of the agreement. Thereafter, Mr and Mrs Ferfolia removed the Master Coaching signs from their premises and commenced to trade under the name "Top Tuition".

4 In December 2003, Master Education Services commenced proceedings in the Supreme Court seeking injunctions, an order for the payment of $17,800 and claiming damages. In these proceedings Master Education Services claimed that the Ferfolias were in breach of the terms of the franchise agreement which prevented them from conducting education services in the same area for a period of two years after ceasing to be Master Education Services franchisees. Interlocutory orders sought by Master Education Services were not granted. By August 2004, the Ferfolias had commenced proceedings in this Court seeking relief under s 106 of the Industrial Relations Act 1996. In these proceedings the Ferfolias seek the repayment of the franchise fees, monies expended to support the coaching business at Lake Macquarie, reimbursement of other costs, relief from money said to be owed under the franchise agreement and a number of variations to the agreement, particularly in relation to their ability to conduct another coaching business at the conclusion of the franchise agreement.

THE s 106 CLAIM
5 The applicants' amended Summons for Relief sought orders:

(a) declaring the franchise agreement to be unfair within the meaning of s 106 of the Industrial Relations Act 1996;

(b) varying or declaring wholly or partly void the franchise agreement from its commencement or some other date and also sought a variation to the agreement such that an obligation to pay franchise fees abated for so long as the first respondent failed to comply with its obligations;

(c) requiring the first respondent to refund the applicants' fees paid by way of initial franchisee fee and continuing franchisee fees in the event that its representations and warranties were not met;

(d) requiring the first respondent to compensate the applicants for the cost of obtaining and producing alternative educational coaching materials complying with current applicable school syllabus skills in default of the supply of such materials by the first respondent;

(e) requiring the first respondent to compensate the applicants for the costs of obtaining appropriate alternative advertising, marketing or administrative advice or material in default of the supply of that advice or material by the first respondent.

6 A further variation sought by the applicants permitted them to terminate the agreement if, at any time: the first respondent failed to provide and maintain the exclusive educational coaching materials of the professional quality represented by it and complying with the current applicable primary and high school syllabus; the first respondent failed to provide reasonable and appropriate training, advice or co-operation in marketing, advertising or administration of the franchise business; the first respondent failed to comply with its obligations under the franchising Code of Conduct; and, the first respondent made any unreasonable demand or threat upon the applicants or otherwise repudiated any of its obligations under the agreement. Upon termination, variation was sought whereby all obligations of the applicants to make payments to the respondents would cease, the applicants would not be restrained from carrying on their business at any location provided they complied with any reasonable request of the first respondent to return or not use materials supplied by the first respondent which was not otherwise commercially available and not to trade under the same or a deceptively similar name to the franchised name and, the first respondent was to compensate the applicants for any financial commitments entered by them for the purposes of the franchise business.

7 In the Amended Summons for Relief, the applicants claimed that, on or on behalf of the respondents, the following representations were made:

(a) the First Respondent would supply the Applicants with and maintain exclusive, complete and up to date primary and high school level mathematics, English, reading and science coaching programmes and materials;

(b) the English programs and material had been written by a highly qualified teacher, Mark Tischler, and would be made available to the Applicants;

(c) the reading programs and materials that were written by a highly qualified teacher, Hunter Calder, were exclusive to the First Respondent's franchise system and the Applicants would be supplied with updated versions of those programs and materials;

(d) the First Respondent's teaching resources supplied to the Applicants were and would be constantly reviewed, rewritten and improved, keeping up with and being adapted to changes in curriculum, syllabus and educations standards;

(e) the First Respondent would provide special training for the Applicant, Robert Mario Ferfolia, in order to bring him up to the level of a qualified experienced teacher;

(f) the First Respondent would provide an initial start-up training period for the Applicants of 2 weeks and ongoing training for the duration of the franchise;

(g) (i) there were 400 teachers working for Master Coaching all of

whom had been internally trained in the "art of tuition";

(ii) Master Coaching had tutored more than 80 dux of various schools;

(iii) Master Coaching had tutored more than 500 first and second place getters in their schools;

(iv) poor students after two terms with Master Coaching would be within the top 33% of their class;

(v) student retention rate was high and 80% of students who commenced with Master Coaching stayed with Master Coaching.

(h) the First Respondent was very experienced and qualified in business management and would provide the Applicants with all necessary training in that regard;

(i) Master Coaching was a Quality Assured business;

(j) all franchisees were, would be, and would only employ as coaches, qualified experienced teachers;

(k) the First Respondent would protect and enhance the reputation of the Master Coaching franchise generally;

(l) all Master Coaching franchises were thriving and profitable, all franchisees were happy and enjoying wonderful lifestyles and making large profits whilst working shorter hours than teachers in the general education field, and that there was no risk for the Applicants in purchasing a Master Coaching franchise;

(m) as at March 1999, there were 33 franchises and all were successful and none had expressed a desire to sell or leave the business and that the Master Coaching franchise business was in a vital growing period with energetic directors of the franchisor at the helm and the franchise would grow rapidly;

(n) A Master coaching franchise was available firstly for the Bathurst area, then the Lithgow area, then Wollongong;

(o) the First Respondent intended to create 4 franchises in the Newcastle/Lake Macquarie area, one of which was in existence, the second of which was to be the franchise offered to the Applicants, and the First Respondent would create 2 more franchises which would have group benefits for all 4 franchises;

(p) A franchise would grow to have 100 students within 12 months of commencement and would continue to grow quickly and a large proportion of franchises had well in excess of 200 students per week;

(q) projections of income and expenditure supplied by the First Respondent could be relied on by the Applicants as indicative of the income and expenditure of their franchise;

(r) the most successful franchises in the Master Coaching franchise system were operated by couples who had both given up their other jobs at the commencement of the franchise business and that the Applicants were the fifth couple within the franchise system to move to a completely new location and that the others who had done this were all happy, successful and making a good living;

(s) the First Respondent would implement a system of group advertising to advertise and market the services of the Master Coaching franchises;

(t) by implication, that the grant of the franchise was for an indefinite term;

(u) the First Respondent would provide a public launching of the franchise in the Applicants' franchise area at the closest regional shopping centre.

8 On or about 15 June 1999, the applicants signed a franchise agreement with the first respondent. The applicants, in the Amended Summons for Relief, made particular note of the following provisions of the franchise agreement:

(a) The First Respondent represented and/or warranted:

(i) it would supply to the Applicants education services to the

intent of making available an educational coaching package of exceptional quality;

(ii) its method and style of educational coaching was distinctive and unique;

(iii) it prepared all materials and procedures necessary to facilitate the use of its specially developed techniques;

(iv) it was the owner of all written and visual material and techniques used in connection with its system of educational coaching;

(v) it had developed a reputation and goodwill for the services and products provided in the course of the business of educational coaching;

(vi) its franchisees were required to adhere to uniform standards, procedures and policies;

(b) the First Respondent licensed the Applicants to use its system, marks, materials and techniques at the location described as "Warners Bay Road Mount Hutton" which licence was exclusive in respect of the territory described as area 2 in annexure F to the contract and that the licence would be for an initial term of 5 years with an option to renew for a further 5 years;

(c) the First Respondent agreed to make available to the Applicants the benefit of its knowledge and experience in the conduct of educational coaching programs and immediately provide publications and materials set out in schedules 2 and 3 of the contract;

(d) the First Respondent agreed to provide the following goods and services, publications and materials:

(i) 3 days training at the Master Coaching Head office prior to opening;

(ii) 2 days training at the centre of the franchisee;

(iii) Copies on disc of all mathematical and English assignments and tests together with hard copies of all such assignments;

(iv) copies of the First Respondent's computer reporting system and to adapt that system to the needs of the Applicants;

(v) A catalogue of term letters outlining the philosophies of Master Coaching to parents;

(vi) lesson plans and special notes used by Master Coaching;

(vii) assistance to the Applicants in setting up their accounts;

(viii) all such help as the Applicants needed in preparing and

delivering coaching lessons;

(ix) structured material for reading courses and the necessary training and material to run a reading program;

(x) an advertising folder with editorials and advertising copy to cover all the Applicants' requirements;

(xi) ongoing and regular training and support programs;

(xii) all initial receipt books, coaches' record books and all other office stationery as used by Master Coaching;

(e) (i) the First Respondent would provide the Applicants with 3

days initial training;

(ii) the First Respondent would provide a 3 day compulsory conference for franchisees (which the Applicants assert was to be annually);

(iii) the First Respondent would organise regional meetings for all franchisees in a particular region which could be conducted by conference telephone;

(f) it was fundamental to the contract that the Applicants maintain a high standard of education coaching directly based upon the materials, techniques, methods, experience and knowledge of the First Respondent and that any decline in standards would be detrimental to the Applicants and to the First Respondent (clause (a)(i));

(g) the Applicants were to maintain clean and attractive premises, supervise staff, be responsible for advertising, ensure signage was in master Coaching colours and style, maintain appropriate stationery, comply with appropriate laws and obtain and maintain appropriate permits and licences for the Applicants' premises;

(h) the First Respondent was entitled, but not obliged, to visit the Applicants' business up to once every 14 days and to be present at coaching sessions and to speak to students and was entitled to monitor and peruse reports and newsletters being forwarded to students and parents and to suggest inclusions and deletions;

(i) the Applicants could not assign the licence or the business or the premises from which the business was conducted without the consent of the First Respondent - the first Respondent was entitled to a payment of $10,000 or 10% (whichever was the higher) of the sale price of the licence and the business, and, the First Respondent was entitled to a right of first refusal on any sale;

(j) in consideration of the grant of the licence inclusive of the goods and services defined in the licence as the duty of the First Respondent, the Applicants would pay an initial franchise fee of $57,500 and an amount equal to 5 students' fees per week at the group rate to be paid monthly with the first payment to be made 3 months after the date of the contract, and failure to make any such payment might, but was not obliged to be, regarded as a breach of the contract by the Applicants entitling the First Respondent to terminate the contract in accordance with its provisions relating to termination;

(k) the Applicants would be entitled to terminate the contract on the first to occur of 7 days from the date of the contract or the date that the Applicants paid any non-refundable money to the First Respondent;

(l) the First Respondent could terminate the contract where the Applicants had breached it and the First Respondent had given notice to cure the breach and the Applicants failed to remedy the breach;

(m) inter alia, the Applicants would be in breach of the contract if they failed to pay the First Respondent monies due under the contract or under any other agreement between the Applicants and the First Respondent;

(n) upon termination of the contract the First Respondent would be entitled to exercise an option to purchase the Applicants' business at the fair market value determined if necessary by a valuation but with the entitlement to deduct from the purchase price any amounts due to the First Respondent;

(o) upon termination of the contract the Applicants were to return to the First Respondent all copies of the Master Coaching handbook and all other written material not commercially published as should be advised by the First Respondent;

(p) the Applicants would not during the term of the contract and for 1 year after expiration of the contract have any interest in any educational coaching organisation located or operating "within the territory designated in annexure F or of 10 kilometres" ;

(q) the Applicants would not during the term of the contract or any extension or renewal thereof and for 2 years after the termination or expiration thereof have any interest in any type of educational coaching business or establishment within the territory "an area of circle having a radius of 10 kilometres of the location defined in the contract;

(r) the licence granted would extend without further consideration to all improvements to the system developed thereafter whether by the First Respondent or other franchisees or operators of the First Respondent;

(s) any notice given by mail should be sent by pre-paid mail and would deem to have been received by the addressee 3 business days after the same was sent.

9 The Amended Summons for Relief then set out the representations that were not adhered to or that were dishonoured by the respondents. The representations falling into this category were identified as follows:

(a) Mathematics resources were handwritten and many of them were dated some years previously and on the letterhead of Master Coaching Campbelltown. They contained errors and alterations and failed to cover all topics required by the New South Wales Board of Studies. For example, for years 11 and 12 extension 2 maths was not covered by the materials; for years 9 and 10, standard maths was not covered; there were no materials for primary study below year 5 and year 5 was only partly covered; there were no materials for remedial learning. The materials were not updated in keeping with changes in the school syllabus;

(b) in the original materials supplied by the First Respondent there were no English materials. After repeated requests by the Applicants some materials were supplied but the First Respondent acknowledged that those materials that were supplied were "full of mistakes". No English materials were supplied for years 11 and 12. Such English material as was supplied for years 4 to 10 was entirely inadequate for the courses for those years. Such material as was supplied had not been written by Mark Tischler. The materials were never corrected or updated;

(c) the reading material which was supplied by Hunter Calder as part of the franchise was adequate at first. However, the reading program was not exclusive to the First Respondent and had been in the public domain for years before the Applicants entered into the contract. Hunter Calder changed the reading programme in 2000 and the materials supplied to the Applicants thereby became obsolete. The new program was called Reading Freedom 2000 and was and is widely used by parents and teachers in the public domain and was not exclusive to the First Respondent. The Applicants purchased the new program from Pascal Press in 2000. No updating reading material was ever supplied by the First Respondent;

(d) the science materials supplied by the Plaintiff comprised one small folder of handwritten physics and chemistry questions for year 12 only and no materials for any other years of study. Those materials became obsolete on introduction of a new physics and chemistry syllabus. No updating materials were ever supplied by the First Respondent;

(e) the First Respondents' teaching resources supplied to franchisees were not adequately reviewed, rewritten and improved and did not keep up with nor were they adapted to changes in curriculum, syllabus and educational standards;

(f) the First Respondent supplied a total of 27 folders of coaching material across the 4 areas of study but mainly mathematics material. Over the time since their entry into the franchise the Applicants had produced over 200 resource folders of their own coaching material by researching, preparing and writing some of those themselves, and having some of them prepared by their employed tutors and teachers (for which the Applicants paid) and from material voluntarily contributed by staff and from resources that the Applicants purchased from other sources;

(g) the First Respondent did not provide any business management training to the Applicants and they had to seek that training from other sources and train themselves. Such accounting material as the First Respondent supplied was never able to be used by the Applicants. It was out of date, incorrectly printed and impractical to use. The Applicants had to develop their own office forms and procedures;

(h) the First Respondent did not provide any special training for the Applicant Robert Mario Ferfolia and he trained himself and had brought himself up to the level of a qualified experienced teacher.

(i) The First Respondent did not provide an initial start up training period of 2 weeks nor did it provide an initial start up training period of 3 days. The First Respondent provided 2 half days amounting to less than 4 hours each and one day initial training. The First Respondent did not provide training of 2 days at the Applicants' business. The First Respondent came to the business for 2 days but on neither day gave any training to the Applicants but gave "an art of tuition" talk to teachers and some mathematics training to teachers;

(j) the First Respondent had repeatedly declined to provide confirmation to the Applicants of the representations set out in paragraph 1(g) hereof;

(k) as at the date of the contract Master Coaching was not a Quality Assured business;

(l) the First Respondent did not create any further franchises in the Newcastle/Lake Macquarie area after the Applicants commenced their franchise business;

(m) the First Respondent did not provide a catalogue of term letters that outlined the philosophies of Master Coaching to parents. When the Applicants enquired about these the First Respondent provided one form of such a letter;

(n) the First Respondent did not provide lesson plans and special notes used by Master Coaching;

(o) the First Respondent did not assist the Applicants in setting up their accounts;

(p) the First Respondent did not give the Applicants help in setting up their accounts;

(q) the First Respondent did not provide an advertising folder with editorials and advertising copy to cover the Applicants' requirements. Initially, the First Respondent provided no material of this nature at all but after requests made by the Applicants the First Respondent forwarded four photocopied pages of old newspaper articles. This material was not adequate, it was out of date and related mostly to Robert Ollis personally. It was of no use to the Applicants;

(r) the First Respondent did not provide ongoing and regular training and support programs;

(s) the First Respondent did not implement any system of group advertising to advertise and market the services of franchisees. In later years, some franchisees initiated the formation of a marketing co-operative as a separate entity but substantial fees were required to be paid to participate in that initiative;

(t) the First Respondent did not provide a 3 day compulsory conference annually. Conferences were organised by individual franchisees but not by the First Respondent;

(u) the First Respondent did not organise any regional meetings in the region in which the Applicants conducted their franchise;

(v) the First Respondent accepted as franchisees unqualified persons and permitted the employment of unqualified coaches by franchisees;

(w) the First Respondent failed to protect or enhance the reputation or goodwill of the franchised coaching system;

(x) by 2002, a large proportion of the original franchisees had ceased operating as franchisees of the First Respondent and about 70% of franchisees overall were so discontented as to refuse payment of franchise fees;

(y) the projections of income and expenditure by the First Respondent proved to be substantially inaccurate and by 2002 the Applicants were in serious financial difficulties;

(z) the First Respondent did not provide a public launching of the franchise in the Applicants' area. The Applicants repeatedly asked the First Respondent to do this but the First Respondent ultimately refused to do so stating that the First Respondent did not do those public launches any more. After that refusal the First Respondent did public launches of other franchises in other areas;

(aa) after the initial attendance by the First Respondent at the Applicants' premises in August 1999, the First Respondent only attended the Applicants' premises on 4 occasions in the 4 years in which the Applicants were franchisees, 2 of which occasions were mainly social attendances;

(bb) there was not a Master Coaching franchise available for Bathurst, Lithgow or Wollongong and that non-availability was not made known to the Applicants until they had undertaken financial and other commitments to become franchisees in the Master Coaching franchise.

10 Against this background the applicants claimed that the contract was unfair within the meaning of s 106 of the Act in three separate ways. They were described as follows:

The contract is unfair within the meaning of s 106 Industrial Relations Act 1996 in that it failed to provide adequately or at all:

(a) for the representations made by the First Respondent to the Applicants prior to entry into the contract;

(b) for any abatement of the franchise fees payable in the event of non-performance by the First Respondent;

(c) for communication of grievances by the Applicants to the First Respondent or their remedy by the First Respondent;

(d) for the maintenance of appropriate quality standards of the franchise system by the First Respondent;

(e) for the marketing, advertising or administrative support of the Applicants by the First Respondent;

(f) for the means and timing by which the First Respondent would fulfil its obligations;

(g) for termination by the Applicants for non-performance by the First Respondent of its obligations;

(h) upon termination for the goodwill created or the financial commitments assumed by the Applicants in reliance of the business continuing;

(i) compensation to be paid to the Applicants in the eventualities mentioned above;

(j) for any reasonable protections of the Applicants' legitimate interests in continuing with a similar business in the location of the franchised business after the termination of the agreement.

Without limiting the generality of the foregoing, the contract was unfair in the circumstances of:

(a) the pre-contractual representations and inducements by the First Respondent;

(b) the failure of the First Respondent to meet its obligations or otherwise support the Applicants;

(c) the failure of the First Respondent to take any action upon the Applicants' cessation of franchise fees;

(d) the failure of the First Respondent to respond to the Applicants' reasonable requests to perform its obligations and thus allow a continuation of the agreement;

(e) the attempt by the First Respondent to prevent the Applicants from carrying on any business of an educational coaching nature and to take their business and goodwill for itself.

The Contract was further unfair in that:

(a) it is unclear and difficult for a lay person or a person unfamiliar with the subject matter to understand the extent of the obligations or entitlements created by it;

(b) the First Respondent had no legitimate interest to protect by the various purported restraints of trade contained in it, the existence and scope of which were unreasonable and against the public interest;

(c) it was entered without compliance by the First Respondent with the procedures for that purpose set out in the Franchising Code of Conduct pursuant to the Trade Practices Act 1974;

11 In light of these allegations the applicants then sought the following monetary orders:

(a) repayment of the amount of $22,500.00 being that part of the initial franchise fee said by the First Respondent to relate to the materials supplied by the First Respondent to the Applicants;

(b) repayment of the amount of $20,000 being part of the amount of $25,000 said by the First Respondent to be attributable to the goodwill sold to the Applicants;

(c) repayment of monies paid under the contract in the amount of $600.00 per month from 19 September 1999 to 19 September 2002 totalling approximately $21,600.00;

(d) payment of $13,282.00 that the Applicants expended between 1999 and 2003 to provide assignments, lesson plans, coaching and resource material that should have been provided by the First Respondent under the contract;

(e) payment of the sum of $3,647.00 that the Applicants paid staff to prepare and write resource material that should have been supplied by the First Respondent under the contract;

(f) payment of the sum of $70,049.00 which the Applicants spent to advertise the franchise business and which was necessary because of the failure of the First Respondent to provide material and advertising copy;

(g) reasonable compensation to be assessed pursuant to the agreement for the failure of the First Respondent to comply with its obligations, representations and warranties.

THE EVIDENCE
12 As is apparent from the detail contained in the Amended Summons for Relief, the applicants raised a wide variety of matters of fact in seeking to make out a case of unfairness in the entering into and in the operation of the franchise agreement. Although the matter ran into a sixth hearing day only two witnesses, Mrs Ferfolia and Mr Ollis, gave oral evidence. Mr Ferfolia had passed away in January 2007 and had not been removed as an applicant in the proceedings, a move in any event opposed by the respondents. Mr Ferfolia's affidavit, which was essentially supportive of Mrs Ferfolia's affidavit as constituting the substance of the evidence for the applicants, was admitted into evidence. The affidavits for both parties were closely scrutinised and numerous objections raised: both Mrs Ferfolia and Mr Ollis were subjected to lengthy and detailed cross-examination. Despite this approach, there was no expert evidence analysing the unique tuition programme developed by Mr Ollis, nor was there any analysis of the franchise territory to suggest that it was either not viable, or unlikely to be viable, for a coaching business that needed to support the two principals and the financial commitment that the applicants had made in entering the business. Although there were allegations of inadequacy in the course material there was no independent expert evidence analysing what was provided by the respondents and measuring it against the relevant curriculum, especially where there was a change in the curriculum. Essentially, the evidence for the applicant was that the materials were unsatisfactory while the respondents asserted that the materials were updated and adequate.

13 Before dealing with the detail of the matter and having had the benefit of considering the evidence and the witnesses in the giving of their evidence, an overview of the case as presented by the parties is an appropriate starting point. I have no doubt that, together with the first respondents' brochures and the oral representations made by Mr Ollis and Mr Brennan (the first respondents business development officer), Mrs Ferfolia was persuaded that she was entering into a fast growing franchise with potential and, from what she had been told, she was entitled to feel that she and her husband could look forward to a comfortable lifestyle running their own business under the guidance and assistance of the first respondent. In particular, the franchise information booklet held out that the franchise was a ready-made business package with a proven operating format and would provide a real career opportunity. The worries of operating a business would be addressed through such things as strategies for marketing, business training, financial advice and quality management procedures. Franchisees would be given comprehensive training in how to operate their business and they were to be professionally groomed to ensure that they were successful. Mr Ollis was satisfied that he had developed an effective method of coaching and tuition especially in relation to mathematics in which he was highly qualified. He had operated his own tuition service before selling it and concentrating full-time on his franchising business. The franchise information booklet, while referring to Mr Ollis' vast experience in mathematics and referring to the Hunter Calder Reading Freedom programme, was not restricted to mathematics tuition but generally held out the success of the technique and the fact that it had achieved great success with more than 80 Dux of various schools, more than 500 first and second placegetters in their schools with 95 per cent of students improving and over 80 per cent of them improving dramatically.

14 The franchise agreement in its recitals referred to the fact that the first respondent had developed a distinctive and unique method and style of educational coaching. The schedule to the franchise agreement provided that it was the obligation of the franchisor to provide copies of the McIntosh computer disc of all mathematical and English assignment and tests now being used by Master Coaching and that it would also provide lesson plans and special notes used by Master Coaching. Structured material for the reading course was also to be provided, together with the necessary training and material to run a reading programme. Undoubtedly, Mr Ollis believed that, with the benefit of his tuition programme and with effort by the franchisees, the techniques of tuition might be turned to any particular subject but the mainstays of mathematics, English and reading would provide the underpinning support for a successful business.

15 For the Ferfolias there was a very different reality as the business developed. While there was an increase in the number of students, that number was not sustained over a sufficient period to make the comfortable returns expected and in the first four years of operation, the business made a loss except in the fourth year when it made a few hundred dollars profit. The Ferfolias essentially alleged that they did not receive what was represented to them and that the failure of the business was due to the unprofessional way in which it was operated, the failure to provide adequate material reflecting the current school curricula, the lack of business training and the failure of the first respondent to publicise and support the business in a global manner. The respondents contend that the system was effective and that profits could be made but essentially the Ferfolias were not in good health and had not made the best use of the materials and updates supplied to them and further, that their accounts hid the true state of the returns they had made on the business. Many of these assertions on both sides of the record are ultimately unsupported or supported by unreliable evidence. The conclusions to be drawn from these competing cases ultimately falls to a consideration of fair dealing in the offering of a franchise outlet.

THE EARLY CONTACTS
16 In view of the number of representations alleged by the applicants to have been made by or on behalf of the respondents and the number of such representations denied by the respondents, it is necessary to carefully consider what was said between the parties, both orally and through documents prior to signing the franchise agreement. Representations said to be made during the course of the franchise agreement fall into a separate category and will therefore be considered separately.

17 It is to be noted that, in Mr Ollis' lengthy affidavit, in recounting the early contact with the applicants he was of the view that he had not made the initial contact nor had he pursued the applicants about taking up the franchise but that they had raised the issue with him and had pursued the subject with him. In the first 30 paragraphs or so of that affidavit that early history is set out but contains no direct reference to any representation made by Mr Ollis or on behalf of the respondents about the franchise business. He does mention at one point sending a copy of the first respondent's franchise information booklet to the applicants. In the second part of affidavit, Mr Ollis then deals with the affidavits filed by Mr and Mrs Ferfolia taking issue with many of the representations they alleged he made in the early stages of their contact.

