Geoffrey Seach & Anor v Promenade Properties Pty Ltd t/as SAS Marketing & Ors

APPLICANTS: Mr P.B. Walsh of counsel Solicitors: Peter Adams & Co LEGAL REPRESENTATIVES: RESPONDENTS: Mr M.R. Gracie Solicitors: Whitfields

JUDGMENT: - 28 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: KAVANAGH J

Date: Fri 11 May 2001 IRC4777 of 1999 GEOFFREY SEACH & VALDA SEACH v PROMENADE PROPERTIES PTY LIMITED t/as SAS MARKETING, HANS SCHMIDHOFER, SUSAN SCHMIDHOFER, PHONE FORCE 2000 PTY LIMITED AND CHRISTOPHER O'NEILL Application under s106 of the Industrial Relations Act 1996

JUDGMENT 1 This application is brought by Geoffrey Seach and Valda Seach under s106 of the Industrial Relations Act 1996 ("the Act"). The applicants allege the contracts or arrangements entered into were unfair and/or there was an unfairness in the performance of the contracts and arrangements. They allege the respondents against whom they proceeded, Mr & Mrs Schmidhofer, the second and third respondents, have sufficient "connection" with the contracts to be parties against whom the court, in the use of its discretion, should make orders that are just in the circumstances. 2 The applicants sought leave to discontinue against the first respondent, Promenade Properties Pty Limited t/as SAS Marketing as the company has been deregistered; it sought leave to discontinue against the fourth respondent, Phone Force 2000 Pty Limited, as it is in liquidation; it sought leave to discontinue against the individual, Christopher O'Neill, the fifth respondent, as he has not been served with the application. Leave was granted and the claim against the first, fourth and fifth respondents was dismissed. A related company called Bio-Fax was never named as a respondent and the evidence revealed it, too, has gone into liquidation. 3 The applicants, trading as "Curb Fire", entered into two contracts which were, on the face of the documents, called an "arrangement". Both arrangements were for the grant of exclusive territory licences in which to operate a Bio-Fax 2000 business system for the purpose of installing or applying Bio-Fax Fire Prevention and Retardation products. The product is applied to the fabric contents in homes - such as curtains, couches, carpets, etc. The product protects the coated fabric material from fire damage. It can sometimes also be used to coat synthetic surfaces to protect from fire damage. 4 It is alleged the applicants entered into the arrangement on the representations made to them by Mr Schmidhofer, the second respondent. He operated through a company called Promenade Properties Pty Limited (now deregistered) and he traded as SAS Marketing. Those representations were pleaded as: (a) major publicity campaign had been commissioned by an independent marketing specialist group including television, public relations, direct marketing, cross endorsements etc to create public awareness and demand for Biofax products;

(b) the Applicants' exclusive licensed territory would have a direct promotion and marketing campaign to ensure a steady and continuous stream of work to the Applicants;

(c) the Respondents possessed technical and promotional expertise and experience;

(d) the Biofax 2000 Business system was an established and proven business system;

(e) the Respondents would provide continuous promotional, marketing and job procurements for the Applicants. 5 It is alleged by the applicants that each of the representations was a term of the contract and none of the representations were fulfilled. The application asks for orders in the following terms: 1A A declaration that the contracts or arrangements entered into by the First and Second Applicants with Bio-Fax Australia Pty Limited and Promenade Properties Pty Limited and Phone Force 2000 Pty Limited on or about 20 December 1994 and 4 January 1995 were each unfair at the times they were entered into for the purposes of s106(2) of the Industrial Relations Act 1996 by reason, inter alia of the conduct of the Second Respondent and/or Third Respondent.

1B An order pursuant to s106(4) of the Act that the Second Respondent, and the Third Respondent, or either of them make such payment of money to the First Applicant and the Second Applicant as the Commission considers just in the circumstances.

2. Such further orders or awards as to the payment of money by the Respondents or any of them as may appear to the court to be just in the circumstances.

3. Such further or other orders as the Court may see fit.

The applicants particularise the claim: "as an award of the sum of $45,000 plus interest thereon, being the monies paid by the Applicants pursuant to the arrangement for the purchase of exclusive territory licence."

