Gregory Mervyn Robberds and another v Turner Franchising & Allied Services... [2005] NSWIRComm 321 | Case summary

Gregory Mervyn Robberds and another v Turner Franchising & Allied Services... [2005] NSWIRComm 321 | Case summary | Zoe

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1 This is an application brought by Gregory Mervyn Robberds and Eileen Robberds ("the applicants") for relief under s 106 of the Industrial Relations Act 1996 ("the Act") against Turner Franchising & Allied Services Pty Limited ("first respondent"), Clive Turner ("second respondent"), Chooka's International Pty Limited ("third respondent") and Kevin Payne ("fourth respondent"). 2 The applicants are husband and wife who together on 16 December 2002 executed a franchise agreement with the first respondent to establish and operate a retail outlet, "Chooka's Char-Grill", which was located at shop T330 Erina Fair Shopping Centre. Mr Turner is the sole director and secretary of the first respondent. The first respondent is the nominated franchisor in the franchise agreement. It also acted as the territory franchisor for New South Wales, operating under the name "Chooka's Char-Grill NSW/ACT" with its business described as franchised retail char-grilled chicken stores in a document headed "disclosure document". The third respondent was described in the disclosure document as the master franchisor. According to that document the third respondent developed and held the rights to the concept of Chooka's Char-Grill Chicken and all associated systems and intellectual property throughout Australia. It granted territory licences to territory franchisees who in turn assumed responsibility for developing the "Chooka's system". This was achieved by the franchising of stores to suitable franchisees, such as Mr and Mrs Robberds, and by the opening of company operated stores. Mr Payne, is the managing director of the third respondent. He is described in the disclosure document as the joint owner of a successful pizza delivery chain, "Dial A Dino's" which operated some one hundred stores in Australia as well as stores in New Zealand, England and Japan. According to the disclosure document, Mr Payne developed the "Chooka's concept" from a number of individually operated stores, "to a well branded, systemised and controlled Australian wide franchise with its own unique and individual menu". The contract or arrangement 3 Mr and Mrs Robberds put their case at the hearing on two bases. First, on the basis that the franchise agreement entered into on 16 December 2002 constituted an agreement whereby work is performed in any industry in accordance with s 106(1) of the Act. Although the second, third and fourth respondents were not parties to this agreement, the applicants place reliance on those parties as having a sufficient association with or connection to the agreement such that they fall within the terms of s 106(5) of the Act. 4 The second basis upon which the applicants put their case was that all four respondents were parties to a wider agreement which consisted of the franchise agreement of 16 December 2002, a territory licensee agreement between the first and third respondents executed on 17 May 2002, various documents provided to the applicants including the disclosure document, and, pre-contractual representations allegedly made to the applicants with the intention of inducing the applicants to enter into the franchise agreement. These representations may be described for the purposes of this judgment as, "the turnover" representation, "the fit out " representation and, the "trading hours" representation. A fourth representation upon which reliance is placed is that the respondents would provide the applicants with ongoing advice and assistance. Later, in submissions a further representation was relied upon by the applicants to which I have referred in this judgment as the "representation as to location". 5 It should be noted for completeness that the applicants' case which is put on two bases is relied on both in the alternative and cumulatively. Unfairness 6 The requisite unfairness is said to manifest in the pre-contractual representations made to the applicants which they assert were false and misleading, and/or not borne out in fact, with the result that they did not receive the benefits under the franchise agreement or under the wider arrangement to which the representations entitled them. Orders sought 7 The applicants ask the Court for orders as set out in paragraphs 4 and 6 Part A, or in the alternative paragraph 3 of Part A in the Amended Summons for Relief. 8 The orders sought in paragraph 4 and 6, in effect seek to vary the franchise agreement to include provisions which would prevent the respondents from making false, misleading and/or deceptive representations or from engaging in misleading and deceptive conduct in relation to the franchise agreement whether prior to or after entering into that agreement; and the inclusion of a provision that the respondents be required to provide assistance to the applicants to ensure that the franchise business operated satisfactorily, in particular by ensuring the adequacy of the fixtures, fittings and equipment supplied by the first respondent for use at the applicants' shop, and, by ensuring that the applicants' franchise business had the opportunity to trade during sufficient hours. Also sought is an order that the franchise agreement be terminated, rescinded or avoided upon a contravention by or on behalf of the respondents of any of the provisions referred to immediately above, or in the event of a failure by any of them to provide the requisite assistance as requested. 9 A further order sought is for a variation of the franchise agreement so as to delete any provisions that allow or permit, or fail to prevent, any conduct by or on behalf of the respondents that contravenes or is not consistent with any of the provisions referred to in paragraphs 4 and 6 of Part A of the Amended Summons. 10 In the alternative the applicants seek an order avoiding the franchise arrangement, or part thereof including the franchise agreement. 11 The applicants also seek orders under s 106 for the payment of money from all respondents in order to restore them to the situation that existed prior to the entering into of the franchise agreement as well as making remedial provision for what has taken place or been done during the currency of the arrangement: Brown v Rezitis (1970) 127 CLR 157 at 164. Confidential exhibits 12 Before addressing the evidence in detail it is necessary to first dispose of a preliminary matter which arose during the course of the proceedings. This matter concerned the tender of a number of exhibits which I ruled could be tendered on the basis of confidentiality. At the time of the admission of these exhibits into evidence I informed the parties that I would give my reasons at a later time, which I will now endeavour to do. 13 During cross-examination of Mr Robberds, Mr Newall of counsel, appearing for the third and fourth respondents tendered a document previously marked MFI B in the proceedings. Objection was taken to the tender by the applicants' counsel, Mr Neil. The basis of the objection, so the Court was told, was that MFI B was a document that fell within s 131(1)(a) and (b) of the Evidence Act 1995. 14 Three further documents, namely documents marked MFI C, D and G were tendered by Mr Newall to which objection was taken (except the document marked MFI G) by the applicants on the same basis, that is, that the documents fell within s 131(1) of the Evidence Act. 15 The parties then proceeded to make submissions on the preliminary point. Lend Lease was also contacted in order to afford it the opportunity of making submissions in relation to the documents. Lend Lease's potential interest in the tender of the documents arose because MFI G is a Deed of Release executed by the applicants as lessees and Lend Lease as lessor of Shop T330 Erina Fair Shopping Centre. Lend Lease advised the Court that it did not object to the tender of the Deed of Release and its contents. During submissions, Lend Lease, through its legal representative, Ms Banton told the Court:

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(g) evidence that has been adduced in the proceeding, or an inference from evidence that has been adduced in the proceeding, is likely to mislead the court unless evidence of the communication or document is adduced to contradict or to qualify that evidence. 17 It will be apparent from the wording of the section that if one of the exceptions listed in s 131(2) can be made out, the Court then has no discretion but must admit the evidence. 18 Mr Newall of counsel relied on s 131(2)(c) and (g) to make good his argument that MFI B, C and D should be admitted into evidence. Mr Metcalfe of counsel, appearing for the first and second respondents also relied upon s 131(2)(c) and (g) and in addition, on s 131(1)(e) for admission of the documents. 19 In my view the documents fall within the exception in s 131(2)(g). Before expanding further on my conclusions here, I should make it plain that the documents, in my view, fall clearly within s 131(1), that is, they represent communications or documents made between persons in dispute in connection with an attempt to negotiate a settlement of a dispute. The documents marked MFI B, C, and D comprise three letters sent between the applicants' solicitors and solicitors for Lend Lease and concern allegations of financial loss suffered by the applicants at the hands of Lend Lease as an identified alleged responsible party on the basis that Lend Lease made certain representations about trading hours (which were incorrect) at the Erina Fair centre, and, on the further basis that the opening of a food court within the centre by Lend Lease significantly compromised the applicants' trading and revenue generating capacities. The correspondence sought in terms to end the lease. 20 Section 131(2)(g) allows evidence to be admitted only if evidence already admitted in the proceeding is likely to mislead the Court without the additional evidence being admitted to contradict or qualify that evidence. On the basis that the Deed of Release was admitted into evidence by consent under s 131(2)(a), and on the basis of other evidence deposed to by the applicants dealing with the issue in relation to trading hours, and the impact if any of that issue on the relationship between Lend Lease and the applicants, the documents sought to be admitted are in my view capable of offering some qualification of that evidence in relation to the alleged representations. If the documents were not admitted into evidence the Court would only have part of the picture: Moran v Moran (No. 3) (2000) NSWSC 151 per Kirby J at [13]. The evidence 21 Mr Turner and Mr Payne first met sometime in May 2002 after Mr Turner responded to an advertisement placed by the third respondent for a NSW territory licensor of Chooka's Char-grill outlets. Mr Payne handed Mr Turner a copy of an article which had appeared in a trade magazine in September/October 2001, in which appeared the following extract:

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Q. Did he say anything to you that he understood that to be the case? A. Yes. 27 Under the agreement the territory licensee (the first respondent) was required to establish in the first three years, from 17 May 2002, not less than nine outlets operated by a franchisee. (A "franchisee" was defined as "a person licensed by the Territory Licensee to operated a franchised outlet pursuant to a franchise agreement"). The territory licensee could approve prospective applicants for a franchise under the agreement and was required to provide a copy of each franchise agreement upon execution to the franchisor. The territory licensee also had various obligations under the agreement including taking all reasonable steps to ensure that retail outlets were located in quality premises; that all operators of its outlets had appropriate experience, skill and good character, and, the provision of initial training and reasonable ongoing supervision of franchisees. 28 The territory licensee under the agreement was also required to promptly report to the franchisor any "significant deficiencies" observed in the operation of the franchisee's business, and conduct initial and ongoing programmes from time to time for the franchisees with the assistance of the franchisor. The territory licensee was also required to furnish to the franchisor particulars of any complaints made by any franchisee in the Chooka's system. 29 The franchisor, under the agreement, agreed to provide field support events at its own expense in New South Wales and the ACT once in each franchise year. It also agreed under the terms of the agreement to provide ongoing assistance with respect to products it provided or approved for the purpose of sale or use by the territory licensee and the franchisees. 30 On 24 May 2002 Mr Turner visited Erina Fair shopping complex in his search for a potential Chooka's outlet. The complex was owned and operated by GPT Management Ltd and Lend Lease Real Estate Investments Ltd ("Lend Lease"). At the complex Mr Turner was shown plans for a new section of the complex referred to as "The Corner". According to Mr Turner he told Lend Lease representatives that he would ask Mr Payne to have a look at the site. 31 On 28 May 2002 Mr Payne and Mr Turner visited the site. There they were shown some promotional material. Mr Payne informed Mr Turner that a shop which Mr Turner had singled out as a proposed outlet site was not in the best position and that the rent ($95,000) was, "a lot". Nevertheless on 11 June 2002 Mr Payne drafted and provided to Mr Turner a letter of offer for the site at Erina Fair. Mr Turner amended the letter and sent it to Lend Lease. The draft letter prepared by Mr Payne contained the following passage: Kevin Payne is the Managing Director and Master Franchisor of Chooka's International. Mr Payne has extensive food, retail and franchising experience having been the joint franchisor for the Home Delivery Pizza Company, Dial-a-Dino's before selling it to Pizza Hut. When sol [sic], there were over 100 stores in Australia plus operations in three other countries. David Barrie, the other Director of Chooka's International, has extensive experience in sales and marketing and has owned his owned [sic] businesses for the past 20 years.