18 Mrs Ferfolia said that she had expressed an interest in tutoring at the Master Coaching College at Mudgee and after making contact with that franchisee was later contacted by Mr Ollis. During the course of this conversation, Mr Ollis said he had been operating the franchise for 15 years, had 35 franchisees, that they were all successful and it was a good business. In terms, Mr Ollis did not deny this conversation and stated that, after the meeting and within a month or two of the meeting, he sent the applicants a copy of the franchisee information booklet.

19 Mrs Ferfolia then gave evidence that Mr Ollis had a number of conversations with her during the first three weeks of February 1999 in which he spoke of operating the franchises for 15 years, having 35 franchises all over Australia and the fact that teachers operating them thought they were "the best thing they have ever done" and that was because they had enjoyed a better lifestyle, worked fewer hours to make a lot more money and to get a lot more satisfaction than just teaching. There was no stress, they had a system in which the respondents had done all the hard work and the franchise fee covered all the material they needed. It was a professional operation operating out of separate premises and not to be operated from a franchisee's home. A franchisee only needed $30,000 capital to buy equipment such as desks, chairs, whiteboards and the first respondent had suppliers who could be used. The respondent was well established and had a great reputation. During the course of these discussions, Mrs Ferfolia said that her husband had some reservations about joining the franchise and Mr Ollis replied that he could understand that but there "was no risk at all" and they would be joining the best coaching business in Australia that had been going for years. The first respondent had successfully coached thousands of students, produced many Dux of school and had a terrific reputation and would provide all the help the Ferfolias needed to make sure it was successful. Again, Mrs Ferfolia stated that her husband had reservations to which Mr Ollis replied that they should not take too long to make a decision about joining the franchise because he was selling territories "like hot cakes" and if they left it too long there might not be anything else available to them. Mr Ollis also stated that, in no time at all, they would have "400 students".

20 In relation to these conversations, Mr Ollis denied telephoning Mrs Ferfolia a number of times during this period but simply would have returned the call and that probably happened after the meeting in Mudgee on 8 February 1999. He denied that any of these conversations occurred in the manner stated or at all. He said he would have definitely referred to the first respondent's business as being a professional operation and that he may have made reference to start-up capital but said he definitely would not have pressed the applicants for a decision to purchase a franchise or made projections about how successful they would be if they operated a franchise. He would not have told them there was no risk at all or promised that they would attain 400 students.

21 Mrs Ferfolia's evidence was clearly stated and provided numerous details. The evidence before the Court demonstrates her to be, not surprisingly, an articulate person with some business experience who had, on a number of occasions, committed to writing the events and conversations concerning the franchise as they unfolded. Having also observed her demeanour in the witness box, the Court prefers her version of these conversations to the much more general and imprecise recollection of Mr Ollis. Mr Ollis did not attempt to set out what was dealt with in these conversations over a three-week period in circumstances where he was selling franchises and the applicants were considering their position about taking up a franchise. In these circumstances, it is unlikely that Mr Ollis was playing down the attractions of a franchise. A number of the alleged representations were similar to statements found in the respondents' written materials, including the handbook. In addition, Mr Ollis often relied on the respondents' usual practice or his expectation of what that practice would be. These "practices" were not shown to be reliable. These general observations by the Court have also been relied upon in deciding which version of a number of other contested conversations or events should be accepted by the Court.

22 During the same period, Mrs Ferfolia gave evidence that in a conversation with Mr Ollis she told him she was an English teacher and that her husband was not a teacher but was a Quality Assurance Manager holding a Science degree with Honours in chemistry to which Mr Ollis replied that her husband could teach science and mathematics. Mr Ollis stated that he taught primary and high school mathematics, English, reading, science and other subjects. Mr Ollis denied that this conversation took place but he certainly came to know that Mrs Ferfolia was an English teacher and that her husband was not a teacher but had a Science degree with Honours in chemistry. In later evidence, Mr Ollis also accepted that he told Mr Ferfolia that he could instruct Mr Ferfolia so that he could teach science and mathematic courses in accordance with the first respondent's programme. The Court accepts that this conversation took place in the terms as stated by Mrs Ferfolia.

23 Before 20 February 1999, Mrs Ferfolia stated that Mr Ollis telephone her to say that he would be at the Mudgee Master Coaching franchise on 20 February 1999 and invited the Ferfolias to attend. Mr Ollis denied inviting the applicants to attend Mudgee on this date. The applicants spent three or four hours at the Mudgee franchise and met Mr Ollis and listened to an address he gave to a group of about eight to ten people consisting of the Mudgee franchisee, Ms Jean Ketchell and others. Mrs Ferfolia stated that, during the course of the address, Mr Ollis said that the first respondent was Australia's best tuition system, was the most inspirational teaching system in Australia and that it had inspired thousands of students to do their best and that participants would be part of the best teaching system in Australia. Mr Ollis denied that this was an accurate statement of what was said at Mudgee and further, he would not have said these words or words to the same effect at such a seminar which was entitled "How Children Learn". The Court accepts Mrs Ferfolia's version of these events, in particular, in light of similar descriptions of the business appearing in the respondents' publications.

24 During morning tea at the Mudgee meeting, Mrs Ferfolia said that, in their presence, Mr Ollis told Ms Ketchell that "this place will soon be buzzing with hundreds of students". Mr Ollis denied making that statement. The Court prefers Mrs Ferfolia's version of this conversation.

25 At lunchtime during the Mudgee meeting, Mrs Ferfolia recalled a conversation involving the applicants, Mr Ollis and a Mr Colin McRay. Mr Ollis said that the Ferfolias would make a real success of a centre if they both threw their energies into it and Mr McRay had asked them what centre they were looking at, to which the applicants replied Bathurst because that's where they lived. Mr McRay mentioned that he was interested in Bathurst and noted there was a complication because there was another couple also interested in Bathurst. Mr Ollis indicated that the applicants could have 200 students in no time at Lithgow but the applicants said they were not interested in Lithgow and Mr Ferfolia then said that if Bathurst was not available, there was no point in staying at the meeting. Mr McRay walked away and Mr Ollis said to the applicants that Mr McRay could have Orange and the applicants could probably still have Bathurst. Mr Ollis explained that a deposit had been placed on Bathurst about two years ago to hold the territory for one year and he was sure that something could be arranged but that the applicants would have to make a serious commitment to it as soon as possible. Mr Ollis denied that a conversation of that nature ever occurred and said that he had never provided the applicants with any indication that the Bathurst franchise might have been available to them. Prior to that meeting, he had turned down another person interested in the Bathurst franchise because someone else was first in line. For reasons already given, Mrs Ferfolia's evidence as to the terms of this conversation, is accepted.

26 In the week after the Mudgee meeting, Mrs Ferfolia said that Mr Ollis telephoned her and asked for comment on his presentation at Mudgee. Mrs Ferfolia said that, while it was "pretty impressive", Mr Ollis had to remember that Mr Ferfolia was not a teacher to which Mr Ollis replied that it was not something to worry about and that he would be fine because he had the right personality, the respondents would train him up and he did not have to worry about the material. Mrs Ferfolia asked if she could speak to any other franchise operators and Mr Ollis directed them to Mr Burrell operating the Hawkesbury College and to Mr Rutter at Batemans Bay. Although Mr Ollis did not specifically recall this conversation, there were matters that he said that he would never have said in such a conversation. Where a franchise was operated by a couple, only one was required to be a teacher and Mrs Ferfolia, when approaching him about the franchise, had said that she would be teaching and her husband would be the office manager. Given that Mr Ollis' reply operates on the basis of what he would have said rather than any recollection of what he actually said, Mrs Ferfolia's evidence is to be preferred, especially as Mr Ollis later accepted that he had said that Mr Ferfolia could be trained to coach the respondents' programmes.
27 Sometime after visiting the Hawkesbury College, Mrs Ferfolia said that Mr Ollis telephoned her saying that he understood the applicants had visited Hawkesbury and the franchisee there had spoken highly of them. He asked them what they proposed about the franchise and Mrs Ferfolia replied that they were interested in proceeding. Mr Ollis told her that there needed to be a formal interview conducted and that the respondent's business development manager, Mr Stephen Brennan, would be present. It was extremely hard to find a suitable date because Mr Ollis and Mr Brennan were very busy travelling around Australia selling franchises, setting up new franchises and visiting current franchisees. Mr Ollis did not deny that this conversation took place. A formal meeting was then set down for 11 April 1999.

28 In further discussions between Mrs Ferfolia and Mr Ollis, Mr Ollis made her aware that Bathurst was no longer available and that he was committed to the previous applicant for that area. The Ferfolias were disappointed as they had been conducting their discussions on the basis that they would open a franchise in Bathurst. Having read the material supplied by Mr Ollis and taking into account what had been said by him and the franchisees about the franchise generally, they felt committed to the project and began looking at other areas. Mr Ollis denied ever promising the Ferfolias that they could have the Bathurst franchise and explained the circumstances in which the area had been held for an extended period for the person who first expressed an interest in that area. Mrs Ferfolia then stated that there were a number of discussions with Mr Ollis about other areas where franchises might be commenced and in the first half of March 1999, Mr Ollis said to her that if the applicants wanted to go to a big centre such as Wollongong or Newcastle, they would have to make up their minds in a hurry because he had other people interested in those areas. Mr Ollis denied that conversation occurred at all. He stated that he had spent most of early March 1999 travelling around New South Wales and Australia visiting different franchises, and was also involved in the process of moving house and moving the business from Camden to the Wollongong area. None of those matters would have prevented Mr Ollis from having this type of conversation with Mrs Ferfolia and Mrs Ferfolia's evidence is preferred on this matter.

29 The applicants then travelled to Wollongong but found there was a franchise operating in that area but Mr Ollis said that they could have South Wollongong but it appeared to the Ferfolias that, in any event, most of this area was covered by the Wollongong franchise. Mr Ollis did not deny that this conversation occurred - it also suggests that the conversations referred to in paragraph [28] above occurred in terms suggested by Mrs Ferfolia.

30 At approximately the same time as the conversations referred to above, Mr Ollis told Mrs Ferfolia that there was a franchise in Newcastle that had been operating for three years and was highly successful. He stated that the Ferfolias would have a "buddy system" with the Newcastle operator, sharing advertising and discussing matters. Mr Ollis said he intended to have four branches in the Newcastle/Lake Macquarie district and that the applicants would be the second franchise in the area and that when there were four franchises, they would be able to share advertising, ideas and generally assist each other. Mrs Ferfolia stated that Mr Ollis provided a map showing the intended four franchise areas in the Newcastle/Lake Macquarie district and gave the applicants the telephone number of the existing Newcastle franchisee, Mr Noble. Annexed to Mrs Ferfolia's affidavit was a map showing an area around Newcastle with the numbers (1), (2), (4) with the area numbered (2) being identified as the Lake Macquarie Master Coaching area. Mr Ollis stated that he did not recall having that conversation and made no reference to the map of Newcastle showing the three numbered areas. Mrs Ferfolia's evidence on this matter is accepted. The map marked as described above was an annexure to the franchise agreement signed by the Ferfolias.

31 On 19 and 20 March 1999, the Ferfolias visited the Lake Macquarie area and at the end of that trip decided to accept the franchise in Lake Macquarie if they were able to obtain it from the first respondent. On 22 March 1999, Mrs Ferfolia wrote a detailed two-page letter to Mr Ollis telling him that they had explored the Lake Macquarie area and were so impressed that they had rung the franchise and asked for "area (2)" to be pencilled in for them even though the formal interview with the respondents would not take place until 11 April 1999. Mrs Ferfolia said that they realised they had yet to "pass" the interview with the respondents but nevertheless asked that, in the meantime and if they otherwise met the respondent's criteria, the area could be reserved as they certainly would like to proceed with a learning centre. In the letter she spoke of the applicants being very excited about the prospect and that her husband was keen to be virtually his own boss ".... but this time with the added support of being part of a major franchising operation instead of trying to 'go it alone'." She stated that her husband was prepared to spend lots of time training, encompassing "the two weeks at Head Office" mentioned in the brochure and also the week with Hunter Calder for the reading programme and also with other franchisees. Mr Burrell had invited them to come any time and sit in classes with them while her husband was even prepared to undertake a Diploma of Education at the Newcastle University if required. He enjoyed training activities and for years had trained teenagers in classical guitar - he had always been involved in training staff. Mrs Ferfolia spoke about her longstanding as a teacher and how she had been frustrated in waiting for four years for an appointment to a school and had become a "casual par excellence".

32 In the letter to the respondents, Mrs Ferfolia stated that they had looked at the area from the point of view of where the population lived, the types of houses in the various areas and real estate agents had taken them to commercially zoned properties. They had obtained information from the Council and other bodies and had spoken to Mr Noble, the Newcastle franchisee. He was happy to have another franchisee in the area and suggested a joint advertising and support programme and had recommended that they set up in the Warners Bay area. The applicants' research with the Lake Macquarie Council and her own exploration of the area confirmed that Warners Bay was the appropriate place to set up the franchise and the manager of Economic Development at the Council had confirmed this location. Mr Noble had mentioned that people from Charlestown and Cardiff would be on the border and some may go to one franchise and others go to the second franchise and that he already had some students from the Lake Macquarie area. In this letter Mrs Ferfolia also spoke about the applicants' financial situation and stated that their investment unit at Fairfield had been placed on the market because they were looking at purchasing two properties at Lake Macquarie, one for the learning centre and one to live in. They would be selling their house in Bathurst but would, if possible, like to keep their investment villa at Batemans Bay. Mrs Ferfolia continued:

This is a big step for us, as Robert would be giving up a job with a $60,000 pa salary plus $12,000 car allowance.

They had received Mr Spooner's (another franchisee) Business Plan and said they may need some assistance with the cash flow and convincing the bank manager until the property had been sold to free up some money but noted that, for eight years, she had worked for the NAB in senior positions. The applicants had other assets such as shares but preferred not to sell those unless it was absolutely necessary noting that they had an excellent credit rating and would both receive reasonable packages if they resigned. Mrs Ferfolia asked Mr Ollis if there was anything else in the meantime that they could or should be doing before the 11 April 1999 meeting. She also asked for additional copies of the franchisee information booklet, saying that it was useful to give to the Lake Macquarie Regional Development Board, real estate agents and the like. In his affidavit evidence, Mr Ollis made no observations about this letter. Importantly, the terms of this letter made it clear that Mr Ferfolia intended to teach the franchise programme.

33 Between attending the Mudgee franchise and deciding to take up a franchise, Mrs Ferfolia had a number of conversations with Mr Ollis in which he told her that the franchise business was going really well and that the territories were being snapped up. She had asked Mr Ollis on a number of occasions what was the cost of a franchise but was told that he could not say much about it until they had a formal meeting and he could not talk much about the franchise in case they did not go ahead. Other franchisees had told the Ferfolias that there were three levels of entry payment into the franchise being $10,000, $25,000 or $45,000 with the entry fee being related to the amount of the continuing franchise fees. Mr Ollis denied making these statements and stated that he had always been happy to discuss pricing of franchises with potential franchisees prior to entry into formal discussions but he had never sold or advertised any franchisees for prices of $25,000 or $45,000. Not surprisingly, it is to be noted that the franchise information booklet carried no price or price indication but did state that, at the interview, the interested parties would be free from the pressure of having to make a decision. There was no selling during the interview as it was an opportunity for the franchisee to explore the suitability of the business and there would be no commitment in any form by either party at the time of the interview. Undoubtedly, Mr Ollis was proud of his growing franchise business and the fact that it had been taken up interstate and the statements Mrs Ferfolia said were made to her are consistent with the promotion of the franchise. Mrs Ferfolia's evidence regarding these conversations is accepted.

34 Prior to attending the interview on 11 April 1999 and in order to assist in being accepted as franchisees, Mrs Ferfolia forwarded to Mr Ollis a copy of an application she had made for employment that set out her background and qualifications. In her evidence, Mrs Ferfolia said that she was conscious of the statement in the first respondent's franchise information booklet that the first respondent was seeking "gifted teachers" and she was concerned that her husband was not actually a teacher. The letter set out Mrs Ferfolia's background and experience in a number of jobs as well as teaching, showing her training skills including selling skills and involvement in business. The letter mentioned that her husband was a scientist in the food industry and because of his excellent reputation in the industry, he had been offered consultancy projects leading the couple to set up Ferfolia Consultants Pty Ltd. They were in this business together working on projects including obtaining Quality Accreditation for companies and training health officers overseas for the World Health Organisation. Mrs Ferfolia described herself as a very experienced trainer and administrator, having attended professional courses over the years and having extensive sales and marketing training and experience and a background in and a commitment to customer service, as well as training and experience in recruitment. In relation to this evidence, Mr Ollis stated that the first respondent's franchise system had never required both franchisees to be teachers and at the time of his discussions with the applicants in approximately March and April 1999 and thereafter, it was always his understanding that the applicants intended that Mrs Ferfolia was to be the teacher. Statements had been made to him by the applicants to the effect of Mrs Ferfolia saying that she would be doing the teaching and her husband would be running the office. In this conversation, Mrs Ferfolia is to be believed in light of the evidence that Mr Ollis offered to train Mr Ferfolia to be a mathematics and science teacher and in light of the terms of the letter dated 28 March 1999 where Mr Ollis was informed that Mr Ferfolia, if required to do so, was prepared to undertake a Diploma of Education at the University of Newcastle in order to teach in the franchise.

35 Among the conversations that occurred between Mrs Ferfolia and Mr Ollis before the formal interview, there was a conversation in which Mrs Ferfolia asked Mr Ollis if the franchise definitely provided a full-time income for two people. Mr Ollis replied that the first respondent's most successful centres were the ones where both people had given up other jobs to work in the centre full-time and that he had several of those centres and they all had over 400 students. Mr Ollis denied that conversation took place. Mrs Ferfolia's version of these conversations are consistent with Mr Ollis' offer to train Mr Ferfolia and Mr Ferolia's preparedness to obtain a Diploma of Education. Mrs Ferfolia is to be believed in relation to these important conversations.

36 During the course of negotiations between the Ferfolias and the respondents, it appeared that a franchise in Bathurst would not be available and that the applicants would need to go elsewhere and that as a consequence, Mr Ferfolia would have to leave his job. In that context, Mrs Ferfolia said that she had a conversation with Mr Ollis where she said that this was a really serious step for them and if they had to move, Mr Ferfolia would be leaving his job which was a $72,000 per year package and would have to rely on the income from the centre. She asked Mr Ollis if he was sure that the centre would definitely provide them with a superior lifestyle. Mr Ollis replied that they would be making more money than that and be buying new cars like Master Coaching Penrith had and they would be the fifth couple to move to open a centre and be successful in establishing a new centre. Mrs Ferfolia said that she made enquiries of other franchisees but did not find any other franchisees who moved their place of residence to open up a new centre and were both dependent on the new centre for their income. Mr Ollis denied that conversation ever occurred and that he said the words that were attributed to him by Mrs Ferfolia. For reasons already expressed, Mrs Ferfolia's evidence is to be preferred.

37 In March 1999, Mrs Ferfolia attended the Franchise Fair held at Darling Harbour, Sydney which she described as a franchising and investment opportunity exposition. She had a conversation with Mr Ollis after the Fair telling him that she had attended the Fair and was surprised that Master Coaching was not represented. She had spoken with representatives from ACE Tutoring who said that their franchises provided part-time income up to about $30,000 per annum. Mr Ollis replied that ACE Tutoring was "puny" while Master Coaching was big, full-time and professional and the best. He said that the first respondent did not need to exhibit at Franchising Expos because it had potential franchisees "knocking on our doors". Mr Ollis denied that a conversation to that effect ever took place or that he made those comments but gave no other detail of what was discussed. Mrs Ferfolia's evidence is preferred.

THE 11 APRIL 1999 MEETING
38 At the meeting on 11 April 1999, Mr and Mrs Ferfolia were present together with Mr Ollis and Mr Stephen Brennan, the first respondent's development manager. Mrs Ferfolia said the meeting ran for most of the day, including lunchtime. Shortly after arriving, Mrs Ferfolia said that Mr Ollis congratulated them on their résumés and noted how very well qualified they were and how impressed Mr Ollis was with their great range of experience and said they would be very welcome in the franchise. Mrs Ferfolia then asked about her husband not being a teacher and referred to the "prospectus" that only teachers were considered in the business and they expressed the view that Mr Ferfolia would need to be a teacher. Mr Ollis and Mr Brennan "chuckled" and Mr Ollis said that there was no problem and the respondents would train him up and in fact stated that Mr Ollis would teach Mr Ferfolia to be the "best maths teacher ever". During the morning session, Mr Ollis said that they would be joining the best coaching institution in Australia, that it was a very dynamic organisation and approximately seven years ago he had started selling franchises. The Ferfolias would be franchise number 34 but it would soon be up to 200. They were not the pioneers but they were still at the forefront of a period when they could expect good growth in the business. Mr Ollis also said that the most successful franchises were run by couples who were actively engaged in the franchise. The business would make enough to support a couple and they could get a good living out of it. Mr Ollis denied the terms of that conversation and stated that successful franchisees operating at that time, and even at the present time, under the first respondent had a mixture of different organisational and management structures as between the franchisees. Not all successful franchisees of the first respondent involved both franchisees being actively involved in teaching. As earlier noted, it has been accepted that Mr Ollis said he would train Mr Ferfolia to teach mathematics and science and that he well understood both of them would be involved in teaching at the franchise. Mrs Ferfolia's evidence is preferred in relation to this conversation.

39 In the course of this meeting on 11 April 1999, Mrs Ferfolia said that both Mr Ollis and Mr Brennan spoke "glowingly" about the franchise business and the expected future of it. After a general discussion, Mrs Ferfolia asked if they could be shown any paperwork that would assist them to see what they could expect from the conduct of the business. Mr Ollis said that he had some figures but they were very old and that all the centres were doing much better than the figures showed. Mr Ollis then produced a three-page document carrying the title "Master Coaching - Profit Forecast".

40 The profit forecast document produced at that meeting by Mr Ollis carried these words under the heading: "These are approximate growth figures only, based on previous franchises". The spreadsheet then dealt with months 1 to 24 of the business showing the number of students in groups for junior mathematics and reading students progressing from 12 in month 1 to 80 in months 11 and 12 going to 100 in months 18, 19 and 20, 105 in month 21, 110 in month 22, but then dropping back to 90 in month 23 and 80 in month 24. The number of other students began with 2 in month 1, reaching 40 in months 8 and 9 and dropping back to 30 in month 12 and reaching 45 -50 between months 17 and 21 -22 but dropping back to 40 in months 23 and 24. There was a figure given for the average return per student and then a list of expenditure showing lease payments at $200 per month over a period of two years, loan repayments of $500, rent payments at $1,500 and then electricity costs, advertising costs of $1,200 per month totalling $4,590 per month for the first year and rising to $7,160 per month for the following year. There was a monthly net profit showing early losses of nearly $3,000 but then showing net monthly profits of nearly $8,000 between months 8 and 10 then going to nearly $8,300 in month 11. From month 17 over $8,000 was shown with over $9.000 shown as net profit for months 18,19 and 20 and over $10,000 net profit for months 21 and 22, dropping back to $6,000 net profit in month 24. The net monthly profits were said to exclude coaching wages. At the bottom of the first page the yearly profits were said to be $32,599.65 with the following notation: "Note profit = cash flow total 44/52". The reference to 44/52 was apparently a reference to income actually derived during 44 weeks of the year. The year 2 profit was noted as being $69,384.09 and in handwriting at the bottom of the first page the following words written by Mr Ollis appeared: "These are not predictions".

41 In relation to this document, Mrs Ferfolia stated that Mr Ollis said that the figures were very old and all of the centres were doing much better than those figures and gave the example of the Penrith outlet having paid off their business loan within two years and driving around in a brand new BMW. Mr Ollis had then written on the bottom of the sheet that they were not predictions and he did that because he had heard of a case where a franchisor of a delicatessen business got into trouble for writing figures on a serviette which were claimed to be predictions and not just general forecasts. Mr Ollis said that these figures were just general forecasts, they were very conservative and that they would do much better than those figures. Mr Ollis, however, denied that he made those statements at this meeting. The spreadsheet of figures was provided to the applicants on the last day of their training and that took place after they had purchased the franchise. The spreadsheet was provided only as a "template" into which they could insert their own figures for the purpose of preparing their own business plans or cash flow plans. In giving them the spreadsheet, Mr Ollis said he was not involved in giving them any type of predictions, promises, representations or assurances and that is why he wrote on the document the words, "These are not predictions". He also noted that he was unaware of the Penrith franchisee ever owning a BMW motor vehicle and denied ever saying that they did. The evidence of Mrs Ferfolia is accepted. A detailed spreadsheet monitoring takings and profits was provided but a blank "template" was not supplied. The terms of the document stating that they were approximate growth figures based on previous franchises is inconsistent with Mr Ollis' description of the document as merely a "template".