HISTORY 6 In October 1994 the applicants responded to an advertisement in a local paper relating to a home business. That advertisement related to a betting system business. After the applicants responded to the advertisement they was contacted by a person who identified himself as Mr Schmidhofer and who revealed he had been given the names of the applicants as persons who may be interested in investing in a small business proposal. The second respondent introduced them to a proposal called "The Bio-Fax 2000 Fire Prevention System". The applicants received an information pack which explained the Bio-Fax product was a fire suppressant used as a coating on fabrics, wood and put into some paints and plastics to protect the surfaces on which they were laid. 7 After receiving the proposal the applicants had a number of conversations with the second respondent. He agrees he said to the applicants words to the effect: All jobs will be supplied, pre-booked and ready for the application of the product.

Each job was to be charged at a rate of $300 with the licensee receiving $100 of that charge and the balance going to Bio-Fax. There was no promise made as to forward income estimates. 8 On 29 November 1994 a meeting was held with the applicants and other interested parties. The second respondent co-ordinated the meeting. Presentations were made by Mr Thomas Thompson, General Manager of Bio-Fax, Mr Christopher O'Neill from Phone Force 2000 and Mr Schmidhofer himself. The second respondent described himself as the salesman. He defined his role as selling the licences. 9 Following this meeting, the applicants expressed an interest in the proposition and received further documentation in the form of a draft contract and a letter from the second respondent outlining a territory, including the named suburbs identified by postcode, which they would purchase with the exclusive licence. The contract was headed "Bio-Fax 2000 Licence Agreement". 10 The parties to the agreement were identified in the Recital to the Agreement as: Bio-Fax Australia Pty Limited, Phone Force 2000 Pty Limited and SAS Marketing. The Agreement acknowledged them as: separate and independent entities who have formed a strategic alliance for the purpose of developing and supporting the business system of Bio-Fax 2000.