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Ours will be even better. The fit out will be better because it's going to have the latest imported hot/cold bar. You'll have our (sic) own specific seating area. And the lighting will be excellent. You can't miss it, you've got Coles next to you, plus you'll have other major retailers such as Baker's Delight, Harris Farm markets, Costi Seafoods, Commonwealth Bank and Medicare. This will be the best presented shop in Chooka's franchise system. No cost is being spared. 54 One or two days later Mr Robberds informed Mr Turner of his decision to purchase the franchise at the Erina Fair complex. 55 Sometime in early November 2002 Mr Turner and Mr Robberds had a meeting with an ANZ bank representative Chris Lancaster, at the ANZ franchise division at Martin Place, Sydney for the purpose of obtaining the loan for the franchise. This was the second occasion in which Mr Robberds and Mr Turner had visited the ANZ Bank. The first occasion was in relation to the proposed purchase of the Chooka's franchise by the applicants at Bankstown Square Shopping Centre. According to Mr Robberds, Mr Turner provided Mr Lancaster with the projected cash flow figures for the Chooka's Erina Fair store. This was the same document that Mr Turner supplied Mr Robberds some four weeks after the applicants decided initially to proceed with the Bankstown shop. It showed monthly sales of between $80,000 and $88,000 and a net monthly profit of between $20,000 and $21,200. According to Mr Turner, he did not hand over this document to Mr Lancaster at the meeting, but he did at a later stage, on 16 December 2002 provide the document to the ANZ Bank; although he says he did so at Mr Robberds' instigation. 56 While waiting for the ANZ to approve the loan, the applicants attended a two week training session in the "Chooka's system" held at New Farm, Brisbane, at Ms Jackson's store. This training was provided free of charge. 57 At that time the applicants spoke to Mr Payne about the height of the hot and cold bar to be installed at the Erina Fair store. Their concerns appear to have been twofold. First, Mrs Robberds was concerned that the proposed height would obscure part of her face when she dealt with customers. The second concern was the installation of a second cold bar which was to be situated at right angles to the main cold bar. According to Mr Robberds, Mr Payne reassured them, telling Mr Robberds he could arrange a step to be installed behind the bars if necessary. 58 On 16 December 2002 the applicants signed the franchise agreement and the Lend Lease lease agreement. Executed copies were forwarded by the applicants' solicitors to the first respondent and to Lend Lease respectively. 59 In relation to the lease Mr Robberds gave evidence that the lease was originally in the first respondent's name but that after discussions with Mr Turner, who suggested that the lease be in the applicants' names, Mr Robberds agreed with the suggestion because he "... took the view that's the thing to do". In addition, the lease which was signed on every page by the applicants contained (at page 18) details of the hours of opening and closing. These trading hours accorded with the same extended trading hours that the applicants had been led to believe by Ms Garling on 25 October 2002 would be operating when the section (that is, The Corner where the applicants' store was to be located) was finished. On 21 February 2003 Mr Robberds however received an email from Lend Lease containing confirmation of reduced trading hours (the core trading hours). At some undisclosed time a replacement page 18 which was unsigned was inserted into the lease containing the core trading hours which under the terms of the lease the applicants were required to comply with. Upon receiving the email Mr Robberds complained to Mr Turner who said he would speak to Lend Lease. After about two days Mr Turner advised Mr Robberds that he had spoken to Lend Lease who confirmed that the core trading hours were to apply but if the applicants wished to trade extended hours that they would have to pay for it. 60 The franchise agreement between the applicants as franchisees and the first respondent as franchisor contained information about the "franchisor's system" and included within that system, "the franchisor's expertise". A number of acknowledgements appear in Clause 1 of the agreement expressed to be made by the franchisee including the following:

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(b) The balance came from a business account that the applicants opened for the purposes of operating Chooka's Char Grill, Erina Fair ("the business account"). They had an overdraft limit of $64,411. It was a condition of their arrangement with the ANZ Bank that this overdraft was available only for the first three months of trading. 67 The applicants sold their home in Beverly Hills on 28 February 2003. With the proceeds of sale they deposited $176,000 into the ANZ loan account thereby reducing the balance to about $87,850. The remaining monies ($149,049.64) were deposited into Mr Robberds' personal bank amount. The business account was used as the trading account for the franchise. All takings were deposited into and expenses paid out of that account, including the repayments due on the ANZ loan account in the amount of $1,400 per month. According to the applicants the revenue generated from the franchise was not enough to pay the expenses. In order to meet expenses Mr Robberds transferred money from time to time from his personal account to the business account and the loan account in order to make up the shortfall. In about November 2002 Mr Robberds had received a bequest from his father's estate in the amount of $95,000 which he deposited into his personal account. 68 The Erina Fair store opened on 7 March 2003. In addition to the low level of takings, the applicants experienced problems with the fit out of the store. The store was visited on 24 and 25 June 2003 by Tony Ransley, a building consultant, for the purpose of preparing a property inspection report on Mr Robberds' instructions. Mr Ransley prepared an affidavit annexing the report for these proceedings. He was not required by the respondents for cross examination. 69 After inspecting the store, which included taking photographs, Mr Ransley identified a considerable number of items in relation to the fit out in his report. Part of the report included a section headed "Table of Issues". One of these "issues" concerned the front-of-shop display cabinets, that is the cold bar and the hot bar. Mr Ransley identified some ten defects in relation to the hot and cold bar. His comment on those items appears in the report as follows: The equipment appears to be of poor quality and an outdated cabinet style. I suspect they are older reconditioned models.

