Gregory John King v Cake It Away Pty Ltd and ors

THIRD RESPONDENT: Paul Tartak

FOURTH RESPONDENT: Michael Tartak

PARTIES : FIFTH RESPONDENT: Tony Tartak

SIXTH RESPONDENT: Mary Tartak

SEVENTH RESPONDENT: Pauline Tartak

EIGHTH RESPONDENT: St George Bank Ltd (ACN 055 513 070)

NINTH RESPONDENT: Advance Leasing Limited (ACN 063 369 488)

FILE NUMBER: IRC 4374 of 2002 CORAM: Walton J Vice-President; Boland J; Staunton J CATCHWORDS : Leave to appeal and appeal - franchise agreement - unfairness that arose as a result of misrepresentation relied upon - approach to be taken to appeals under s191 of the Act - findings of fact made by trial judge properly open on the evidence - finding of prima facie misrepresentation more properly to be expressed as a finding of relevant misrepresentation leading to a finding of unfairness under s106 of the Act - the exercise of a discretion following a finding of unfairness properly exercised against the applicant at first instance for reasons given - leave to appeal granted against first to seventh respondents - leave to appeal against eighth and ninth respondents refused - appeal against first to seventh respondents dismissed - costs to be determined LEGISLATION CITED : Industrial Relations Act 1996 s106 and s191 King v Cake It Away Pty Ltd & Ors [2002] NSWIRComm 140 Ace Business Brokers Pty Ltd v Phillips-Treby (2000) NSWIRComm 163 King v State Bank (No 2) [2002] NSWIRComm 353 CASES CITED : Humphries v Cootamundra Ex-Services and Citizens Memorial Club Limited [2003] NSWIRComm 211 Warren v Coombes (1978) 142 CLR 531 Swan v Ultratune Australia Pty Ltd (1983) 5 IR 284 Port Macquarie Golf Club v Stead (1996) 64 IR 53

HEARING DATES: 03/05/2003; 05/23/2003 DATE OF JUDGMENT: 11/21/2003

APPELLANT: Mr Gregory John King in person

FIRST TO SEVENTH RESPONDENTS: SOLICITORS: Ms L M Steer and Mr S A Levitt LEGAL REPRESENTATIVES: Selby Levitt Solicitors and Attorneys

EIGHTH AND NINTH RESPONDENTS: Mr J J E Fernon of Counsel SOLICITORS: Watson & Watson

JUDGMENT: - 43 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION

CORAM: Walton J, Acting President Boland J Staunton J DATE: 21 November 2003

Matter No IRC 4374/2002 Gregory John King v Cake It Away Pty Ltd and ors

Application by Gregory John King for leave to appeal and appeal against a judgment of Marks J given on 12 July 2002 in Matter No IRC 6142/1998 JUDGMENT [2003] NSWIRComm 242

1 The appellant, Gregory John King, seeks leave to appeal and, if leave be granted, to appeal against the decision of Marks J in King v Cake It Away Pty Ltd & Ors [2002] NSWIRComm 140. Judgment was given in that matter on 12 July 2002.

2 The substantive matter addressed in his Honour's judgment concerned a summons for relief sought by the appellant under s106 of the Industrial Relations Act 1996 (the Act).

3 The originating summons for relief filed by the appellant at first instance sought an order declaring a franchise agreement made between the appellant and the second respondent, Cake It Away (Franchising) Pty Ltd, to be declared void or, in the alternative, varying it on the basis that it was unfair within s106 of the Act. The primary contention of the appellant at first instance was based on alleged misrepresentation by certain of the respondents that induced him to enter into the franchise agreement and led to the unfairness that he says arose.

4 The first respondent is the owner of the Cake It Away business system and associated trademarks and the licensor of that system. The second respondent is said to have acquired the right to franchise the Cake It Away business system. The third to seventh respondents are all members of the Tartak family associated with the first and second respondents as directors or other office holders or ultimate beneficial shareholders, save for the fifth respondent who was a consultant to the first and second respondents.

5 The eighth and ninth respondents were joined in the summons on the basis that the eighth respondent ("the Bank") and its leasing arm, the ninth respondent, had financed the appellant to enable him to enter into the franchise agreement. The applicant alleged unfairness in a number of ways against the eighth and ninth respondents both in respect to the actions of the Bank in arranging the finance and the ninth respondent as the leasing arm of the Bank in relation to the hire purchase agreement as between the applicant and the first and second respondents. The unfairness alleged against the Bank involved breach of its fiduciary duty, negligence and negligent statements in the actions by officers of the Bank in approving the franchising finance.

6 In the hearing before Marks J, the eighth and ninth respondents filed a cross claim against the first to seventh respondents. In dismissing the applicant's summons for relief, his Honour also dismissed that cross claim.

7 The alleged misrepresentation relied upon consisted of statements made by the fifth respondent, Mr Tony Tartak, as to expected income projections from a Cake It Away franchise. As well, there was documentation such as disclosure documents given to the appellant by Mr Tony Tartak. That documentation, the appellant says, reinforced the oral representations made by Mr Tartak, which he says were subsequently shown to be wrong. Those representations, the appellant says, were decisive in his decision to enter into the franchise agreement with the second respondent and, as a consequence, he alleged he suffered financial loss.

8 In 1997, the appellant decided to enter into a franchise agreement with the second respondent to run a cake shop at Canley Heights in Sydney as part of the Cake It Away franchise chain. It would seem that the persons that he had dealings with, on behalf of the second respondent, in reaching agreement to undertake that venture were Mr Michael Tartak and Mr Tony Tartak - the fourth and fifth respondents respectively.

9 The appellant is a tertiary educated retired schoolteacher. By his own evidence before Marks J, he became interested in a Cake It Away franchise in March 1996. At that time, and in subsequent months in 1996, he had discussions with Mr Tony Tartak about the venture. He obtained some documents from Mr Tony Tartak but did not proceed with the franchise at that time (that was early 1996) because, he says, he could not afford the franchise fee.

10 Later in 1996, he says his financial circumstances improved and he again approached Mr Tony Tartak. Those discussions led to a decision by the appellant to purchase a Cake It Away franchise at a suitable location in Sydney. The selection of Canley Heights as the location for the cake shop was a decision in which the appellant participated. He was given a number of disclosure documents by Mr Tony Tartak that provided information about the Cake It Away franchise concept, including operational details and income projections. In early 1997, there were further discussions between the appellant and Mr Tony Tartak and others on behalf of the second respondent about the proposed venture. Following those discussions and as a result of the disclosure documents he had already read, the appellant decided he wished to go ahead with the franchise. To do that he needed finance. He had already undertaken preliminary cash flow projections based on information given to him by Mr Tony Tartak as well as on what was in the disclosure documents.

11 He was unable to get finance approval for the franchise from his bank, the State Bank. He asked Mr Tony Tartak if he could assist and Mr Tartak introduced him to the Advance Bank (later to become St George Bank Ltd), which was the banker for the second respondents. The Advance Bank had provided financial assistance to some, not all, of the existing Cake It Away franchisees. In turn, the Advance Bank referred the appellant to its leasing arm, the ninth respondent, for the purposes of arranging hire purchase financing for the equipment needed to run the franchise.