42 Mrs Ferfolia said that, after the morning session of the on 11 April 1999 meeting, there was a break for lunch and on resumption Mr Brennan said that they had better get down to the "nitty gritty". He wrote on a whiteboard the figure $57,500 and said that was the price of the franchise. Mrs Ferfolia said that it was not the price they were told and that they had been led to believe that the price was $10,000, $25,000 or $45,000. Mr Brennan said that covered options A, B and C and he would explain how that operated. He said option A no longer existed and that they did not like option B and they really needed to pay the full purchase price up front and that price was now $57,500. Option B was $25,000 and they did not like that option because it was only a part-payment and the franchisee had to pay that off and the continuing fees were higher and people did not like paying the interest. Mr Brennan said that they really needed to pay the full price of $57,500 and that they really should be charged $110,000 because the price had gone up, but that they could still have it for $57,500 providing they signed up that day. Mr Ollis then said that they should be charging $110,000 but because the Ferfolias had been talking to the respondents for quite some time before the price was increased, the price would be kept at $57,500 if they signed up that day.

43 Mrs Ferfolia said that they were not able to pay $110,000 and they would not be going on with the deal to which Mr Ollis replied that they could have it for $57,500 but only if they signed up that day. Mrs Ferfolia said they did not know whether they were able to afford that sum. Mr Brennan then asked for the Ferfolias' financial details and was told that the couple had a house at Bathurst worth approximately $195,000, an investment property at Batemans Bay worth approximately $150,000 and an investment property at Fairfield worth approximately $115,000 but they were all mortgaged with $128,000 owing on the Bathurst property, $110,000 owing on the Batemans Bay property and $100,000 owing on the Fairfield mortgage. They owned a 1995 Mitsubishi Lancer worth approximately $20,000 and there was about $7,500 owing on the lease on that vehicle. They had a 1993 Mitsubishi Pajero 4WD vehicle worth approximately $36,000 and there was about $18,000 owing on the lease of that vehicle. They owed about $12,000 on credit cards and $4,000 on an overdraft. Mr Ollis denied that these conversations attributed to him and Mr Brennan had occurred. He said it was his practice and the practice of Mr Brennan to commence these types of formal meetings and presentations with potential franchisees with an explanation of the pricing structure and not to wait until part way through the discussion. Neither he nor Mr Brennan had asked the applicants to sign any contract on that day and that was not their practice. They had always asked franchisees to go away and have a good think about it before signing the agreement. It had always been his practice that the first respondent would only gain any benefit if people became franchisees because they had investigated the business, understood the commitment and were then still enthusiastic at the prospect of running their own franchise business. Mr Ollis relied on his practice but gave no details of the conversation. In particular, he did not explain how he came to accept the $1,000 cheque given to him by the Ferfolias. In terms, he did not deny applying pressure for the sale by saying that the price had risen to $110,000 but that the Ferfolias could buy it for $57,000 if they bought that day. The practice of "no pressure" at this interview was not followed. Mrs Ferfolia's evidence is accepted in relation to these matters.

44 As Mrs Ferfolia provided their financial figures to Mr Brennan who then wrote them on the whiteboard, he said that their situation would be "pretty tight" but he had been in finance and on those figures the Ferfolias should be able to borrow $95,000 which would give them the purchase price plus $30,000 which the respondents estimated as being the capital needed to get the business up and running. Mr Brennan said that the respondents had banking connections and could help the Ferfolias and with the respondents' support, they could be making the money back in no time. Mr Ollis stated that he did not recall Mr Brennan ever saying words to this effect. In the proceedings, Mr Brennan did not file an affidavit nor did he give oral evidence. There is no reason why Mrs Ferfolia's evidence should not be accepted on these matters.
45 After a discussion, the Ferfolias agreed to purchase the franchise at Lake Macquarie for $57,500. Mr Ollis asked for a non-refundable deposit of $1,000 to hold the territory for up to 12 months and he was given a cheque for that amount to secure the territory. Mrs Ferfolia could not recall whether they actually signed anything on that occasion but following this event, Mr Ollis said that he would get his solicitors to send documents for them to sign and that they should begin looking around for premises in the area. Mr Ollis denied the accuracy of these matters and did not recall a conversation where the Ferfolias had agreed to purchase the Lake Macquarie the franchise for $57,500. Mr Ollis said that the $1,000 payment was not a non-refundable deposit but was a fee to show a commitment prior to him incurring costs with his solicitor and it formed part of the franchise costs. The contractual documents were not to be sent directly to the applicants and had always been forwarded to the franchisees' legal representatives. On 13 May 1999, Mr Ollis had sent a facsimile message to Marsdens Solicitors with two notes. One note was a request to prepare a standard Master Coaching contract in favour of Mr and Mrs Ferfolia for the Lake Macquarie location and that the Ferfolias had opted to pay option A, namely $57,500 for the franchise. A coversheet signed by Mr Ollis contained the following notation: "This contract is the "urgency" (sic) the potential franchisees need to have the contract to take to his bank as part of his business plan for loan negotiations".

46 Having regard to the differences between the parties about these conversations at the meeting on 11 April 1999, again it is relevant that Mrs Ferfolia was able to recall in some detail and with some precision what was said. On the other hand, Mr Brennan was not called by the respondents. He was an important person in the respondents' business and participated in a number of discussions disputed by the respondents as to their content and any representations made to the Ferfolias. Mr Brennan's absence as a witness was not explained by the respondents. In all the circumstances, it may be assumed that he could not add to the substance of the respondents' case in relation to these matters. Mr Ollis adopted the approach, as he had done in relation to previous conversations, of denying that those conversations took place in those terms and sometimes setting out a general practice that was to the contrary. No other evidence was given about that general practice. It is of some significance that Mr Ollis (consistent with the franchise booklet) regarded this as a first formal meeting where no commitments would be made and that is part of the reason why he disputed Mrs Ferfolia's recollection of the events. However, he provided an inadequate explanation for taking a $1000 cheque on that day, denying it was to secure the Lake Macquarie area or that it was a non-refundable deposit but asserting that it was part of the legal fees for the franchise. If that were so, then he regarded the deal as having been concluded as asserted by Mrs Ferfolia and in any event, he had asked his solicitors to send no more than the standard form contract and it is difficult to see how that would involve fees of nearly $1,000. Further, the respondents' disclosure document stated that a $1,000 non-refundable payment was to be made before the agreement was entered into but it would be deducted from the "initial" franchise fee. During the evidence Mr Ollis' memory was shown to be unreliable as to details and he accepted that in relation to some events, including the 11 April meeting, that he had no memory of the details. In the circumstances, it is unsatisfactory to rely upon his mere assertions and what he states to be the normal practice of the business. In relation to the details of the conversation that took place at the formal meeting on 11 April 1999, Mrs Ferfolia's version of those events is accepted.

47 Prior to the meeting on 11 April 1999, Mrs Ferfolia asked Mr Ollis whether the franchise definitely provided a full-time income for two people to which he replied that their most successful centres were the ones where both people had given up other jobs and worked in the centre full-time. Mr Ollis said to her that he had several of those centres and they all had over 400 students. Mr Ollis denied that such a conversation ever occurred or that he ever said words to this effect to Mrs Ferfolia. Mrs Ferfolia's evidence was that, despite enquiries made of other franchisees, she did not find any other franchisees who had moved their place of residence to open up a new centre and to be both dependant on it. Mr Ollis made a general denial that any such conversation took place. Mrs Ferfolia's evidence is accepted.

48 During the course of negotiations, Mrs Ferfolia said that she and her husband had to confront the possibility that they would have to leave Bathurst if they wished to buy a franchise and thus, her husband would have to leave his job. On this basis she had a conversation with Mr Ollis telling him that it was a really serious matter for them and a very big step if they had to go elsewhere and that her husband would have to leave his job which was a $72,000 per annum package and would have to rely on the income from the centre. She asked Mr Ollis whether he was sure that the centre would definitely provide them with the same lifestyle. Mr Ollis replied that they would be making more money than that and they would be buying new cars like Master Coaching Penrith had and that they would be the fifth couple to move to open a centre and be successful in establishing a new centre. In his affidavit evidence, Mr Ollis denied such a conversation ever took place. Mrs Ferfolia's evidence is accepted.

THE PERIOD BETWEEN THE MEETING ON 11 APRIL 1999 AND SIGNING THE FRANCHISE AGREEMENT ON OR ABOUT 15 JUNE 1999
49 After the meeting of 11 April 1999, Mr and Mrs Ferfolia looked at suitable properties in the Lake Macquarie area, ultimately settling on a property in Warner's Bay Road Mount Hutton. The purchase price of that property was $118,000 and the contract for purchase was entered into on 25 May 1999 and settlement took place on 6 July 1999. The Ferfolias borrowed over $94,000 from SunCorp-Metway Ltd and they also made an application to the National Australia Bank for finance to enable them to purchase the franchise business. The Bank had a requirement that applicants produce a business plan containing a forecast of the likely future of the business. Mrs Ferfolia spoke to the support office of the first respondent and spoke with Mrs Ollis and asked for a copy of Master Coaching's business plan so that it could be presented to the Bank. Mrs Ollis replied that they did not have a business plan and that Mr Ollis would speak to her later. Mr Ollis did call Mrs Ferfolia and told her that the Cairns franchise had a very good business plan and that she could contact the operator, Mr Bill Spooner. Mrs Ferfolia did contact Mr Spooner and after discussion, received from him a copy of the Cairns business plan and she used it as a model to prepare a business plan for their franchise. After preparing the business plan, Mrs Ferfolia had a telephone conversation with Mr Ollis and told him that she had completed the business plan but before giving it to the Bank she wanted him to approve it because she did not want to say anything in it that was not absolutely correct. Mr Ollis told her send the plan to him and he would check to make sure it was correct.

50 Mrs Ferfolia said that she forwarded the business plan to Mr Ollis who sometime later telephoned her and told her he had received the plan and complimented her upon doing a great job and noting that it was well written and "terrific" and that from their point of view, everything in it was correct. Mrs Ferfolia noted that the first respondent kept a copy of the business plan and had provided it to at least one other franchisee. She said that statements in the business plan of the history, status and forecasted future of the Master Coaching franchise were taken from information (written and oral) supplied by the first, second and third respondents. In his affidavit, Mr Ollis denied that he had a conversation with Mrs Ferfolia where he said he had received the plan and complimented her on writing it and that it was really well written and everything was correct from the respondents' point of view. Mr Ollis also denied reviewing the applicants' business plan and denied that any forecast was provided to the applicants. Mr Ollis did not deny putting Mrs Ferfolia in contact with the Cairns franchisee for the purpose of using their business plan and had supplied the document headed "Master Coaching - profit forecast" although his evidence was that he did not provide those figures as forecasts. Given those circumstances, Mrs Ferfolia's evidence is accepted that she sent the business plan to Mr Ollis for checking and he indicated that it was correct as to the franchise business.

51 Mr and Mrs Ferfolia had originally arranged a loan of $106,000 but that was ultimately reduced by the lender to $94,000. SunCorp-Metway had been recommended to them by Mr Ollis and Mr Brennan. When Mrs Ferfolia was informed that the maximum amount that was available was $94,000 she telephoned Mr Ollis and told him that they had struck a problem with their finance for the premises at Mount Hutton and did not think that they could proceed with the purchase and still pay the franchise fee. She told him that even if it meant they had to forfeit something they felt they would probably not be able to go on with the franchise. She said Mr Ollis told her that she should not do that and that they had a very good future as franchisees and he regarded them as very good prospective franchisees. He said he did not need all the money just then and could lend some of it back to them and they could re-pay the respondent when they could. Mr Ollis said it was very important that they join the family of franchisees and that the respondent could lend them $15,000 to be repaid when they could. The applicants took up that offer. In his evidence Mr Ollis stated that, while it was correct that the first respondent loaned $15,000 to the applicants, he did not recall having that conversation with Mrs Ferfolia as set out in her affidavit. He denied that the loan was on the basis that it would be repaid at a time suitable to the applicants and said that the loan was for a period of three months and was repayable by mid-September 1999. He further noted that the full amount of the loan and interest had not yet been repaid by the applicants.

52 In May 1999, the Ferfolias received a form of contract and a document entitled "Disclosure document for franchisee or prospective franchisee". Mrs Ferfolia thought this had been received from the solicitors acting for the first respondent. The last page of the document referred to a copy of the Franchising Code which was to be annexed but it was not annexed. Mrs Ferfolia wrote a number of notes on the document asking questions, including drawing attention to the fact that the copy of the Franchising Code was not annexed. Her written notes also raised the need for a copy of the franchisor's quality assurance certificate and quality manual for the Ferfolias to be able to obtain their own quality assurance certificate as required by the terms of the contract. This document indicated that the initial franchise fee was between $10,000 and $57,5000, that there were setup costs of just over $21,000 to just over $37,000 plus the costs of the premises obtained by the franchisee and noted that there was an assignment fee of $10,000 or 10 per cent of the sale price, whichever was the higher and that assignment fee was to be paid to the franchisor on the sale of the franchise by the franchisee (with the franchisor's approval). The document also referred to the franchisor requiring a payment of "$1,000 before the Franchise Agreement is entered into". It was stated in the document that this payment was "not refundable" but would be deducted from the initial franchise fee if the franchisee agreement was entered into.

53 The Ferfolias were concerned at the level of the legal fees quoted to them for giving advice about the franchise agreement and so they had their Bathurst accountant look at the documents. He told them that the initial franchise fee and continuing franchise fees were high compared to other franchises but overall, it was difficult to check because this was the setting up of a new business. The accountant asked the Ferfolias if they thought the contract was correct and they stated that they thought that it was and so the accountant advised that they go ahead.

54 Mr Ollis denied that the applicants were not provided with a copy of the Franchise Code of Conduct prior to entering into the franchise agreement and said that document was provided to them in March 1999 with the franchise disclosure document, the Franchise Code of Conduct and the franchise agreement being provided by the respondents' solicitor in May 1999. Mr Ollis also denied that the applicants were not provided with a copy of the Code until some 18 months after entering the franchise agreement. Mrs Ferfolia stated that, if she had know the terms of the Code, she would have insisted on the first respondent honouring its obligations under the franchise agreement and would have utilised the mediation process but she was unaware of these matters until some 18 months after the Ferfolias had entered into the franchise agreement. In particular, Mrs Ferfolia noted that they had not signed or been provided by the first respondent with a statement to the effect that they had decided not to obtain legal advice.

55 On 15 June 1999, Mr Ollis spoke to Mrs Ferfolia on the telephone and told her that they needed to sign the agreement as soon as possible as it had to be finalised by 30 June 1999. He said that the Code of Conduct was coming. Mrs Ferfolia made a note in her diary of that conversation but Mr Ollis denied that conversation occurred and again denied that the applicants were not provided with a copy of the Franchise Code of Conduct until some 18 months after they signed the contract. Mrs Ferfolia said that immediately after receiving that telephone conversation, she and her husband signed the contract and returned it to the first respondent. Mr Ollis said that he believed that the applicants did obtain independent legal advice on 9 June 1999 and that Mrs Ferfolia had said in a letter that they had collected the franchise agreement and accompanying documents and had highlighted queries. Mrs Ferfolia had asked for the documents to be sent back to her as she did not wish to incur any further legal costs. Mr Ollis did not clearly set out how he believed that the applicants obtained legal advice but he was certainly aware that, by the time the queries were being answered, the documents were being sent back to the applicants and they were not obtaining legal advice. Mrs Ferfolia's evidence, including that relating to the Code of Conduct, is accepted.

56 Mrs Ferfolia had noticed in the respondents' brochure the claim that Master Coaching was a "quality assured business". After receiving the contract, Mrs Ferfolia telephoned Mr Ollis and said that the franchise agreement stated that they were to obtain a quality assurance certificate within six months and they therefore needed a copy of his quality assurance certificate before they could obtain their own certificate. Mr Ollis told her that his business did not have a quality assurance certificate: he had begun to do some work on it but had not finished it and so had not obtained the certificate. Mrs Ferfolia pointed out that the franchise booklet said that the business was a quality assured business but Mr Ollis said that he was interested in becoming quality assured and perhaps her husband would be able to help him with that issue. He then said that, for the time being, they were just to ignore that part of the agreement. Mr Ollis denied ever having a conversation with Mrs Ferfolia to this effect and denied saying words to the effect as alleged by her. He stated that, from an early stage in the process of discussing the franchise with the applicants, he discussed the issue of quality assurance and he told them that it was a quality assured business since 1997 but it was not certificated and that franchisees could become quality assured without the franchisor being quality assured. Ultimately, the first respondent obtained a quality assurance certificate without any assistance from Mr Ferfolia although Mr Ferfolia assisted in the production of a quality manual for franchisees. This document was only relevant for other franchisees wishing to obtain quality assurance. Mrs Ferfolia stated that, at the time they ceased being franchisees, she was not aware of any other franchise holding a quality assurance certificate.

57 Some days after sending the contract back to the first respondent, on the 16 June 1999 the Ferfolias were notified that the $15000 loan had to be paid back to the first respondent by 16 September 1999. That letter was signed by Mr and Mrs Ollis and had spaces for Mr and Mrs Ferfolia to acknowledge the content of the document. Mrs Ferfolia said that they had been informed that the loan was for one or two years with no interest and so she rang Mr Ollis and asked him what was the point of the document because if they did not have the money then, they were not going to have it by September 1999 and that date was too soon. Mr Ollis said not to worry about the date and to ignore it as his accountants had told him to insert that date. Mrs Ferfolia said that she and her husband had no choice but to sign the acknowledgement and return it so that they could receive the $15,000 loan by cheque from the respondents. Mr Ollis denied that the loan was for one or two years without interest and stated that it was intended only as a bridging loan until such time that the applicants sold some of their properties which he understood were on the market but had not yet sold. He denied saying the words attributed to him by Mrs Ferfolia.

58 In relation to training Mrs Ferfolia noted that, in the respondents' brochure, there was to be an initial start-up training that could be completed "in two enjoyable weeks". In schedule 2 of the contract the first respondent agreed to supply training prior to opening, including three days at the Master Coaching head office. The Ferfolias attended their initial training at the first respondent's support office in Wollongong between 26, 27 and 28 May 1999. Mr Ollis had arranged the training and gave them an agenda when they arrived. The training, however, lasted for half a day on the first day, one day on the second day and half a day on the third day and was conducted by Mr Ollis. Mrs Ferfolia said that he concentrated on mathematics and gave no training on how to run the business. She had sought advice on how to get clients and Mr Ollis used a tape recorder and played a scenario dealing with a particular client. Mrs Ferfolia stated that the total of two training days was the entire period of training provided by the respondents prior to commencing their business. Mr Ollis stated that the training on the last day was carried out between 9.00 am and 5.00 pm and he denied that he had concentrated on mathematics and had given no training on how to run the business. Mr Ollis noted that, in addition to the training in May 1999, the applicants were provided with three days of training with Hunter Calder between 6-8 July 1999, one day training with Stuart Gattenby on internet and computer skills and were given three days of training at the applicants' own centre by himself between 6-8 August 1999.

59 Towards the end of the training period at the support office, Mr Ollis gave the applicants their coaching materials in two boxes but Mrs Ferfolia complained that the documents were almost exclusively related to mathematics and stated that she could not see any folders relating to English. Mr Ollis told her that he had paid the Parramatta franchisee to write some English material "a fair while ago" but the material was outdated and there were a number of errors in it. He was arranging for it to be rewritten and brought up-to-date. Mrs Ferfolia said they needed to have some English materials and Mr Ollis replied that they could have it if they wanted it and then gave her seven folders of English material for Years 4 to 10 and they were placed in a box. In affidavit evidence, Mr Ollis denied the truth of that conversation and reiterated what he had earlier said namely that, in approximately May 1999, the first respondent had available to it a complete set of English materials but at the time the materials were in the process of being edited. At that stage, Mr Ollis had generally decided not to provide such materials to franchisees not because they were not any good, but other franchisees had chosen not to use them preferring to use their own English materials. Nevertheless, the applicants asked for the English materials and he provided it to them. Mr Ollis' proposition is an odd one namely that although, in accordance with the contract, he was providing worthwhile English documents, no franchisee was using them and so he was not providing it anymore. It is more likely that, as suggested in Mrs Ferfolia's evidence, the materials were not being used because they were out-of-date and that the franchisees were in a position of having to create their own teaching materials. Mrs Ferfolia's evidence on this matter is accepted.

EVENTS FOLLOWING THE SIGNING OF THE FRANCHISE
60 At the training session in May 1999, the Ferfolias were provided with a document described as the Master Coaching handbook. According to Mrs Ferfolia, Mr Ollis told her not to worry too much about the handbook as it was a bit of a "schmozzle", that it had grown like topsy since they started franchising and it really needed to be rewritten and revamped. Sometime after becoming a franchisee and not having received an updated handbook, Mrs Ferfolia telephoned the support office and spoke to Mr Brennan and asked what had happened to the updated handbook. Mr Brennan said that nothing had happened and to use the current editions. Mrs Ferfolia replied that Mr Ollis had told her that it was a real schmozzle, it was a priority to update it and it was a dog's breakfast. Mr Brennan replied that he realised that she was used to better materials having been with the bank and in private business and admitted that it did need to be updated but they were very busy and had to put that issue on the backburner. In his affidavit evidence, Mr Ollis denied ever saying those words in a conversation with Mrs Frefolia and said the handbook had been written by a Quality Assurance expert hired by the first respondent who had been recommended as an excellent consultant. The expert had worked with the first respondent over a three-year period from early 1996 and many franchisees had also contributed to the handbook which was distributed to all franchisees in December 1997. Importantly, Mr Brennan was not called to give evidence. Mrs Ferfolia's version of this conversation is accepted.

61 In making arrangements to purchase a property from where the franchise would operate, the Ferfolias had received approval for a loan of $200,000 from Suncorp-Metway Ltd provided that Mr Ferfolia's mother guaranteed the loan. Shortly before the scheduled date of settlement, his mother declined to do so. The first respondent had referred the Ferfolias to Suncorp-Metway and when informed of the problem with the guarantee, the second respondent made an arrangement with Suncorp-Metway whereby the first respondent lodged $45,000 as security to enable the Ferfolias to obtain the loan. When this was offered Mr Ollis said to the Ferfolias that, until they were making the great income he knew they would, he did not expect to be repaid for years. Mr Ollis denied ever saying those words and stated that the loan was only a temporary arrangement to assist the Ferfolias while they sold other property owned by them. However, within 12 months Mr Brennan contacted the Ferfolias and insisted they replace the $45,000 deposited so that the money could be released to the first respondent. Mrs Ferfolia said she drew on her superannuation entitlement in order to make that payment. On both accounts of this conversation, the loan was arranged for an indefinite period and it is quite possible that Mr Ollis regarded it as short term but even then the facility was made available over a number of months.

62 In relation to the official opening on 6 - 8 August 1999, Mrs Ferfolia stated that this coincided with the two-day training course provided by the first respondent. Mrs Ferfolia stated that there was no training given to Robert Ferfolia and herself and the only training that occurred was the Master Coaching talk "Art of Tuition" to assembled teachers on the Saturday morning, then a primary and junior high school mathematics training session on Saturday afternoon and a senior mathematics training session for teachers on Sunday morning. She stated there was no training given to the Ferfolias of any other aspect of the franchise business. Mr Ollis made no response to these paragraphs but in the bundle of documents filed in Court there was an agenda for the three-day session. According to that agenda the first day was to answer questions raised by the franchisees and "auditing the operation of the premises". Suggested topics were enrolling students, students' reports, organising classes and timetabling, selected lessons with the first lesson based on the result of a diagnostic test. There was no suggestion in this list that there would be time spent dealing with managing the business side of the franchise. The agenda for the Saturday and Sunday was to deal with tuition subjects. That agenda was signed by Mr Ollis. On 12 August 1999, Mr Ollis presented a report on the August 1999 training sessions. In that report Mr Ollis noted that he delivered common stationery and set up the Macintosh computer for reports referring to Term 3, 1999 and up to Term 4, 2001. There was a check of the computer and the April 1988 college English notes. His report contains the following entry:

Check for later corrected version. Parramatta will send latest version. Please confirm that Parramatta have sent the updated material, if it has not arrived in one week please contact me.

The remainder of the report dealt with teacher training of the respondents' methods and philosophies although it was noted that, in the Sunday session, Mr Ferfolia was trained in senior mathematics. Mr Ollis' agenda and report are consistent with Mrs Ferfolia's evidence except for Mr Ferfolia's training in mathematics.

63 The reference to English notes in Mr Ollis' report was again referred to by Mrs Ferfolia who said that the notes were never sent although she repeatedly asked Mr and Mrs Ollis for those notes. Mrs Ferfolia also stated that, on this opening weekend, she had to write the English and reading training sessions for the teachers and also those relating to administration. In his affidavit, Mr Ollis did not reply to these matters.

64 On 3 July 1999, Mr and Mrs Ferfolia attended an open day at the new support office of the first respondent. A report of that event was sent out by the first respondent and announced a number of matters. Firstly, there was reference to the support office having achieved quality assurance status and the assistance provided by a quality assurance advisor, Mr Ferfolia. It was stated that, in time, the first respondent was aiming to have quality assurance status for all franchisees and between early December 1999 and mid-January 2000, eight of the franchisees would be chosen at random for a quality assurance appraisal. Mrs Ferfolia stated that the random selection of eight franchisees did not occur and quality assurance status was not obtained by all franchisees, although Mr Ferfolia made himself available to assist in this effort. Reference was made to global advertising and the fact that the first respondent was considering a marketing campaign and that more information would be provided later. Mrs Fefolia stated that there was no global advertising by way of a marketing campaign. There was a reference to the first respondent receiving an invitation to have a display stand at the upcoming home show beginning in August 1999. There were calls for volunteers and consideration was being given to making a financial contribution to Mr Walmsley to operate the stand during the week. Mrs Ferfolia said that nothing was done about the home show. The report also referred to statistics to be filled out by franchisees in order to identify trends, to determine and to deal with problems with some courses. It was suggested that, after the figures were received, the first respondent would collate them and send the results to the franchisees. Mrs Ferfolia returned these forms and completed 11 surveys but results were not collated and made known to them or to their knowledge, made known to the other franchisees.