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(c) the arrangement is not within jurisdiction because it did not lead directly to the performance of work. 86 In reply the applicants point to a body of authority which supports the existence of the subject arrangement as falling within s106. In relation to Lend Lease the applicants remind the Court that they did not join Lend Lease as a party to the proceedings because they were contractually obliged not to do so by the terms of the Deed of Release. An attempt by the first and second respondents to bring Lend Lease into the proceedings was rejected in the interlocutory judgment of Staff J: Robberds & Anor v Turner Franchising and Allied Services Pty Ltd & Ors [2004] NSWIRComm 157. In relation to the respondents' proposition that the arrangement was not within jurisdiction, the applicants contend that the clear purpose of the arrangement was that they, as the franchisees, would perform work for the respondents, as demonstrated for example in the terms of the franchise agreement and in the terms of the territory licensee agreement. 87 The applicants place reliance on the pre-contractual representations for the submission that the contract was unfair. These representations have been earlier referred to in this judgment as the turnover representation, the fit out representation, the trading hours representation, the representation in relation to ongoing advice and assistance, and, the representation as to location. According to the applicants these representations form part of the arrangement. The franchise agreement was provided by the respondents on the basis of these representations with the result that the applicants did not receive the benefits to which the representations entitled them. 88 The applicants identify the most important of the representations as relating to the trading performance of the franchise that was marketed to them, (that is, the turnover representation). In this respect the applicants rely on a number of representations made to them that they might expect a turnover of a million dollars per annum in the franchise. The evidence in support of this is the oral evidence of the applicants which they say is independently supported by the documentation furnished by the respondents and tendered into evidence which suggested returns in the order of one million dollars. It is contended by the applicants that Mr Turner wanted to sell the applicants a franchise so that he could be in a position to pay the third and fourth respondents and make money. Mr Payne wanted the applicants to pay for the franchise because that is how he and the third respondent, "exploited the Chooka's system". In promoting the franchise to the applicants, the respondents provided information which concentrated wholly on what they thought would make a Chooka's franchise attractive to the applicants. In pursuance of this aim, they repeatedly told the applicants that they would be joining a successful franchise system with excellent returns. The advertisement in relation to the Chooka's franchise at Bankstown Square to which the applicants responded promised, "a huge turnover". 89 The respondents contend in relation to the turnover representation that the Court could not accept the proposition that the trading figures were false. The applicants did not challenge the accuracy of the figures and no responsibility falls on the respondents to prove their accuracy. 90 A further representation upon which the applicants place reliance on the issue of unfairness is that the respondents would locate a good site for the franchise. On the evidence, both Mr Turner and Mr Payne were involved in locating the Erina Fair site. Documentation furnished to Mr Robberds by Mr Turner following the inspection of the proposed site at Bankstown square asserted that one of the many benefits of owning a Chooka's franchise was the location of an appropriate site, and, access to a site which individuals may otherwise not be able to secure on their own. The disclosure document included the acknowledgement: "The territory franchisor recognised that site selection is of major importance in the success of any retail business". Despite such assurances the Erina Fair site selected by the respondents was not viable. 91 The first and second respondents dispute the applicants' submission that the respondents "failed to find a good site for the franchise". Although the first and second respondents do not specifically characterise this contention on the basis of an alleged representation, they submit that the applicants' submission cannot be sustained because of a number of factors, which are, that the applicant had a choice of sites between Bankstown Square and Erina Fair and they made a decision to vacate the Erina Fair store before the redevelopment at Erina Fair had been completed. 92 In relation to the fit out representation the applicants rely on the evidence that the respondents would provide them with a fit out of the highest quality. Instead, as the evidence revealed, the fit out was unsatisfactory, and, according to the applicants they were charged in excess of $63,000 of its worth. According to the applicants, they paid $143,000 for the fit out of the store, however a long service leave levy receipt, dated 7 February 2003 sent to the first respondent by the Building and Construction Industry shows the estimated value of the work at $80,000. 93 As regards this latter submission, the first and second respondents contest it on a number of bases including reliance on Mr Turner's evidence that the amount payable to the shopfitter alone was in fact $122,495 including GST. (I interpolate here that this figure appears to have been derived from the amounts payable to "Style Shop Fitters" contained in an annexure to Mr Turner's Supplementary Statement of 10 September 2004. That document also lists an outstanding payment to Style Shop Fitters in the amount of $17,091. According to Mr Turner that amount remains outstanding because the Style Shop Fitters have not rectified certain defects in relation to the fit out of the Erina Fair store.) 94 The first and second respondents also contest the submission that the fit out was unsatisfactory. Although they concede that there were a number of items requiring rectification, they submit that the applicants were not "inconvenienced". The defects they say were in the main, minor, and none of the problems identified by Mr Ransley in his report "stopped or hindered the applicants from either attracting potential customers or actually selling their products to their customers". 95 In reply, the applicants emphasise that they were told that they would have a fit out of the highest quality and they did not get it. When the applicants vacated the store on 1 September 2003 the second respondent agreed to pay only $44,000 plus GST ($48,400 in total) to re-purchase the fixtures and fittings of the business. This was offset by a sum of $12,000 which the applicants were required to pay the first and second respondent to strip any other items from the store in order to provide vacant possession to Lend Lease. This left $32,000 which represents about twelve percent of the total paid. 96 A further representation upon which the applicants place reliance is that the respondents would provide them with ongoing advice and assistance which they failed to do. This representation they contend is repeated in various forms in the documentation provided to the applicants by the respondents. When the applicants experienced difficulties in the operation of the franchise they were entitled to receive operational and administrative support dedicated to helping them achieve financial goals. Instead the respondents did little to help the applicants. Their primary concern throughout was to protect their own position. 97 The respondents submit in this regard that the third and fourth respondents were not involved in the negotiations between the applicants, the first and second respondents and Lend Lease which were directed at settling the matter. No release was sought by anyone from the third and fourth respondents. The first and second respondents contend that the second respondent gave active assistance to the applicants during the currency of the business including negotiations for rental abatement, compensation and/or continued rental relief from Lend Lease and with the issue of rectification of the shop fit out. 98 According to the applicants this latter submission advanced by the first and second respondents does not survive an analysis of the evidence. All the respondents did by way of actual assistance was:

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104 The respondents contend that the applicants were not candid with the Court about a range of matters. 105 The submissions of the third and fourth respondents which were adopted by the first and second respondents commence with the assertion that the Court could not adopt Mr Robberds' evidence as a whole because of the inherent inconsistencies contained in his account of when he "wanted out" of the franchise. According to the respondents, Mr Robberds wanted to give up the franchise after only six days of trading and that even before that he had a conversation with Mr Turner during which he told him he doubted the viability of the business and feared he would shortly "go broke". The respondents point to the improbability of making such an assessment after only six days. Given this improbability the only available conclusion is that he made it up and in doing so deceived and misled the Court. The respondents propose that what really happened was that Mr Robberds had arthritis which was troubling him and he decided he hated the work. 106 A further aspect of Mr Robberds' evidence in which he sought to deceive and mislead the Court, say the respondents, concerns his failure to fully account for the circumstance in relation to his search for work after the closure of the Chooka's franchise. In fact, Mr Robberds between the end of the franchise and courier work, entered into another business investing $40,000. This evidence was withheld from the Court when the applicants applied for expedition of their application. Mr Robberds also failed to inform the Court until cross-examination about certain monies at his disposal that he could have used to pay off his bank loan. The applicants claim money from the respondents because they say this money is owed to the bank but this evidence must be assessed in light of other evidence that $15,000 was given to Mr Robberds by Robberds Courier Services and never repaid. These selective disclosures and concealments, according to the respondents are enough to disentitle the applicants from seeking relief. 107 The first and second respondents add to the above submissions by contending that Mr Robberds failed to disclose that when he and his wife left the Erina Fair store they took the sandwich bar, the meat slicer, oil filter and cutlery which was in addition to the $44,000 (plus GST less strip out costs) they say was all they were able to salvage. The applicants also misrepresented their financial position during the hearing according to the first and second respondents when it emerged in the evidence that the applicants had $320 left over after deductions for living expenses earned while running the courier business (which Mr Robberds commenced at the end of February 2004). 108 The applicants in reply remind the Court of Mr Robberds' evidence which was that he told Mr Turner he "wanted out" in late March or early April 2003. He was perfectly frank in his affidavit and oral evidence. The worst that can be said is that he assigned the wrong date to the conversation with Mr Turner. It does not follow from this that he misled or deceived the Court. The supposition put forward by the respondents that Mr Robberds could not have become worried after only six days about the trading position of the franchise in any event is not supportable. This is because even after six days of trading the applicants would have been in a position to compare the revenue generated with what they had been told for example about the first days trading of the franchise at the Knox shopping centre. In addition the applicants' assessment of the viability of the franchise and that they "would soon go broke" turned out to be entirely correct. The applicants had legal and accounting advice 109 The applicants retained solicitors in connection with the franchise agreement and the lease. The solicitors did not furnish any advice in relation to the trading performance figures provided by the respondents. Instead, they directed the applicants to their accountant. The applicants showed their accountant the figures. According to the evidence, she advised them that if the figures were correct, "the bottom line should be right". She did not advise them to seek independent verification of the figures. 110 The applicants submit that the fact that they had the opportunity to obtain legal and financial advice does not detract from the unfairness which was inherent in the practical operation of the franchise agreement and the wider arrangement. Nor do the disclaimer clauses in the franchise agreement assist the respondents. Such clauses may be properly characterised as "escape hatches" by which the respondents seek "to abandon and leave the applicants to their own devices and go perhaps scot-free of the various critical obligations and duties which they had held themselves out to provide": Australian Entre Business Pty Limited v Smith (1989) 29 IR 172, at 184. 111 The respondents contend, to the contrary, that the very contract alleged to be unfair was negotiated on the applicants' behalf by experienced commercial solicitors who extended the negotiations with the first respondent over three months, and, on Mr Robberds' instructions caused a number of changes to be made to the franchise agreement before it was executed. Nor does it follow from this that the applicants were in a position of disadvantage. The applicants also had recourse to an accountant's services. It cannot therefore be seriously pursued by the applicants that they were ill-prepared. The applicants' solicitors were also actively involved in the negotiations over the final form of the disclosure document and the lease in addition to the franchise agreement. Reliance for this submission is based on the contents of a letter from the applicants' solicitors to the first respondent dated 18 September 2002 in which requisitions were raised on behalf of Mr Robberds in relation to those three documents. The applicants' responsibility for their losses 112 The respondents claim that the applicants failed to take any responsibility for their losses. The applicants counter with several submissions, first that such claims by respondents are common and should be scrutinized carefully. Secondly, the claim is not supported on the evidence. Thirdly, and in any event, the claim serves to compound the unfairness in the franchise agreement and wider arrangement in that as far as the respondents knew, the applicants came to the franchise with no relevant experience. In fact, the "Chooka's system" was expressly marketed to prospective franchisees with no relevant experience. This is evident, for example, by the provision of the training regime in which new franchisees were promised that they would be, "trained about how to run a Chooka's Char-Grill Chicken store". Once the training was completed, new franchisees were assured that they would have the confidence and skills needed to operate a Chooka's store. Prospective franchisees were also provided continuing support and assistance through out the operation of the franchise. It follows from all this that the respondents must bear the responsibility for any lack of knowledge or skills on the part of the applicant. The "I want out" conversations 113 In addition to placing reliance on the evidence that the applicants sought to leave the franchise after six days trading to ground adverse credibility findings, the respondents advance the proposition that it could not have been a view reasonably held after only six days trading. The respondents rely here on the evidence of Ms Jackson who said that she could not have known even after six months whether her business was going to be successful, and, on the evidence of Catherine Poulter ("Ms Poulter") who said that it would take nearly a year to judge whether a franchise such as the Chooka's franchise at Erina Fair was going to be successful. 114 In addition to taking issue with the claim that the "I want out" conversation occurred after six trading days, the applicants submit that reaching such a conclusion in such a short time would have been in any event warranted because:

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(iv) providing the plan to the applicants to facilitate them leaving the franchise and thereafter facilitating and assisting in negotiations with Lend Lease which involved attending a meeting on 9 June 2003, and writing to Lend Lease on several occasions in relation to negotiating the rent abatement, as well as offering to purchase back the plant and equipment of the store for $100,000 and cover the "strip out costs". In addition Mr Turner offered the applicants a further $50,000. 117 The applicants in response say that the evidence does not support the proposition that the extended trading hours would, in any event, have made any appreciable difference to the trading performance of the Erina Fair franchise. The evidence was that on Thursday and Friday nights the whole of The Corner traded until 9.00pm, however, during that time only a few take-home dinner meals were sold. In the result when late night trading actually operated it had little appreciable effect on trading. It is therefore not possible to conclude that the position would have been any different if the applicants had been permitted to trade the extended hours. 118 Lend Lease also responded to the fact that the trading hours were less than they had been held out to be by Ms Garling on 25 October 2003. For the period between 26 February 2003 and 25 May 2003 Lend Lease varied the base rent by giving the applicants an abatement of $3,400 a month, with a total variation of rent of $10,000. 119 The fact that Mr Robberds came to the view that Lend Lease had some responsibility to compensate him and his wife because the trading hours were not extended does not advance the respondents' argument, since the premiss upon which it is based, namely that the shorter trading hours had a detrimental impact on trading results, is not made out on the evidence. 120 As the confidential evidence discloses, the applicants eventually came to terms with Lend Lease. Mr Robberds' unchallenged evidence was that no money had passed from Lend Lease to the applicants as a consequence of the settlement between them. At an earlier date, Lend Lease had made a more advantageous offer to the applicants. On the applicants unchallenged evidence, they were prepared to accept Lend Lease's final offer. The reason why it was ultimately not accepted and expired was that Mr Turner declined to give the release that was sought of him until the applicants gave him a release. Consideration

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(iii) the arrangement as it is argued by the applicants is not within jurisdiction because it does not lead directly to the performance of work. 133 As to the first proposition raised by the respondents no authority is cited in support of it, and, insofar as I am aware, the fact that a respondent may or may not be "in funds" is no basis for declining to proceed with an application under s 106. Nor does the fact that there is in existence a contract preclude consideration of a wider arrangement. 134 The second proposition has been earlier referred to in this judgment. Lend Lease were sought by the first and second respondents to be joined as a party to the proceedings in an interlocutory judgment of Staff J. The application was refused. The applicants could not join Lend Lease as a party because they were contractually obliged not to do so by the confidentiality provisions of the Deed of Release. Lend Lease is said by the respondents to be a "major contributor" to the failure of the franchise. This is because say the respondents Lend Lease represented, incorrectly, that the franchise would have the benefit of extended trading hours. In my view however this contention is not borne out by the evidence which was that on Thursday and Friday nights, when "The Corner" traded until 9.00pm only a few take home dinners were sold. The hours in fact had little appreciable effect on trading. It cannot be inferred from this evidence that the inability to trade during extended hours was the major cause of the franchise's failure. In the absence of other evidence to the contrary the point contended by the respondents is simply not borne out. 135 The third proposition bears fuller analysis. 136 In Howitt & ors v Retec Limited & anor (1992) 45 IR 245 Hungerford J had before him two arrangements referred to as the "Zest Agreement" and a service agreement. His Honour considered whether these two arrangements if separate contracts, together amounted to an arrangement whereby work was performed in an industry so as to be caught within the jurisdictional scope of s88F of the 1940 Act. In considering the issue His Honour relied on a passage from Custom Credit Corporation v Goldsmith and ors (1976) AR 98 in which it was held by the Industrial Commission in Court Session (at 131):

