As regards the balance of the amount of $3,000, namely, the sum of $500 which the learned Judge arrived at as a "fair result" for the period of work in excess of 110 hours performed under the contracts by the respondents Witek, after taking into account the problematical value of the ornaments manufactured by them in that period and left on their hands, I think that the same considerations must apply to it. The contracts provided that the purchasers of the business would provide a manufacturing service for Starr; and the Agent must be taken to be aware that, having parted with their money, their time and energies would be devoted to performing their obligations under the worthless contracts.
(emphasis added)
44 The application of the relevant principles as formulated by the authorities to which we have referred has been often given effect in unfair contract cases. Two such cases were relied upon by the appellant here, namely, Grace v Baker [1972] AR (NSW) 433 and Monahan v Gibbons [1981] AR (NSW) 85. In Grace v Baker (at p 439), Cahill J held that a monetary order could be made against an agent in a sum greater than that received by the agent: see also Mestrom v Alison Clint Floral Delivery Pty Ltd (No 2) [1971] AR (NSW) 216. In considering the particular circumstances of the case in assessing the amount for which the agent should be held liable, Cahill J, significantly we think, added ([1972] AR at p 440) that :
… the company is blameworthy to some extent because of the exaggerated or untrue representations made by its employee Powell to Grace concerning Baker's reputation and reliability; concerning the sense of satisfaction felt by other purchasers of similar contracts with Baker which the company had negotiated; and about the availability of adequate supplies of doorframes. In my judgment, although these representations were a factor in Grace's decision to enter into and continue with his contract, they were not a decisive one. If I had considered otherwise, I would have been very much inclined to make an order against the company for the full amount claimed, namely $3,500. As it is, the case is a borderline one, and, although my mind has fluctuated, I propose to order the company to pay to Grace an amount of $1,000, the amount of commission received by it. I consider that that order is fully justified.
45 Even though his Honour limited the payment to the amount of the agent's commission, a point relied upon by the appellant here, it is plain that that was done because, as his Honour said, "although these representations were a factor in Grace's decision to enter into and continue with his contract, they were not a decisive one"; his Honour pointedly added that if he had thought otherwise then he would have ordered payment of "the full amount claimed" being the total purchase price of the business concerned.
46 Monahan v Gibbons was another case involving an agent, although decided in its own particular circumstances where the then aggrieved applicants joined the agent as one of the respondents but sought no relief against it. Nevertheless, Bauer J commented ([1981] AR at p 94) that "Substantial authority exists for making orders against business agents both as to the amount of the commission paid but also as to the repayment of purchase price and reimbursement for other losses" by reference to Mestrom v Alison Clint Floral Delivery, Grace v Baker, Brown v Rezitis and Ashfield Brokers and Consultants; re Witek . As to the responsibilities of a business agent, his Honour said ([1981] AR at p 93) that "a business agent does bear a responsibility in a situation such as this to carefully determine the nature of the business being sold and to represent the business accurately to any prospective purchasers". In the result, his Honour made an order against the principals for the full losses but with provision for recovery by them from the agent of the amount of commission received by it.
47 Our review of the authorities results in the conclusion, as to which we are in no doubt, that the proper approach and applicable principles are as laid down, particularly by Barwick CJ and Menzies J, in Brown v Rezitis . Those aspects were extensively considered by the Court of Appeal in Ashfield Brokers and Consultants; re Witek and were summarised therein by Asprey JA with Sugerman P (with whom Holmes JA agreed) to a similar effect. We respectfully agree with the relevant principles as formulated in the four propositions stated by Asprey JA (at pp 5-6); those propositions have been cited earlier by us with emphasis and there is nothing we can usefully add to them. Suffice it to say that each case will depend on its own facts as illustrated by the extracts we have quoted from TNT Management v White , Grace v Baker and Monahan v Gibbons. However, and in a very real sense, it seems to us that the Industrial Commission in Court Session in TNT Management v White encapsulated the relevant test (7 IR at p 335) as being whether the monetary order could "reasonably be thought to have a real connection with the making, variation or avoidance of the contract or arrangement which has been varied or avoided".
48 In the present case, the appellants' senior counsel made much of the fact that her Honour's finding of "recklessness" against the appellants was insufficient for the order made and that it was only open to do so if their conduct amounted to "reckless indifference". This argument seemed to flow from the reference in Brown v Rezitis by Barwick CJ (127 CLR at p 168) and in Ashfield Brokers and Consultants; re Witek by Sugerman P (at p 3) for the person concerned to be in some way "culpably associated" with the making or operation of the contract or arrangement. We would not so describe or limit the necessary association of a person with an impugned transaction which has more the connotation of the criminal law or as at the level of fraud; in context, we think that comment by Barwick CJ and by Sugerman P was but an exemplar of what relevant conduct could be to justify an order. In any event, to be "culpable" means to be "blameworthy". If an agent in dealings with a principal's customer was blameworthy in some respect, such as here by making unsupported representations the truth of which was not ascertained thereby inducing that person to make a contract found to be unfair, then, we would have thought, the necessary connection or association with the contract had been established. Indeed, in dealing with the true measure of the extent of the restitution which an agent may be required to make, Asprey JA in Ashfield Brokers and Consultants; re Witek (at p 7) expressed it in terms as being "the nature and the degree or depth of his association with the acts which brought the innocent party into the transaction subsequently invalidated". We respectfully agree.
49 Here, as we have earlier intimated, the relevant findings made by Schmidt J were reasonably open on the evidence and were not significantly challenged. The objection put by the appellants was that they were insufficient to meet the test. We think they did. If "reckless" means, as we think it does, "lacking caution, regardless of consequences, rash" then the conduct of the appellants as found by her Honour, in our view, certainly falls into that category.
50 Although it is true that the representations made by the agent appellants were aided by representations made by the franchisor, Local Home Services, and its sales manager, Mr Godfrey, it is difficult in viewing the negotiation process which eventually led the respondents to make the franchise agreement to conclude other than that the appellants had as real and as close a connection with the loss incurred by the respondents as that of the franchisor. In other words, in our view, the appellants on the facts found had as direct a connection with the respondents making the contract as did the franchisor by them merely relying upon what the franchisor had set out in the disclosure document and, without more, representing that to the respondents as the prospective franchisee. The failure to observe the admitted appropriate standard of behaviour under the Code of Ethics of the Australian Institute of Business Brokers surely, it must be the case, involved sufficient reckless or blameworthy conduct on the appellants' part to connect them with the contract found to be unfair.
51 The fact Schmidt J gave attention to the test of sufficient connection with the actual making of the impugned contract was evident from her Honour's reasoning in distinguishing the losses incurred by the respondents in their earnings make-up claim as to the operation of the franchise from the loss of the franchise fee itself. On the basis that the respondents had difficulty in converting leads into customers, likely lack of effort by them and discrepancies in their evidence as to the hours worked in the business, it was well open, as her Honour concluded, for no monetary order to be made against the appellants as to the earnings make-up claim referable to the operation of the franchise. We see no reason to disturb such finding which, in any case, the respondents did not challenge.
52 We are satisfied in the circumstances of this case on the undisputed facts or those as found by Schmidt J that the discretion exercised by her Honour did not miscarry and was not in conflict with the relevant principles. No appellable error has been disclosed nor would we ourselves have decided other than her Honour did.
53 Although leave to appeal is granted, the appeal must be dismissed with the appellants to pay the respondents' costs. We so order.
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