65 By the end of the 2001 first term, the first respondent discontinued the use of the survey forms and Mr Ollis said there was no point in submitting them as most of the franchisees did not bother to fill them out. Reference was made to the conference to be held at Penrith at the Panthers venue but Mrs Ferfolia said that, in fact, this was a conference provided by the Penrith franchisees and not by the first respondent. The report also referred to a yearly calendar to be produced by the support office outlining timetables for upcoming events so that, through planning, their success could be guaranteed. This approach was also referred to in the handbook. Mrs Ferfolia said that the yearly calendar was not produced while they were franchisees. In his affidavit Mr Ollis said that advertising was undertaken through the internet and by radio interviews and there were approximately 20 interviews on major radio stations and a variety of regional stations. In relation to the Penrith conference, Mr Ollis said that the Penrith franchisees assisted with the organisation of the conference but most of the organisation was undertaken by the first respondent. Mr Ollis did not respond to the other matters raised by Mrs Ferfolia.

66 From approximately mid-1999, Mrs Ferfolia became aware of other franchisee concerns about the operation of the first respondent and these concerns were brought home by a letter circulated by two franchisees, Mr John Duff and Mr Mark Rutter. They had discussions with Mr Ollis and Mr Brennan and had undertaken to conduct a needs analysis for and on behalf of all the franchisees stating they would like to see all franchisees believing they belonged to a dynamic, profitable and professional organisation and that improvements could be made that would increase the resale value of all franchises. They identified as a goal to make every franchise worth double their present market value. To achieve their purpose of making the franchises more efficient, more manageable, more professional and more consistent, a survey was circulated to all franchise holders requesting their suggestions and recommendations. It was proposed that the survey results would be collated and presented at a franchisee conference in 2000.

67 Following the circulation of the survey, the Master Coaching support office, through Mr Ollis (but also signed by Mr Duff and Mr Rutter), gave an update on the progress of the survey stating that there were quality ideas and that they looked forward to preparing an appropriate management plan to respond to the franchisees' needs in a systematic and organised way. It was expected that a preliminary report and recommendations would be available by the end of November 1999, with the final report to be delivered at the conference in 2000. It was stated that they felt that franchisees would be "delighted" with the improvements and the letter then stated:

From our initial analysis, it was evident that we could respond to some of your stated needs and suggestions in an immediate and practical way while at the same time addressing our original aims of consistency and quality. A major issue for franchisees was the idea of corporate identity and corporate image. We have responded to this initially via an updated image from Master Coaching and applied the image to (1) business cards, (2) student reward cards and (3) folder inserts. Once again, in the interests of consistency and image, head office has agreed that all new franchises will use the above items in the style and presentation developed. In the survey, it was indicated by a significant number of franchisees that the motivational aspect of coaching at our centres was an area for attention ... we realise that some franchisees have the motivation aspects of their lessons professionally operating however, to begin to address the issue of consistency, high standards and uniformity across the franchise organisation, with head office funding we have compiled a motivation folder which you will find enclosed. The folder contains three coloured copies of 45 motivational thoughts you can use to conclude coaching sessions. This is a professionally presented user-friendly resource. Your utilisation of this resource will ensure consistency throughout Master Coaching. It is provided to you free of charge, compliments of head office.

68 In January 2000, Mr Duff and Mr Rutter circulated a survey report to Master Coaching franchisees. In that report it was noted that franchisee dissatisfaction indicated the need for improvement in materials to address "use of quality, type and relevance particularly in the Primary area" with other areas to be addressed relating to communication, advertising and promotion. Management and selection process issues relating to the support office operation were drawn to the attention of that office. It was noted that the support office had undergone a number of changes and improvements over the last 12 months and that Mr Ollis would report on those matters at conference 2000. In relation to issues concerning the support office and the improvements that franchisees were seeking, the report stated:

A clear and concise message from the survey is in the area of support with the overwhelming issue being the production of improved materials, particularly in the area of materials for English and primary mathematics.

69 It was noted in the report that there was a misconception about the role of the support office and it was emphasised that the franchisees were responsible for running their own business. Nevertheless, the support office accepted their role as providing support and direction for example, initial training, methods, motivation and systems of coaching, that is, what to do and how to do it. Other issues raised in the survey were that quality operators were concerned by the poor practices of some franchisees and suggested regular monitoring of premises to ensure appropriate standards were being maintained.

70 The survey report made 16 recommendations. The first recommendation was that the support office produce two secondary English books for the franchisees to be made available at cost and to be similar to the first English material developed by the Parramatta franchise. The recommendation was that this material should be different from the Parramatta material and should provide "philosophical and research based direction" from senior primary through to senior high school. The material should provide "the necessary direction for coaches and be able to be used flexibly" and was to be intrinsically interesting and focus predominantly on helping student expertise in writing confidently in a range of tasks. It was suggested that materials be made available to franchisees at conference 2000 with a second production of two books to be made available by August 2000. The recommendation concluded by stating:

The criteria for the material is to be high quality and high accuracy as to present a professional appearance to student and parent customers and to address quality concerns raised in the survey.

The second recommendation was that head office produce two books of primary mathematics materials with the work to be professionally presented and exclusively for the use of the Master Coaching students. The books were to be ready for conference 2000 and to be made available to franchisees at cost.

71 The third recommendation concerned Master Coaching best practice folios, advertising, promotion and customer service. The recommendation stated that, to assist franchisees in the running of their business, the support office was to produce a number of best practice folios containing examples of approved, quality examples, advertisements including newspaper editorial examples, advertising brochures, leaflets, promotional and customer service ideas in these areas. These were to be a source of ideas that could be adapted to the local situation. The franchisees were asked to forward to the support office any appropriate materials for inclusion in these folios. Recommendation four was that there be a yearly planner to assist franchisees in managing their cash flow, public relations, advertising and promotions and that they be distributed at conference 2000. Recommendation five was that the support office produce a list of competitive prices from recommended suppliers. The support office had requested that the franchisees forward the names of suppliers that they felt offered them a product at an excellent price.

72 Recommendations six and seven dealt with small business management advice and management and direction. In recommendation six, it was stated that teacher applicants confessed poor understanding of small business management procedures (cash flow, financial control and general understanding) and this was a concern for a significant number of franchisees. It had implications for training prospective franchisees. The support office had taken note and was exploring options to address this ongoing need, including delivery of an appropriate course at conference 2000. In relation to management and direction, it was noticed that some of the franchisee responses indicated a lack of confidence in the professional management at head office with words used including, "lack, chaotic, confusion and disorganised", particularly in relation to planning, organisation and direction. It was pointed out that, at the 2000 conference, Mr Ollis would no doubt appraise the franchisees of the changes resulting from the office re-location and the progress of management. The survey, however, indicated the need for the support office to give direction and management in global advertising. The support office had indicated that, on a number of occasions, global advertising had been attempted ( e.g. 1300 chess tournament, television and radio advertising). In reality, perceptions of what could be done were somewhat different. It was stated that franchisees were looking for firm direction and planned strategies in key areas but needed to combine their entrepreneurial and business skills with their undoubted teaching skills.

73 The other recommendations were as follows:

Recommendation 8 was for a plan for specific action on an annual basis, using annual conference for updates and improvement changes.

Recommendation 9 was for the support office to look at the production of training material.

Recommendation 10 was for the support office to investigate a "platinum" type course in a structure that allowed greater accessibility to franchisees.

Recommendation 11 was a continuation of the "buddy" system to be strengthened and regionalised so as to provide greater opportunities for cross-benefits for franchisees in terms of advertising, promotion, local assistance and support.

Recommendation 12 was for franchisees to be organised on a more co-operative basis.

Recommendation 13 was for clear demarcation of roles, expectations and responsibilities on the part of the franchisees and franchisor.

Recommendation 14 was for all materials developed by the franchisor to be of superior presentation and quality.

Recommendation 15 spoke of communications and expressed appreciation and the approachability and accessibility of the support office staff. An email was an appropriate short term message system although communications were a difficulty at times as some franchisees could not be regularly contacted by telephone, facsimile or email. All franchisees were urged to ensure that they had an answering service operating and were contactable by facsimile or email.

Recommendation 16 reported that the franchise saw value in the ideas gained from others in the organisation and suggested that each franchisee share ideas throughout the year at regional level and annually at conference. It was suggested that each franchise bring two or three ideas or sources to annual conference where they could be disseminated.

74 In relation to these recommendations, Mrs Ferfolia said that recommendations one and two were implemented and that required the Ferfolias to purchase English and mathematics material which had not been made available to them when they entered into the franchise. Recommendations 3, 4, 5, 6, 7, 8, 9, 11, 12, 13 and 14 were not followed, while recommendation 10 was attempted but was not effective. Recommendation 15 was described as not being a recommendation. Recommendation 16 was attempted but as there were no regional conferences and little could be done while the annual conferences were not organised by the franchisor. Mr Ollis made no response to these matters.

75 Prior to entering the franchise agreement, Mrs Ferfolia said that Mr Ollis told them not to give private lessons because the franchise was totally based on group tuition and did not offer private tuition. Mr Ollis said that, unless they had big groups, it was hard to make money. He said the minimum room size should be capable of holding at least eight students and there was a need for at least one large room capable of holding at least ten to twelve students. In this way Mr Ollis lead them to believe the franchise would generate large classes. Up until approximately mid-2002, after following this advice, the Ferfolias rejected opportunities to give one-on-one tuition but in 2002, after having a conversation with another franchisee, they began to accept private students for one-to-one tuition. It was found that approach was beneficial to the business and that during 2004, out of an average of approximately 100 students, 26 were engaged in private one-on-one tuition. In his affidavit evidence, Mr Ollis denied saying these words or telling the applicants they should not undertake private tuition. However, he noted that group coaching had always been the main business of the franchise but there had always been individual coaching. It is difficult to see what distinction is being made here by Mr Ollis - the thrust of what he says is identical to the thrust of what is said by Mrs Ferfolia, namely, the franchises are all organised on group teaching. The only point of difference seems to be Mr Ollis denies that he told the Ferfolias that they should not take on individual students for one-to-one teaching and that was available. That seems to be an issue as to the profitability of such an exercise. Given that clarification, Mrs Ferfolia's evidence is to be preferred.

76 After entering the franchise, Mrs Ferfolia complained that she had a conversation with Mr Ollis as to which franchisee should receive the commission for introducing the Ferfolias to the franchise business. The Ferfolias had been invited to talk to any franchisee about the business but at the time they were unaware there was a commission that might compromise what they were told and thought they were actually receiving freely given information with no strings attached. In the conversation with Mr Ollis, Mrs Ferfolia nominated one franchisee as the person who convinced them to enter the franchise and Mr Ollis had finally made a decision that a $5,000 commission would be paid to that franchisee and another franchisee claiming to have been involved was paid a small commission. In his affidavit, Mr Ollis denied that the conversations had ever occurred and said that the franchisee concerned had only been paid commission on three occasions and that franchisees, prior to joining, knew of the existence of the commission. There was no policy by which that franchisee was paid any commission to recruit franchisees and the three occasions they were paid a commission involved special circumstances. Mr Ollis stated that nothing said to the applicants in the course of their making enquiries of other franchisees would have been influenced by any reasonable expectation of obtaining a commission from the first respondent and had such commission been sought on the basis that positive things were said to the applicants by any franchisee, no commission would have been paid by the first respondent. Of course, the last proposition is no more than an expectation and further, the very person to whom Mr Ollis paid the commission in relation to the Ferfolias' purchase was the person he said had only been given a commission in special circumstance on three occasions and where the franchisee knew of the arrangement. Mrs Ferfolia said she was unaware of the arrangement. Mrs Ferfolia's evidence is to be preferred on this matter.

77 Between the commencement of the business in August 1999 and December 1999, the franchise attracted 32 students. After submitting a return showing this figure, Mrs Ferfolia telephoned Mrs Ollis and said that, as they were nearing the end of the year and coming up to the school holidays where there would be no income, there were only 32 students enrolled and that was nothing like the number they had been told to expect. Mrs Ollis told her that they were doing well and that they would have 100 students in no time and agreed that it was "hard" over the school holidays. Mrs Ferfolia also stated that they were receiving enquiries from younger students for whom they were not supplied materials and asked what could be done about that. Mrs Ollis replied that Mr Ollis had only taught high school mathematics but maybe other centres could help and that they may have something to give them. Mrs Ferfolia stated that the respondent did not offer any further assistance with this problem. Mr Ollis made no response to this evidence and Mrs Ollis did not give evidence. Mrs Ferfolia's evidence on this matter is accepted.

78 In 2000, the Ferfolias completed a survey for week 2, term 1 showing they had 63 students. After lodging that survey, Mr Brennan from the respondent's support office rang and congratulated them on the numbers and Mrs Ferfolia told him that they only had 63 and they could not make a living out of that number of students. Mr Brennan replied that they would have 150 students by Easter and that he would guarantee that. Mr Ollis did not comment on this evidence in his affidavit and Mr Brennan did not give evidence. Mrs Ferfolia is to be accepted in relation to that conversation.

79 In 2000, the survey form for week 9, term 2 submitted to the respondent showed 100 students at the Ferfolias' franchise. Following the submission of that form, Mrs Ferfolia received a telephone call from Mrs Ollis congratulating her on their first 100 students. Subsequently, she received a further telephone call from Mr Ollis also congratulating them to which Mrs Ferfolia replied that they were more than half-way through the year and he and Mr Brennan had said that, by now, there would be 200 students. Mr Ollis replied that she was not to worry, that her numbers were "terrific" and that she would have 200 students by the end of the year. In his affidavit, Mr Ollis does not deny that telephone conversation but he denied that he promised the applicants they would have 200 students by the end of the year. In this matter no evidence has been called to challenge Mr Brennan's promise as to 150 students and, generally, having regard to the respondents' promotional material, Mrs Ferfolia's version of this conversation is to be accepted.

80 In 2000, the week 16, term 4 return showed 80 students and that for some time prior to that return, there were reductions in student numbers for the franchise. Mrs Ferfolia said she sought advice from the support office on how to keep the franchise numbers up and increase them and acting on a suggestion from Mrs Ollis, they did mail drops. Their own enquiries revealed that they did not receive any increase in student numbers from that mail drop. Mrs Ollis also suggested that the Ferfolias advertise the business by placing flyers under the windscreen wipers of parked cars but Mrs Ferfolia later discovered it was illegal and that they could be prosecuted for littering. Mr Ollis made no comment on these issues and Mrs Ollis did not give evidence. Mrs Ferfolia's evidence on this matter is accepted.

81 At any one time, the highest number of students ever enjoyed by the franchise was 153 but that only lasted for a very short time. Mrs Ferfolia said that the franchise did not have anything like the 200 or more students they were led to believe would be generated by the business. Mr Ollis did not contest this statement.

82 Mrs Ferfolia then turned to the schedule to the franchise agreement dealing with the obligations and goods and services to be supplied by the franchisor.

Mrs Ferfolia accepted that the first respondent provided copies of a Macintosh computer disc of all mathematical and English assignment and tests now being used by Master Coaching as well as hard copies of those assignments in clear folders with answers and a marking scale. Her complaint was that the copies of the assignments in clear folders were handwritten copies appearing on the letterhead of the Master Coaching Campbelltown franchise and this required the Ferfolias to recreate those documents on their own letterhead. The franchisor was also to provide, and did provide, copies of Master Coaching's computer reporting system to adapt the system to the needs of the franchisee but the report to assign marks to students had similarities to standard school reports. Mr Ollis said he told them not to give their students marks as most franchisees did not use those types of reports and had designed their own reports. After establishing that this was in fact the course adopted by other franchisees, Mrs Ferfolia designed her own reports.

83 It was an obligation of the franchisor to provide a catalogue of "term letters" outlining Master Coaching philosophies to parents. Mrs Ferfolia said this catalogue was not provided and when she followed it up with Mr Ollis and the first respondent she ultimately received one form of such a letter. A further obligation on the franchisor was to provide lesson plans and special notes used by Master Coaching. Mrs Ferfolia said that the first respondent did not provide lesson plans or special notes particular to Master Coaching or at all. The franchisor was also to assist the franchisee "in setting up their accounts". Mrs Ferfolia stated that there was no assistance given in setting up their accounts.

84 The franchisor was to provide all such help as needed in preparing and delivering coaching lessons. There were materials and training provided but, according to Mrs Ferfolia, no help was given in preparing and delivering coaching lessons.

85 Under the schedule to the agreement, the franchisor was to provide structured materials for reading courses and the necessary training and material to run a reading programme. Mrs Ferfolia said that the first respondent arranged for the Ferfolias to be provided with this material and training by Hunter Calder, the author and copyright owner of that material. However, they had been informed that the franchise fee covered initial training for her husband and herself and two of their teachers. When the Ferfolias were due to be trained only one teacher was employed by them for reading tutoring and they asked Mr Ollis if the training could be deferred or the second teacher could be trained separately and later. Mr Ollis said that it was not possible and they therefore lost the benefit of having "one of their own" trained. Mrs Ferfolia also said that they were not made aware that the Reading Freedom course was being rewritten or made available to the general public until a circular in 2000 from Pascal Press alerted them to that fact. The Ferfolias also needed to replace their books with Reading Freedom 2000. They asked the first respondent to update these books for them but they refused so the Ferfolias had to purchase the books themselves to be able to continue running the reading programme. Once the books were generally published the Ferfolias lost the parents' attraction to exclusive material.

86 The franchisor had an obligation to provide an advertising folder with editorials and advertising copy to cover "all your requirements". Mrs Ferfolia denied that this had occurred. Initially, no material was provided at all but not long after commencing the business Mrs Ferfolia spoke to Mrs Ollis and asked for the advertising material saying that, as they were not advertising writers or marketers, they needed a great deal of help in this area. Mrs Ollis said that she would see if she could find something to help them and Mrs Ferfolia asked what had happened in the past and Mrs Ollis replied that franchisees did their own advertising, including writing their own advertisements. Mrs Ferfolia asked for a copy of those advertisements but Mrs Ollis told her that she would have to get in touch with each of the franchisees herself. After that, Mr Ollis sent four photocopied pages for use in advertising but Mrs Ferfolia regarded the material as being of no use to them as it promoted the franchisor and Mr Ollis rather than the business.

87 Ongoing and regular training and support programmes was an obligation of the franchisor and Mrs Ferfolia noted that, from time-to-time, Mr Ollis offered mathematics training at the support office. Occasionally, Mr Ollis would send emails to franchisees advising that he was running another "Art of Tuition" course at a particular centre on a particular date and that teachers could attend. When Mr Ollis gave this talk there was no charge and Mr Ferfolia attended on several occasions. Other franchisees did offer training in various courses but they charged fees. Examples were given by Mrs Ferfolia whereby the Gosford and Liverpool franchises offered training at $150 per day and the Liverpool franchisee conducted updated training at $50 per person. On two occasions, Mrs Ferfolia attended the Liverpool reading course and paid for two tutors to attend. With their English teacher, Mrs Ferfolia attended training courses in English resources written by the Ulladulla franchisees at a cost of $150 per day and $50 per person. Mrs Ferfolia noted that these training courses were the initiative of individual franchisees and not the initiative of the first respondent.

88 In relation to the franchisor's obligations, Mr Ollis stated that all assignments were typed and given to the applicants to copy onto their own letterheads when used. In using the assignments, the applicants would then simply print them out from their own computer. The photocopied sets were only provided in order to make it easier to check the assignments in hard copy rather than reading them on the computer. Mr Ollis denied that the Ferfolias were not provided with a catalogue of term letters outlining the Master Coaching philosophies to parents and stated that at least seven different term letters were provided to the applicants. He denied the claim that he had not provided lesson plans or special notes particular to Master Coaching. The first respondent had provided the applicants with a copy of the accounting programme, "Best Books" that had a chart of accounts designed by a chartered accountant and this was the same chart of accounts he used in the Master Coaching Campbelltown business. Mr Ollis did not take issue with the matters relating to the Hunter Calder material. In relation to an advertising folder with editorials and advertising copy, Mr Ollis said that the materials were provided to the applicants at the training session held at Corrimal and that they took the materials with them. Mrs Ollis did not give evidence about the conversation regarding advertisements used by other franchisees. Mr Ollis did not deal with the issue of training and costs of courses provided by other franchisees.

89 Mr Ollis' replies to these matters were general in their terms and did not adequately address the issues raised by Mrs Ferfolia. Some of the criticism is based upon the adequacy of what was provided and, in a number of respects, Mrs Ferfolia's complaints are echoed in the responses to the survey conducted in 1999/2000. The complaints of other franchisees, dealing with a lack of professionalism and a lack of a united approach to the services offered, is reflected in Mrs Ferfolia's comments.

90 When the Ferfolias entered the franchise agreement, the first respondent supplied 27 folders of coaching material together with 7 folders of what was regarded as outdated English materials. Mrs Ferfolia found these were inadequate to carry out the franchise business and they were required to produce over 200 resource folders of coaching material by researching, preparing and writing those materials themselves or having their employed tutors and teachers write them at a cost to the Ferfolias. There was also material voluntarily contributed by staff with resources that were purchased from other sources. Between 1999 and 2003, the Ferfolias said that they paid over $13,000 to various persons and organisations to purchase these coaching resources. In the same period they paid the staff over $3,500 to write resource material. In his affidavit, Mr Ollis denied that the "vast quantity" of original materials and updated materials supplied to the applicants were inadequate for them to carry on their franchise. The material supplied to the applicants was a complete set plus copies of all materials used in his own coaching school in Campbelltown. Between 1988 and 1997 when the business was sold, Campbelltown had been built up to approximately 300 students.
91 The difficulty with this aspect of the applicants' claim is that it relates to professional coaching materials and methods and as the evidence stands, there is simply an assertion that they were inadequate and a denial that they were inadequate. As noted earlier in the judgment, there was no independent expert evidence called as to the adequacy of the material but it is uncontroversial that updating was required and additional fees were incurred by purchasing notes from other franchise holders or attending their courses. To an extent, the requirement for this to take place rather supports the impression gleaned from the 1999/2000 survey that the wheels had fallen off the franchisor, perhaps due to the number of franchises and their location, such that there was a general disquiet about the professionalism of the operation and the quality of its product. Under the terms of the franchise agreement it is difficult to understand why the Ferfolias had to pay an additional $2,000 to the Parramatta franchise for updated English materials, even if half the total cost was borne by the respondents. It appeared to be the obligation of the First Respondent to provide updated English and Mathematics materials. Mr Ollis accepted in his evidence their obligation to update the materials. The money expended by the Ferfolias is otherwise not identified and it is not known if any or how much was spent on Science and other subjects which were not part of the franchise arrangement.

92 At the May 1999 training session, the Ferfolias were provided with a Master Coaching handbook (a document different to the franchise information booklet. In that document, information was provided about starting the franchise and some advice was given about desirable attributes of suitable premises. Besides being near transport and providing parking, the premises needed to be at last 100 sq metres and required at least one large room being a minimum of 6 metres x 5 metres for mathematics and a reading room of 5 metres x 5 metres. There was some discussion about the philosophy of the franchise and reference to motivational material. The handbook also contained an open letter to franchisees dated August 1997 and written by Mr Ollis. In that letter Mr Ollis said:

As a franchiser I personally must show leadership. If I cannot lead then you as a franchisee have nothing to follow. That means that it is my task to ensure that every franchise is adding its weight to the overall growth of Master Coaching. I am more than prepared to do this. My first task is to ensure uniformity throughout Master Coaching. This means that you as a franchisee should not have to worry about:

· Advertising
· How to enrol students
· Payment rates by students or the staff
· Reporting systems
· Teaching methodology
· Motivation
· Finding staff
· Preparing tax
· Designing stationery
· Designing the lesson format and many other tasks.

Master Coaching aims and needs to become a business that runs itself - so that you have much more time for the important things in life. It's my responsibility to design the system. I need your help to make sure that any best practice that you have can be incorporated into the system.

My aim is to make Master Coaching a System dependent business - not a people dependent business It is important that we all follow the same procedures in the same structure. The guidelines to that structure are already firmly in place and I know that EVERYONE of you has followed those guidelines. What I now propose in refining our process will in no way limit you as a teacher or franchisee, but will repatriate more time to you to do those things which are most important, such as:

· quality time with your family
· more time to teach if wanted
· time to visualise and reflect

93 In another part of the handbook under the heading "Loose lips sink ships", the following is stated:

Most great organisations and this includes most great empires, don't fall because of forces that assail them from without, but because of internal cancers which undermine and ultimately destroy their organisation from within

...

We, at Head Office, are supremely confident that we can withstand any assault on our business from outside the organisation - more than confident. However, it is far harder to guard against internal dissension.

This is why we have a no tale--carting policy. By this we mean discussing internal Master Coaching concerns with people from outside the organisation, especially where Head Office or another franchise is concerned. As explained at various franchise meetings, tale-carting is one way to have your contract terminated. It is very much in your interest to offer unqualified support to the parent body of Master Coaching and to boost the stocks of your fellow franchisees at every opportunity.

Your attitude and compliance in this regard will be infectious. The ability is within everyone to talk themselves up or down. We cater to those who dare dream and wish to share that dream.