12 The appellant signed the franchise agreement in May 1997 and, after a six-week training period, opened the shop at Canley Heights in September 1997.

13 In February 1997, the appellant had involved his half brother, Mr John Sullivan, and his (Mr Sullivan's) business partner, Mr Stephen Bullock in the discussions with Mr Tony Tartak and others about proceeding with the franchise. Mr Sullivan's evidence as to the content of those discussions with Mr Tartak about the income projections for the franchise were critical to the appellant's claim as to the oral representations made by Mr Tony Tartak.

14 The nub of the appellant's argument before Marks J, and again before us, was that Mr Tony Tartak had represented to him that income projections based on the existing franchise outlets were between $5,000 and $8,000 per week. It was based on the lower of those income projections that the appellant then did his cash flow projections for the proposed franchise at Canley Heights. Further, it was these cash flow projections based on the figures given to the appellant by Mr Tony Tartak and as reflected in the disclosure documents, which were relied upon by the Bank and its leasing arm to approve a loan to the appellant to enable him to start up his franchised cake shop.

15 According to the appellant, the information given to him as to income projection for the franchise did not represent the true position. Based on his own experience, his weekly sales were in excess of $5,000 for only the first two weeks of trading in September 1997. After that they dropped off over the next few months so that by December 1997, weekly sales were between $2,000 to $3,000 per week. Despite suggestions from representatives of the second respondent as to how the appellant could improve his weekly sales, the situation did not improve and the appellant walked away from the business in April 1998. In his judgment Marks J stated that the appellant acknowledged that he 'had already stopped giving the business his full effort by the beginning of 1998.'

16 In reaching the decision that he did to dismiss the appellant's claim for relief against all respondents, Marks J made certain factual findings and conclusions. The conclusions of his Honour in pars [85] and [86] of his judgment are particularly pertinent. Those passages of the judgment are as follows: [85] In determining whether there was any relevant unfairness with respect to the franchise agreement I take into account the following matters: 1. The applicant stated that he would not have entered into the agreement had it not been his understanding that all stores had sales figures of at least $5000 per week. 2. As against this, there is the evidence of Tony Tartak with respect to the manner in which the applicant misrepresented his assets when making application for the grant of a franchise. Mr Tartak said, and I accept, that he would not have agreed to the grant of a franchise by the franchisor if the applicant has disclosed his true financial position. 3. The applicant was given a list of franchisees and contacted all of those in the Sydney area. There is no evidence as to the precise information which the applicant sought from these franchisees, but he professed himself to be satisfied that the situation was as represented by Mr Tony Tartak and the franchisor in all respects material to him. 4. The applicant was advised to obtain independent financial advice but chose not to do so. 5. The documentation issued by the franchisor contained clear qualifications and warnings and the applicant chose to disregard them. The applicant was, to use his own words, 'foolish' and, from the evidence given in the proceedings naive in terms of business relationships. He did not conduct himself in a business-like fashion and conceded that having no business experience was a disadvantage. 6. It was clear that the baker employed by the applicant was incompetent, yet he took no steps to terminate his services and replace the baker with someone more competent. In this, consistent with the evidence of Ms Herico, the applicant allowed personal concerns for Mr Pearce to intrude into any business-like decision to terminate his services. 7. The applicant acknowledged in evidence that he understood that the success of the franchise operation depended upon his own efforts and depended also on him following the franchisor's procedures. However there is ample evidence that the applicant did not follow the franchisor's procedures and that his own personal efforts were not deployed in a positive fashion in assisting the business. My understanding of the evidence including the documentation issued by the franchisor is that the intention was that the franchisee would principally be 'hands on' in the operation of the business rather than relying on the labours of others, as occurred in this case. 8. The applicant commenced trading at the beginning of September 1997. By the beginning of October it was clear that the business was not being operated in a proper and appropriate manner, as evidenced by the comprehensive report of Graham King. There is no satisfactory explanation on the evidence as to why there was a fall off in sales other than the impact of a period of hot weather in October 1997. There is no analysis of the number and quantity of sales, the product purchased, and the reasons for what the applicant said was a steady decline in sales. There is no evidence that indicates that the particular location was inappropriate. In any event, the location was chosen as a result of the active involvement of the applicant. The applicant said that by the end of February he had given up and that he coasted thereafter until the business closed in April 1998. At most, the business traded for six months only. 9. There is no evidence that the applicant suffered any particular loss or that his trading position was affected in any relevant manner by any malfunctioning of the oven or other equipment or the fact that some of the equipment may have been second-hand. In any event the applicant was offered compensation of $3000 with respect to some second-hand panels. [86] The applicant submitted that Mr Tony Tartak had misrepresented the turnover of shops within the Cake It Away group. Presumably the representation was alleged to have been made in 1996, both orally and within the disclosure document, and during the course of negotiations at the beginning of 1997. Such evidence as has been produced shows that as at June 1997 and June 1998 some stores did not have turnover on an annual basis of $5000 per week. The reasons therefore were not introduced into evidence. Whilst prima facie Mr Tony Tartak may have misrepresented the situation in this way, it does not follow conclusively that a finding of unfairness should result. In determining the question of unfairness it is necessary to take into account the totality of the circumstances between the parties and it is impossible to ignore what occurred after the franchise agreement was entered into. Any representation of this kind may have led to a finding of unfairness if the applicant endeavoured to operate the business consistent with the franchisor's operating procedures and had genuinely persisted until it was apparent that the business might not be able to operate at the level represented by or on behalf of the franchisor. (emphasis added)

17 The appellant, Mr King, represented himself at first instance and in the appeal before us. He expressed his grounds of appeal as follows: Matters appealed against are: The whole determination of Judge Marks that the contract and arrangements between the appellant and the respondents is not unfair for the purposes of s106 of the Act. That the summons be dismissed. That no consideration by given to the loss or damage suffered by the applicant. The questions raised by the appeal are: 1. Was there a correct application of s106 of the Industrial Relations Act 1996? 2. Did Judge Marks properly interpret the legal nature of what constitutes a misrepresentation? 3. Does a perceived error on a loan application form negate a persons right to restitution under s106 of the Act? 4. Is the failure to gain independent financial advise a factor in considering claims of misrepresentation? 5. Was the judgment of Judge Marks contrary and thereby inconsistent with the judgment set out in Ace Business Brokers Pty Ltd v Phillips-Treby (2000) NSWIRComm 163? 6. To succeed in a claim of misrepresentation in buying a business do the circumstances of operating the business, after the purchase, need to be taken into account or does a consideration of misrepresentation stand alone? 7. Do warnings not to rely on financial figures provided in a franchise disclosure document safeguard against claims of misrepresentation?

18 Mr King provided detailed written and oral submissions in support of his appeal application including leave to appeal. We have had regard to all of those matters, even when they do not fit neatly into the grounds stated in the application for leave to appear on appeal. Having regard to the appellant's unrepresented status, we have considered liberally the range of issues which the appellant sought to ventilate in the appeal and raised many of those matters in the course of argument with the respondents.