The Recital further stated: The licensee will be supported with a continuous promotions marketing and a job procurement effort, linked with a product and group focussed on innovation, and will be part of an elite nationwide team. and: S.A.S. has been appointed to the role of co-ordinating licence territories and matters relating to the selection and procurement of licensees. It has been duly authorised by both BIO-FAX and PHONE FORCE to collect and appropriately disperse of licence fees, and execute and formalise the licence agreements by Power of Attorney. 11 The commitment of the strategic alliance was stated as follows: A major publicity campaign has been commissioned (by an independent marketing specialist group) which includes TV, PR, direct marketing and cross endorsements, etc. to create public awareness and demand. . . . S.A.S. Marketing has been appointed by Bio-Fax Australia to assist in the selection and granting of exclusive territory licences to cover significant residential areas throughout Australia (approximately 30,000 households per territory). . . . Each territory will have a direct promotions and marketing campaign to ensure a steady and continuous stream of work (Provided independently by Phone Force 2000 Pty Limited, . . .. . . . We believe that a perfect blend of expertise, both technical and promotional, has been forged to offer a unique and profitable business system. 12 The applicants determined to purchase two areas under licence. 13 The first agreement was executed on 20 December 1994 between the applicants and the three parties called the strategic alliance. The contract provided an exclusive licence for an area identified in a Schedule: Postcode Principal Suburb 2745 Regentville 2749 Cranebrook 2750 Penrith 2752 Warragamba 2753 Richmond 2754 North Richmond 2758 Kurrajong 2773 Glenbrook 2774 Blaxland 2776 Faulconbridge 2777 Springwood 2778 Woodford 2779 Hazelbrook 2780 Katoomba 2781 Leura 2782 Wentworth Falls 2783 Lawson 2784 Bucca Burra 2785 Blackheath 2786 Mt Victoria 2790 Lithgow 2757 Kurmond 14 In consideration the applicants paid $40,000 for the exclusive licence. Evidence revealed $30,000 of this money was payment for the exclusivity of the licence area and $10,000 for the Bio-Fax product and the supply of the equipment required for its application. 15 The applicants attended at a Training Programme for the application of the product. From the evidence presented all parties agree it was a very good product. 16 On 4 January 1995 the applicants purchased a further area also identified in a second agreement. This area took the applicants towards St Marys. For this extra licence the applicants paid: Five thousand dollars ($5,000) deposit and Ten thousand dollars ($10,000) internal finance and repayable at the rate of Fifty dollars ($50) per job (within territory). 17 The second respondent always represented himself to the applicant as SAS Marketing. Evidence revealed the cheques for the purchase of the licences were made to SAS Marketing. The second respondent received the cheques. From the first contract, he disbursed $5,000 to Bio-Fax and $3,000 to Phone Force. He also disbursed some sums of money for the cost associated with the establishment of the business. SAS Marketing then retained the balance of the $40,000, $30,000 in all. Of the $5,000 down payment for the second contract the second respondent retained the full amount. 18 Phone Force, the fourth named respondent and one of the parties to "the strategic alliance" was to handle what was called the direct marketing campaign. Through January 1995 and February 1995 it made the promised direct promotion and marketing campaign in the applicants' licensed areas. A number of "leads" were obtained and in the months of January and February 1995 the leads were followed up with a video promoting the product. Only three jobs were generated. There is some dispute about whether the applicants' ever received 70 leads claimed to have been passed on. The applicants thought they only received about 30 leads. Instead of receiving confirmed sales, Phone Force began to send to the applicants these leads asking them to do the follow up and obtain the sales. This was not within the terms of the agreement which guaranteed booked sales. 19 The applicants very quickly formed the view the telemarketing was ineffective and attempted to obtain work by contacting motels, clubs, guest houses, etc. The applicants also put one advertisement for the product in the Penrith Panthers magazine. The campaign which had been promised by Phone Force was performed throughout January and February 1995 but had little effect. 20 The three parties to the business venture, the strategic alliance, met and determined the direct telephone campaign was failing. They decided Phone Force should cease the telemarketing campaign at the end of February 1995 as direct marketing alone was clearly not succeeding. As to the National Advertising Campaign, as promised in the agreement, only one television commercial was paid for and that was on a telecommercial programme called the Ernie Sigley Show. It was paid for by SAS Marketing. It did not go to air until March 1995. Some refined and revised videos promoting the product were sent out following inquiries that came in from the TV commercial. Those inquiries generated no work. 21 As the marketing man, the second respondent reviewed the situation and determined a rethink of the advertising campaign had to be taken to generate immediate work for the licensees. He had the idea of selling Bio-Fax through a process known as "piggy back" marketing, that is: An existing sales or service company would add Bio-Fax to their current services and offerings as an optional extra to create a total solution. 22 In support of this idea the second respondent organised a meeting between himself, Mr Thompson representing Bio-Fax and a Mr Appleby of FAI Securities at North Sydney. FAI Securities is an Insurance Company offering home, commercial and home contents insurance. The following proposition was put by the second respondent: as an FAI client invested in a home insurance policy they were offered the Bio-Fax product as an optional extra. FAI adopted the proposition, put by the second respondent, to recommend the use of the Bio-Fax product to its home mortgagee and commercial clients. However, it told Bio-Fax that SAS Marketing should not be party to the agreement between Bio-Fax and FAI Securities as FAI wanted to do their own marketing. 23 Following these discussions with FAI, in April 1995, Bio-Fax Australia suspended all agreements they had with the second respondent's SAS Marketing. He was released from the agreement to obtain further licensees. Mr Thompson continued to refine the arrangement with FAI Securities and at one meeting took Mr Seach with him. The business arrangement with FAI and Bio-Fax was quickly finalised. The referrals from FAI generated work from July 1995. The work was generated from the Parramatta offices of FAI and all the referrals went to the applicants as licensees covering the area. The applicants also benefited from the extra referrals from FAI in some of the areas surrounding their licensed areas. 24 Because of the success of the arrangement with FAI, on 28 November 1995, Mr Thompson from Bio-Fax reviewed again the arrangement with SAS Marketing and the second respondent and he authorised SAS Marketing's return to the market place to sell further licences. He also determined existing licences could be onsold. 25 There was significant financial success in the FAI arrangement for the applicants. In the financial year ended 30 June 1995, the year before the FAI work came on line, Curb Fire, the applicants trading name, had a trading income of only $1790 but they carried forward a loss of $34,500. In that loss they allowed for a $20,000 expenditure on advertising and promotion. Yet that financial year, the evidence revealed, almost all the advertising and promotion for the Bio-Fax business was to be performed by the strategic alliance not the licensees. In the 1995/96 financial year, and evidence revealed the FAI work began on 16 July 1995, a trading income of $56,132 was achieved. The losses claimed by Curb Fire for the 1994/95 year were carried forward against this income. The applicants then divided the profit. 26 In the financial year to 30 June 1997 the trading income was revealed as $19,904. However, this reflected only six months trading. The FAI work only continued until Bio-Fax, for other reasons, went into liquidation in September 1996. It was through no fault or act of the second respondent that Bio-Fax ceased trading with FAI.