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But it must be true to say, we think, that it is significant that Parliament did not see fit to include in the Act any definition of "arrangement", which is not a term of art and is not a word which has a very precise meaning. Looking at the setting in which it is used in s88F, we are of the opinion that in one of its meanings "arrangement" embraces transactions which do not give rise to contracts or obligations, that is to say, obligations enforceable at law; but we are also of the opinion that in another meaning it embraces a situation where there exist two or more separate contracts which, notwithstanding their separateness, are, given the facts, so sufficiently associated with each other in a practical sense as together to constitute an arrangement of which each contract is a part. 137 His Honour also relied on a further passage from the Custom Credit judgment, where it was held (at 134, 135): We think that all of these matters are consistent with the conclusion that there was a deliberately made plan or arrangement between the vendor and the lender for the purpose or to produce the effect of advancing the business interests of both and under which would be facilitated the obtaining of customers who would purchase dealerships from the vendor with moneys advanced by way of loan from the lender, and that neither the work contract nor the loan contract stands isolated from the other; and we are satisfied that the evidence of concerted action by both the vendor and the lender clearly establishes that such a plan or arrangement was in fact made and existed. The plan or arrangement, of course, could not at the time of its making come within s88F because it did not at that stage result in or have the effect of a person working in an industry. We are of the opinion, however, that, when in a particular case the initial plan or arrangement was widened, as it were, by the involvement of a worker who entered into a work contract with the vendor and a loan contract with the lender, a new arrangement whereby a person performed work in an industry, and thus one falling within the ambit of s.88F, ipso facto sprang into existence, the parties to which were the vendor, the lender and the worker and components of which were the work contract and the loan contract.

[158]

It is nothing to the point that the lender may have acted in good faith in all that it did, or that its procedures, as related in evidence by Buxton and Lees, for procuring applicant's for loans, for testing applicants' for credit and assessing in each case whether to make a loan or not, for having the applicant advised by an introducer (in these cases, the vendor) when a loan was approved and for having the introducer make the arrangements for the borrower to call at the lender's office to execute the loan contract may have been those in general use by lenders of money, and were applied by this particular lender in the same way in all cases and irrespective of whether an applicant approached the lender through an introducer or not. We think that, however good in faith and however in keeping with commonly observed practices may have been its actions, once the lender became a party to an arrangement within the meaning of the section it exposed itself to whatever consequences that might bring , and, should the Commission decide that it was proper to declare void such arrangement, and with it any transaction which was part of it, was liable to bear that consequence. 138 By reference to the above two passages, Hungerford J found (at 259) that on the facts before him, the Zest agreement and the service agreement, if viewed as separate and independent contracts may nevertheless be said to properly constitute an arrangement whereby work was performed in an industry. 139 In the Custom Credit case an organisation carried on its business by entering into contracts called "dealership agreements" with individuals whom it called "dealers". Under the contracts the organisation granted to a dealer a right to handle rental of equipment which it was intended the dealer would hire to users, and, when the purchase price was paid in full, its "right title and interest" in the equipment. In return, the organisation became entitled to be paid the purchase price and to receive a specified weekly sum as commission for all rental business given to the dealer. The organisation had additional obligations to the dealer by way of procuring customers for him, and, if the dealer could not pay the purchase price the organisation was obliged to arrange for the dealer a personal loan. In the event such a situation arose, the dealer, by arrangement so made, borrowed from a finance company, being the Custom Credit Corporation. Goldsmith, the respondent before the Commission in Court Session entered into a loan agreement with Custom Credit. Goldsmith later brought an application at first instance under s 88F of the 1940 Act seeking a declaration that the dealership arrangements including the loan contract with Custom Credit were void. The Full Bench of the Commission in Court Session upheld the orders of the trial judge who made orders avoiding both the dealership contract and the arrangements including the loan arrangement with Custom Credit. Orders were also made that the organisation and Custom Credit were jointly and severally liable to pay certain sums of money to the dealer, Goldsmith. 140 The Custom Credit case contains many pertinent analogies to the present proceedings. Under the territory licensee agreement between the first and third respondents executed on 17 May 2002, the first respondent paid the third respondent a licence fee in the sum of $225,000. This sum was payable pursuant to an arrangement made with the first respondent that the third respondent would be paid a deposit of $25,000 with the balance being paid from franchise fees from prospective franchises that the first respondent established in New South Wales. In relation to these franchise fees, the third respondent was to directly receive on the opening of each franchise outlet $10,000 plus GST (referred to as a franchise consent fee). The sum of $20,000 plus GST would also go to the third respondent towards payment of the licence fee. In addition to these payments, the third respondent, under the terms of the territory licensee agreement was to receive one quarter of all royalties payable to the first respondent by the New South Wales franchisees. Under the terms of the territory licensee agreement the first respondent was to promptly report any "significant deficiencies" noted in the operation of a franchisees' business to the third respondent, and, conduct training programmes for the franchisees with the assistance of the third respondent. The third respondent, under the agreement required the first respondent to provide particulars of any complaints made by any franchisees about the Chooka's system and the third respondent agreed to provide "ongoing assistance with respect to its products and services, and, provide "reasonable assistance" to the first respondent upon request relating to the operation of the New South Wales (and ACT) franchises. 141 In summary, the success of the territory licensee agreement was contingent upon the success of the first respondent in entering franchise agreements for consideration with prospective franchisees with the proceeds of the fees being used to pay the Licence Fee owed to the third respondent as well as additional monies paid by those franchisees by way of a franchise consent fee and royalties of which the third respondent was also a beneficiary. 142 As adverted to earlier in this judgment when the franchise agreement was entered into between the first respondent and the applicants, monies were payable and paid to both the first and third respondents by the applicants. To adopt the words of the Full Bench in the Custom Credit case, I find that the territory licensee agreement and the franchise agreement were so sufficiently associated with each other in a practical sense as together to constitute an arrangement of which each agreement was part. The effect of the arrangement was to advance the interests of both the first and the third respondents by the obtaining of prospective franchisees who would in turn, under the arrangement, enter into franchise agreements for the benefit of both respondents. This evidence of concerted action establishes that such an arrangement was in fact made and existed. As soon as the applicants entered into the franchise agreement and commenced trading the arrangement then became one whereby a person performed work in the retail industry, the parties to which were the first and third respondents and the applicants, and the components of which were the territory licensee agreement and the franchise agreement. 143 The two arrangements however, insofar as the applicants put their case, do not constitute the whole of the relevant arrangement which is also said to comprise the pre-contractual representations. In the Custom Credit case the Full Bench made the observation earlier quoted in this judgment in relation to Custom Credit's participation in the arrangement as the lender (at 135):