19 In the first instance we determined to hear the appeal both as to leave and as to the appeal generally.

20 In relation to the nature of appeals, s 191 of the Industrial Relations Act provides: (1) An appeal to a Full Bench of the Commission under this Part is not by way of a new hearing and is to be determined on the evidence and material adduced in relation to the decision appealed against. (2) However, the Full Bench may, by leave, receive further evidence if it considers that special grounds exist or if the evidence concerns matters occurring after the decision appealed against. (3) To avoid doubt, the Full Bench cannot merely substitute its decision on the matter, but must follow the principles applying to appeals from discretionary decisions, whether or not further evidence is received.

21 The approach to be taken to appeals under s 191 of the Act have been discussed extensively in two relatively recent Full Bench decisions in King v State Bank (No 2) [2002] NSWIRComm 353 at pars [58] to [76] and Humphries v Cootamundra Ex-Services and Citizens Memorial Club Limited [2003] NSWIRComm 211 at pars [81] to [84]. We adopt those statements of principle in this matter. In that respect we note that the appeal is an appeal in stricto sensu. The relevant principles require that there should be no interference with conclusions on facts unless the Court is of the opinion that they were not reasonably open on the evidence. However, an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge; in deciding what is the proper inference to be drawn, the appellate court will give respect and weight to the conclusions of the trial judge, but, once having reached its own conclusion, will not shrink from giving effect to it: Warren v Coombes (1978) 142 CLR 531 at p 551.

Evidentiary matters of fact raised by the appellant

22 Central to Mr King's challenge to Marks J's decision was his belief that his Honour had not paid due weight to that evidence that he, Mr King, contended went to the proof of the misrepresentation he alleged, particularly as against the second respondent, which gave rise to the unfairness that he says then arose. There were, he contended, four such relevant representations.

23 There was an oral representation made by Mr Tony Tartak in February 1997 that the current franchise operations were turning over between $5,000 to $8,000 per week. That oral representation was said to have been made by Mr Tartak to Mr John Sullivan, Mr King's half brother. Mr Sullivan's business partner, Mr Stephen Bullock, was also present and corroborated Mr Sullivan's evidence on this issue. The presence of Mr Sullivan and Mr Bullock at the meeting in February 1997 was at the request of Mr King and, in part, because Mr Sullivan was vaguely interested in the Cake It Away concept as a business proposition. Mr Sullivan's affidavit evidence before his Honour on this point was as follows: I asked: 'How many stores do you have?' Tony answered: 'Eleven.' I asked: 'What are the sales like?' Tony answered: 'They vary from store to store. Some are doing five thousand a week, some are doing eight thousand a week. Sales are growing. We are hurting the Cheesecake shop. We can get ten thousand a week.' I asked: 'What is your worst performing store doing?' Tony responded: 'Five thousand dollars a week, that is what I said, between five thousand a week and eight thousand a week.' 24 When cross-examined on this evidence, Mr Sullivan adhered to it, save only for what appears to be the issue of the reference to $10,000 by Mr Tartak and the context in which it was used.

25 We were taken by Ms L M Steer, solicitor on behalf of the first to seventh respondents, to the relevant sections of the transcript of the proceedings before his Honour involving the cross-examination of Mr Sullivan on this aspect of his evidence. Ms Steer submitted that Mr Sullivan's evidence on this issue had been significantly undermined. There is nothing in that evidence to suggest that Mr Sullivan resiled from that critical aspect, which went directly to the oral representation made by Mr Tony Tartak at that meeting that the currently operating stores were turning over between $5,000 to $8,000 per week. There is nothing in his Honour's judgment that suggests that he rejected Mr Sullivan's evidence on this point.

26 While not expressly stated, it may be inferred from his Honour's judgment that he did accept Mr Tony Tartak had, indeed, made the oral representation at the meeting at which Mr Sullivan and Mr Bullock were present. At par 11] of his judgment, his Honour stated: Mr Tony Tartak asserts that he said at the meeting that the company owned stores were turning over between $5000 and $8000 per week but that the franchised operations were returning figures above and below 'that figure.'

27 Further, at par [27] on the same issue: The applicant forwarded to Mr Maresca cash flow projections prepared in February and May 1997. The projections dated 15 May 1997 showed sales based on turnover of $5000 per week and expenses in line with the projections contained in the franchise disclosure document. I am satisfied that the applicant prepared these projections based on information conveyed to him through the Cake It Away organisation and in particular as a result of discussions that he had with Mr Tony Tartak.

28 Finally, at par [86]: Such evidence as has been produced shows that as at June 1997 and June 1998 some stores did not have turnover on an annual basis of $5000 per week. The reasons therefore were not introduced into evidence. Whilst prima facie Mr Tony Tartak may have misrepresented the situation in this way, it does not follow conclusively that a finding of unfairness should result. 29 We are satisfied that Marks J, on balance, did conclude that Mr Tony Tartak had made the oral representations that the appellant contended for and upon which he, the appellant, relied. The fact that his Honour referred to such a representation by Mr Tartak as a 'prima facie' misrepresentation is a matter we will return to later in this judgment as we consider it an important issue arising out of his Honour's ultimate decision.

Franchise Disclosure Document and Franchise Agreement

30 The Franchise Disclosure Document contained Annual Franchisee Income Projections identifying four levels of franchise operations as follows: Level 1: $5000 per week Level 2: $6000 per week Level 3: $7000 per week Level 4: $8000 per week

31 Based on that income level, certain operating expenses were itemised and net earnings (before interest or tax) but inclusive of one franchisee's wages were assessed as follows: Level 1: $59,058 Level 2: $89,002 Level 3: $110,884 Level 4: $140,828

32 In par [13] of his judgment his Honour noted that, in February 1997, Mr King was given the Franchise Disclosure Documents which, his Honour said, 'he took away and read carefully.'

33 His Honour referred in detail to all aspects of the Disclosure Document in pars [15], [16] and [17] of his judgment. Those observations do not require elaboration at this point. Suffice to say his Honour's comments indicate a careful consideration of the relevant aspects of that document as he viewed it. They were clearly matters that Marks J gave weight to in reaching the overall conclusions that he did as evidenced in point 5 in par [85] of his judgment where he stated: The documentation issued by the franchisor contained clear qualifications and warnings and the applicant chose to disregard them. The applicant was, to use his own words, 'foolish' and, from the evidence given in the proceedings naive in terms of business relationships. He did not conduct himself in a business-like fashion and conceded that having no business experience was a disadvantage.

34 Further, at pars [33] and [34] of his Honour's judgment, in relation to the Franchise Agreement, his Honour stated: [33] In early May 1997 the applicant was given the franchise agreement and other documentation. He signed it on 7 May 1997. The applicant acknowledged that the effect of the agreement had been explained to him by a solicitor. There is a Solicitor's Certificate contained within the document signed by Stephen Smart. Mr Smart certified that he had explained the document to the applicant who appeared to be fully aware of its legal effect and who had consciously and freely signed it.

