Carazi Pty Ltd v Blow Dry Bar Franchising Pty Limited

Judgment

1. HIS HONOUR: In this proceeding the plaintiff alleges that the first defendant Blow Dry Bar Franchising Pty Limited (in liq) engaged in trade or commerce in conduct that was misleading or deceptive in contravention of s 18 of the Australian Consumer Law. The plaintiff also alleges that the second defendant Mr Nathan Cuneen (sole director of the first defendant) himself engaged in trade or commerce in misleading or deceptive conduct in contravention of the same section and was knowingly involved in, and a party to, the contraventions by the first defendant.
2. Relief is claimed under relevant provisions of the Australian Consumer Law in respect of a Franchise Agreement entered into between the plaintiff and the first defendant on about 26 October 2012. The relief sought, as between those parties, includes orders declaring, or otherwise ordering, that the franchise agreement is or held to be void or voidable or unenforceable, or that the plaintiff is entitled to rescind it.
3. Damages are sought pursuant to s 236 of the Australian Consumer Law and under the general law for misrepresentation. Damages are sought against both the first defendant and the second defendant. The second defendant is not a party to the franchise agreement. The claims pleaded are, in effect, that the first defendant and the second defendant made representations which were false or misleading or deceptive that induced the plaintiff to enter into the franchise agreement with the first defendant and to enter into a lease with a third party.
4. There are two preliminary questions. Those questions arise because it appears that a trustee in bankruptcy was appointed to the estate of Mr Cuneen on 29 January 2015. The plaintiff has tendered a letter from a Mr Andrew Barnden of Rodgers Reidy Chartered Accountants dated 30 January 2015 in which he stated that he was appointed trustee of Mr Cuneen's bankrupt estate on 29 January 2015.
5. Mr Barnden referred to s 58(3) of the Bankruptcy Act 1966 (Cth) and asserted that the creditor would be unable to enforce any remedy against the person or property of the bankrupt in respect of a provable debt or to commence a proceeding, or one might add, take a fresh step in a proceeding, in respect of a provable debt.
6. The plaintiff says that the claim against Mr Cuneen is not a claim in respect of a provable debt.
7. The second matter arises from the fact that on 15 January 2015 a Mr Angus Gordon was appointed liquidator of the first defendant by a special resolution of the members of the company. It appears that the liquidation is a creditors' voluntary winding-up. Pursuant to s 500 of the Corporations Act 2001 (Cth) no civil proceedings are to be proceeded with against the first defendant except by leave of the Court and subject to such terms as the Court might impose.
8. The first question is whether the proceedings against Mr Cuneen are, in effect, stayed. Section 58(3) of the Bankruptcy Act provides, in substance, that after a debtor has become a bankrupt it is not competent for a creditor, except with leave of the Federal Court or the Federal Circuit Court, to take any fresh step in a proceeding which is "in respect of a provable debt".
9. Section 82(1) provides that subject to Div 1 of Pt 6 of the Bankruptcy Act all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of bankruptcy, are provable in the bankruptcy. However, there is an exception provided by s 82(2) as follows: "82(2) Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy."
10. There is a consistent body of authority that establishes that claims for damages for breach of s 52 of the former Trade Practices Act 1974 (Cth) are claims that fall within s 82(2) of the Bankruptcy Act being "[d]emands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust". (See in particular CCA Systems Pty Ltd v Communications & Peripherals (Australia) Pty Ltd (1989) 15 ACLR 720 at 730; Reid v Interarch Australia Pty Ltd [2000] FCA 1328 at [15]-[17]; Australian Competition and Consumer Commission v Kritharas [2000] FCA 1442; (2000) 105 FCR 444; Australian Competition and Consumer Commission v Black on White Pty Ltd [2004] FCA 363; (2004) 138 FCR 314 at [25] ff; Director General, Department of Services, Technology & Administration v Veall (No 6) [2012] NSWSC 1118 at [34]; see also Aliferis v Kyriacou [2000] VSCA 123; (2000) 1 VR 447 at [9] per Brooking JA and [46] per Charles JA).
11. In Coventry v Charter Pacific Corporation Limited [2005] HCA 67; (2005) 227 CLR 234 the majority of the High Court (Gleeson CJ, Gummow, Hayne and Callinan JJ), held (at [71]) that: "[71] … claims of the kind made in this case (for unliquidated damages for misleading or deceptive conduct which induced the party misled to make a contract with a party other than the bankrupt) are claims arising otherwise than by reason of a contract. They are claims of a kind which s 82(2) provides are not provable. By contrast, however, claims for unliquidated damages for misleading or deceptive conduct inducing the making of a contract with the bankrupt are claims arising by reason of a contract. They are provable. To the extent to which Aliferis held to the contrary, it should be overruled."
12. Mr Cuneen is not a party to the franchise agreement made between the plaintiff and the first defendant. The present proceeding falls within the class of case which the High Court has held are claims to which s 82(2) applies, that is, a demand in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust. It follows that the proceedings against the second defendant are not proceedings to which s 58(3) of the Bankruptcy Act applies. There is no impediment to the plaintiff's proceeding with its claim against the second defendant.
13. The second defendant has not appeared at the hearing this morning. But there is no reason that the claim against him cannot proceed.
14. That conclusion indicates that this is an appropriate case for the grant of leave for the continuation of the proceedings by the plaintiff against the first defendant on terms that any judgment that the plaintiff might obtain against the first defendant not be executed against its assets without further order of the Court. That is particularly clear given that part of the claim made against the second defendant is that he is liable as an accessory to contraventions of the Australian Consumer Law said to have been committed by the first defendant.
15. It would be a scandalous waste of resources if those issues were determined but were not binding in any later contest between the liquidator of the first defendant and the plaintiff if the plaintiff seeks to prove in the liquidation of the first defendant. It is clearly desirable that both the company and the plaintiff be bound by the findings. The liquidator has neither consented to nor opposed the application for the grant of leave under s 500. I will grant that relief on the terms indicated.
16. I order pursuant to s 500(2) of the Corporations Act that the proceeding against the first defendant may be proceeded with.
17. I order that no judgment that the plaintiff might obtain against the first defendant be executed against its assets without further leave of the Court.