Australian Competition & Consumer Commission v Simply No‑Knead

Australian Competition & Consumer Commission v Simply No‑Knead - [2000] FCA 1365 - FCA 2000 case summary — Zoe

[68]

13 The Commission identified three occasions on which it alleged SNK refused to deliver products to one or more of the franchisees. The first occasion involved the Heidelberg, McKinnon and Ferntree Gully franchises. Between 21 July and early August 1998 the franchisees received, in addition to their orders, 1,000 "Product Range" brochures and a box containing 900 2kg bags of "Verona" flour. The brochures had already been the subject of some dispute between the franchisees and SNK. By memo dated 6 July 1998 SNK had advised the franchisees they would soon be sent 1,000 product information leaflets to be handed out to customers, for which they would have to pay. SNK also planned to hold a competition involving all franchises, and obtain advertising on the 3MP radio station. The franchisees were unhappy with the lack of consultation about the marketing plan as a whole and the cost of the brochures. On 10 July the Ferntree Gully, Park Orchards, Canterbury and McKinnon franchisees faxed a letter to Bates advising that they did not agree to pay for the brochures, the competition or the advertising. When the brochures arrived, they did not contain the name, address or contact number of any of the franchises (see par 23), and there were a number of spelling mistakes. The boxes of 900 bags of Verona flour were a new product. SNK had agreed that franchisees could order half boxes of flour for a slight surcharge. This was important to the franchisees because it might take several years to sell a full box of 900 bags. The Heidelberg, McKinnon and Ferntree Gully franchisees were billed for the flour and the brochures on 27 July. All refused to pay for the brochures, and were only willing to pay for half a box of the "Verona" flour. Each sent off with their weekly orders a cheque for the amount in the invoice, less the cost of the brochures and half the amount for the flour. On 4 and 5 August the franchisees were informed by the SNK delivery driver or by fax that their orders would not be delivered until the invoices were paid in full. They were also told by the driver that he would not accept the half box or the brochures for return to SNK. A few days later the franchisees were informed they could return half the "Verona" flour and the brochures at their own cost, but they would be held to be in breach of the relevant franchise agreement. 14 The second occasion involved refusal to deliver franchised goods to the Heidelberg franchise between 21 September and 11 October 1998. This followed a memo from Bates faxed on 21 September requiring the franchisees to return a diary given to them at the beginning of the year. The diary was used to note the times of the classes that were held and the names of those who attended the classes. The diary contained an insert saying it was to be returned to SNK in January 1999. The Heidelberg franchisees refused to return the diary, because they believed SNK would use the contact details in it to send similar letters to those that had been sent to the customers of the Park Orchards and Ferntree Gully franchises in early September. In those letters SNK claimed the franchises were not being properly conducted. It alleged the franchisees had not correctly packaged products and had failed to pass on to their customers recipes and products that would have been of interest to them. The delivery driver arrived later on 21 September with the franchisees' order, but upon being informed of their refusal to return the diary he drove away without leaving the order. On 28 September Bates faxed a memo to the Heidelberg franchisees entitled "Diary ‑ return of". It stated: "Can you confirm we will be receiving our diary today. Please confirm this before your delivery can be made, today." That day the franchisees' solicitors wrote to SNK asking why the diary was needed. Bates' response, by fax on 5 October, was "Will we be receiving our diary today. Send confirmation." The goods were delivered on 12 October 1998. 15 The third occasion was SNK's refusal to deliver ordered goods to the McKinnon franchise between 2 November and 14 November 1998. The McKinnon franchisees placed their order early on 2 November, because the next day was a public holiday. They did so on the understanding that the goods would be delivered later the same day. No delivery was received that day, or on 3 November (which was the public holiday) or on 4 November. Upon calling SNK, the franchisees were directed to arrange to collect the delivery personally, or to wait until 5 November. When the delivery truck did arrive, on the afternoon of 5 November, the driver informed the franchisees that no delivery would take place until they had signed a form requiring them to provide an exact stock figure by 10 November, in order to assist SNK with its stock flow. The franchisees declined to sign the form immediately, and the goods were not delivered. 16 By letter dated 7 November Bates informed the McKinnon franchisees they would be charged for the delivery of the goods despite their "refusal to accept the order". He demanded that the franchisees "decide in which direction you are going" before placing their next flour order. The franchisees did not respond to the demand, but placed their order on 9 November. Bates responded the same day: "As stated in the fax received by yourselves on Saturday, no orders will be placed until a decision has been made". At 3:10pm on 10 November the franchisees received a fax from Ken Bates, requiring an indication of the franchisees' intentions by 3:15pm that day, after which delivery could not be guaranteed for the next day. The franchisors responded on 12 November that they "would have thought that our intention to complete as much of our contract as possible was obvious" because "we remain in operation despite your continuing harassment". Bates replied the next day that "As Franchisor, we have the right to access any information required from a Franchise and at any time. You must comply with these requests at all times". He again demanded to be informed of the direction the franchisees intended to follow, despite the previous day's letter. The franchisees ceased trading as SNK McKinnon on 14 November.