[34] In cross examination the applicant conceded that Mr Smart had gone through the documentation with him 'in great detail' and that he had been given a written advice about some of the matters contained within the franchise agreement. He also conceded that he had read the documents carefully. He had not taken the trouble of obtaining any detailed financial advice about the documentation but had consulted someone 'informally.' He was told that he should proceed with caution but he did not follow this advice nor obtain any other expert assistance in evaluating the franchise arrangement. He said in evidence that he 'foolishly' believed the franchisor. Later in evidence he said that he did not obtain advice from an accountant because he 'foolishly' trusted the Bank.

35 In all the circumstances, we see nothing in his Honour's judgment that would lead us to a conclusion that his Honour did not properly consider the import of the material in the Disclosure Document as well as the Franchise Agreement in the ultimate conclusions that he came to. We see nothing in the ultimate conclusions that his Honour came to as being wrong on the evidence before him that would invite appellate intervention.

36 An advertisement produced by the second respondent contained the following statement as being part of Facts and Figures about Cake It Away franchises: Sales Volume Annual turnover of $250,000 to $500,000. Profit Margins Based on existing outlets: 25% to 30% of sales after all outgoing expenses and before interest and tax (inclusive of one franchisee's wage). Royalty Service Fee 8% of gross sales.

37 The appellant pointed to those statements, asserting that when one considered relevant profit and loss statements of other Cake It Away franchises, it was clear that a number of them were simply not achieving the sales volume and profit margins as represented in the advertisement. 38 This assertion by the appellant led to us being taken extensively through the profit and loss statements for the year ending 30 June 1998 of the three Cake It Away franchises at Moorebank, Meadowbank and Kogarah. It was asserted by the appellant that on properly considering these documents one could conclude that the income projections and net profit figures represented by the second respondent in its Disclosure Documents and the advertisement were wrong. This conclusion, the appellant contended, could be arrived at by assuming that the franchise or service fee itemised under expenditure in the respective profit and loss accounts of the Moorebank, Meadowbank and Kogarah franchises represented 8 per cent of gross sales and then calculating accordingly.

39 The particular profit and loss statements of the respective Cake It Away franchises to which we were referred had been obtained under subpoena by the appellant in the hearing before Marks J. The appellant called no oral evidence in relation to them. In allowing them to be tendered over the respondents' objections, his Honour said at pars [74] to [77] of his judgment: [74] The applicant based his claim in part on misrepresentations allegedly made by Mr Tony Tartak concerning the turnover of other stores within the Cake It Away group, including franchised stores. For this purpose a number of financial reports were admitted into evidence, although some were excluded because they were not in a form which created any confidence that they had been prepared on a proper and appropriate basis by a person competent or qualified to do so. [75] The profit and loss statement of the Moorebank store showed sales for the year ended 30 June 1998 at $345,048 and for the previous financial year at $350,674. A profit and loss statement prepared with respect to the Meadowbank store showed sales for the 1997 financial year of $136,269 and for the 1998 financial year $166,052. A profit and loss statement purportedly for the Kogarah store showed sales for the 1998 financial year of $233,680 and for the 1997 financial year $235,112. A file note produced by Advance Bank concerning the trading position of the Baulkham Hills store dated 14 March 1996 suggests average takings over a period of nine months of $6,700 per week. [76] Some of these takings are less than the $5000 per week figure indicated by Mr Tony Tartak to the applicant as minimum takings encountered by any shop, save the St Marys shop. Others of these stores seem to have achieved takings which exceed the $5000 figure. [77] The difficulty about this evidence is that it consists of the profit and loss statements compiled in a form usually utilised by accountants. There are no underlying figures or other evidence to support the material contained in the documents and they were admitted into evidence over the objection of the respondents who were given an opportunity of addressing the Court as to their ultimate relevance and weight. The other difficulty which arises in connection with this evidence is that Mr Tony Tartak said that he was not privy to all of the information pertaining to all of the shops because some proprietors declined to forward to the franchisor sales figures as required by the respective franchise agreements. On this basis there is no evidence that Mr Tony Tartak was aware of the specific trading position of any shop. On the other hand his inability to obtain this basic information from all of the shops may have required that he qualify the statements which he made to the applicant concerning the trading position of the shops. Overarching all of this are the disclaimers and warnings contained within the franchise documentation to which I have earlier referred. The applicant has chosen to disregard all of this material.

40 We are satisfied that his Honour did give proper consideration to this evidence and accorded it due weight given some of the evidentiary issues underlying it. Indeed, if anything, his Honour makes it clear, in an adverse sense in relation to Mr Tony Tartak that : On this basis there is no evidence that Mr Tony Tartak was aware of the specific trading position of any shop. On the other hand his inability to obtain this basic information from all of the shops may have required that he qualify the statements which he made to the applicant concerning the trading position of the shops . (emphasis added)

41 We detect nothing in his Honour's reasoning about this issue that would suggest that he did anything other than come to a view of that particular evidence that was reasonably open to him. As to Mr Tartak's failure to qualify his statements regarding the trading position of shops we will address that issue later in this judgment.

42 In preparing the necessary documentation in support of his application for finance, Mr King prepared and signed at least two cash flow projections - one in February 1997 and the second in May 1997. The second one was produced following confirmation of rental costs for the shop premises at Canley Heights.

43 Mr King's cash flow projections were based on the information given, and representations made, to him by Mr Tony Tartak as to projected sales of $5,000 per week in the first instance. That information and representations were misleading Mr King says - and hence his own cash flow projections were wrong. 44 His Honour found that the source of the information for Mr King's cash flow projections came directly from the relevant respondents, as he stated in par [27] of his judgment, as follows: The applicant forwarded to Mr Maresca cash flow projections prepared in February and May 1997. The projections dated 15 May 1997 showed sales based on turnover of $5000 per week and expenses in line with the projections contained in the franchise disclosure document. I am satisfied that the applicant prepared these projections based on information conveyed to him through the Cake It Away organisation and in particular as a result of discussions that he had with Mr Tony Tartak. We are satisfied that on this point, his Honour came to a conclusion that was not only reasonably open to him but was correct. 45 Given the matters to which the appellant specifically directed our attention as to his major contentions on appeal with respect to the first to seventh respondents, we can see nothing in his Honour's judgment as to the views expressed and conclusions reached therein that provide grounds for appellate intervention. His Honour properly considered the material before him, came to certain factual conclusions which were reasonably open to him and applied those conclusions to his ultimate decision.