Reach for the stars and you will be amazed how close they really are.

94 Under the heading "Activities at Master Coaching College", the handbook stated:

The fundamental activity of a Master Coaching Franchise is to provide out-of-school tuition to students. Tuition can be provided either on a personal basis (one to one or two to one) or in groups. The backbone of your business and chief revenue generator will be small group instruction, but private instruction is a necessary and profitable adjunct.

Group tuition is the goal to strive for and this can be applied to any subject area. The most profitable areas are mathematics, English, reading (see separate section) and some sciences.

...

Class Sizes

The maximum class size is 13 students for High Schools. This can be increased slightly providing the group is homogenous in ability and the majority of the students have been enrolled for one or more terms. Primary groups can vary up to 10 students depending on the homogeneity of the group.

The actual group size will depend on the comfort level of the tutor, it should not exceed 13 and it may be considerably less than 13.

In this part of the handbook, the respondents were clearly indicating that private tuition was a "necessary and profitable adjunct" to group lessons although Mr Ollis firstly stated in his evidence that the system was based on larger group tuition and that was where the money was to be made.

95 Mrs Ferfolia noted the handbook stated that, in starting the franchise, they would be supplied with 10,000 brochures to be given to the new franchise and to be distributed at least two weeks before the opening date. She confirmed that 10,000 brochures designed by Mr and Mrs Ferfolia were forwarded to the first respondent for approval, were approved and were subsequently distributed. The brochure indicated that the franchise would give professional tuition in "mathematics; reading; English, science".

96 Mrs Ferfolia said that, amongst other things, the handbook spoke about the franchisee not having to worry about advertising but in fact none of the respondents advertised the franchise business as a whole except on the internet. There was some internet advertising when the Ferfolias joined the franchise in 1999 and then that ceased. Further internet advertising commenced in approximately 2001. In March 2004, while they were franchisees, Mrs Ferfolia downloaded material advertising the first respondent on the internet and that was similar to the material advertised on the first respondent's website. That website gave a background to Master Coaching referring to a money-back guarantee, providing assistance with an educational assessment and spoke of the business as being quality assured. Part of the site contained a statement of success in Master Coaching franchising stating that it was a well known and documented fact that, in most cases, joining a franchise gave surety of success. There were added benefits of Master Coaching in that, as an educator, people were not going into an unknown business and that only gifted teachers were considered for the business. They would become part of an elite team of educators. It was said that Master Coaching had tutored more than 80 dux of various schools, had tutored more than 500 first and second placegetters in their school, thousands more achieved personal best results and that their methods ensured that 95 per cent of students improved and over 80 per cent improved dramatically. Generally, after two terms, a poor student with Master Coaching would be within the top 3 per cent of their class, student retention rate was high and 80 per cent of students who commenced with Master Coaching stayed with the business. Much of the material thereafter was directed to commencing a franchise and making a successful business out of franchising. Under the sub-heading "Group Tuition" the following was stated:

We have concluded, after many thousands of students, that one on one tuition is not nearly as effective as group tuition. There are several reasons for this, including the increase of anxiety induced by individual tuition. The fact that there are others in the group helps the child feel more relaxed and there is a cross-pollination within the group.

...

A professional income can be earned through group tuition and individual tuition is not financially viable in a large business.

At another part of the site, the locations and contact details of the various franchises were set out.

97 On a number of occasions Mrs Ferfolia had asked for verification of the success rates referred to in this material and other material provided by the first respondent. She spoke of another franchisee who had carried out a critique on a proposed new website who challenged the truth of those achievements and stated facts and said they should be removed from the support page. No verification of these figures and claims had ever been provided by Mr Ollis. In his affidavit, Mr Ollis did not respond to this aspect of Mrs Ferfolia's affidavit and no independent or documentary material was provided to support the success claims made by the first respondent.

98 Mrs Ferfolia said that, because of the failure of the respondent to provide advertising for the global franchise business, in mid-2000 a number of franchisees combined to form a co-operative that became known as the Master Coaching National Market Co-operative. The Ferfolias joined the Co-operative and it continued for approximately two years in an attempt to provide global advertising for the business. The Ferfolias paid a fee of $2,500 to belong to the Co-operative and Mr Ollis was invited and agreed to sit on the board. A publicist was hired and arranged for the franchise to be mentioned in some newspaper articles and, on a few occasions, Mr Ollis was interviewed on radio but no actual advertising was undertaken by the Co-operative. The Co-operative ceased to operate in 2002 but Mrs Ferfolia noted that no assistance was provided by any of the respondents to enable the Co-operative to continue to operate. In his affidavit Mr Ollis stated that, although some advertising was arranged by the first respondent, it was not part of the franchisor's obligations under the franchise agreement. Under clause 12 of the disclosure document it was stated that the franchisor, on behalf of the franchisee, did not control or administer a marketing or co-operative fund for franchisees and that franchisees were responsible for their own advertising. It will be remembered nevertheless that, in the handbook, Mr Ollis stated that he would lead the franchisees into a better life in a successful business where, amongst other things, they would not have to worry about advertising and preparing taxation - the business was designed to run itself and release the operators to enjoy quality time. It was reasonable for the Ferfolias to thereby understand that, while some local advertising should be undertaken at their own cost, the wider advertising of the franchise (global advertising) would be the responsibility of the respondents. Undoubtedly, some of that global advertising could be copied by the Ferfolias and used locally thus freeing them from the worry of advertising copy and content.

99 At the meeting on 11 April 1999 when the Ferfolias were interviewed about becoming franchisees it was Mrs Ferfolia's evidence that, over the years, Mr Ollis said he had put a lot of money and effort into marketing the Master Coaching name and that is why they were already recognised as being number one in the field. They had a marketing consultant, Mr Brian Rawnsley, to help with their marketing and Mr Brennan had said there were a number of other ideas they had to further enhance the reputation of the franchise. In this discussion Mrs Ferfolia stated that she was a teacher but, while she had experience in various fields, neither she nor her husband had any great experience in advertising. Mr Ollis said that was where Mr Rawnsley would come in and that they would be able to get advice and assistance from him. Mrs Ferfolia understood that Mr Rawnsley's services would be made available free of charge but later it became clear that the first respondent did not supply or subsidise Mr Rawnsley's services. Mrs Ferfolia had asked where they should advertise and Mr Ollis said in the newspapers, mail outs through Australia Post and an advertisement in the Yellow Pages and, in the past, there had been some radio advertising. Mr Ollis said the best way to let people know of their existence was to do a big shopping centre launch. He told the Ferfolias to find the best place for the launch and that they would launch the franchise for them. In his affidavit evidence, Mr Ollis did not accept that the applicants did not know that Mr Rawnsley would be charging franchisees for his services but did not contest the other aspects of Mrs Ferfolia's evidence.

100 Mrs Ferfolia then dealt with the efforts and expenditure put into advertising the Lake Macquarie franchise and the assistance she sought from the first respondent. In January 2000 she had used Mr Rawnsley's services to letterbox 50,000 flyers and had found a local distributing company that would letterbox them for $30 per thousand. She spoke about not being able to afford Coffs Harbour television advertisements and/or radio advertising used by other franchisees but she had written articles with back-to-school features for the local newspaper and set this out in a letter to Mr Ollis. She also mentioned the $1,0000 paid by the respondents for Mr Ferfolia's consultancy services on the quality assurance manual and that sum was to be taken off their loan. Mrs Ferfolia mentioned in the letter that, as they wanted to get it right, it was intense and time consuming for her husband to perform the consultancy service on this topic and other organisations had charged a higher rate for such a project. She therefore asked for $2,5000 for completing the project to be deducted from their loan and Mr Ollis agreed.

101 At the end of March 2000, Mrs Ferfolia wrote to Mr and Mrs Ollis referring to financial difficulties they were experiencing and that to keep their heads above water, she had just borrowed a further $10,000. She had made some further enquiries about the reduction of the loan and had paid a small amount to facilitate that option. In this letter, Mrs Ferfolia spoke of her great appreciation of the respondents' faith, support and assistance and their continued understanding of the Ferfolia's "difficult situation". She was keen to pay her debts as soon as possible but interest was continually mounting. She asked if they would like to offer some immediate and practical help and whether there was any chance of some assistance with their huge marketing/advertising costs. They had been told by other franchisees that the respondents used to subsidise Mr Rawnsley's fees and the Ferfolias said that would be of "inestimable benefit" to them. They had paid Mr Rawnsley $2,500 in fees and approximately $2,000 for the flyers he had advised they use, over $2,000 to a mail drop distribution company and thousands of dollars to a number of schools for advertising. They had also entered joint Yellow Pages advertising with another franchise and found that the cost for their half was approximately $3,000 and it was due soon. They had been trying very hard to keep the advertising up but they were facing financial difficulties. Mrs Ferfolia received no response to that letter.

102 On 5 April 1999, Mrs Ferfolia wrote to Mr and Mrs Ollis and Mr Brennan attaching their figures and noting that their enrolments had slowed down considerably. The Ferfolias thought that it would be worth trying to take up the respondents' original offer of a shopping centre display. In week 2 of the school holidays they booked the centre court at Macquarie Fair for Thursday 22 April and Saturday 29 April 2000. They asked if financial support was available from the respondents' support office and could any of the support office staff help out on the day. Mr Brennan from the support office replied to that letter and stated that he and Mr Ollis were booked out for various activities until mid-June and asked her whether she wanted to contact Mr Rawnsley about the matter. In relation to the growth of the franchise, he said they should be "over the moon" with the figures as they would find "a large growth will take place second term and indeed a large growth after the mid-year break, I guess you would break 120 before the end of this year". Mr Brennan responded that, to tackle advertising and marketing and to take care of further displays in the future, he would be putting a special segment in the conference agenda.

103 On 8 April 2000, Mrs Ferfolia replied to Mr Brennan's facsimile and said they were very pleased with their numbers and two more were enrolling in the following week. They knew they had to keep their name "out there" and they had done a lot and spent large amounts on advertising with 100,000 flyers in January 2000 and 35,000 were mail dropped between January and March 2000. Until recently they had spent thousands more on Mr Rawnsley and therefore they could not afford him for the mall displays. As a joint exercise at a cost of $3,000 there was an even bigger advertisement in the Yellow Pages but they could not afford to do radio advertising as well. Mrs Ferfolia asked whether they should put off the shopping centre displays until the following holidays and whether any of the support staff would be available at that time. On 13 April 2000, Mrs Ferfolia sent another facsimile to Mr Ollis and Mr Brennan saying that she had not heard anything from them regarding the previous facsimile so she had cancelled the shopping centre for Thursday 22 April thus saving $100 but would try to do the Saturday 29 April opening themselves. Apart from a banner, Mrs Ferfolia asked if there was anything they could "beg, borrow or steal" to assist. She asked the support office to bring to the conference anything they could use.

104 On 5 July 2000, Mrs Ferfolia sent a facsimile to Mr Ollis and Mr Brennan regarding displays and noted that obviously they had to get in early to secure the support office team. Everyone had told her that they were great at shopping centre displays. She asked if a publicist would help and asked if there were any signs of one being hired. She said they wanted to do a big display at the big shopping centre in Lake Macquarie and asked if they were available early in term 3. She also asked if they could book them well in advance for the last week of the January 2001 school holidays. Shortly after that facsimile, Mr Ollis telephoned Mrs Ferfolia and told her that they did not do shopping centre launches anymore. Sometime after she received that information Mrs Ferfolia said that the first respondent did a shopping centre launch in a Sydney suburb for Korean franchisees. In his affidavit evidence, Mr Ollis gave no response to these matters raised by Mrs Ferfolia.

105 From time-to-time, Mr Ollis had said to Mrs Ferfolia that he had to spend a lot of money on advertising. Between 1999 and June 2003, Mrs Ferfolia said that the failure of the respondents to provide advertising material and advertising copy resulted in the Ferfolias spending more than $70,000 on advertising Over $13,000 had been spent in the financial year ending June 2003 including nearly $6,500 paid to a business coach to assist with advertising and promotion. Mr Ollis made no response to these matters.

106 Under clause 5.2 of the franchise agreement, the first respondent was to provide a three-day compulsory conference for franchisees at a venue designated by the franchisor. Mrs Ferfolia complained that the first respondent did not provide those conferences but they were provided by the franchisees and in fact no conference was held in 2002. In his affidavit Mr Ollis pointed out that, except for 2002 when the Fiji conference was cancelled at the last minute because of riots in that country, there had been three-day conferences held every year since 1997. He did not reply to the point that these conferences were organised or substantially organised by the franchisees and were not provided by the franchisor.

107 The franchise agreement also required the franchisor to organise meetings for franchisees in a particular region. Mrs Ferfolia complained that the first respondent did not organise any regional meetings. Mr Ollis stated that the first respondent had organised regional meetings, including Lake Haven and Gosford, but the applicants did not attend those meetings.

108 The terms of the franchise agreement provided that franchisors ensured that all signs were to be in Bookman font and using the Master Coaching colours of Heritage Green and Luna Sand. Mrs Ferfolia noticed that various franchises used a variety of colours and there was no corporate uniformity. In a discussion after the Ferfolias had been accepted as franchisees, Mrs Ferfolia asked Mr and Mrs Ollis what corporate colours should be used and Mr Ollis referred to the colours in the franchise agreement but stated the centres did "their own thing". Mrs Ferfolia said they wanted to follow the corporate line and asked what they should do and Mrs Ollis said they could do whatever they liked and Mr Ollis said something similar.

109 At the end of January 2002 Mr and Mrs Ollis sent an email to franchisees, including the Ferfolias, and on the second page of that email spoke of the power of brand recognition and co-branding. It was stated that co-branding was one of the fastest growing worldwide businesses and to be involved in co-branding there needed to be a very recognisable image and branding system being colours, print fonts, business structure and layouts, logos, letterheads etc. The email then stated:

Sadly, we do (sic) have this. There are at least 4 different logos that are masquerading as Master Coaching logos, 3 of which do not appear in any contract with Master Coaching. Added to this there are 4 or 5 sets of corporate colours (including plain black) and several different fonts being used on letterheads. This makes selling the name Master Coaching more difficult when prospective franchisees are confronted with this jumble of mixed promotions. For the record there is only one company logo. I am happy to change if there is agreement but I am much against separate franchisors making up their own logos as they go. ... Our company font for Master Coaching is in BOOKMAN. Our corporate colours are Heritage Green and Luna Sand. I know that individuals are less than excited with the corporate branding that exists today. However, any uniform branding, no matter how poor, is better than the fragmented image that Master Coaching reflects.

Mrs Ferfolia noted that, despite the terms of the franchisee agreement, the respondents did nothing to enforce uniformity amongst the franchisees in the use of logos and corporate colours. Mr Ollis made no response to this issue in his affidavit evidence.

110 Having drawn attention to these matters and what Mrs Ferfolia described as the first respondent's failure to observe many provisions of the franchise agreement, she stated that she and her husband tried very hard to successfully operate the franchise business and had sought advice from the respondents and when advice was forthcoming, had followed that advice. They had communicated with other franchisees and engaged in activities initiated by other franchisees.

111 In an effort to make the business successful, Mrs Ferfolia pointed to a number of documents to indicate their level of involvement and participation in the franchise. In September 2001, Mr Ollis sent a letter to all franchisees and praised the work of the "MCNMC as the national marketing committee" and in particular, singled out the Ferfolias as part of the group who had supported the concept and ensured that this "brilliant idea" was not "stillborn". In part of that document, Mr Ollis stated:

The MCNMC has been one of the most significant developments that has happened in Master Coaching in the past six years. This committee was formed on the efforts and perspiration of a number of forward thinking franchisees and I would be negligent if I(sic) name the franchisees who most supported this concept. The initial core of dedicated franchises who created the MCNMC were ... Vicky and Robert Ferfolia (Lake Macquarie) ... . Especially my thanks go to the first mentioned names who bore the brunt of making sure a brilliant idea was not stillborn. The mere existence of the MCNMC and your participation in that organisation will add $1,000's to your business when the time comes to sell, this shows that Master Coaching is committed to a national marketing strategy which can only increase the power of your name, Master Coaching.

112 In approximately early 2000, Mr Ollis wrote a congratulatory letter to the Ferfolias saying he was extremely grateful they had brought Master Coaching to Lake Macquarie and stating:

Your centre at Lake Macquarie is a model of everything that a good centre stands for and can achieve.

In March 2001, Mr Ollis wrote to the Ferfolias as follows:

Master Coaching Lake Macquarie is a model centre, offering the best of what Master Coaching delivers. I was impressed by:

1. the cleanliness and orderliness of the centre

2. the warmth of the welcome given to all students

3. the general organisation of the day-to-day running of the centre

Observations

...

1. The centre really needs a large room where groups of 10 (or maybe more) students can be coached in one session. To assist you in preparation for that time (I understand that your long term plans for building expansion will allow this to happen in the best possible way) I have included a copy of the standard Master Coaching large group session format.

...

Advertising

...

Both of you have a great appreciation of advertising, not only at the local level also the need for Master Coaching to be recognised on a global scale. I have been very much indebted to the efforts of both Vicky and Robert in the work that they have done for the co-op. .,..

Conclusion

...

Master Coaching Lake Macquarie will flourish whether you follow the above advice or not. The above advice will, however, grow your centre more quickly and bring better results for your students. I really enjoyed my visit, the radio interview went as well as any interview that I have done, and the meal after a long night was magic.

113 In March 2002, the Lake Macquarie franchise was given an award for excellence in Master Coaching's total care package. In a covering letter, Mr Ollis thanked the Ferfolias for their outstanding effort and commitment to the Master Coaching code of care package. He noted that their efforts over the past 12 months had been exemplary and the outstanding results they achieved with their students was a testament to their dedication and talent. In his affidavit evidence, Mr Ollis made no response to these matters.

114 Although they had worked hard to make the business a success, Mrs Ferfolia said they could not increase the number of students to the figures they had been told to expect by the respondents. In the 1999/2000 tax year the business operated at a loss of nearly $27,000; in the 2000/2001 tax year the loss was over $23,000; in the 2001/2002 tax year the loss was over $47,000; and, in the 2002/2003 tax year there was a profit of $360. Mrs Ferfolia said that, because they were not able to earn enough income from the business, they became entitled to Centrelink benefits and had been on those benefits since January 2000. The Ferfolias paid their continuing franchise fees until September 2002 and made payments totalling approximately $8,200 on the $15,000 loan. Mrs Ferfolia said they were simply not able to pay any more money because they had no money to pay.

115 In February, April and May 2002 the Ferfolias had written to the respondents informing them of their financial difficulties and seeking assistance but they did not receive a response to those communications. In those letters the Ferfolias repeated some of the expenditure they were required to undertake and noted that they had 89 students and could not survive on that number, let alone make any money. They had already spent thousands of dollars, borrowed money and sold shares as well as drawing on their superannuation and said they were "very worried". In the May 2002 letter they talk about no enquiries from students, being in "dire straits" and feeling "very stressed and disappointed". They had been struggling to keep up payments on the business loan and their property at Batemans Bay and were again forced to try to sell the property. Mrs Ferfolia sold her last parcel of shares and said they had used all their assets on the business rather than the business paying for anything. They were nearly three years into the business and this was not what they envisaged, especially when in 2001 they were told they would easily have 150 students by Easter 2001. They asked for a copy of the business plan that made Campbelltown profitable when started by Mr Ollis and again said they were happy to try a mall display. They had asked Mr Ollis to attend the Lake Macquarie outlet and talk to the staff proposing "An evening with the founder". They also suggested another shopping centre opening, noting that they would now "try anything". There had been some promise to send unspecified material to assist them and they asked for that material to be sent but nothing arrived. Mr Ollis noted that in April 2002 he was in Melbourne providing training for some 18 teachers. In January 2003, Mrs Ferfolia sent four emails to the first respondent raising various queries and issues but did not receive a reply. Mr Ollis did not deal with these matters in his affidavit evidence.

116 Between late February and mid-January 2003 there was an exchange of correspondence between the Ferfolias and the respondents concerning the adequacy of the mathematics and English materials supplied and the queries being received from students. Mr Ollis replied that there were difficulties in the higher levels of mathematics coaching and being able to produce notes that could be used again and expressed the view that he had not been able to do so. In relation to Year 12 English he pointed out that the notes of Mr Duff and Mr Rutter covered the queries and that the notes required franchisee training in correct usage. He had sponsored the sale of these notes to the extent of 50 per cent of their cost and noted that a number of training days had also been offered. In February 2003 the Ferfolias sent a detailed response to this email. They stated that the franchise agreement provided that material of exceptional quality would be supplied for mathematics, English and reading but when they bought the franchise the English coaching consisted of seven folders labelled Years 4 - 10 only and nothing for Years 11 and 12. Mr Ollis had told them that the programme was written by a franchisee and others had pointed out that it badly needed redoing because it contained many errors, it was very limited and did not fully cover the English curriculum.

117 The Ferfolias said they were aware of other franchisees who were not supplied with this material because they were told it was not up to standard. What had initially been supplied was the only English material they had ever received and other franchisees had told them that it was unusable. The Ferfolias had tried to use it but it was embarrassing because of the number of spelling and grammatical errors, it was repetitious and lacking in some key areas of the syllabus. They complained that they had not been supplied with Years 11 and 12 English materials. The contract said material would be supplied and at the 2000 Penrith conference they paid $2,000 for four folders of English material prepared by Mr Duff and Mr Rutter and had paid hundreds of dollars to attend special training. There was some excellent material in those notes which they used at their centre but it was not relevant to Years 11 and 12. Mr Duff agreed that was so but it was also noted that the new Higher School Certificate syllabus had been introduced in 2001. In order to have material that was relevant to the School Certificate course, the Ferfolias said they had to purchase other English material for infants and primary students and Years 9 and 10 The English material was to be supplied rather than sponsored by the respondent.

Mrs Ferfolia challenged Mr Ollis' statement that a set of notes, able to be used in following years, could not be created for mathematics. In fact, although it took some considerable time and effort to do so, her husband and one of the mathematics tutors from their centre had created such notes.

118 In late May 2003, the Ferfolias were served with a notice of termination of the franchise forwarded by solicitors acting for the respondents. There were some discussions between legal representatives and ultimately the Ferfolias' solicitors ceased to act for them. On 12 August 2003 solicitors for the respondents wrote to the Ferfolias noting they had failed to remedy the breach within the terms of the notice and in accordance with the notice, confirmed termination of the franchise agreement. They were asked to return certain material under the terms of the agreement and were made aware that the respondents were enforcing the non-competition covenant in the franchise agreement. They were notified that, for a period of two years from the termination, they were not to have any direct or indirect interest in any type of education coaching business or establishment within a radius of 10 kms of the specified territory. They were asked for a written undertaking to abide by that provision. Failure to comply or the operation of a coaching business within the territory was threatened to be met by legal action. In February 2003, agents acting for the first respondent forwarded a letter of demand to the Ferfolias claiming the payment of $6,800 being the residue of loan monies advanced to them from 21 June 1999 to 27 July 1999, together with overdue monthly franchise fees totalling $7,800 for the period 1 February 2002 to 1 February 2003 plus accrued interest of $443 calculated until 3 February 2003. The Ferfolias responded to that letter of demand advising that the amount was in dispute. On 19 February 2003, the Ferfolias forwarded an email to Mr Ollis stating that the respondent had not performed its obligations under the franchise agreement and requested that he not seek any further payments for the past in light of that non-performance and an undertaking that he would now perform the obligations under the agreement. It was stated that, once this was agreed to, payments could recommence. They reiterated their desire to have a successful relationship but they were most concerned at the respondent's present level of performance. Mr Ollis replied that he was in no position to delay or alter proceedings taken by his agent and any dispute would have to be taken up with them. In addition, he said he had been assured by his solicitor that he was not in breach of the franchise agreement.

119 On 12 February 2003, the Ferfolias wrote to Mr Ollis seeking a copy of the current disclosure document but stated that the document was not received. Mr Ollis' evidence was that the disclosure document was sent and he provided a registered post proof of forwarding that document.

120 On 1 August 2003, Mr Ollis sent an email to all franchisees stating that the Ferfolias had ceased to operate as a Master Coaching franchise. Mrs Ferfolia denied the accuracy of that statement. The email also stated that four franchises had ceased to operate and that only 30 per cent of franchises were up-to-date with royalty payments - some of them only three or four months in arrears but amounting to a large sum of money.

121 Ultimately, the Ferfolias accepted what they stated to be the repudiation of the agreement by the respondents. They changed the name of their business and stationery and removed the Master Coaching signs and commenced using the registered name "Top Tuition".

122 In mid-December 2003, the first respondent instituted proceedings in the Supreme Court seeking injunctions and orders for the payment of amounts totalling nearly $18,000 as well as damages and interlocutory injunctions. The application for interlocutory injunctions was dismissed in late March 2003. The proceedings in the Supreme Court have been stayed pending the result of the present proceedings in this Court.

123 In his affidavit evidence, Mr Ollis said that he had never hindered the applicants in their franchise and indeed had given them considerable assistance. The franchise costs of operation were lower than other coaching franchises and the coaching product was one of substance. There was a great deal of assistance given to the applicants, including a number of training sessions and seminars provided by the first respondent to assist and support franchises. From approximately 2000 to 2003 there were 50 training sessions in the Sydney Metropolitan area and the applicants were invited to all the sessions but did not attend most of them.