The contract 27 Section 106 of the Act states: 106 Power of the Commission to declare contracts void or varied

(1) The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract. (2) The Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason. (3) A contract may be declared wholly or partly void, or varied, either from the commencement of the contract or from some other time. . . . 28 In Port Macquarie Golf Club Limited v Stead & Anor (1995-1996) 64 IR 53 the Full Bench held, of a similar provision in a preceding Act, as to the finding of unfairness (at 59): 5. The nature and degree of the unfairness within the purview of s275, as a matter of law, relates to ordinary standards of fairness by directing attention to the particular circumstances of the individual contract or arrangement concerned; whether or not a contract or arrangement is unfair is a matter to be decided upon examination of the facts of each particular case: Incitec Ltd v Barry (1992) 45 IR 148 at 154; and Baker v National Distribution Services Ltd (1993) 50 IR 254 at 270.

6. Unfairness may arise either from the terms of the contract or arrangement itself, the surrounding circumstances and/or from the manner of performance or operation of the contract or arrangement: Barry v Incitec Ltd (1991) 45 IR 143 at 146; Incitec Ltd v Industrial Court of New South Wales (1992) 45 IR 155 at 157-158; and Baker at 270-271.

7. The test of unfairness involves the commonsense approach characteristic of the ordinary juryman by applying standards providing a proper balance or division of advantage and disadvantage between the parties who have made the contract or arrangement, bearing in mind the conduct of the parties, their capability to appreciate the bargain they had made and their comparative bargaining positions when entering into the contract or arrangement: Davies v. General Transport Development Pty Ltd [1967] AR (NSW) 371 at 374; A. & M. Thompson Pty Ltd v Total Australia Ltd [1980] 2 NSWLR 1 at 13; and Baker at 271-272. 29 The first issue to be determined in the circumstances is whether this was, at its initiation, a fair contract. This requires a consideration as to the parties to the contract. As the Full Bench in Port Macquarie held (at 60): 11. The discretions allowed by s275 to the Court are extensive and the Court should not interfere with bargains freely made by a person who was under no restraint or inequality, or whose labour was not being oppressively exploited: Stevenson v Barham (1977) 136 CLR 190 at 192; and Baker at 276. 30 In accordance with s106(2) it is not only the conduct of the respondents which the court must consider but also that of the applicants. As was said by Schmidt J in Gallagher & Anor v Modern Garages Australia Pty Ltd (In liquidation) & Ors [2000] NSWIRComm 184 [at 109]: 109 . . . Persons who wish to enter any business must bear their own responsibility for assessing such business opportunities and their own suitability for such a venture. 110 Notions such as these have long been considered by the Court and its predecessors. In Davies v General Transport Development Pty Ltd [1967] AR (NSW) 371, Sheldon J observed at p 374-5: 'On the other hand, the fact that the Commission has been given such massive power makes it imperative that it should be exercised with proper restraint. In particular, when issues arise under (a) or (b), it should not permit itself to become a refuge for those who are merely disgruntled with a bargain entered into on even terms. In my opinion, the discretion should be exercised to protect victims of wrong dealing not to prescribe anodynes. Of course, under (d) or (e), action may be required even when there is no moral distinction between the parties because there the Commission is enforcing more directly an explicit public policy.' . . . 31 In determining whether the contract was entered into without duress by parties of equal stature, the following evidence becomes relevant: Mr Seach worked for Westpac Bank for 22 years. He began as a young clerk, moved to the teller operations and then into human resources, including an investigation unit used for corruption inquiries into financial transactions. He mentioned legal work in a legal department, he became an experienced manager in the world of banking and he then took a redundancy. After this he and his wife looked for a small business, home based, in which to invest and work. The second respondent admitted he perceived himself as a salesman. He sold to the applicants the concept of the licence for the Bio-Fax product. They had every opportunity to check out his representations as to the product. They still agree it was a good product. They were capable of making their own inquiries as to the success of the product in Queensland and other countries. I find there is no suggestion of inequality in the circumstances revealed when these agreements were entered into. I find these arrangements were fairly entered into given they were bargains made freely by persons under no restraint or inequality.