46 The appellant also appealed against his Honour's findings to dismiss the application for relief in relation to the eight and ninth respondents. Again, it is pertinent to reflect on the findings made by his Honour in respect of those two respondents, to be found in pars [92] to [96] of his judgment as follows: [92] As against the eight and ninth respondents the applicant alleged in effect that their support gave him the confidence to go on. There is no evidence that these respondents suppressed any information or advice which was available to them because of the relationship of Advance Bank Ltd with the Cake It Away group as its bankers nor is there any evidence of any unfair conduct on the part of the Bank or any of its officers who were involved with the application for and grant of finance facilities to the applicant. [93] The applicant asserted that he had a fiduciary relationship with Advance Bank Ltd and its subsidiary and that the Bank therefore had an obligation to advise him in connection with the franchise arrangement. I am unsure as to the exact nature of the advice which the applicant says should have been tendered to him by the Bank, but certainly there is no evidence that the Bank was aware that any of the franchisees were in financial difficulties. To the contrary, the evidence is that the Bank regarded all of the franchisees whom it had funded as meeting their obligations under their financial arrangements. [94] Overarching all of this is the fact that Mr Tony Tartak indicated to the applicant after he commenced training that he could get out of the franchise arrangement, and Mr Hudson conveyed similar information to the applicant on 2 September 1997 before he signed the Bank papers. [95] Paragraphs [25], [26] and [27] of the grounds in the summons relate to allegations against the Bank. The fact that the applicant met a representative of the Bank on the premises of the first and second respondents could not, of itself or in combination with any other matters create any unfairness in the conduct of the Bank. The various sub grounds contained within para [26] do not either individually or collectively, or in association with any other grounds create any relevant unfairness. I do not find any of the grounds made out on the basis of the evidence. The same comments apply with respect to para [27]. (emphasis added) [96] In all of the circumstances I am unable to find that there was any unfairness on the part of the eighth or ninth respondents for the purposes of s106 of the Act. In making this finding I refrain from making any finding as to whether there was in existence any contract as defined between the eighth and ninth respondents and the applicant for the purposes of s106 of the Act.

47 As well, his Honour said at par [28] of his judgment as follows: [28] The finance application made by the applicant was processed by the Bank and, on the basis of evidence given in the proceedings I am satisfied that the Bank applied its usual lending criteria to the application, which was eventually approved. In evidence it was stressed on behalf of the Bank that the approval was based upon the fact that the applicant had cash assets of $45,000 and on the basis that he owned a unit at Canley Vale free of encumbrances, and had no other liabilities.

48 Reference to pars [26] and [27] of the appellant's pleading at first instance reveals an extensive array of conduct on the part of the eighth and ninth respondents that the appellant identified as creating unfairness as between him and the eighth and ninth respondents in relation to the franchise agreement. Central to his argument, as we understand it, is that the Bank and its officers acted in a quasi-sales capacity through Mr Tony Tartak to provide an incentive by way of finance to the appellant to enable him to purchase the franchise based on projections which they knew were or might be incorrect.

49 There was a considerable amount of evidence placed before his Honour on behalf of the eighth and ninth respondents. Relevant officers of the Bank and its leasing arm gave evidence and were cross-examined. His Honour clearly considered that evidence as the basis for his view that he 'did not find any of the grounds made out on the basis of the evidence.'

50 The appellant's argument on appeal in relation to his Honour's assessment as to the Bank's role in the appellant's decision to enter the franchise agreement was focussed on a document that the appellant attached to his submissions in reply to those filed on behalf of the eighth and ninth respondents. The appellant contended that there was documentary evidence that made it clear that the franchisor and the Bank were in a close business relationship involving the franchisor granting franchises and the Bank enabling prospective franchisees to enter into agreement with the franchisor. This arrangement was to the mutual benefit of the franchisor and the Bank.

51 In reliance on that contention the appellant took us to a document that had been before Marks J but was not part of the appeal books. That document was titled "Module P - Present Proposal and Background". This document was an internal Bank memorandum and, as we understand it, was generated within the Bank in connection with an application for funding in relation to another franchisee, Lesley Edmonds. That document to which we were specifically taken to by the appellant states: Module P - Present Proposal and Background Comments: Background: The Bank has an existing arrangement with a Tony Tartak who is the franchisor of Cake It Away. He refers prospective franchise purchasers to Advance whereby the stores are funded by a mix of CHP and FDA's if required. (emphasis added) To date the Bank has financed approximately 5 stores and they are all operating within the terms of the approvals. In most cases these have been 'start up' operations. Purpose: The Bank has financed a new store at Peakhurst for Lesley Edmonds who purchased the store at Peakhurst. The purchase price of the business was $240,000 which covers the store completely fitted out, stocked and ready to trade from day one. Have had close contact with the Franchisor Tony Tartak, and while some of the stores have struggled a bit, Lesley Edmonds has traded very well, and is one of the better operators. Her accounts have been very well conducted with the main trading account with the Bank and has some $10K surplus funds. Have requested financials, but am yet to obtain same. No history of arrears or excesses. Facilities are all P&I and are reducing slowly which is to be expected at this early stage of the facility. The CHP being over 5 yrs is reducing quickly.

52 The appellant relied particularly on the paragraph in emphasis in the above document as evidence of an arrangement between the second respondent and the Bank that placed the Bank in a quasi-sales role on behalf of the second respondent in relation to prospective franchisees. We were not taken to any evidence adduced in relation to that document before his Honour or the extent to which the appellant relied upon it at first instance.

53 There was evidence to which we were taken in relation to financing arrangements between the Bank and the second respondent that would suggest that the Bank considered applications and provided finance to prospective franchisees more on a request basis than as part of any obligatory condition inherent in any prospective franchisee entering into a franchise agreement with the second respondent. For example, of the eleven or so franchises operating at the time of Mr King's application, the Bank had financed five. The remaining franchises had obtained finance elsewhere. Mr King had initially sought his finance from the State Bank - his usual bankers. They refused it. Mr King then asked Mr Tartak for assistance and he then referred Mr King to the Bank. As the evidence before his Honour disclosed, in making his application to the Bank, he misled the Bank as to his true financial position. That was and is a significant matter of fact to which we will return.

54 There was another document titled "Module P - Present Proposal and Background" before his Honour. That document was in the appeals books but the appellant did not take us to it. That document is referred to by his Honour in par [29] of his judgment. That document reads as follows: Module P - Present Proposal and Background Comments: Applicant has been referred to us by Tony Tartak, franchiser of Cake It Away Pty Limited. (For background details of this connection refer master file enclosed). Since commencement of our association with Cake It Away we have financed five of the ten outlets currently in operation, Baulkham Hills, Moorebank, Blacktown and Croydon Park and soon to be opened in Belconnen, ACT with all stores generating expected projected results and profitability. In addition, we recently provided increased FDA assistance, taking exposure to $1.9m to franchiser company to expand their Merrylands head office and purchase properties. As per the Company's plans to continue expansion into specific areas we have now been requested to provide funding for an outlet at Canley Heights. The proposed franchisee will be Greg King who has been through the usual detailed screening undertaken by the franchiser and presents as an impressive individual who is willing to work hard along the company's strict guidelines. Background resume is enclosed. Basically main employment has been as a high school teacher with a degree in Behavioural Science and History. However this will have little relevance on the proposed purchase, as Cake It Away will provide their ongoing training and reporting guidelines which monitors and directs operations. Purchase price of the franchise is $235k and the head lease is obtained by Cake It Away on a 5x5 year basis on a fixed rental lease in line with their other stores. Accordingly funding is required as follows: 1. Purchase Business $235,000 Bank FDA $100,000 Bank CHP $100,000 Borrowers funds $ 35,000 2. Costs $ 10,000 Borrowers funds $ 10,000 Total $245,000 $245,000

55 Hence, his Honour considered the latter Module P document.

56 In doing so, he came to an overall view as to the actions of the Bank and its leasing arm when he stated at par [28] of his judgment: The finance application made by the applicant was processed by the Bank and, on the basis of evidence given in the proceedings I am satisfied that the Bank applied its usual lending criteria to the application which was eventually approved. 57 There was nothing to which we were taken in the hearing before us that, in our view, would enliven any appellate intervention concerning the findings made by Marks J in relation to the conduct of the eighth and ninth respondents. His Honour's consideration of the evidence on behalf of the Bank and its leasing arm and the conclusions that he reached on that evidence were factual conclusions properly open to him and nothing that we were taken to in the proceedings before us invites a contrary conclusion.