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We think that, good in faith and however in keeping with commonly observed practices may have been its actions, once the lender became a party to an arrangement within the meaning of the section it exposed itself to whatever consequences that might bring, and, should the Commission decide that it was proper to declare void such arrangement, and with it any transaction which was part of it, was liable to bear that consequence. 144 In Ace Business Brokers Pty Ltd v Phillips-Treby (2000) 100 IR 420 at 432 the Full Bench of the Industrial Relations Commission in Court Session commented on the above paragraph extracted from the Custom Credit case in the context of whether or not representations made to induce entry into a franchise agreement may, together with the agreement, constitute an arrangement whereby work is performed in an industry. At 432 the Full Bench made the following observations: True it is in that case that the lender was found liable to an order for the payment of money in relation to an arrangement to which it was a party, but, importantly it seems to us, the lender's connection with the contract between the individual dealers and the vendor of the equipment was such as to create a relevant connection. In any event, of course, by applying that reasoning to the present case it may not unreasonably be found that the representations made by the appellants thereby inducing the respondents to make the challenged franchise agreement themselves created an arrangement connected to the agreement itself, or perhaps even collateral thereto, so as to be within the scope of ss 105 and 106 of the Industrial Relations Act . In a very real sense, it seems to us, the making of representations known to be acted upon by a person in considering entry into a contractual relationship and on the basis of which representations an agent as the representor intends the person to act may well, quite apart from any other connection with the contract subsequently made, be itself an arrangement whereby work is performed in an industry or, at the least, a collateral arrangement to such a contract or arrangement. 145 Although the Full Bench in Ace Business Brokers found it unnecessary to decide the point, the purport of the observations appears to be a reasonably strong indication that if the circumstances so present themselves that representations are made with the intention of the representee acting upon them, and, in the knowledge that they are acted upon by entering into a franchise agreement, then those representations "may well" constitute, together with the agreement, an arrangement, whereby work is performed in any industry. In my view, the pre-contractual representations the subject of these proceedings, constituted part of the arrangement. Those representations it seems to me were made in a very real sense by the natural respondents, Mr Turner and Mr Payne in a concerted effort to convince the applicants to enter into the franchise. 146 The principal and critical representation upon which the applicants base their case is the turnover representation. On the undisputed evidence this representation was made to the applicants by either Mr Turner or Mr Payne at various times and on several occasions prior to the making of the franchise agreement. A brief summary serves to confirm this:

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161 I do not find that Mr Robberds deceived or misled the Court in any way in relation to the evidence he gave which I have referred as going to peripheral issues. Mr Robberds does not dispute that he told the respondents that he "wanted out" of the business. The only divergence in the evidence concerns the date, that is, when he informed the respondents. Mr Robberds said it was towards the end of March 2003 or early April. The reason Mr Robberds "wanted out" was because he had compared the March trading figures with the extended monthly sales figures set out in the document headed "Chooka's Char-grilled Erina Fair" and realised that there was a "huge" or "horrendous" gap between the actual figures and the estimates. This evidence suggests that Mr Robberds' nominated date is more than likely the accurate date, since the March trading figures would not have been available until the end of that month. Moreover, it is not so much the substance of the evidence which is in issue but the date on which the conversation is said to have occurred. 162 For completeness, the two other areas of Mr Robberds' evidence which are under attack on credibility grounds may be dealt with quickly. The fact that Mr Robberds omitted to mention in his evidence in chief that the $15,000 was paid to him by Robberds Courier Services, and that he and his wife took with them certain items of equipment when they vacated the premises does not warrant an adverse finding being made against Mr Robberds in relation to this evidence or in relation to any other aspect of his evidence. I found Mr Robberds on these issues to be frank in the witness box under cross-examination. The fact that both issues came to light for the first time during cross examination is no basis for making adverse findings. 163 Returning to the issue of the turnover representation I find that, in addition to the independent written material which asserted in many instances that the applicants could expect a turnover in excess or in the vicinity of one million dollars, Mr Turner on several occasions made oral representations to the applicants to similar effect. 164 The turnover representations had a pivotal influence on the Robberds' decision to enter the franchise. The figures told to the applicants were largely estimates or projections, except for the "New Farm figures" which purported to represent actual takings. No doubt figures representative of actual takings were not readily available at the time the applicants entered into the franchise agreement, because Chooka's was a relative newcomer to the market. It had only seven stores nationwide, and none operating in New South Wales. Notwithstanding that the figures purported to be estimates or projections and, notwithstanding the claims made by the respondents that those figures could not be guaranteed, they were, in my view, provided to the applicants in order to encourage and convince them to enter the franchise agreement. Moreover, the applicants were entitled to rely on the figures as accurate and representative of potential actual takings. The applicants were not provided with just one set of figures which purported to represent potential takings in the vicinity of one million dollars, they were consistently provided over a short intense period of time with several sets of figures which must have served to reinforce the expectation encouraged by the respondents that they would generate a similar or equivalent amount in their own business. Nor can the documents containing the projected figures be dismissed as mere historical data. The only reason for providing them to the applicants was to convince them that the franchise, should they choose to enter into it, had the capacity to generate similar earnings. Given this was the intention on the part of the respondents it must follow that the figures were meant to represent achievable, realistic, and attainable takings. 165 Mr Turner sought to explain why he made certain representations as to turnover by saying that he relied on information given to him by Mr Payne, although he did not make his own independent inquiries to attempt to verify the information. This evidence does not assist Mr Turner. His acceptance of what he says was furnished by Mr Payne without making further inquiry is no basis for making those representations to the applicants. The evidence reveals that Mr Turner and Mr Payne had no proper foundation upon which to advance the representations, and, those representations were misleading. They were also critical in the decision of the applicants to enter the franchise. 166 The representations moreover were not borne out on the evidence. After one month's trading, Mr Robberds discovered the "huge" gap between what had been represented to him and the reality. The applicants in fact suffered devastating losses. They had sold the family home in order to finance the franchise. 167 I find that the representations as to turnover by Mr Turner and Mr Payne bore no resemblance to any achievable reality, and, that this was known to be so by both persons in order to induce them to enter into the franchise agreement. This renders both Mr Turner and Mr Payne culpably associated with the making of the agreement and wider arrangement and renders the agreement and arrangement unfair. 168 Unfairness in relation to the agreement and arrangement is also manifested in other areas of the evidence. The respondents for example submitted that the applicants were not in any category of disadvantage when they entered into the franchise agreement and that they should therefore be responsible for their losses. I do not agree. The applicants had very little experience in running a business. Mr Robberds expressly told Mr Turner what level of business experience he and his wife had. By contrast Mr Turner had some five years experience in the franchising business and Mr Payne considerably more. The franchise system was marketed to prospective franchises who were not experienced in business. Training, support and ongoing assistance were provided to facilitate the introduction and operation of the franchise by franchisees who lacked franchise experience. The fact that the applicants had consistent legal advice and some accounting advice during the course of the negotiations leading up to and including execution of the agreement does not necessitate or ground a finding that there was no inequality of bargaining power such that the agreement or arrangement cannot be rendered unfair. Many authorities in this jurisdiction have found the requisite unfairness under s106 in circumstances where the applicants have had legal or accounting representation, or both, throughout negotiations leading up to the signing of the impugned contract: see for example Australian Entre Business Centres Pty Ltd v Smith & Anor (1989) 29 IR 172 at 183, 188; Oraka Pty Ltd and Wendy's Supa Sundaes. 169 Another aspect of the evidence which adds to the unfairness of the agreement or arrangement engendered by the turnover representation in particular is the disclosure document. Under the Franchising Code a franchiser is required to create a disclosure document before entering into a franchise agreement. The purpose of providing such a document is twofold and is intended for the assistance of the prospective franchisee. Under the Code a disclosure document is provided for the purpose of giving a prospective franchisee information so that he or she can make a reasonably informed decision about the franchise, and, to give a franchisee current information from the franchisor that is material to the running of the franchised business. According to the evidence here Mr Payne created the disclosure document and handed it to Mr Turner who in turn gave a copy to the applicants. The applicants were entitled to rely on the contents of this document. It was, however, seriously deficient in many respects. Annexure 1 to the Franchising Code of Conduct set out the required form and content of the disclosure document for franchised businesses with an expected annual turnover of in excess of $50,000. Item 19 of Annexure 1 contained the following requirements in relation to earnings information which had to be included in the disclosure document: 19 Earnings information 19.1 Earnings information for the franchise, if it is given, must be based on reasonable grounds. . . . . .