Consideration 32 In the proceedings Mr P.B. Walsh of counsel represented the applicants and Mr M.R. Gracie of counsel appeared for the second and third respondents, the Schmidhofers. The applicants gave evidence as did the second respondent. A number of documents were tendered. 33 The applicants submitted they suffered loss because the representations made to them by the second respondent on behalf of the strategic alliance were not fulfilled. The applicants allege it was unfair to require them to purchase the exclusive licence for areas when, in accordance with the representations, no work was generated. The applicants submit therefore the monies paid for licences represent a manifestly unfair charge. The applicants submit it was their endeavours with Mr Thompson from Bio-Fax which procured the FAI work. Therefore, they submit such income should not be considered by the court as earnings under the contract. 34 Evidence revealed after Bio-Fax took over the details of the arrangements with FAI, a number of propositions were put to Mr Seach as to proposals that he alter the arrangement between himself and the three named in the strategic alliance. He and his wife chose not to enter into a varied arrangement solely with FAI and Bio-Fax. Mr Seach's evidence was: As far as I was concerned they were all one and the same. 35 In the alternative, the applicants submit even if the FAI work is taken into account it was not performed in accordance with the licence agreement as to their exclusive area and therefore the licence agreement gave them no benefit for the FAI work. 36 However, documents before the Court revealed that operating out of the Parramatta office FAI's first endeavours were in the applicants' licensed area and the applicants also received the advantage of referrals into an expanded area. 37 The contract required the parties to the strategic alliance, who the second respondent referred to as his "partners" on occasions and otherwise as "the principals", to obtain work for the licensees. There was no representation made as to the applicants' expected income. There was a representation Bio-Fax was "an established proven business". There was no evidence the applicants did any independent inquiries as to this representation. The second respondent gave evidence he told the applicants the corporation was successful in Queensland and overseas especially Vietnam and Canada. He believes this still to be a truthful statement. No evidence has been placed before the Court to invite a rejection of this representation. 38 As to the claim that the contract was unfair in that the representations as to marketing were not complied with by the respondents, evidence revealed Phone Force 2000 made, throughout January and February 1995, the appropriate telephone calls in the district to which the applicants were licensed. This marketing campaign was unsuccessful but it was undertaken in accordance with the agreement entered into by parties of equal stature. The respondents did enter into "a direct promotion and marketing campaign" for the applicants within their licensed areas. 39 However, a national advertising campaign was also a commitment under the contract. Evidence reveals this was the representation and term was not complied with by the parties to the agreement. I find it was unfair in the performance of the contract with the applicants to sell to them licences at a time when there was no awareness in the community of this product. Evidence revealed the local marketing campaign did not begin until after they had bought the licence. The national campaign was in truth not pursued. The evidence of one advertisement on television in March 1995, after the failed local campaign, cannot be viewed as a national marketing campaign. 40 However, the second respondent and the applicants all agreed Bio-Fax is a fine product. With a different marketing strategy applied to its sale, Bio-Fax succeeded in the market place. It was only when the different marketing strategy came on line this success was enjoyed. The determination made by the second respondent to change the marketing strategy very quickly, that is, after three months when the direct marketing campaign failed was a proper one, and not in any way unfair. 41 I find there was an unfairness in the conduct of the contract from the time it was entered due to the lack of a national marketing campaign as agreed between the parties. The unfairness between the parties to this contract as to the lack of marketing is reflected in the applicants not enjoying any earnings under the contract until July 1995. However from July 1995, the applicants did enjoy income from the product for over one and a half years. 42 Having found an unfairness in the performance of the contract the court has to determine whether in the use of its discretion under s106 of the Act, it should avoid or vary the contract. As to the Court's discretion it was held in Port Macquarie (at 60): 8. If a contract or arrangement be found to relevantly offend one or more of the grounds, such as it being unfair, contained in s275(1) then the next question involves the exercise of a discretion, to be performed judicially, as to whether the contract or arrangement should be avoided or varied: Hodges [1985] 11 IR 60 at 62-63; Autobake [1986] 19 I.R. 18 at 20; and Baker at 267.