58 If anything, it is clear in his Honour's judgment and in the evidence we were taken to that the applicant's misrepresentations in making his loan application to the Bank clearly compromised his primary contention as to unfairness before his Honour and went directly to the ultimate conclusions that his Honour came to.

59 The information provided by the appellant to the Bank in support of financing contained misleading information as to the extent of his assets and liabilities. It is equally clear, as his Honour found on the evidence, neither the Bank nor the second respondent would have entered into their respective agreements with the appellant if he had been fully frank and honest in disclosing his true financial position. In the proceedings before us the appellant, in acknowledging that he did provide misleading information, said as follows: I didn't give the full information because I was trying to induce the Bank into giving me a loan. I withheld it because I was at that time trying to get my brother to leave a property which I have virtually been kicked out of by his girlfriend. I own a property that I am not even able to live in. I just didn't want confusion. To be successful as a misrepresentation and to show that there is damage (sic). They haven't shown any damage whatsoever. If I lose the case the Bank gets the money, sell the house, solve one problem with my brother and saves me the heartache of having to bring him into the Court system.

60 That statement by the appellant before us simply confirms the evidence placed before Marks J on this issue. Further, as his Honour's judgment disclosed, it was a critical factor in the ultimate decision reached by him in dismissing the appellant's claim at first instance.

61 If there was any area where we believe the appellant may well have had cause to complain, it is the way in which his Honour saw fit to express his conclusions regarding the fifth respondent's alleged misrepresentations. We refer particularly to his Honour's comment in par [86] of his judgment where he said: Whilst prima facie Mr Tony Tartak may have misrepresented the situation in this way, it does not follow conclusively that a finding of unfairness should result.

62 We are not able to discern with any certainty from the judgment what Marks J had in mind when he refers to a 'prima facie' misrepresentation on the part of Mr Tony Tartak. In our view, the task that his Honour was required to undertake was to determine whether or not the misrepresentation as alleged by the applicant did in fact arise. Having determined that question, it was then necessary for his Honour to establish whether that misrepresentation amounted to unfairness as understood under s 106 of the Act and, if so, to make a finding of unfairness. Having made such a finding his Honour was then required to determine whether he should exercise his discretion to make orders in the terms sought. 63 We consider his Honour erred, firstly by not coming to a firm and concluded view at first instance as to whether or not, on the evidence before him, a misrepresentation did occur and, secondly, by not making a finding in that respect.

64 As a general proposition, a contractual misrepresentation arises when a person makes a statement that that person knows does not accord with the true facts and which that person intends will induce the person to whom the representation is made to enter into the contract.

65 On an overall consideration of his Honour's judgment, particularly having regard to those passages to which we have directly referred and his Honour's finding of a 'prima facie' misrepresentation by Mr Tony Tartak, we consider that the inescapable conclusion is there was a misrepresentation in relation to the franchise agreement that was entered into between the appellant and the second respondent. That misrepresentation came about as a result of the oral representations made by Mr Tony Tartak on behalf of the second respondent as to the income projections for a Cake It Away franchise operation. Further, that oral representation was reinforced by the information contained in the Disclosure Documents given to the appellant by Mr Tony Tartak on behalf of the second respondent in February 1997. Those representations, taken in totality, were misleading and even on his Honour's own view, the oral representations made by Mr Tony Tartak were such that 'may have required that he qualify the statements which he made to the applicant concerning the trading position of the shops.' Mr Tartak never made any qualification and despite other actions by the appellant, which we will refer to in due course, those representations were, as we have viewed the evidence, material in the decision made by the appellant to enter into the franchise agreement. 66 Mr S A Levitt, solicitor, on behalf of the first to seventh respondents conceded that Marks J would appear to have made a finding as to a misrepresentation. When pressed, he expressed his submission is this way: It appears to me that his Honour has made a finding and the way he expressed it, there may have been a misrepresentation but he treated the misrepresentation in a similar way, the way the Full Bench did in Swan v Ultratune - gilding of the lily - and what he says there may have been a misrepresentation by Mr Tartak which he does not make any clear finding about but there may have been some tendency to exaggerate but notwithstanding that there is no evidence that the applicant relied on those misrepresentations or even if there were misrepresentations the applicant relied upon that the problems which he suffered were as a result of that misrepresentation because there is evidence that there were stores that did perform at the level that was represented and Mr King simply didn't do anything he was supposed to do; he didn't work; he gave up the ghost. He shunned offers of assistance. What his Honour did is he looked at the evidence and said he was not making findings of specific misrepresentation but there is a flavour where I think there was some exaggeration by Mr Tartak. In other words, he may have said our stores do over $5000, some do $8000 which was true but there were stores doing less. It wasn't such a gross misrepresentation and it didn't make the success in relation to St Mary's acknowledged by Mr King in his own evidence that Mr Tartak positively told him there was one store was trading very poorly - as it happens there were two or three. But in the scheme of things, his Honour is saying there were so many other factors which operated; the misrepresentation by Mr King to get into the franchise agreement; the length of time, the fact that he was an educated person, the fact he was someone who was given the opportunity to get out of it and the fact he refused obdurately and deliberately to follow the practices and procedures of the franchiser made it possible for the Judge to find those representations insofar as his outlet is concerned fall because he didn't give it a go.

67 Notwithstanding Mr Levitt's submission, we are of the view that the evidence in the proceedings did reveal that the appellant did rely on the representations made by Mr Tony Tartak in relation to income projections for the franchise. Those oral representations were repeated, as it were, in the disclosure documents. True it is the disclosure documents carried the same disclaimers as referred to by Watson J in Swan v Ultratune Australia Pty Ltd (1983) 5 IR 284 at 292. But the facts and circumstances in the matter before us go further, in our view, than a 'gilding of the lily' as was described by Watson J in Swan v Ultratune. Mr Tony Tartak represented income projections for a franchise that Marks J found he should have 'qualified.' Mr Tartak did not do so. We are satisfied that those representations were misleading as to the true position and that they induced the appellant to enter into the franchise agreement.

68 In our view, this conclusion of and by itself is sufficient to lead to a finding of unfairness on the part of the first to seventh respondents in relation to their contractual agreement with the appellant because the fifth respondent was making the representations for and on behalf of them. No such findings are available against the eighth and ninth respondents.