124 Prior to the applicants entering into the franchise agreement, the first respondent had provided them with approximately 800 pages of materials and notes. Since the commencement of the franchise agreement in 1999, a further 6,000 pages of written material had been developed on behalf of the first respondent and supplied to franchisees, including the applicants. At the first respondent's cost, those materials had all been developed by or on behalf of the first respondent. Between 1999 and 2003 Mr Ollis said that he had participated in numerous radio interviews and television appearances for the purposes of promoting the Master Coaching franchise and thus bringing the business to the public's attention, including the applicants' business. Accounting assistance was also provided to the applicants. In early 1999 they were provided with business training, including written materials, computer software and a simplified version of MYOB with a full chart of accounts set up by a certified practising accountant.

125 In his affidavit Mr Robert Ferfolia said that he had a number of discussions with his wife about the business and that in January-February 1999, he was aware that his wife had telephone discussions with Mr Ollis about the Master Coaching learning centres and that he had seen a brochure entitled "Master Coaching Learning Centres".

126 On 20 February 1999, he and his wife attended the Mudgee college for the opening of the franchise and met Mr Ollis. He listened to Mr Ollis' presentation about Master Coaching which was described as "Australia's best tuition system" and as being "the most inspirational teaching system in Australia". During the morning he and his wife had a conversation with Mr Ollis and Mr Colin McRay. Mr Ferfolia introduced himself to Mr Ollis and said that he found the talk to be interesting and stated that he was a scientist, not a teacher. Mr Ollis told him that they were looking for people in the franchises who could motivate children and the material, because it was provided, was not a problem. It was how it was presented that really counted. Although it could not be done from home, Mr Ollis said it was a very professional business covering a wide range, including mathematics and English, and had a "wonderful" reading programme and that there were also a number of science teachers. Mr Ferfolia expressed his concern about not being a teacher but Mr Ollis told him not to worry about it as he could train him and he would not have to worry about the material: he just had to have the right personality. In his affidavit Mr Ollis denied describing Master Coaching in the way stated by Mr Ferfolia, although he did say words to the effect that the teaching system was designed to inspire students not just teach them. Mr Ollis denied the conversation concerning the professional presentation of the material and that Mr Ferfolia was not to worry about not being a teacher as he could be trained and would not have to worry about the material. Mr Ollis said that he would not have had a conversation to this effect at that time, but gave no detail of what was said in the conversation. Importantly, Mr Ellis in his evidence later made a point of the amount of teacher training given to Mr Ferfolia. It has already been accepted that, prior to entering the franchise agreement, Mr Ollis told Mr Ferfolia that he could be taught to give Science and Mathematics tuition.

127 Following their visit to Mudgee, Mr Ferfolia was aware that there were a number of conversations between his wife and Mr Ollis and later they attended the Richmond franchise operated by Mr and Mrs Burrell. Mr Burrell spoke highly of their satisfaction with the franchise business and encouraged Mr Ferfolia to take up a franchise and said that he would be a great teacher. Over the Easter holiday weekend the Ferfolias attended Batemans Bay and met Mr Rutter who operated the franchise in that area: he spoke favourably of the franchise business. His wife also spoke to Mr Brian McConville, the operator of the Albury franchise. The Ferfolias visited the Wollongong area to investigate its suitability as a franchise area.

128 Mr Ferfolia said that he believed and relied upon what he had read in the first respondent's brochure and what Mr Ollis had said to them at Mudgee. He also relied upon what his wife had told him about her conversation with Mr Ollis and the information supplied to them by Mr and Mrs Burrell. Following those contacts, they decided to take up a franchise in the Lake Macquarie area. However, their first preference had been to acquire the Bathurst franchise and with the first respondent's consent they had registered the business name for Bathurst Master Coaching. When they were finally told by Mr Ollis that Bathurst was definitely not available that was when they decided to go ahead with the franchise at Lake Macquarie. In his affidavit evidence, Mr Ollis stated that the Ferfolias were informed that there were others ahead of them wanting the Bathurst franchise. In mid-March 1999 he informed the Ferfolias of territories available in Newcastle, Wollongong and Canberra . He denied that Bathurst was the first choice of the Ferfolias but agreed that they did ask to register the business name "Master Coaching Bathurst" because they told him they needed it for discussions with the bank. On that basis, Mr Ollis allowed them to proceed but he had informed Mrs Ferfolia that Bathurst was definitely not available.

129 On 11 April 1999 Mr Ferfolia and his wife attended an interview with Mr Ollis and Mr Brennan who was introduced as the Master Coaching business development manager. Very early in that meeting Mr Ollis said they would be accepted as franchisees and his wife asked how that could happen when Mr Ferfolia was not a teacher. Mr Ollis said there was no problem because they would train him and Mr Ollis would teach Mr Ferfolia to be the best ever mathematics teacher. Mr Ferfolia stated that, after becoming a franchisee, he had to train himself to become a tutor. Mr Ollis denied that Mr Ferfolia was not given any assistance in the process of tutoring and provided a document summarising the assistance provided to the applicants. That document principally refers to the training provided at the opening of the Lake Macquarie franchise in August 1999. Mr Ollis also attached a memorandum dated 31 October 2001 from the Ferfolias in which they informed him that they had been developing materials to fill gaps in their resources and had completed Years 11 and 12 biology, a spelling programme, reformatted some senior general mathematics and would probably tackle senior physics and chemistry next. They had taken copyright over this material and offered it to other franchisees at a fee and described the material as being "top quality" and in an ideal format for Master Coaching. Mr Ollis did not deal with Mr Ferfolias' statement that Mr Ollis told him that there would be no problems and they would train him to be the best mathematics teacher ever. Mr Ferfolia's evidence in relation to these matters is accepted with the exception that the suggestion that no training was provided to him by the respondents. The Court accepts that training was provided to Mr Ferfolia and although the Ferfolias may not have accepted that it constituted "special training", nothing turns on that point.

130 During the course of the meeting in April 1999, Mr Ollis said that the most successful franchises were run by couples where both of them were actively engaged in the franchise and that the business made enough to support a couple and both could obtain a good living from the business. Mr Ollis denied making those representations or giving any warranty as to the financial viability of the business. In fact, he said he cautioned all franchisees that any business could run at a loss and that even a good business could run at a loss for the first few years. The general warning about franchises was also said to be given by Mr Brennan and appears to be another "practice" adopted by the respondents. Mrs Ferfolia denied that such warnings were given. The respondents' franchise information booklet spoke of franchises generally and the failure rate of all such businesses but then spoke positively about how different the Master Coaching franchise was and how its method would ensure success for those chosen to be franchisees.

131 Mr Ferfolia said there was further discussion at the April meeting resulting in he and his wife agreeing to purchase the franchise at Lake Macquarie for $57,500 and paying a "non-refundable deposit" of $1,000". Mr Ollis did not deny that statement but noted that, on or about 11 April 1999, the applicants paid a $1,000 deposit.

132 In early April 1999, Mr Ferfolia believed that he gave notice to his employer effective from end April 1999. Between 26 - 28 May 1999, he and his wife attended the support office for their initial training lasting two half-days and one full day. Mr Ollis denied that the training was as described and said it consisted of two full days and one-half day.

133 Towards the end of the training, Mr Ollis said to the Ferfolias that they might as well take the coaching materials with them now and indicated two open boxes containing a number of folders. After briefly looking through the folders, the Ferfolias noticed that they appeared to be almost exclusively related to mathematics and his wife said there did not appear to be any English folders. Mr Ollis said that he paid the franchisee at Parramatta to write some English material sometime ago but the material was outdated, their were a number of errors in it and he was arranging for it to be rewritten and brought up-to-date. Mrs Ferfolia said that they needed some English materials and Mr Ollis replied that they could have these folders. Mr Ollis denied the accuracy of that statement and said that in May 1999, the first respondent had available a complete set of English materials and at that stage the materials were in the process of being edited, but Mr Ollis had generally decided not to provide the material to the franchisees. The other franchisees had chosen not to use it, not because it was not any good, but they preferred to use their own English material. The applicants asked for the English materials and he provided it to them. Mr Ollis' evidence in this regard is somewhat contradictory, with the material being available but also being edited but no purpose for the editing being identified. The fact that none of the franchisees were using it rather suggests that it was, as described by the Ferfolias, full of errors and not up-to-date. Indeed, there was evidence that the Parramatta franchise supplied further English material which was 50 per cent paid for by Mr Ollis.

134 Mr Ferfolia said that the materials supplied by Mr Ollis at this time comprised 27 mathematics folders covering Years 5 and 6 primary school and Years 7-12 secondary school, 7 English folders with some materials for Years 4 -6 primary school and Years 7-10 secondary school and 1 science folder for Year 12 comprising handwritten physics and chemistry questions. Mr Ferfolia said the mathematics material did not cover all the topics required by the Board of Studies and in particular did not cover Year 12 extension 2 mathematics, Years 9 and 10 standard mathematics, part of primary school Year 7 and all of primary schools years below 5 nor where there any materials for remedial learning. The materials provided were printed on the Campbelltown franchisee's letterhead, were handwritten and hard to use. There were also difficulties with the science material and some parts of that material requiring answers had not been supplied. Repeated requests were made for those answers and subsequently Mr Ollis was able to locate the chemistry answers to the questions but not the physics questions. In relation to mathematics, the materials had not been updated because of the changes in the syllabus: in 2000, the syllabus changed to introduce Years 11 and 12 two-unit general mathematics replacing the earlier mathematics in society. There was no material that covered this change. At the 2000 conference organised by the Penrith franchise, Mr Ferfolia said that he was able to purchase some mathematics material from another franchisee at a cost of $390.

135 Mr Ollis said that the handwritten physics and chemistry questions given to the applicants was material written by a former coach. The notes were not part of the franchise package but Mr Ferfolia asked for the notes and they were provided by Mr Ollis. Mr Ollis provided a complete list of the material provided to the applicants at this time and other material was sent to them as it became available He accepted that the franchise package did not include extension to all four-unit mathematics but denied that there were gaps in relation to the remaining material. Mr Ollis noted that teaching for remedial students involved teaching more basic levels of materials, that is, material for earlier years until such time as the student caught up to the appropriate level. All the notes were typed except some were handwritten notes which were designed to be copied on to a whiteboard. Mr Ollis did not deal with the allegation that the English materials did not cover secondary school Years 11 and 12 and primary school years below Year 4. As to the size of the materials, the franchisee agreement related to mathematics, English and reading materials but science was not part of the package. In relation to changes in the syllabus, Mr Ollis denied there were any gaps in the material and stated that mathematic materials were rewritten and acquired when changes in the course required this to be done and when that occurred, updated materials were provided to the franchisees. Mathematics material for Years 7 - 10 were rewritten between 1999 and 2001 while Years 11 and 12 mathematics materials were acquired by the first respondent from the head mathematics teacher at Bowral High School. In 2001 primary school notes and selective materials were also produced.

136 Mr Ferfolia said that, although he requested the first respondent to supply further English materials, no further material was provided. At the 2000 conference organised by the Penrith franchisees, the Ferfolias were able to purchase various English materials from other franchisees. At this conference Mr Ollis told the franchisees that, because they had all been complaining about the lack of English materials, some excellent English materials prepared by Mr Duff and Mr Rutter were available for sale at the conference. If the English materials were bought at the conference Mr Ollis undertook to subsidise them by 50 per cent, meaning the cost would be $1,999 but they could not be bought at that price after the conference. Mr and Mrs Ferfolia bought this material but Mr Ferfolia said that, even then, the material supplied did not deal with the requirements for primary school children and children in Years 11 and 12. In his affidavit, Mr Ollis said that extensive English materials had not been part of the franchise and the method of teaching English was the main component of the English programme and it was provided to the franchisees. In addition, he later stated that he expected Mrs Ferfolia to use her own English materials. Mr Duff and Mr Rutter provided more extensive English materials and the first respondent incurred costs of approximately $85,000 in subsidising the availability of these materials. Mr Ollis agreed that additional science material was not provided because it was not part of the franchise package. It is difficult to understand how Mr Ollis could say that "extensive English materials" were not part of the franchise but that the method of teaching English was the focus. The recitals to the franchise agreement stated that the franchisor carried out coaching in the fields of English, Mathematics and Reading and that it was obliged to supply all English assignments and tests "now being used" by the first respondent. The recitals also referred to the franchisor preparing "materials and procedures" necessary for the use of its specifically developed techniques. Mr Ollis cannot be accepted in relation to these matters.

137 Mr Ferfolia repeated a complaint made by Mrs Ferfolia that the Hunter Calder training had not been delayed so that their additional teacher could attend and thus, they could not get the full benefit as part of the franchise fee. Mr Ollis stated that the first respondent was charged approximately $1,000 by Hunter Calder for each training session provided and had to be organised in advance with sufficient people to justify the expense and it was not reasonably possible to accommodate the request of the Ferfolias. Mr Ollis also denied that the Hunter Calder material originally supplied was obsolete or outdated. It had been developed for the tuition of groups of up to six readers and was still very good material for that purpose. Material published since was for schools and different teaching situations.
138 The Ferfolias had pointed out that there was material missing and that the first respondent failed to supply all the courses and to meet the deficiencies, produced their own coaching materials. The Ferfolias produced over 200 resource folders of coaching materials by researching, preparing and writing some of them themselves or using employed tutors and teachers. Mr Ferfolia designed their own office forms and procedures because the respondents' accounting material was never used by the Ferfolias and its marketing, stationery and office procedures were incorrectly printed with the name of a different franchise. Mr Ollis denied there were any deficiencies in the accounting, marketing and related material. For administrative purposes and to facilitate tutoring of the staff, Mr Ferfolia said he devised their own system of timetabling schedules, numbering and indexing.

139 Mr Ollis referred to a meeting of franchisees held at the support office in November 2001. Whereas Mr Ferfolia thought that Mr Ollis had threatened to walk out on the franchise business because he was not making enough money from it and that the royalty fees would have to rise, Mr Ollis said that he wanted to correct the perception that the respondents were making a lot of money out of the franchise when in fact it was a modest return. They certainly did need additional franchises. The minutes of that meeting stated that the business of the first respondent was still not profitable and that, because of the situation, Mr Ollis had to mortgage his house. It was said losses of over $400,000 were incurred over the past five years and that the first respondent had tried to increase the franchise fees and as a result had lost buyers. The minutes also stated that the first respondent needed approximately 50 new franchises to stay afloat. Mr Ollis regarded those minutes as being inaccurate in part, especially where there was a reference to requiring "50 new" franchises.

140 Mr Ferfolia said that he was aware of the chain of correspondence annexed to her affidavit that passed between his wife and the respondents. He agreed with the effect of each of the conversations as set out where he took part or when related to him by his wife soon after the conversations.

141 In his affidavit evidence, Mr Ollis set out his background saying he held a Masters degree in pure mathematics from Macquarie University. Prior to 1984, he was a mathematics teacher for 18 years in public schools and for eight of those years he was head teacher. During this time he developed his own method of teaching and that became the core component of the business, namely, "The Art of Coaching". Between 1980 and 1984 he initially applied his method while he was in a teaching position which resulted in that school's mathematic results improving dramatically. The school moved from being approximately 45th in the region in the School Certificate in mathematics to obtaining second position.

142 In 1984 he left the Department of Education and started his own mathematics coaching college in Campbelltown, registering the name "Master Coaching". Between 1986 and 1987 he taught 120 of the 300 students attending his coaching centre and the remainder were taught by employed teachers. All of the coaching involved the application of his particular teaching methods and materials developed over the years.

143 Between 1993 and 1994 he licensed his teaching methods to other operators and met with such success and interest that he commenced franchising the Master Coaching business on a full-time basis. By the end of 1997, this involvement occupied so much of his time that he sold his coaching centre for $150,000 as a franchise and concentrated full-time on the process of developing coaching materials for licensees or franchisees of the business. In 1997 he incorporated the first respondent and throughout its existence, Mr Ollis and his wife had been the only directors and shareholders of that company.

144 Mr Ollis explained that the first respondent's business was based upon a structure whereby an initial franchise fee was charged together with ongoing monthly franchise fees. Up until 1997, together with ongoing franchise fees of approximately $440 per month, the first respondent charged an initial franchise fee of $50,000. The continuing franchise fee covered the costs of ongoing provision of course materials, training in the art of coaching and the use of the Master Coaching name. Coaching course materials were continually updated and rewritten by Mr Ollis or people engaged for that purpose and changes were made in line with changes in the school curriculum. Throughout his involvement with the first respondent, the company had provided updated notes, computer discs and compact discs for each franchisee together with various seminars and training sessions. During the course of the franchise agreement, all those resources and forms of assistance were offered and made available to the applicants.

145 Mr Ollis referred to the meeting on 11 April 1999 with the Ferfolias and Mr Brennan. Mr Ollis told the Ferfolias that the price of the franchise was $57,000 (sic) although there were three options available in terms of structuring that price, but if a lower amount was paid then the royalty rates increased. During the course of this meeting, Mr Brennan told the Ferfolias that, when most people went into business, they started off losing money and even where a business was going to be successful it could take five years before it broke even. He told the Ferfolias that some of the branches were doing very well and some were not doing so well and they needed to look at all of them to see what was needed to be successful. Mr Brennan told them that the system belonged to Mr Ollis and they would be more likely to succeed if they followed the system and did what they were told by Mr Ollis. The unsuccessful franchisees were the ones who had stopped following Mr Ollis' system. Mr Brennan invited them to talk to the franchisees and to see if the business was "right" for them. During the course of this conversation Mr Ferfolia said that, although he was a quality assurance expert, he could teach mathematics and had a science background while Mrs Ferfolia said she could teach primary school English. Mr Ferfolia said he could also teach science but Mr Ollis told him that the franchise did not cover science but they could not stop them from offering that subject if they wished. He said he had some notes he could make available but it was not part of the franchise business and they did not give science notes. Mr Ollis expressed the view that science was not a viable coaching subject.

146 During this meeting Mr Ollis said that he showed the applicants a copy of all the coaching notes and materials available to new franchisees at that time and to the best of his recollection, the applicants were shown approximately 30 folders. He said that the Ferfolias took some time to look through the coaching materials in those folders. At the end of the meeting Mr Ollis told the Ferfolias to go away and think about what they had discussed, have a look at the documents and any amendments they suggested could be discussed. Mr Brennan told them not to make a decision now, to think about it for two or three weeks, to go and talk to other franchisees and if they wanted to go ahead to contact them but they would only deal with the Ferfolias through their solicitors. Mr Ollis said that, in running the business, it was always his policy to be particularly careful not to push anyone into acquiring a franchise because his perception had always been that there was far greater potential damage to be done by over-selling the franchise than under-selling it. He had a strict policy in relation to the franchise business - that he was never to be the first to telephone or contact the potential franchisee after the first meeting, always wait for them to contact him and always deal with potential franchisees through their solicitors. Despite Mr Brennan's advice he said that the applicants did not wait two to three weeks and, within a few days, contacted him saying they were interested in setting up a franchise. During this conversation, Mr Ollis said he asked for the details of their solicitor and then details of respective solicitors were exchanged.

147 In her affidavit in reply, Mrs Ferfolia contested many of these statements. In particular she said that they paid the $1,000 deposit on the day of the April meeting because Mr Ollis told them that, unless they did so, they could not hold the territory for them because there were other interested people. Mrs Ferfolia re-affirmed her earlier evidence and denied the conversations occurred in the way suggested by Mr Ollis in relation to teaching English and science and what was said by Mr Ollis in those conversations. Mrs Ferfolia said that the contents of the coaching materials was not shown to them at this meeting but at the May 2000 meeting while performing training at the support office. She denied that they were told to go away for two or three weeks and think about it. It is to be noted that Mr Ollis referred to exchanging solicitor details at the 11 April 2000 meeting but when he notified his solicitor to urgently send out a contract, the details given were for the Ferfolias and contained their address but not the address of any solicitor acting for the Ferfolias.

148 After the death of her husband in mid-January 2007, Mrs Ferfolia confirmed that she closed the college and no longer operated a coaching business.

DELIBERATION
149 In coming to a conclusion about the fairness of the contract at its inception and during its operation, the Court has had regard to the words of Priestley JA in Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, at 268:

... In New South Wales, since 1900 there has been an ever-growing number of statutes permitting Courts to remould particular kinds of contract in the interests of fairness. This is an oversimplified description; for the detail the statutes themselves must be read. The principal ones have been the Money-lenders and Infants' Loan Act 1905, the Hire Purchase Agreement Acts of 1941 and 1960, s 88F of the Industrial Arbitration Act 1940, inserted in 1959 and expanded in 1966, the Contracts Review Act 1980, the Credit Act 1984 and Section 51A of the Trade Practices Act 1974 (Cth), inserted to operated from 1986.

Although each of these statutes dealt with carefully defined types of contract, in their totality they covered contractual situations affecting a great many people, so that, to repeat something I have said elsewhere, 'a very large area of everyday contract law is now directly affected by statutory unconscionability provisions carrying with them broad remedies'. As the words used in the sequence of statutes show, the idea of unconscionability, unfairness and lack of good faith have a great deal in common. The result is that people generally, including judges and other lawyers, from all strands of the community, have grown used to the courts applying standards of fairness to contract which are wholly consistent with the existence in all contracts of a duty upon the parties of good faith and fair dealing in its performance. In my view this is in these days the expected standard, and anything less is contrary to prevailing community expectations.

The Court and its predecessors have frequently drawn attention to these views which leads to the conclusion that unfair dealings during the operation of an arrangement by a party to that arrangement or a failure to bargain in good faith, either in the course of reaching that arrangement or after the making of the arrangement, may result in the arrangement being an unfair contract for the purposes of s 106. The concept of "reasonableness" is inherent in the notion of fairness (Gow v Cronulla Sutherland Leagues Club Ltd (2002) 119 IR 122).

150 In the present case, not only were the representations as to the numbers of likely students, the lifestyle to be obtained from having those numbers of students and the support to be given to running the business side of the franchise not adhered to but after the franchise was entered into, the respondents continued to make representations as to the high number of students that would ultimately be achieved by the Ferfolias thus encouraging them to continue their financial commitment to the business rather than considering the reality of the business and whether they should continue to exhaust their assets to stay in the business. In this case, the representations made by the respondents regarding the nature of the business and its likely success were not merely exaggerations or a "gilding of the lily" - they were significant and substantial representations as to the success of the business and went as far as assuring franchisees of success in that business if they followed the unique methods of the franchisor.

151 As earlier observed, prior to and during the course of the franchise agreement, the applicants' case relied on numerous representations and identified numerous aspects of the franchise agreement that operated to their detriment. The large number of such matters has required the Court to conduct an almost line-by-line examination of the claims and counter-claims of the parties and thus there has been a very detailed analysis of the evidence. Stepping back from that detailed analysis of the evidence, a broad picture emerges of a franchise business advertised and promoted in a manner to suggest that it involved a unique system of coaching that had generated very high levels of success and that there were very comfortable incomes and lifestyles to be attained from being part of the franchised business. It was a ready made business established by the respondents that would receive ongoing commercial support.

152 It is often said in cases under s 106 (and is said in this case) that the applicants entered the arrangement with "their eyes open" (see A & M Thompson Pty Ltd v Total Australia Ltd (1980) 2 NSWLR 1) but that fact alone has never been sufficient to deny a remedy where unfairness is otherwise shown in relation to the contract and/or the way in which the contract worked out. In this case it may be accepted that Mr and Mrs Ferfolia had some experience in business, although in a different sphere, and had made a number of enquiries over time as to the appropriateness of this franchise arrangement and the local area where they proposed to operate the business. They had made enquiries of the local Council and other authorities and had made an assessment of the territory. Because they could not afford the cost of legal advice, they had obtained the advice of an accountant and had done everything that could be reasonably expected of them to examine the business as an ongoing proposition and, as judged by their own circumstances, to make an assessment of its likely success It cannot be said that they rushed headlong into this arrangement ignoring any warnings given to them by the franchisor or others they had consulted. In the present case, there was the faint suggestion that franchises generally were attended by some risk but that risk was effectively eliminated by the respondents because of the total package, including ongoing support, offered by this franchisor.

153 What ultimately seems to have convinced the Ferfolias of the viability and suitability of this franchise arrangement were the representations made as to the number of students likely to attend their college, the income to be derived from that level of attendance and the level of ongoing support to be provided by the franchisor, especially in managing the business side of the operation. As the evidence demonstrates, both before and during the operation of the franchise, there were numerous representations as to high student numbers. Mr Ollis had spoken, undoubtedly with some pride, of the 300 students he had maintained when he operated a college prior to entering into the franchise business and there were numerous other representations of 150 and 200 or more students likely to attend the college. Those figures were in excess of the student figures set out in the cash flow plan, a document that was undoubtedly a great influence upon the Ferfolias. Although Mr Ollis had written on the bottom of this document that they were "not predictions", the document itself on the first page talks about "profit forecast" and projects yearly profits after expenses, a state of affairs never attained by the applicants in years of operation. If the document was merely a template then it could have been provided in a form that left the entries blank - no satisfactory explanation was given as to the origin of the figures inserted in the document handed to the Ferfolias. Despite Mr Ollis' protestations that documents of this kind were not given to franchisees, the respondents' information handbook stated that "cash flows" were only provided at the interview and that they should be taken to a financial adviser to ascertain their viability. It was also stated that, at this meeting, "facts and figures" would be provided by the respondents. On a consideration of all of the evidence, the Court concludes that Mr Ollis did not simply provide this cash flow document as a template in which the applicants should insert their own figures but presented it as a reasonable guide of what to expect in the operation of the franchise and that even higher student attendances could be attained. The handwritten note was, at best, a clumsy effort to protect him from the representations he was clearly making.