9. If it be decided to avoid or vary the contract or arrangement under s275(1) then a further discretion arises as to whether an order should be made under s275(3) for the payment of money in connection with the contract or arrangement declared void or varied: Hodges at 63; Autobake at 20; and Baker at 267. 43 The unfairness in the performance of this contract is such that I believe the contract should be varied. 44 I find therefore that the clause of the contract requiring payment of $40,000 for the first licence and $15,000 for the second licence became unfair due to the conduct of the parties in not complying with other agreed clauses in the contract, specifically the terms related to marketing. 45 As to orders, the Act under s106(5) requires: In making an order under this section, the Commission may make such order as to the payment of money in connection with any contract declared wholly or partly void, or varied, as the Commission considers just in the circumstances of the case. 46 The application is for orders against two individuals who were not signatories, as individuals, to the agreement. The respondents submit the second respondent performed all his duties on behalf of Promenade Properties Pty Limited, which has now been deregistered. They submit all of the activities the second respondent entertained were on behalf of Promenade Properties and he should not be held liable personally for any loss suffered by the applicants. 47 However s106 allows for orders against any parties who have the requisite "connection with" the contract. In Brown & Ors v Rezitis & Ors (1971) 127 CLR 157 the High Court endorsed the proposition that persons may be parties to proceedings under s88F of the Industrial Arbitration Act 1940 (a similar provision in a preceding Act) who are not parties to the contract, arrangement, condition or collateral arrangement the subject of the proceedings. The court found the power of the Industrial Commission to make an order for the payment of money under s88F(2) was not limited to the making of an order for the payment of monies by one of the parties to the contract but extends to such orders "as can reasonably be thought to have a real connection with the making, variation or avoidance of the contract". Barwick CJ held (at 164): . . . a broad concept of a restitution of the parties to a situation which existed before the making of the contractual arrangement as well as in an appropriate case to make remedial provision for what has taken place or been done under the contract in the meantime. This, it seems to me, cannot of necessity and in all cases and with relation to an arrangement varied or avoided on each of the grounds in sub-s(1) be confined to an order for payment of money by one of the parties. In some cases, as I have said, there will be persons who are not the parties to the contract but who have in fact participated in its making and there may be persons who have received money indirectly from one of the parties to the contract or who may be holding money derived therefrom for one of the parties. Consequently, I am of opinion that the power to order the payment of money is not limited to the making of an order for the payment of money by one of the parties to the contract or arrangement varied or avoided. . . . Whilst it can be said the expression "in connection with" is of wide import, it does emphasize the need for a close connexion between the order made and the contract or arrangement varied or avoided. In my opinion the power to make an order for the payment of money is at best no more than a power to make such an order as can reasonably be thought to have a real connexion with the making, variation or avoidance of the contract or arrangement which has been varied or avoided. . . . 48 In such a consideration as to a party's connection with a contract, Schmidt J further held in Gallagher [at 244]: 244. A Full Bench of the Court in Ace Business Brokers Pty Limited v Phillips-Treby [2000] NSWIRComm 163 recently discussed the orders which might be made against a respondent who was not a party to the contract in question . . . 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 p94) 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 p93) 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. 49 The court finds in accordance with these authorities the second respondent is a person who has the requisite close and real "connection with" the contract. He sought the applicants out; he made the original representations to the applicants; the agreements refer to SAS Marketing; on behalf of SAS Marketing the second respondent co-ordinated the meetings with the licensees, the second respondent sold the licences; he signed letters of correspondence; he made many of the representations to the applicants; he had control of the initial funds in the business venture and he enjoyed financial benefits from the contract. 50 Evidence revealed the details of the benefit the second respondent, through SAS Marketing, had of the monies paid by the applicants for the licences. The cheques for the licences were made out to SAS Marketing and paid to a SAS Marketing Account. Of the $45,000 in all that was paid for the two licences, SAS Marketing had the benefit of $35,000 of this money. It is agreed $10,000 went to the applicants in product and some small amounts to costs expended by the second respondent for the granting of the licences were retained by the second respondent. 51 In these circumstances, the court finds there was by the second respondent a close and real connection with the making of the contract as well as in the performance of the contract. 