69 Having determined that there was an unfairness in relation to the first to seventh respondents, the next step in the process is as enunciated in Port Macquarie Golf Club v Stead (1996) 64 IR 53 at 60 where the Full Court of the New South Wales Industrial Court stated: Having considered his Honour's judgment and, in particular, those matters identified by him in par [85] of the judgment at first instance, which are set out in full above, we have come to the conclusion that those are the matters that should be considered in determining the proper approach to the exercise of the discretion inherent in s106 once a finding of unfairness has been established. They are all matters that, in our view, properly go to the exercise of judicial discretion on the question of unfairness. Having regard to them, we are of the view that the reasons detailed by his Honour are more properly to be seen as reasons why he would not exercise his discretion rather than as to whether or not there was unfairness. Accepting those reasons as more properly going to that issue, they are matters that on any objective consideration do not, in our view, call for the exercise of the Court's discretion in favour of the appellant. In other words, we would agree that those matters identified by his Honour in par [85] of his judgment are those matters that do not assist the appellant and did not assist him in the first instance in asking the Court to exercise its discretionary powers under s106.

70 Having had the opportunity at this point to not only consider his Honour's judgment in full but also to review relevant factual matters that were before him, we are of the view that the exercise of the Court's discretion at first instance did not ultimately miscarry. Hence, we consider that whilst error has been demonstrated as to his Honour's approach to the finding of unfairness with respect to the first to seventh respondents, there was no relevant error in his Honour's concluding, in the exercise of his discretion, to dismiss the application. 71 In the first instance, it is not in dispute as far as the appellant is concerned that he had two opportunities to withdraw from the franchise agreement prior to commencing operations in September 1997. As his Honour stated in par [94] of his judgment: [94] Overarching all of this is the fact that Mr Tony Tartak indicated to the applicant after he commenced training that he could get out of the franchise arrangement and Mr Hudson conveyed similar information to the applicant on 2 September 1997 before he signed the Bank papers.

72 In the proceedings before us the appellant did not deny that those opportunities had arisen. The reasons that he gave for not acting on the opportunities given to him to withdraw at an opportune time were unconvincing, to say the least.

73 Secondly, there is no dispute that the appellant did mislead the Bank as to his financial position in his application for finance in relation to entering into the proposed franchise undertaking. The appellant had already been refused funding by the State Bank and requested the assistance of Mr Tony Tartak to secure finance for him by referring him to the bank used by the second respondents. This Mr Tartak did. The information that the appellant then gave to the Bank and upon which the second respondent relied for the purposes of assessing his financial suitability as a franchisee, was a matter that was of considerable significance in the ultimate conclusions arrived at by his Honour. On this point, having regard to the factual circumstances and the conclusions drawn by his Honour, we note his Honour's judgment at pars [30], [31] and [32] as follows: [30] The information which the applicant gave to the Bank in connection with his application for finance and which, coincidentally, he also supplied to the Cake It Away group assumed some significance in connection with the proceedings. Included was a statement of financial position originally prepared in connection with the application made to the Cake It Away group for the franchise but which was also given to the Bank. It showed cash assets of $45,000, a home valued at $125,000, no other real estate, insurance policies and superannuation valued at $10,000 each, cars and personal effects valued at $25,000 each making total assets of $240,000. The statement showed no liabilities. [31] In evidence in the proceedings the applicant conceded that of the $45,000 cash assets, $35,000 had been borrowed from his half brother Mr Sullivan and that probably a further $10,000 had also been borrowed from Mr Sullivan. He also conceded that he had failed to disclose his half ownership in the Collaroy Plateau property and his borrowings from the State Bank in connection with the mortgage over the Collaroy Plateau property. The applicant endeavoured to rationalise the information disclosed on this document in a number of ways. In connection with the cash asset he said in evidence that it having been loaned to him by Mr Sullivan he then regarded it as his. When asked to explain why no liability had been shown for the same amount, he said that he may have entered into some arrangement with his half brother to sell his half interest in the Collaroy Plateau property to him to discharge any indebtness and therefore did not consider himself indebted to Mr Sullivan. He attempted to explain the failure to disclose the Collaroy Plateau property as an asset and, more importantly, the borrowings from the State Bank by way of mortgage over that asset on the basis that he had entered into some loose arrangement to sell his half interest in the property to Mr Sullivan, who then, presumably, would have taken over the totality of the liability to the State Bank. Mr Sullivan in his evidence confirmed the loan made to the applicant but stated that he had no discussions with the applicant concerning the transfer of any interest in the Collaroy Plateau property. [32] I infer from this evidence that the applicant is prepared to endeavour to rationalise his conduct and his circumstances in order to promote his own interests. This will become important when discussing the evidence concerning the history of the operation of the franchise by the applicant. There are two additional matters of significance which flow from the failure of the applicant to disclose his true financial situation to both the franchisor and to the Bank. Mr Tony Tartak gave evidence that the franchisor assessed the financial viability and overall suitability of applicants for the grant of a franchise. Mr Tartak said, and I accept, that if the applicant had disclosed that the $45,000 had been borrowed from his half brother and was not an asset, then the franchisor would not have granted a franchise to the applicant. In addition, Messrs Maresca and Hudson gave evidence that if the applicant had disclosed that the $45,000 shown as an asset was represented by borrowed funds and had further disclosed his exposure to the borrowing from the State Bank in connection with the Collaroy Plateau property, the Bank would not have approved the financial facility to enable the applicant to have acquired the franchise.

74 It is hard to conceive a more difficult evidentiary hurdle for the appellant to overcome in his application for relief than that as found by his Honour on this issue (which we consider was open to him) - and which the appellant did not resile from in his submissions before us.

75 As well, it is clear that his Honour had considerable doubt as to some aspects of the applicant's evidence on vital points. This is also referred to by his Honour in par [25] of his judgment, where he dealt with evidence that was before him concerning the attendance of certain persons at a meeting in May 1997 comprising the appellant, Mr Tony Tartak and representatives of the Advance Bank. There was clear factual disagreement in the proceedings before his Honour as to who was the representative of the Bank at that meeting. After hearing the evidence, his Honour stated at par [25] of his judgment: [25] I accept the evidence of Messrs Hudson, Tony Tartak and Maresca with respect to the identity of the persons present at that meeting. The applicant must clearly be mistaken. The applicant maintained both by way of evidence in chief and cross examination that Mr Hudson was present and that Mr Maresca was not present. He refused to concede that his recollection might be mistaken. He was adamant that his recollection was correct and that the other three witnesses who gave evidence were incorrect. This was so even after the applicant saw and cross examined both Mr Hudson and Mr Maresca. The documentation prepared by the Bank and the respective roles played within the Advance Bank organisation by Messrs Hudson and Maresca all point to their version of what occurred as being more accurate than that of the applicant. This is the most obvious example of a number of areas where the applicant's evidence differed from other witnesses in the proceedings which lead me to believe that the applicant's evidence particularly with respect to areas which are vital to the determination of these proceedings should be examined with great care . (emphasis added)

76 On behalf of the first to seventh respondents it was submitted that the words in emphasis in par [25] of his Honour's judgment indicated an adverse finding as to the credit of the appellant. Whilst his Honour's statement was not as direct as it could be when the question of credit is being considered, there is no doubt that his Honour was sceptical about the appellant's credit. It was a view that Marks J came to having regard to his observations of the appellant and the evidence that he heard from all those before him. It is a conclusion that should not be lightly disturbed on appeal and in any event, it is a view that we are not disposed to disturb. This is particularly so having regard to the fact that, now having had the opportunity to hear directly from the appellant himself, he does not dispute that he did mislead the Bank as to his financial position in his loan application but justifies it by saying that it was not, in his view, 'morally' wrong. That is not a submission that can carry any weight in the proceedings before us even if we agreed with the appellant's assertion, which we do not. We see nothing in the material before us that would lead us to a view that is Honour's conclusions on relevant aspects of the appellant's evidence at first instance, were anything other than as his Honour determined.