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UNCONSCIONABLE CONDUCT? Refusal to deliver franchised products 39 The first occasion on which SNK refused to deliver franchised products was precipitated by the brochures/flour incident. The brochures were of no commercial advantage to the franchisees. They did not mention the franchises, their locations or their contact numbers. Only SNK's details appeared. The franchisees had not been consulted about the content of the brochures. Despite all this they were being asked to pay for them. The brochures were sent to them notwithstanding that they had informed SNK they did not agree to pay for them. The boxes of 900 bags of Verona flour were delivered despite an arrangement that only half boxes would be delivered. The franchisees' conduct in paying for half the flour and refusing to pay for the brochures was reasonable in the circumstances. The refusal to deliver the franchisees' weekly orders on 4 and 5 August unless the invoices were paid in full (ie the cost of the brochures and the full box of flour) was the exertion of pressure on, and the use of unfair tactics against, the franchisees within factor (d) in s 51AC(3). 40 The refusal to supply the Heidelberg franchise over the diary incident was designed to put pressure on the franchisees to hand over the diary. Bates' memo of 28 September was clear ‑ return the diary or delivery would not be made. SNK had no entitlement to the diary until January 1999. It contained, amongst other things, the names of those who attended the franchisees' classes. The proper inference to draw is that the franchisees' fear as to why SNK wanted the diary was well‑founded. SNK's solicitors did not respond to a reasonable request by the franchisees as to why SNK needed the diary. The intimidating and belligerent memos and letters from Bates compounded the economic threats and pressure inherent in the refusal of the supply of goods known by SNK to be essential to the operation of the franchise. The refusal to supply was the exertion of pressure on, and the use of unfair tactics against, the franchisees within factor (d) in s 51AC(3). 41 The refusal of supply to the McKinnon franchise followed the same pattern. Unless the franchisees signed the form, delivery of the goods sitting in the truck outside the premises would not be made. Salt was rubbed into the wound by the baseless assertion that the franchisees had refused to accept the goods. This was SNK's justification for charging them for the goods. Then the franchisees were harassed about disclosing their intention as to extension of the franchise as the price of receiving a delivery in November. Again the refusal to supply was made in order to put pressure on the franchisees to do what SNK wanted done, but had no entitlement to have done. It was the exertion of pressure on, and the use of unfair tactics against, the franchisees within factor (d).

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Failure to negotiate 43 Bates' memo of 13 July in response to a request for a meeting to discuss matters arising out of his earlier memo about the brochures was unacceptably provocative. The franchisees' request was reasonable. They had not been consulted about the content of the brochures for which they had been told they had to pay. Bates refused to acknowledge the request until it was put in a formal manner on SNK letterhead. And, unlike most of his communications with the franchisees, they were not allowed to communicate their requests to him by fax. Further, Bates refused to hold a joint meeting of the franchisees, who had made a joint request. The meetings had to be one on one. They could only deal with advertising and the future promotion of SNK and its products. He promised to provide some dates, but never did so, and no meetings took place. The claim in SNK's solicitors' letter of 26 August that SNK had "become frustrated in its attempts to include the franchisees in the decision making process" was baseless. Every indicator is to the contrary ‑ refusal to consult, unilateral imposition of conditions, refusal of supply, intimidation, intransigence and lack of good faith. Having regard to the nature of the relationship that ought to exist between franchisor and franchisee, SNK's failure to negotiate in July and August 1988 was unfair, unreasonable and harsh. 44 SNK's refusal to discuss matters with the McKinnon franchisees except upon the terms contained in its fax of 2 October, and Bates' refusal to discuss their concerns in a telephone conversation on the same day, was unreasonable. The franchisees had the temerity to sign the joint letter of 21 July, and for that reason Bates was not going to discuss things with them. His promise on 30 September that he would get back to Ms Stach with a date and time for a meeting was not honoured. Bates failed to reply to the 13 October request for a meeting. His 27 October fax was in his customary truculent style ‑ the price of a meeting was an undertaking by the franchisees to comply with all SNK's "directives". "Then and only then will we be prepared to discuss any further matters …". SNK's conduct in relation to the McKinnon franchisees was unreasonable, unfair, harsh, oppressive and wanting in good faith.

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Refusal to provide disclosure document 47 The Heidelberg, Canterbury and McKinnon franchisees made written requests for disclosure documents. They were not provided. The treatment of the Heidelberg franchisees' request amounted to more than a mere failure to provide the document. As a condition of agreeing to provide it, SNK insisted on knowing whether the franchisees intended to renew the agreement. Until they indicated an intention to renew, "there will not be a Disclosure Document provided". The purpose of a disclosure document is to give a prospective franchisee, or one proposing to renew, information to help the franchisee make a reasonably informed decision on the matter. SNK's conduct was calculated to frustrate the intention of the Code ‑ that a franchisee would have relevant information before being required to commit itself. Once again one sees the bullying tactics that characterise Bates' conduct of his relations with SNK's franchisees. It was harsh and oppressive conduct. 48 The position is much the same with the McKinnon franchise. In October SNK's solicitors indicated that a document would be provided, though it was not immediately available. After another request Bates said that a document would be provided only after "all matters are resolved and our requests are met". The matters and requests included a demand that the franchisees first indicate whether they were intending to renew. 49 The Canterbury franchisees requested a disclosure document in October. Bates replied that SNK was no longer selling franchises and was therefore unable to supply a document. A second request shortly thereafter elicited no response. 50 SNK did not just fail to provide the Heidelberg and McKinnon franchises with a disclosure document. The failure was aggravated by the unreasonable conditions attached to any provision of a document, conditions calculated to frustrate the intention of the Code and the entitlement of the franchisees. The position with Canterbury does not have that aggravating feature. But again the failure to provide the document does not stand alone. The franchisees' first request was met with a fatuous excuse ‑ that SNK was no longer selling franchises. When the inadequacy of this excuse was pointed out to SNK, it simply ignored the renewed request for a document.

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Judgment (143 paragraphs)

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Cases Cited (6)