154 There appears to have been no analysis by the respondents of any area discussed with the Ferfolias as likely to be a reasonable franchise area. For example, an area comprising substantially retired people would be unlikely to be a successful site for such a coaching college but the respondents appear to have approached the question of the territory of a franchise as being no more than what was a physically desirable area for the franchisees to operate, indicating that the coaching franchise would be successful in any geographic area. Ultimately, there was simply no basis upon which the respondents could make and justify any representation as to the number of students that might attend the coaching college to be operated by the applicants in Warners Bay. These representations may well have been influenced by Mr Ollis' experience in his Campbelltown college but there was no evidentiary basis established for believing that type of success could be repeated in any territory and in particular, to a significant level in Warners Bay.

155 It is also to be remembered that, when the applicants were making their enquiries of the respondents, Mr Ollis was aware that they were both going to work in the business in circumstances where Mr Ferfolia was leaving a position where his total package was worth $72,000 per annum. Mr and Mrs Ferfolia were asking for assurances that they could expect a comparable lifestyle and in that regard, Mr OIllis did not discourage them. On his evidence, Mr Ollis' cannot be accepted that he believed and was told that only Mrs Ferfolia was to perform teaching (and she was an English teacher not a mathematics teacher) and that Mr Ferfolia was to do no more than manage the books, thus suggesting that only one income was required to be satisfied from the takings of the franchise. Once it was clear that the Bathurst franchise was not available to the applicants, Mr Ollis had to be aware that it was likely that, in moving to Warners Bay, Mr and Mrs Ferfolia would be involved in teaching: indeed, he accepted that he had told Mr Ferfolia that he would make him a teacher because of his own education and qualifications. In many respects, it does not matter what roles were to be performed by Mr and Mrs Ferfolia because Mr Ollis had to be aware that they were both seeking a living from the operation of the coaching college: Mrs Ferfolias' conversations and letters clearly set out these matters. Obviously, as the Ferfolias were going to live in Warners Bay, Mr Ferfolia was going to have to leave his position in Bathurst.

156 In essence, the applicants' complaint is that they did not get what they paid for. They had been told that they could move to Warners Bay and enjoy a comfortable lifestyle with sufficient students attending their college to support an income that would leave them better off than being employed as teachers. The fact that those representations were not achieved in the operation of the franchise, on the evidence, cannot be laid at the feet of the applicants. During cross-examination, some attempt was made to demonstrate that Mrs Ferfolia was getting on in years, suffered fragile health and that it was known that Mr Ferfolia had very severe health problems and was likely to be retrenched from his position. Those propositions as the reasons for the failure of the Ferfolias' business were simply not established on the evidence. Indeed, Mr Ollis had written to the Ferfolias (including March 2001) praising their efforts and presentation and telling them that their college embodied all that a Master Coaching College should offer. On the other hand, there was no challenge to the applicants' evidence that they exhausted their financial and physical resources in trying to make a success of the Warners Bay college. Over the years of its operation, their financial assets were liquidated in order to advertise and promote the college, pay their way in its operation and support their own living costs. Mrs Ferfolia's letters to Mr Ollis indicating the extent of their slide into dire economic straits were not directly challenged as to their accuracy. In order to survive and keep the Warners Bay college operating, piece-by-piece they demonstrated that their assets were cashed in, including their shares, investment properties, superannuation and accumulated entitlements from their previous employment.

157 There is no doubt that, on the evidence, it is established that the applicants were pressured into entering the franchise agreement in circumstances where they were attracted by the proposition but were expressing concerns, especially in light of the loan arrangements which had been made available to them by lending authorities, about the cost of the franchise and the relocation costs involved. Contrary to Mr Ollis' evidence and the terms of the first respondent's documents, the interview conducted in April 1999 was not an exhaustive assessment of the applicants as superior teachers (Mr Ferfolia not being a teacher at all) but rather an exercise in persuading the applicants to take up the franchise at the now bargain price of $57,500 because the price had risen to $110,000 - it was only because they had been expressing interest for some time that the existing price was available to them but only if they committed on the day of the interview. It is true that the franchise agreement was not signed on that day but Mr Ollis took a non-refundable $1,000 cheque from the applicants. In his own evidence he was confused as to the purpose of that money. At one point he said it was to cover legal costs for the preparation of a standard form contract and denied that it was to hold the area and secure the lower price. In fact, the disclosure document stated that, before the franchise agreement was entered into, the franchisor required the payment of a non-refundable $1,000 but it was to be deducted from the initial franchise fee if the franchise agreement was entered into. In the Ferfolias' case it appears that the $1,000 was at least designed to lock them into the arrangement and to discourage, on calmer reflection after the interview, any second thoughts the applicants may have had about their level of financial commitment. Ultimately, Mr Ollis accepted that he recalled very little of the conversations that took place on 11 April.

158 Having been satisfied, and probably impressed, by the various representations made about the quality and success of the franchise, the living to be made from it and undoubtedly keen to be accepted, the Ferfolias attended the 11 April 1999 meeting expecting a rigorous interview process whereby they would be scrutinised to see if they were of sufficient quality and excellence as teachers to be accepted as a franchisee. This process is referred to in the franchise booklet where it is said that the interview, while being pressure-free from having to make a decision, was still a "lengthy process". The first respondent was seeking "gifted teachers". There was no selling during the interview and it was an opportunity for people to explore the suitability of this business and to allow the first respondent to "assess" the prospective franchisee's capabilities. That meant that, at this meeting, prospective purchasers could "gain a full insight" into the business without obligation or pressure to proceed and, at the time of the interview, there would be no commitment "in any form". On the evidence accepted by the Court that process was not followed and, while the Ferfolias were undoubtedly eager to take up the franchise, the suggestion is rejected that Mr Brennan told them that there were franchises that failed and it could take them five years to break even. The Court accepts that the Ferfolias' evidence that they were put under pressure to make the purchase that day, firstly because the price would nearly double if they did not do so and secondly, they could not be assured of securing the Lake Macquarie territory and that is why, contrary to Mr Ollis' evidence, the $1,0000 deposit was paid on that day and not afterwards. At the time of this interview, it is to be remembered that the Ferfolias had commenced looking at the Bathurst territory but when they were finally told that area was not available they had spent time looking at other territories before deciding, after much research, on the Lake Macquarie area. In those circumstances it is understandable that they were vulnerable to such pressure and did not want to see another territory slip from their grasp, especially having put in such effort in evaluating that territory and finally selecting it. There had also been told that territories were quickly being picked up by franchisees.

159 The Ferfolias accepted the statements set out in the franchise information booklet. That booklet mentioned the many advantages of starting up a franchise, including the following statements:
· Your income is limited only by the extent of your imagination.
· A franchise is a ready made business package with a proven operating format.
· The franchisor will provide you with training and support systems.
· A loyal customer base is established where the franchise is well-known enabling you to enjoy inherent levels of goodwill.
· The existence of established performance benchmarks allows corrective action to be taken at an early stage.
· The franchisor has streamlined the process and eliminated unnecessary expenses.
· Total job satisfaction.

160 Under the heading "The benefits of franchising" the booklet stated:

There are risks in starting up any business - but!

Franchising definitely lessens those risks. Figures show 70% of all businesses fail in the first two years whilst 92% of franchise business are still operating after five years.

A MASTER COACHING FRANCHISE offers you a career opportunity. If you are the right person then you can become a skilled professional educator who will readily discover the joys of teaching in a positive learning environment. Your income will increase directly in line with your efforts, as will the pleasure you derive from your teaching.

With a franchise you are not alone. There are others in your position, ready to empathise with you and share their experiences.

161 The information booklet stated that Master Coaching centres would be located in all areas in Australia and at no time would the organisation use sales language or "unrealistic expectations just to lead prospective clients into a franchise, in fact, quite the opposite". It stated that there was a pressure free evaluation of what Master Coaching franchises offered teachers and then it was stated:

The most successful franchise operations put potential franchisees through an evaluation process. At MASTER COACHING we assess your ability and general motivation to become a franchisee.

It is more than a matter of having the financial capacity. More important considerations to us are your educational background, your ability to communicate effectively and your positive 'can do' attitude.

162 Under the heading "Our Vision", the booklet stated that the respondents' vision was to be the number one tuition school in Australia and they knew "that this will happen". The following statement was then made:

Generally, most schools will grow to 100 students within the first 12 months and they will continue to grow quickly to large numbers, eg a large proportion of our franchises are well in excess of 200 students per week.

We are in an enormous growth industry and MASTER COACHING through its success with students and franchises is positioned to be the only choice for students seeking top level tuition.

CASH FLOWS

Cash Flows are only provided at the time of interview to those prospective Franchisees that MASTER COACHING approves of. Cash Flows should be taken to your financial adviser to ascertain viability.

163 Under the heading "The process of becoming a Master Coaching Franchisee", the information booklet stated that the first step was to contact the first respondent for an introductory interview. There was to be no pressure and they would simply provide facts and figures. The booklet then stated:

We show you our process of establishment, including:

* Selection of Premises

* Strategies for Marketing

* Business Training

* Our Exclusive Programs

* Up-skilling Requirements

* Maintaining an Increasing Growth

* Financial Advice

* Staff Training

* Quality Management Procedures.

164 Under the heading, "Getting started", the booklet contained the following entry:

The MASTER COACHING organisation will work within a co-ordinated schedule to make transition from your present occupation as smooth as possible.

We make sure that you are professionally prepared to create the kind of positive learning environment that is essential to your new business. You will not be left to 'guess' your way through any of your operations.

Every existing MASTER COACHING franchise is efficiently run because the initial training and ongoing support develops and encourages the abilities of the individual franchisee.

You will be invited to meet existing franchisees to help you gain a first hand evaluation before you decide whether you wish to join our organisation.

You will be given comprehensive training in how to operate your business and how to use our exclusive programs. You will be professionally groomed to ensure that you are successful.

Under the heading, "Training period" the following entry appeared:

Training is an ongoing process for the duration of the franchise. However, the initial start up training period can be completed in two enjoyable weeks.

The booklet then spoke about providing the skills required to commence operation and the experience of the real joys of teaching where stress levels were "virtually non-existent".

165 The picture painted in the information booklet was of an organisation that was able to take gifted teachers and train them not only in the art of tuition, but also to give them all the necessary support to run their own business. It is revealing that, in the evidence of all parties, the interview held on 11 April 1999 was not really about any such selection process but was a straightforward selling exercise. The evidence of business support for a franchise is scant. Mr Ollis spoke about a version of MYOB and a disc prepared by a chartered accountant but that is a far cry from the type of support held out in the information handbook. While there were numerous occasions when the Art of Tuition training programme was made available, the evidence does not demonstrate the same level of availability of information and assistance in the actual running of the business.

166 In any business the effectiveness of advertising is crucial to the success of the business. Although the Ferfolias paid their deposit in mid-April 1999, they did not sign the franchise agreement until mid-June 1999. In the franchise agreement it was stated that the franchisee would be responsible "for all advertising". In the schedule, one of the obligations of the franchisor was to provide an advertising folder with editorials and advertising copy "to cover all your requirements". When the Ferfolias attended the training session between the 26 - 28 May 1999 they were provided with the Master Coaching handbook. In the handbook there was an open letter to franchisees dated August 1997 and written by Mr Ollis. In this open letter Mr Ollis stated:

As a franchiser I personally must show leadership. If I cannot lead you then you as a franchisee have nothing to follow. That means that it is my task to ensure that every franchise is adding its weight to the overall growth of Master Coaching. I am more than prepared to do this. My first task is to ensure uniformity throughout Master Coaching. This means that you as a franchisee should not have to worry about:

· Advertising
· How to enrol students
· Payment rates by students or the staff
· Reporting systems
· Teaching methodology
· Motivation
· Finding staff
· Preparing tax
· Designing stationery
· Designing the lesson format and many other tasks

Master Coaching aims and needs to become a business that runs itself - so that you have much more time for the important things in life. It's my responsibility to design the system. I need your help to make sure that any best practice that you have can be incorporated into the system.

My aim is to make Master Coaching a System-dependent business - not a people dependent business. It is important that we all follow the same procedures in the same structure.

167 In this part of the handbook the respondents clearly represented that, even though the cost of advertising was to be borne in the local area by the franchisees, all that they would need for their business would be provided to them and by inference, that material was responsible for the successful marketing of the first respondent and a significant means by which it had become such a success in the industry. The evidence shows that very little support, in fact, was given to the Ferfolias. In their business plan, which the Court accepts was put before Mr Ollis for his approval, the Ferfolias understood that they would be responsible for their own marketing campaign but significantly noted that "the franchisor provides a great deal of assistance", noting that the business development officer, Mr Brennan, and the national marketing manager Mr Rawnsley, formed part of the Master Coaching head office staff and "the services of these personnel are provided free of charge to franchisees whenever needed". It was in that way, as understood by the Ferfolias, that Mr Ollis would free them from the worries of advertising and ensured the type of uniform message that was necessary for establishing an overall, successful, franchise operation. The Court accepts the Ferfolias' evidence that they received very little help in this area for which they did not directly pay: as the business was declining, the best that could be suggested to them was to put leaflets under windscreens and to advertise in local newspapers. Rather than promoting their own business, they had been provided with a few stories mainly about the success of the franchise business. It was entirely unsatisfactory and a far cry from what had been held out to them by the respondents.

168 On the evidence of both parties, the idea that there would be a nominated term for the franchise with the possibility of paying a renewal franchise fee was a matter that was never disclosed in any of the respondent's publications or in their discussions. The proposal that the franchise agreement for Lake Macquarie would be for five years with a five year option only arose when the contract was forwarded to the Ferfolias. The term was handwritten in the schedule and did not appear to be part of the usual "standard" form contract referred to by Mr Ollis. Although in the body of the agreement provision was made for a term to be nominated, it is unclear whether the schedule usually nominated a term but its form suggests otherwise. By the time this proposal was put before the Ferfolias, however, they were well and truly committed to the franchise. The insertion of a five-year term raises questions of what the applicants were to receive during this term for the $57,500 purchase price and the monthly franchise fees when Mr Ollis' evidence was that the applicants had been warned that it was possible for the business to run for five years before earning a profit. There is no evidence as to what would happen at the conclusion of the term but clearly another franchise fee was available. On Mr Ollis' evidence, just when the franchise may become profitable what the respondents would charge at that time was completely open-ended. While this is not a decisive factor, there is an unfairness about it that is to be put in the balance in assessing the fairness of the arrangements concerning the operation of the franchise.

169 The applicants' claim has been summarised as a complaint that they did not receive what they paid for: that complaint directs some attention to what the applicants received in the five year term for their $57,500 and their monthly franchise fees. Mr Ollis spoke of the unique coaching system that he had developed but otherwise he was teaching the syllabus for the various subjects. There is no expert analysis of this system as to its uniqueness or its effectiveness. Apart from the claimed uniqueness of the coaching system the Ferfolias were obtaining access to prepared materials for them to use in their coaching lessons and, presumably considered to be a valuable asset within the market, were able to use the Master Coaching name and logo. In the information booklet, the first respondent spoke about it being a stress- free business where all the work had been done for the franchisees. It was a ready made business package with a proven operating format and the franchisor would provide the training and support systems and streamline the process to eliminate unnecessary expenses. They would not be left to "guess" their way through any of their operations. They would be given comprehensive training in how to operate their business and use the Master Coaching exclusive programme. Also, they would be professionally groomed to ensure that they were successful. As already noted, the Ferfolias made detailed complaints about the adequacy of the materials supplied for the coaching task and how there were gaps in the materials.

170 As to the materials that were actually supplied, there is no expert evidence as to whether it was adequate, appropriate or even superior for the coaching task. In those circumstances it is quite impossible to make the judgement that the materials were not professionally adequate. There does not seem to be any contest that there were gaps in the material, problems with the English material and that franchisees were developing their own material. This was well known to the respondents and appears in the evidence in a number of places, including in Mr Ollis' evidence. The franchise agreement strongly suggests that it was his obligation as the franchisor to provide and upgrade these materials yet admittedly, in relation to the inadequate English materials, he only subsidised the cost of replacement material rather than providing it. The Ferfolias had informed him of the steps they had taken to improve their resource material and were planning to develop other materials but there was no suggestion in the evidence that anybody, on behalf of the respondents, was checking those materials to ensure that it came up to the high standard to be associated with the unique Master Coaching system.

171 On the evidence, apart from repeated lectures in the Art of Tuition given by Mr Ollis, the ongoing training available was comprised largely of courses presented by franchisees in relation to materials they had prepared and were selling to other franchisees. There is little doubt that, at the time the Ferfolias commenced their franchise, the English materials were thought to be so out-of-date or inappropriate that Mr Ollis accepted that nobody was using them. After the franchisees' survey, it is of some significance that a major issue was the quality and the need for an improvement in the material provided, especially in English and in some mathematics material. This was the core business of Master Coaching. If these materials were not up-to-date and capable of promoting the superior image of Master Coaching or were inadequate in any other way or not supplied by the franchisee, then a central plank of the franchise contract was fundamentally flawed. That state of affairs also fundamentally undermined the representations made by the respondents about the stress-free, up and running nature of the business where franchisees would be simply called upon to apply the expert programmes prepared by the franchisor.

172 Another issue relating to the franchise agreement is the apparent lack of uniformity in the presentation and operation of the franchises and the failure of the first respondent (and all the respondents) to enforce the requirements of the franchise agreement in relation to this aspect. It is significant that, in the recitals to the franchise agreement, it was stated that the franchisor had developed a distinctive and unique method and style of educational coaching and that it had expended time, effort and money to develop and improve the system and had developed a reputation and goodwill for the service and products provided in the course of the educational coaching business. The franchisee was to acknowledge that it was fundamental and essential to the maintenance of the high standards developed by the franchisor and for the preservation of the integrity of the franchises' goodwill, that the public had a right to expect that the franchisee would adhere "to certain uniform standard procedures and policies described" in the agreement to the satisfaction of the franchisor and that any diminution in those standards would be detrimental to all the parties to the agreement.

173 During the course of the franchise held by the Ferfolias, Mr Ollis sent an email to all franchisees and spoke of the importance of marketing and having identified and uniform corporate colours and logo and a style of presentation and that this had been, regrettably, lacking. From their visits to other franchises, the Ferfolias were aware that a variety of colours and some different logos were in use and when making their enquiries of Mr and Mrs Ollis they were told that in this area, just as other franchisees had done, they could do what they liked. Ultimately, the importance of this matter is Mr Ollis came to the view that the lack of uniformity in these respects was harmful to the image and therefore the business that the Ferfolias had joined through taking up a franchise. The respondents held out the Master Coaching franchise to be a superior product conducted along business lines that would engender good financial returns under a system laid down by the franchisor. As referred to in the information handbook, the franchise was said to be well known and there was a loyal customer base established and this enabled franchisees to enjoy inherent levels of goodwill. When these representations were made to the Ferfolias not only was there a lack of uniformity in the corporate image, but there was material being prepared and used by franchisees that was not required to be scrutinised to ensure that it complied with the high standards that the franchisor held out as epitomising its business.

174 Apart from the significant matters mentioned above, the following matters are also relevant to the claim by Mrs Ferfolia and the resistance to that claimed mounted by the respondents:
· As earlier indicated, it is not abundantly clear what was the obligation of the franchisor under the franchise agreement to update the material rather than providing updates at a cost to the franchisee. The franchise agreement spoke of the franchisor supplying educational services and the fact that the franchisor carried out educational coaching in Mathematics, English and Reading, "including the preparation of materials and procedures necessary to facilitate the use of its specially developed technique". The franchisor owned all their independently developed material used in the system. In relation to franchisor obligations, the franchisor agreed to make available to the franchisee the benefit of their knowledge and experience in the conduct of educational coaching programmes and also agreed to immediately provide the franchisee with the publications and materials set out in schedule 2. Schedule 2 spoke of the obligation of the franchisor to provide copies of all mathematical and English assignments and tests "now being used by Master Coaching together with answers and marking scales for assignments". It had an obligation to provide lesson plans and special notes used by Master Coaching and provide structured material for reading courses and the necessary training to run reading programmes. It was then an obligation to provide ongoing and regular training and "support programmes". Specified materials were supplied for the reading programme in terms where the agreement does not oblige the franchisor to update the material and makes no direct provision for the entity responsible for paying for such updating of the material. In the franchise booklet it has already been noted that the franchise was held out as a ready-made business package with a proven operating format. Franchisees would not be left to guess their way through the operations and be trained to use the exclusive programmes "to ensure you are successful". In relation to "support" it was stated that the franchisee became part of the team and was included in decision making, support and "updating of programmes and materials". Reading together the representations and the agreement strongly suggests that, as part of this ready-made business, updated material would be made available to the franchisee without cost - that was the system. The evidence shows however that, apart from the Art of Tuition provided by Mr Ollis, training was largely provided by other franchisees who also sold their material for coaching English and Mathematics. If the intention was that the franchisee should pay for updated material then, as a matter of fairness, it should have been spelt out in both the booklet and the franchise agreement so that prospective franchisees could make a proper assessment of what they were purchasing and what additional costs they may incur in operating the franchise.
· Mr Ollis' evidence was that he always understood that Mrs Ferfolia was to be a teacher and Mr Ferfolia was to be the office manager. However, by letter dated 22 March 1999, Mrs Ferfolia had told Mr Ollis that her husband was keen to teach to the extent that, if required, he would obtain a Diploma of Education at the University of Newcastle. It is clear that Mr Ollis therefore must have been aware that, before the April 1999 meeting and before they signed the franchise agreement, both Mr and Mrs Ferfolia intended to teach in the franchise. When he spoke to them about potential earnings for a franchise, he had to be aware that two principals were seeking an income. As already indicated elsewhere, Mr Ollis was of the view that, in any event, 80 students would provide a comfortable income for two principals of the franchise and at one time the Ferfolias had reached this figure, clearly indicating that he understood that, as teachers, they would both seek an income from operation of the franchise.
· It would have come as no surprise to Mr Ollis that teachers who took up a franchise confessed to a poor understanding of small business management procedures, including cash flow, financial control and how to go about effective advertising especially in a global way. These concerns were expressed in the franchisees' survey in early 2000 but were the types of issues directly dealt with by the respondents' handbook where it was held out that the franchisor would provide the franchisee with training and support systems, use established performance benchmarks to allow corrective action at an early stage and to use the respondents' streamlined process thus eliminating unnecessary expenditure. Further, the respondents' process of establishment included a selection of premises, strategies for marketing, business training, upskilling requirements, financial advice, staff training and quality management and procedures. They were to be given comprehensive training in how to operate their business and would be professionally groomed to ensure that they were successful. In relation to the Ferfolias' business, the respondents fell well short of these assurances. When Mrs Ferfolia pleaded for further assistance because of the financial difficulty they were in and again sought support office presence at a shopping centre launch, she was rejected because Mr Ollis had decided that they should no longer perform that function and from his evidence it appeared that he had become too busy to be so involved. However, early in the discussions with the Ferfolias, Mr Ollis had mentioned shopping centre launches with support office assistance as a particularly good means of advertising the franchise. At the April 1999 meeting, Mr Ollis had spoken about spending a large amount of money on advertising the business thus creating public recognition and also spoke of the marketing consultant helping them with their marketing. From the time the Ferfolias became involved in the franchise there was little evidence of global marketing apart from interviews from time-to-time given in the media by Mr Ollis, often substantially directed at promoting the sale of franchises rather than the system of tuition itself. Ultimately, the Fefolias did not receive marketing assistance that they did not pay for. This was contrary to the various representations made regarding advertising and promoting the business.
· In relation to ongoing support, Mrs Ferfolia wrote to Mr Ollis on a number of occasions setting out her dire economic circumstances and asking for assistance but did not receive a reply to those requests. This response was indicative of the respondents' "support" given to the franchise.
· The respondents' handbook spoke of franchisees obtaining a 100 students or more in the first 12 months with some franchisees obtaining 200 or more students. Those figures are consistent with statements made to Mrs Ferfolia by Mrs Ollis and Mr Brennan that were otherwise denied by Mr Ollis. In this regard it is of interest that, when Mr Ollis attended the Warners Bay College, he spoke of the size of the rooms and the need to have space for large classes and noted the Ferfolias had plans for extension of the premises. In these comments, Mr Ollis was confirming to the Ferfolias that the business would generate large numbers of students that needed to be accommodated and was indicating what plans needed to be made by the Ferfolias to meet this expected expansion in student numbers. They had already been told that the money was to be made through large student classes.
· In the respondents' franchise handbook a page is devoted to Mr Hunter Calder and his prominence as an author and educator in the Phonics method of reading instruction. That part of the handbook refers to the "Reading Freedom" programme being developed "for Master Coaching" by Hunter Calder and noted that all reading teachers were qualified teachers who had received additional training from Hunter Calder. In this part of the handbook the impression is given that this reading material was exclusive to the respondents and from discussions with Mr Ollis, Mrs Ferfolia believed that to be the case. The Ferfolias later discovered that there was nothing exclusive about the material and that it had been in the public domain for some time. Mr Ollis initially appeared to reject that proposition then came to the position that the Hunter Calder material was not "fully" exclusive, whatever was meant by that phrase, and then stated that he did not make much of the exclusivity of this material. This is another example of Mr Ollis overselling the benefits of the franchise. It was of some influence, admittedly in a mix of a number of matters, in convincing the Ferfolias that they should take up the franchise but the representation was not accurate.
· In relation to the Ferfolias' business plan, Mr Ollis came to accept that it was perhaps read by Mr Brennan but that Mr Ollis probably did not read it. He did know that the business plan was to be submitted to the bank. Mrs Ferolia's evidence has been accepted to the effect that Mr Ollis spoke to her about the good quality of the business plan thereby indicating that, in fact, he had read it. Even if the business plan had only been read by Mr Brennan, the respondents' business manager, the respondents were aware from its contents that the Ferfolias had a very different view of the support to be given in advertising, the existence of global advertising and the free support services that were to be made available to them, yet no steps were taken to disabuse them of these matters.
· In oral evidence, Mr Ollis stated that the franchisees were responsible for their own advertising and not the franchisor. It was wrong for franchisees to suggest that they were responsible for global advertising but the burden of global advertising was to be borne by both the franchisor and the franchisee. This position is not spelt out in either the handbook or in the franchise agreement and represents somewhat of a reconstruction by Mr Ollis following the dissatisfaction of franchisees responding to the survey conducted in 2000 and the setting up of a co-operative to address these issues, an initiative that cost each franchise $2,500 to join. The payment of this figure by franchisees strongly suggests that there was a real concern about the level and effectiveness of advertising and an expectation that the respondents would be more active in this field than they were. Mr Ollis also gave evidence of asking the franchisees to contribute to the development of a website for the respondents. This was not a requirement of the franchise agreement but is indicative of the problems facing the franchisor and the franchisees and Mr Ollis' efforts to obtain money from the franchisees to promote the business. In his oral evidence, Mr Ollis said that he had lost over $400,000 in the past five years and had to mortgage his house because the business was not profitable. He noted that, by August 2003, 70 per cent of franchisees were behind in their royalty payments although he denied that they not paying at all, although there were some who were habitually behind in their payments.
· The franchise information booklet spoke of training as being an ongoing process and that the "initial start-up training period can be completed in two enjoyable weeks". This statement suggested that a good deal of work was needed before the franchise could commence. The franchise agreement, however, provided that training would involve three days at head office prior to opening and two days at the franchisee's centre. Mrs Ferfolia's evidence has been accepted that even this truncated period of training was not fully supplied by the respondents.