52 The applicants relied upon the authority of James M Bradshaw and Badabra Pty Limited v Biofax Australia Pty Limited & Ors (unreported decision of Maidment J, CT1307 of 1995, 3.9.97) to submit it would be just in the circumstances they be given full restitution of the $45,000 they paid for the licences. On a reading of this decision, the facts in that case vary significantly from the facts revealed in this hearing. While Mr Bradshaw in that matter was induced to part with $30,000 on the basis he would receive work, no such work ever became available to him. His Honour found the applicant also was signed up before an effective marketing arrangement was in place, however that applicant never enjoyed any income from the business venture. His Honour made some reference as to the standing of the second respondent who did not give evidence in the case but such references related to the sale of the Bradshaw licence. His Honour commented in Bradshaw (at 7): . . . According to the evidence of Messrs Green and Thompson he (Mr Schmidhofer) acted both without authority in signing the Seach licence and deceptively in purporting to act on behalf of Biofax under a power of attorney. . . . 53 Mr Green and Mr Thompson did not give evidence in this case. Evidence has been given by the second respondent. As to the Power of Attorney referred to in the agreement his evidence was, while it was not in place, the other parties knew of the licence agreements with the applicants, received money from the agreement and later Bio-Fax re-hired him to negotiate other licences on their behalf. The second respondent said he had been given authority to sign by both parties although the Power of Attorney had not formally come through. He relies on the conduct of the parties to prove he had the requisite authority. I accept this evidence. The action of the parties following the signing of the agreement indicates the truth of this statement. The terms of the agreements are not under challenge. Evidence revealed all parties partly acted upon the agreements. I distinguish this set of facts from that before Maidment J in the Bradshaw case. 54 As to the claim against Mrs Schmidhofer, the third respondent, I find there is no persuasive evidence that any orders should lie against her interests. The evidence suggests she originally owned the trading name SAS Marketing. However, it was handed over to her husband in November 1994 and the contracts were not entered into until that arrangement was finalised. While the original documentation between the second respondent and Bio-Fax referred to both Mr and Mrs Schmidhofer and SAS Marketing during that period the trading name of SAS Marketing was held by the third respondent. I am persuaded that she had no dealings nor any knowledge of the arrangements with the applicants through SAS Marketing. The applicants gave no evidence of any dealings with her. Her name was removed from the registered trading name, SAS Marketing, before the arrangements were signed. Documents in evidence support the proposition Bio-Fax was notified of the change to the ownership of the trading name. Accordingly, the court finds Mrs Susan Schmidhofer, the third respondent, should not be held liable. I dismiss the claim against the third respondent. 55 The court has found the second respondent has the required connection with the arrangement and therefore it is appropriate and just that any orders should lie against him as the second respondent. As to the court's consideration as to what payment is just in the circumstances one is reminded, as was Schmidt J in Gallagher [at 255], of the caution of Sheldon J in Davies v General Transport Development Pty Ltd & Ors [1967] 67 NSWAR 371 (at 374-5) that such discretion should be exercised: "cautiously and with proper restraint". 56 In determining what, if any order, for payment would be just in the circumstances I take into account that $40,000 was paid for the first license and $5000 of $15,000 fee for the second licence. I also take into account the evidence that $30,000 was retained by the second respondent from the first contract and $5000 was retained from the second contract by the second respondent. Weighed against this evidence is the evidence that the second contract, signed by the applicants in January 1995, required them to make a payment for the remainder $10,000 for the licence fee of $50 from each job to the strategic alliance. Evidence revealed none of this $10,000 was repaid although work was generated. I consider this was a debt of the applicants to the strategic alliance. 57 While the first six months of trading generated no relevant income for the applicants, the following 12 months of trading generated an income (before deductions) of $56,000. The following first three months of the next financial year generated an income of $19,000. The work ceased through no act of the respondents. I consider the declared income of 1995/96 financial year can be used as a guide to the yearly income the business could generate. 58 I find it just in the circumstances given the conduct in the performance of the contract of the second respondent, Mr Schmidhofer, who was closely connected to Promenade Properties t/as SAS Marketing Pty Limited, one of the parties to the contract, that orders of the court should be against the second respondent. The contract should be varied to make just the cost of the licences. The first licence fee shall be reduced from $40,000 to $20,000. I find it just in the circumstances for the sum paid up front of $5000 for the second licence fee be held to be a proper fee. 59 Accordingly, I vary the agreement entered into on 20 December 1994 in clause 1 to read: In consideration of the payment of the sum of TWENTY THOUSAND DOLLARS ($20,000) the receipt of which is hereby acknowledged, the LICENSEE will be granted an exclusive territory licence to operate the BIO-FAX 2000 business system, bound by the (official Australia Post 1994) postcode/s, as outlined in Schedule 1, and on the Terms and Conditions hereinafter appearing, and shall be provided with such materials and services as listed in Schedule 2 hereto. 60 I vary the agreement entered into on 4 January 1995 clause 1 to read: In consideration of the payment of the sum of FIVE THOUSAND DOLLARS ($5,000) the LICENSEE will be granted an exclusive territory licence to operate the BIO-FAX 2000 business system, bound by the (official Australia Post 1994) postcode/s, as outlined in Schedule 1, and on the Terms and Conditions hereinafter appearing, and shall be provided with such materials and services as listed in Schedule 2 hereto.