77 Thirdly, it is clear that the appellant did not conduct the franchise operation in accordance with the operational instructions set out in the franchise agreement. There was a general assessment report undertaken in October 1997 by Mr Graham King, the Franchise Support Manager for the second respondent. That report of some four pages states by way of an overall assessment that: It appears that the single most apparent problem is deviation (intended or otherwise) from the Cake It Away system of production. This deviation causes losses in production time, wastage due to the production of imperfect items, time lost in either finding ingredients (in house) or sending staff/owner out to purchase ingredients which have not been ordered in line with routine stock taking procedures. I will some examples below from my direct observations. Another source of wastage, both in terms of time and product, is poor planning of the days production. This lack of planning, details of which I will also include later, was evident in the staff and the owner to varying extents. I understand that some of this may be due to inexperience, however, much of it is due to deviation from the system.

78 Mr Graham King's affidavit and accompanying report were admitted into evidence before his Honour and he was not required for cross-examination.

79 A quality assurance assessment was undertaken in March 1998. This assessment, which was before us in a form which was difficult to decipher by way of a photocopy, was contained in a document that the appellant relied upon as being evidence that he did conduct the business in accordance with the franchise agreement's operating instructions. Without knowing anything further about the background of this document and the basis on which the assessment occurred, it consisted of three pages of assessment criteria ranging from footpaths through to whether the drink fridge was fully stocked, whether the staff had correct uniform and the question of the adherence to the recipes and the general state of cleanliness of the premises. These criteria are marked according to a sliding scale of compliance from 1 to 5. The comment at the end of the three-page quality assurance assessment, by a person whose signature is not clear, states: "The store presented very well front and back. Product was very good."

80 This document was relied upon by the appellant as evidence which he said Marks J did not properly consider when coming to the view that he, the appellant, had not properly complied with the operating instructions inherent in the conduct of the franchise.

81 We were also taken to a three-page document containing contemporaneous notes taken by Ms Carol Edmunds who was assigned to the role of Franchise Support Manager to assist the appellant from March 1998 until he ceased to operate the franchise business in mid-April 1998. Ms Edmunds provided an affidavit in the proceedings before Marks J to which was attached the contemporaneous notes commencing, it would seem, from 19 March to 14 April 1998. A perusal of those notes would certainly support that at that time, according to Ms Edmunds, the appellant was having difficulty complying with the operating instructions.

82 Overall, Ms Edmunds' contemporaneous notes over the relevant period are adverse as far as assisting the appellant's assertion that he did comply with the operating instructions for the franchise. Before his Honour, Ms Edmunds' affidavit and the accompanying annexure were admitted into evidence without objection from the appellant and she was not required for cross-examination. Accordingly, her evidence, including the annexed material, was available for his Honour to consider in the context of all of the evidence on this issue. Having all this evidence before him, his Honour concluded that the appellant had not conducted the franchise operation in accordance with the clear operating instructions of the franchise operation. On the evidence to which we were taken and on a proper consideration of the conclusions drawn by his Honour from the factual material to which we were taken, there is nothing that we consider would point to any other conclusion than the one reached by his Honour as to the overall way in which the appellant conducted his franchise operations.

83 Given the basis upon which we have determined this appeal it is not necessary, in our view, to consider the point raised on behalf of the eighth and ninth respondents on appeal that went to the question of jurisdiction. That is, whether the agreement reached between the appellant and the eighth and ninth respondents in relation to the mortgage and the hire purchase agreements was a contract or arrangement whereby work is performed in an industry. His Honour did not see the need to determine that issue and nor do we.

84 The question of leave to appeal is a matter that all respondents to this appeal opposed. We have given careful consideration to whether we should grant leave to appeal. On balance, we consider that, in the public interest, leave to appeal should be granted with respect to the application for leave to appeal brought against the first to seventh respondents. We conclude that, in this matter, it is consistent with the proper administration of justice that leave be granted in that respect for the purposes of rectifying what we regard as an error on the part of his Honour at first instance in the way in which he dealt with the question of unfairness and the issue, in particular, of misrepresentation. The misrepresentation by the fifth respondent created material unfairness and warranted a finding of unfairness. Marks J erred in not making such a finding. We grant leave to appeal in that respect. It follows that we have concluded that the appellant did not establish any case against the eighth and ninth respondents as would warrant the grant of leave. We reached that conclusion essentially because the appellant, for reasons earlier discussed, was not successful in identifying a relevant error in his Honour's findings of fact (or his ultimate conclusions of fairness) with respect to those respondents.

85 As we have indicated, we are of the view that there was evidence on which a definite finding of misrepresentation on the part of the fifth respondent could have been made. Accordingly, we find that the franchise agreement between the appellant and the second respondent was unfair on the grounds that the representation by the fifth respondent as to the income the appellant could expect to achieve in operating the franchise was a material factor in inducing the appellant to enter into the franchise agreement and was misleading. No submission of substance was advanced on behalf of the first to seventh respondents which would suggest that a finding of unfairness should not be made against all of those respondents.

86 Notwithstanding the finding of unfairness we have, nevertheless, decided not to grant the appeal brought by the appellant for the reasons we have already referred to which, indicate that ultimately his Honour's exercise of discretion did not miscarry. In summary, we observe: 1. Despite the misrepresentation by the fifth respondent that contributed to the appellant entering into the franchise agreement, the appellant had two opportunities, one provided by the fifth respondent, to withdraw from the franchise agreement prior to commencing operations in September 1997. 2 The appellant misled the Bank and the first to seventh respondents as to his financial position in his application for finance in relation to entering into the proposed franchise undertaking. If the franchisor had known the appellant's true financial position it would not have granted a franchise to the applicant. 3 The appellant did not adhere to the instructions for operating the franchise in accordance with the terms of the franchise agreement. 4 The documentation issued by the franchisor contained clear qualifications and warnings and the applicant chose to disregard them. 5 He was told that he should proceed with caution but he did not follow this advice nor obtain any other expert assistance in relation to financing in evaluating the franchise arrangement. Orders

87 We make the following orders: 1. Leave to appeal is refused with respect to the eighth and ninth respondents; 2. Leave for appeal is granted with respect to the first to seventh respondents; 3. The appeal is dismissed.

88 In the event that any party wishes to seek costs in these proceedings in the light of our judgment, they should make an application for the same, in writing, within seven days. If such an application is made, we shall fix a date for hearing any issue as to costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.