175 The foregoing analysis deals with the evidence and competing contentions of the parties but, in addition, the respondents raised numerous contentions arising from the evidence that were contained in a lengthy written submission in reply. That written submission has been fully considered by the Court but the substance of much of it has already been addressed. There are, however, a number of matters raised by the respondents that should be specifically dealt with.

176 While the respondents generally argued that, even if the Court accepted some of the alleged matters of fact and law, nevertheless, there was no unfairness warranting intervention by the Court. In light of the findings already referred to, that proposition is not accepted. Of particular significance in the respondents' case was the claim that relief to the applicants should be denied on the basis of the application of the "clean hands" principle. The respondents allege that the applicants engaged in misrepresentations to them at the time that the respondents were considering their appropriateness as franchisees and then acted in an unconscionable manner during the latter part of their franchise agreement. In making this submission the respondents relied upon the following matters:
· the applicants failed to provide the respondents with full and forthright disclosure of their health and financial difficulties and both matters were ultimately significant factors impeding their ability to make the franchise a success. The essence of this complaint is that the applicants withheld material information and effectively oversold themselves to the respondents such that the respondents could not make an adequate assessment of their suitability for a franchise;
· the applicants ceased making franchise fee payments in approximately September 2002 and from early 2003 continued trading under the name "Top Tuition" despite the fact that, at that time, they had not taken any steps to terminate the franchise agreement. Throughout this time and until they ceased business in 2007, the applicants utilised the respondents' educational and coaching materials and they had failed to put forward any evidence other than their assertions that they in fact created 200 folders of their own resource materials;
· there were assertions in the pleadings and affidavits that were, at best, "gross exaggerations" or, at worst, "intentional untruths". The applicants were urgently pressing for their acceptance as franchisees but sought to use that circumstance as a basis for attacking the respondents. By adopting that approach they had sought to avoid any responsibility for lack of success of the franchise and it was noted that Mrs Ferfolia steadfastly refused to acknowledge any element of the applicants' conduct contributed to the lack of success of the business, showing her evidence to be lacking objectivity and reliability.

177 In Westpath Services Pty Ltd v Joseph [2007] NSWIRComm 211; [2007] 166 IR 135, a Full Bench of the Court gave consideration to the extent to which the equitable principle of "clean hands" was appropriate to be applied in proceedings brought under s 106 of the Act. In dealing with this issue the Full Bench of the Court, at 156, stated:

61. The next group of appeal points raised Mr Joseph's lack of "clean hands" and the alleged error in finding that there was collective misconduct on the part of the appellants. The essence of the appellants' argument was that, by his misconduct, Mr Joseph had excluded himself from any discretionary relief that might be available in his s 106 proceedings. The appellants further submitted that the necessity for "clean hands" had received little attention and that the application of the maxim in s 106 proceedings warranted the laying down of relevant principles by the Full Court. The suggested lack of relevant authority in this Court ignored the recent Full Bench judgment in Subway Developments of NSW/ACT v Costin [2007] NSWIRComm 95. In that case, the Full Bench noted that the primary challenge in the appeal before it turned essentially upon an issue of principle being the equitable principle described as the "clean hands" principle which had not in substance been raised at first instance. In dealing with this matter, the Full Bench stated at [4]:

Further, there must be real doubt about the application of the principle simpliciter in the exercise of the Court's discretion under s 106 in any event: cf Howitt v Retec Limited (No 2) (1995) 60 IR 93. There is no warrant for the erection of such a formula in substitution for the proper exercise of the discretion residing in the Court under s 106(5). There may be factors which may disentitle an applicant to discretionary relief, but these are factors which will arise in the circumstances of the particular case. We note in passing that the principle seems to have been in any event overstated in argument in this matter: see, for example, FAI Insurances Ltd v Pioneer Concrete Services Ltd (1987) 15 NSWLR 553 at 561.

62 In Howitt v Retec Ltd, Marks J expressed the opinion that the equitable doctrine of laches did not form part of the substantive law to be considered in dealing with claims brought under what was then s 275 of the Industrial Relations Act 1991. In reaching that conclusion, his Honour noted the statutory nature of the cause of action and contrasted it with relief available at common law and in equity and the particular rules surrounding those remedies.

63 The headnote in FAI Insurances Ltd v Pioneer Concrete Services (1987) 15 NSWLR 553 at 561 states that, where a person has a right enforceable in equity:

(a) in balancing any equities 'general naughtiness', outside the traditional equitable defences, is not a defence..

...

(c) the discretionary defence of want of clean hands is available only where the right is one which, if protected, would mean the plaintiff was taking advantage of his own wrong.

64 In dealing with these issues in FAI Insurance v Pioneer Concrete, Young J referred to a number of authorities and the commentary in Snell, Principles of Equity 28th ed (1982). At page 561, his Honour then stated:

Although Snell, op cit, says that American authorities have not always appreciated the limitations of the clean hands doctrine and this is borne out by Professor Chafee's article, modern American authority appears to say exactly the same as the authorities in England and Australia. In Republic Molding Corporation v BW Photo Utilities [1963] USCA9 248; 319 F (2d) 347 (1963), the United States Court of Appeals 9th Circuit said (at 349):

... misconduct in the abstract, unrelated to the claim to which it is asserted as a defence, does not constitute unclean hands. The concept invoking the denial of relief is not intended to serve as punishment for extraneous transgressions, but instead is based upon 'considerations that make for the advancement of right and justice'. Keystone Driller Co v General Excavator Co [1933] USSC 154; (1933) 290 US 240, 245.

What is material is not that the plaintiff's hands are dirty, but that he dirtied them in acquiring the right he now asserts, or that the manner of dirtying renders inequitable the assertion of such rights against the defendant. As Professor Chafee suggests (page 1072) we should not by this doctrine create a rule comparable to that by which a careless motorist would be 'able to defend the subsequent personal injury suit by proving that the pedestrian had beaten his wife before leaving his home'.

...

I have gone through such a lengthy history and examination of the rule because, it seems to me, with great respect, that the submissions of the defendants are too shallow, but yet have the temptation to induce a judge (who has, after all, some characteristics common with jurors), by appeal to the emotions, to think that these matters should be left to the trial to be ventilated. However, the more one examines the rule in its application in the cases, the more one can see that it is only if the right being sought to be vindicated by the plaintiff in a court of equity, is one which if protected, would mean the plaintiff was taking advantage of his own wrong, that the court will either debar him from relief or perhaps say he is not a proper plaintiff in a representative suit.

...

71 The point in Howitt v Retec is well taken. It is contrary to the statutory scheme relating to unfair contracts to subject them to the full force of the equity principle of "clean hands". As FAI Insurances v Pioneer Concrete Services makes clear, the principle operates within a narrow sphere and does not result in any wrongful conduct (especially if not connected to the relief claimed) becoming a bar to the granting of orders if unfairness is otherwise established. The statement of the Full Bench in Subway v Costin (made tentatively because it was not fully argued) is now to be regarded as an authoritative statement of the law in relation to s 106 applications. There is no warrant for the elevation of the clean hands principles as a substitute for the proper exercise of the discretion residing in the Court under s 106(5): while there may be factors which may disentitle an applicant to discretionary relief, these are factors which will arise in the circumstances of the particular case.

178 Neither party made reference to the Court's discussion in Westpath and so no attempt has been made to bring the respondents submissions into line with the Court's decision. Nevertheless, the submission can be approached on the basis that the respondents contend that either the Ferfolias were taking advantage of their own wrong or that the matters identified raised discretionary considerations that would tend against the granting of the relief sought. No matter how the respondents put this argument, the matters raised are not of such a nature to warrant withholding any relief that might otherwise be available to the applicants. In this argument it is of some significance that the respondents made no requirement as to particular disclosures that should be made by persons seeking to take up a franchise. In any event, the applicants did disclose the details of their financial commitments and kept the respondents fully informed of their borrowings and the steps they were taking by selling shares and other assets in order to maintain the franchise operation. Mr Ollis and his business manager understood the extent of the assets of the applicants when they met in April 1999 and they were also aware that they were selling their Bathurst home and purchasing both a home and a place to conduct the franchise at Warners Bay. The respondents were aware that Mr Ferfolia was leaving a job package of $72,000 to work in the franchise. The evidence does not establish a basis for finding that the Ferfolias either, innocently or deliberately, misled the respondents as to their financial status nor is there any evidentiary basis analysing how the so-called total picture of their assets would have led the respondents to reject the applicants as franchisees. Further, it is to be remembered that, in the franchise information booklet, the respondents stated that financial capacity was not the most important factor in selecting franchisees - it was more important to consider educational background, the ability to communicate effectively and possessing a "can do" attitude. While it may be accepted that the applicants had become anxious to ensure that they were able to obtain a franchise, this state of mind was at least brought about by the representations and pressures made and applied by the respondents. In addition, the April meeting was hardly an assessment of the Ferfolias as spoken of in the franchise handbook - the meeting commenced on the assumption of the Ferfolias taking up the Warner's Bay franchise.

179 In relation to the allegation that there was a failure by the applicants to fully and forthrightly disclose their health difficulties, there is no evidentiary basis that their state of health at the time they entered the franchise was such that they could not have effectively operated the business, a business that was in any event an out of ordinary school hours tutoring business. Importantly, there is simply no evidentiary basis for concluding that the business substantially failed because of the ill-health of the applicants or that they were in that state of ill-health at the time of buying into the franchise.

180 Having regard to what was said by the Full Bench of the Court in Westpath, the inability to make franchise payments from September 2002 and the continuation of a tuition business under another name are not matters that should cause the Court to exercise its discretion not to grant relief to the applicants. The same may be said about the alleged gross exaggerations or intentional untruths said to run throughout the Ferfolias' evidence. The Court does not accept that there was any intentional untruth in that evidence. Nor is there any substance in the respondents' much repeated submission that the applicants failed to prove that they produced another 200 folders of tuition material as a result of the inadequacy of the material provided by the respondents. It matters little whether the number "200" was an estimate or an approximation and there was no attempt to quantify what constituted a "folder", but the Court accepts that the applicants did produce extensive material from their own resources in order to continue the franchise business. Ultimately, the application of the "clean hands" principle as understood following the judgment of the Full Bench of the Court in Westpath does not result in the Court's discretion being withheld from the applicants and the orders they seek in these proceedings.

181 The respondents raised the issue of Mr Ferfolia's status as an applicant. Mr Ferfolia passed away after the proceedings were instituted but the respondents took no steps by way of notice of motion to deal with that situation and on the first day of the substantive hearing, objected to the removal of Mr Ferfolia as an applicant. It seems that the primary concern of the respondents was that removal was a premature step and in the event that the application failed in whole or in part, there may be cost issues arising in relation to Mr Ferfolia's initial participation in the proceedings. Counsel for Mrs Ferfolia made it clear at the beginning of the substantive proceedings that, while she had no difficulties in continuing the proceedings, she could not do so in the name of her husband as she was not the executor of the estate. Thereafter, Mrs Ferfolia continued the case on her own behalf. In final addresses counsel for the respondents accepted that the real issue was the question of costs and that the most appropriate course would be to leave Mr Ferfolia as an applicant although he took no part in the proceedings and thus allow any issue of costs regarding Mr Ferfolia to be dealt with after judgment was delivered in the substantive application now pursued by Mrs Ferfolia. That appears to be an appropriate course and Mr Ferfolia's status can be determined when the Court comes to make final orders.

182 The respondents point to the fact that the franchise did ultimately enrol significant numbers of students, reaching 100 students in the first 12 months and ultimately obtaining at least 153 students. However, the issue raised by the Ferfolias was not limited to reaching, at a single point in time, a magic figure of 100 or 200 students or an even higher figure but it was reaching these figures and maintaining the students so that the franchise was profitable. The Court accepts the applicant's evidence as to the number of students obtained and the fact that the franchise was not able to make a profit for most of its operation under the respondents' banner. The evidence shows that the Ferfolias were not able to generate the interest that would sustain the cosy lifestyle held out by the respondents in both their oral and written representations. This is not a case where it can be concluded that the Ferfolias only wanted a business that was a guaranteed success and if not successful, were looking for someone to bail them out. The evidence shows that the Ferfolias were diligent in their business and in constant contact with the respondents about their failure to produce the number of students required to make the type of living that had been held out to them. Indeed, Mr Ollis had praised their efforts and operation of the franchise. He had also told Mrs Ferfolia that the business was "no risk at all" when she enquired whether it was capable of sustaining the two of them in circumstances where Mr Ferfolia would leave his $72,000 p.a. position in Bathurst.

183 The Court accepts the respondents' submission that effectively nothing turns upon the issue of the availability of the Bathurst franchise and it appears to be mentioned in the Ferfolias' evidence as an indication of positive representations made by the respondents. Ultimately, no money order is directly sought as a result of any representations made about the Bathurst franchise.

184 Nor does anything turn upon the evidence that some of the franchise holders were given a commission for introducing or helping convince prospective buyers to enter the franchise. The evidence did not establish that, to the extent there was such a commission process, there was any arrangement whereby a prospective buyer such as the Ferfolias would be deliberately misled about the success of the franchise business.

185 In relation to issues of credit the respondents rely on documents, including affidavits and statements made by Mr Ferfolia for other purposes in other jurisdictions, and also rely on some correspondence from Mrs Ferfolia. These documents make it clear that the Ferfolias understood that there was a period during which any new business would be a strain on finances and it might take some time to firmly establish the business. There were also references to various aspects of the Ferfolias' health. Amongst other things it was submitted that these documents showed that the Ferfolias were buying themselves a job because they were unable or incapable of working otherwise. As earlier indicated, those documents do not establish those facts as the reason why the business failed. In addition, it is a curious attack that the Ferfolias were "buying themselves a job" as that is essentially a description applicable to the purchase of a franchise. In light of the earlier analysis of the affidavit evidence of Mrs Ferfolia and Mr Ollis, none of these matters establish an overall basis to call into question the evidence of Mrs Ferfolia and the findings of unfairness already made. In part, this evidence shows that the Ferfolias were realistic about what to expect from a franchise and the hard work needed to make it a financial success: the respondents, however, argued that they rushed into the business, were not suitable and wanted the respondents to pay for their failure. These conclusions are not available on the evidence.

186 The "bona fides" of the respondents are said to be established by the fact that they loaned the Ferfolias money in order to secure the franchise. While that fact has a tendency to show the bona fides of the respondents, it is also a two-edged sword. The evidence shows that Mr Ollis was speaking to the Ferfolias about taking up a franchise at a number of possible locations apart from Bathurst where he thought he already had a commitment. Mr Ollis had clearly formed the view that the Ferfolias were an impressive couple who would make ideal franchise holders. Rather than providing the business and financial advice that was generally held out in the respondents' documents, Mr Ollis stepped forward with a loan facility when the Ferfolias were on the point of pulling out of the purchase because Mr Ferfolia's mother declined to loan them money or act as guarantor. Mr Ollis knew that the Ferfolias would not purchase the franchise for $110,000 but chose to lend them the money to enable them to purchase the franchise when it was apparent they were in a tight financial position. By lending them the money, he secured interest on his investment and secured a franchise purchase price as well as ongoing franchise fees while keeping alive the Bathurst prospect. Having favourably assessed the Ferfolias at an early stage, it was in his interests and the interests of the respondents generally to bring them into the business. The loans provided by Mr Ollis do not have the force argued for by the respondents in their case.

187 The respondents also rely on the fact that the Ferfolias, especially Mrs Ferfolia, carefully checked the franchise agreement, made notes about its contents and suggested changes and specifically acknowledged that she entered the agreement without relying on the representations made by the respondents. One of the attractions for the respondents to have the Ferfolias as franchisees was that their background indicated they were experienced in a number of ways relevant to the business and were a articulate and presentable couple. The Court accepts that the Ferfolias were careful in making enquiries about the business and in the terms of the franchise agreement but it is quite clear that, despite their background, one of the major attractions of entering this franchise were the variety of representations made about the success of the system, the number of students it would attract and the fact that the business could be operated with the ongoing assistance of the franchisor who would supply the necessary materials and give advice as to the running of the business and the financial aspects of the business. These were very persuasive representations and the respondents are not able to escape the consequences of those representations. Section 106 and its predecessors have never operated so that articulate and well-informed people will automatically be denied a remedy, although it has always been accepted that the mere failure of the business does not mean that there has been unfairness in the terms of the contract or the conduct of the contract. This is not such a case.

188 Part of the concerted attack on Mrs Ferfolia's credit mentioned was the submission that Mrs Ferfolia knew that her husband had been retrenched and had not resigned from his job in order to take up the respondents' franchise. This particular aspect of the respondents' case is said to be supported by statements made by Mr Ferfolia for the purposes of other matters and proceedings. It is noted that Mrs Ferfolia asserted that she maintained that her husband resigned to take up the franchise. From this statement it is submitted that, in light of what was described as Mr Ferfolia's admissions in other documents, this position seriously undermined her creditability. There is some confusion in the evidence about this matter and it may well have been clarified if Mr Ferfolia had lived and had been able to give evidence in the proceedings. There is no evidence that Mrs Ferolia knew of these other statements made by Mr Ferfolia or that she believed them to be correct - her evidence was that she maintained that he had left his employment to take up the franchise. The respondents appear to have made the assumption that she knew and agreed with Mr Ferfolia's description of how his employment was terminated and thus brought her credit under suspicion. The Court is unable to come to that conclusion on the material available but even if established, such a conclusion would not operate to reverse the general findings of unfairness.

189 The Court accepts the respondents' submissions that there was a lack of acceptable evidence regarding the alleged failure of the materials supplied by the respondents to comply with the relevant curricula at the time. As earlier indicated there are, however, other aspects of the evidence that support a finding that the materials supplied by the respondents were inadequate.

190 On behalf of the respondents, an analysis of the student numbers were conducted in an effort to persuade the Court that the student numbers were probably higher than Mrs Ferfolia indicated in her evidence and were high enough to sustain a comfortable living. Despite Mr Ollis' contention that he did not know that both the Ferfolias would work, or work as teachers in the business, in oral evidence he stated that 80 students was a good result and would provide a good income for two principals of a franchise. On several earlier occasions it has been noted that the Ferfolias consistently made a loss except for the last year of operation under the respondents where a very small profit was returned. Curiously, the respondents' case appeared to be that the Ferfolias had fraudulently claimed losses when in fact they were making comfortable profits and it therefore followed that they fraudulently brought these proceedings apparently in an effort to obtain even further financial gain but this time at the expense of the respondents. It is difficult to reconcile this submission with the numerous pieces of correspondence and conversations passing between Mrs Ferfolia and the respondents, particularly with Mr Ollis, expressing their concern as to the state of the business and their inability to make an income, the further loans entered and disposal of assets and the inability to free themselves from debt. There is no acceptable basis established in the evidence to support these very serious allegations.

191 For all of the foregoing reasons, the contract comprised by the franchise agreement was unfair in the misrepresentations referred to above made prior to entering the contract, the representations that continued to be made during the course of the operation of the franchise and the contract itself was unfair in the ways outlined above and how it operated in practice. Having found that there was unfairness, as that term is used in s 106 of the Act, the issue then becomes what further orders may be properly made for the payment of money in connection with this contract and whether the contract should be voided or varied.

WHAT ARE THE APPROPRIATE ORDERS?
192 Having regard to the nature of the unfairness and the fact that the franchise agreement has come to an end, the most practical course to adopt in this case is to declare the contract void ab initio except to the extent that there were returns made by the applicants in the operation of their franchise business. In light of this approach, it is not necessary to separately deal with the attack on the restrictions imposed on the Ferfolias in regard to future trading as a coaching college after termination of the franchise agreement with the respondents.

193 In relation to money orders, the applicant seeks a variety of payments substantially directed to placing her in the same or no worse a position as she was in immediately before entering the franchise agreement. There is some difficulty with this approach in the present case because the Ferfolias moved from Bathurst to Warners Bay and actually purchased property from which the franchise was to operate and there were costs associated with those expenditures. Although in the evidence it was clear that Mrs Ferfolia ultimately sold the business property as a domestic residence, for the most part the applicant has not sought to seek relief in relation to those matters. The first order sought by the applicants is the repayment of the $57,500 purchase price for the franchise. The Amended Summons for Order divided this amount into goodwill and materials supplied but there was inadequate evidence about that matter. In the circumstances it is appropriate that, in light of the nature of the unfairness and the fundamental flaws in the arrangements for providing materials and operating a franchise, the respondents repay the purchase price of $57,500.
194 The applicant then seeks the repayment of monies paid under the franchise between 19 September 1999 to 19 September 2002 amounting to $600 per month and totalling approximately $21,600. These are the franchise fees paid to the respondents and in view of the approach taken to the purchase price, it is also appropriate that these fees be repaid to the applicants, especially having regard to the lack of support actually provided to the Ferfolias.

195 An order for the payment of $13,282 is sought by the applicants relating to monies expended between 1999 and 2003 to provide assignments, lesson plans, coaching and resource material that should have been provided by the first respondent under the contract. While there is evidence to support this class of order, it is quite impossible to determine how much of that sum is directly attributable to the respondents' failure to provide appropriate materials for the purposes of providing the structured coaching that was the hallmark of Master Coaching and how much may be properly attributed to material that the Ferfolias simply wished to use in their college. Similar comments may be made about the sum of $3,647 paid by the applicants to staff to prepare and write resource material that should have been supplied by the first respondent. In the circumstances, it is not appropriate to make those orders sought by the applicant. However, it is clear that the Ferfolias paid $1,999 for English notes prepared by the Parramatta franchise where the respondents' notes were inadequate. The first respondent should have been obliged to keep these notes up-to-date. In fairness, there should be an order reimbursing this payment of $1,999.

196 By way of order, $70,049 is sought relating to the sum spent by the Ferfolias to advertise the franchise business being a necessary payment because of the failure of the first respondent to provide material and advertising copy. The difficulty with this order is that the franchise agreement made it clear that advertising was to be the responsibility of the franchisee although there were other documents such as the information handbook that indicated that franchisees would be free from concerns about advertising because of the services provided by the franchisor. Even if the franchisor had provided more by way of advertising material assistance, the advertising of the franchises was nevertheless the responsibility of the franchisee. Inevitably the Ferfolias would, therefore, have been required to expend money on advertising, even if they had received first class material from the respondent to assist them in their advertising and marketing campaign. Again, the sum claimed is global and does not provide a breakdown of advertising expenses that would allow an assessment to be made of those matters which should have been provided by the respondents but which ultimately the applicants provided at their own expense. The Court, in those circumstances, is unable to make any order in relation to this part of the claim.

197 From these amounts the sum of $6,800 should be deducted, representing the unpaid residue of the loan made to the Ferfolias by Mr Ollis. In final addresses, counsel for Mrs Ferfolia accepted that, in fairness, such a deduction should be made from moneys otherwise ordered to be paid to her. In the circumstances of this case, no amount representing interest on that loan should be deducted.

198 Absent any issues the parties may seek to raise in relation to costs, including the situation of Mr Ferfolia as an applicant, (which may be dealt with by notifying my Associate within seven days) the applicant should have an order of costs made in her favour and the respondents should pay interest in accordance with the usual provisions. The applicant should prepare short minutes within seven days reflecting the orders proposed by the Court and discuss the contents with the respondents. Any issue arising from the proposed orders shall be dealt with by the Court at a mutually convenient time.

LAST UPDATED:
24 February 2009