I note this variation to the second licence agreement allows for no further payments to the applicants. However, the variation also deletes from the contract a requirement for a credit payment to the respondent of $10,000 by the applicants. The applicants receive a benefit from this deletion. 61 The effect of these variations is the applicants are entitled to one payment by the second respondent of the total sum of $20,000. 62 The applicants claims interest. In Abboud v The State of New South Wales (Department of School Education)(No 2) (2000) 99 IR 299 Schmidt J (dissenting but not on this point) held in a consideration as to interest as follows [at 45]: The role of an interest component in monetary orders made under s88F of the Industrial Arbitration Act 1940, a predecessor to s106, was discussed by two members of the Industrial Commission in Court Session in Thomas Nationwide Transport Ltd v Thomas (1990) 34 IR 378. That approach has since been followed by the Court and its predecessors: see Westfield v Helprin (1998) 82 IR 411 at 443-4.

Her Honour in Abboud then considered the various reasoning, as to what was an appropriate order for interest by Bauer and Hungerford JJ in Thomas Nationwide Transport Ltd v Thomas & Anor (1990) 34 IR 378. She also, in consideration as to money orders under s106, examined the reasons of Barwick CJ in Brown v Rezitis (1971) CLR 127 (at 164) who adopted the principle that orders should reflect as "to effect wholly or particularly, the restitution of the parties to their former position upon the variation or avoidance of the contract or arrangement". Her Honour in Abboud then held [at 49]: While there undoubtedly have and will be cases brought under s106 . . . where a proper basis for making an order in relation to interest calculated from a date earlier than the date of application will be established, there was nothing advanced in evidence or submissions in this case, which would provide a proper basis for going beyond that date. 63 No special circumstances have been argued before me, nor can I on the facts determine any reason to allow that the interest should run other than from the date of filing of the summons, namely 7 September 1999. 64 The second respondent shall pay the applicants' costs as agreed or assessed. 65 I reject the application for costs by the third respondent, Mrs Susan Schmidhofer, against the applicants. While the matter proceeded against the third respondent, there was no persuasive evidence she was involved in or had any connection with the arrangements. She did not attend the court, she filed no affidavit in evidence and only a medical certificate has been tendered in her interests, which was not relied upon in any argument as to her "connection with" the contract. Accordingly, I dismiss the claim for costs against the applicants by the third respondent.

66 I make the following orders: 1. I declare Clause 1 of the Agreements between the applicants and the strategic alliance of Bio-Fax Australia Pty Limited, Promenade Properties Pty Limited and Phone Force 2000 Pty Limited unfair. 2. I vary Clause 1 of the agreement of 20 December 1994 as to the licence fee by reducing in total the cost of the licence fee to a sum of $20,000 (see paragraph 59). 3. I vary Clause 1 of the agreement of 4 January 1995 as to the licence fee to read in total $5000 (see paragraph 60). 4. I order the second respondent, Mr Hans Schmidhofer to pay to the applicants one sum of $20,000. 5. I order the second respondent, Mr Hans Schmidhofer to pay interest on the sum of $20,000 from 7 September 1999 in accordance with Schedule 1 of the Supreme Court Act 1970 as amended. 6. I order the claim against the third respondent, Mrs Susan Schmidhofer, be dismissed. 7. I dismiss the claim for costs by the third respondent, Mrs Susan Schmidhofer against the applicants. 8. I order the second respondent, Mr Hans Schmidhofer to pay the applicants' costs as agreed or assessed.

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