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19.5 Earnings information that is a projection or forecast must include the following details: (a) the facts and assumptions on which the projection or forecast is based; (b) the extent of enquiries and research undertaken by the franchisor and any other compiler of the projection or forecast; (c) the period to which the projection or forecast relates; (d) an explanation of the choice of the period covered by the projection or forecast; (e) whether the projection or forecast includes depreciation, salary for the franchisee and the cost of servicing loans; (f) assumptions about interest and tax. 170 The earnings information provided to the applicants by way of a projection or forecast I find was not based on reasonable grounds or any grounds at all. Mr Turner made no attempt to verify any of the information he says he obtained from Mr Payne. The evidence is not entirely clear as to the source of Mr Payne's information except for what is able to be gleaned on the face of the documents. In relation to Mr Payne's statement to Mr Robberds that the store at Knox shopping centre generated $3,000 on the first day of trading, Mr Payne says he believed that to be true. In relation to the page of figures he forwarded to the applicants by facsimile on 6 August 2002 Mr Payne said the figures had been supplied to him by the proprietors of other Chooka's stores, and he believed them to be accurate. Certainly, neither Mr Turner nor Mr Payne on the evidence, provided the applicants with any of the details required to be provided under Item 19.5 except perhaps information showing the period to which the projections purported to relate. 171 Another critical representation upon which the applicants place reliance in these proceedings is the fit out representation. Despite assurances to the applicants that the Erina Fair store would be, "the best presented shop in the Chooka's franchise system", from the beginning of trading the applicants experienced problems with the store's fit out. The fit out had been organised by Mr Turner who had received the sum of $143,000 from the applicants when the franchise agreement was executed. Mr Robberds spoke to Mr Turner and Mr Payne on several occasions about the problems. Mrs Robberds spoke to Mr Payne. According to the applicants, despite assurances from both Mr Turner and Mr Payne that the problems would be attended to, nothing was done. 172 The first and second respondents dispute the applicants' submission that the fit out was defective and unsatisfactory. Although the respondents are prepared to concede that a number of items required rectification the applicants were not they say prevented from operating the business, and, in any event, most of the defects were minor. Mr Ransley's evidence say the respondents with regard to the hot and cold bar has little weight because this is an area outside his expertise. 173 It is difficult to see how the capacity of the applicants to operate their business notwithstanding that items of plant and equipment required rectification, provides in some way a satisfactory answer to the present issue. What the evidence indicates is that the applicants were told that the fit out would be of the highest quality. They were entitled to rely on that representation. They paid a substantial sum of money in anticipation that the representation was accurate. It was not, as detailed by Mr Ransley in his affidavit. The respondents assert that part of Mr Ransley's conclusions (in relation to the hot and cold bar) were outside his area of expertise. This has not been established on the evidence. Mr Ransley was not required for cross examination. His evidence and his expertise are unchallenged. I therefore accept Mr Ransley as an expert and I accept his evidence in its entirety. 174 Against this evidence that the fit out was in some respects defective and otherwise unsatisfactory I find that the representation that the fit out would be "excellent" was not borne out in fact. Like the representation as to turnover the only reasonable inference available for the making of the representation was to induce the applicants by whatever means to enter into the franchise agreement. Like the representation as to turnover, the marked discrepancy as to what was represented to the applicants and the reality which confronted the applicants renders the agreement and the arrangement unfair. Mr Turner was responsible for the fit out. He organised it and no doubt was in a position to ensure the fit out met an acceptable standard. 175 The two further representations which require consideration at this stage are the ongoing assistance representation and the representation as to location. Despite the assurances of both Mr Payne and Mr Turner, as to the provision of assistance and support to facilitate the achieving of the applicants' financial goals, the applicants have contended that the actual assistance and support provided fell far short of the initial assurances. It should be emphasised that the context in which the representation as to ongoing advice and support is to be assessed arises in circumstances where the applicants' franchise failed from the outset to meet financial expectations. The applicants found themselves in financial difficulties from the very early stages of the franchise. The business was in operation for barely six months. The lack of assistance and support about which the applicants make complaint against Mr Turner and Mr Payne should be seen therefore against this set of circumstances. 176 It may be convenient to return briefly to the evidence in relation to the representation as to ongoing assistance and support. That evidence is sourced from the following material:

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(iv) the franchise agreement promised training assistance to franchisees, and, the provision of advice and assistance in the conduct of the franchise business including advice, visits and guidance in regard to a number of matters including new products, implementing advertising campaigns, sales techniques, pricing, administration, lay-out, decoration, fit out and equipment. 177 The focus of the promised assistance and support as outlined in the documentation is upon the ongoing operation of a viable franchise, and not, as here a franchise operation that never met financial expectations from its first day of trading. The applicants entered into the franchise agreement with high expectations that the business would be successful. The proposed assistance and support is to be seen in that context. In the result the applicants required a very different kind of assistance when it became obvious at an early stage that those high expectations were not being met. It does not follow from this assessment of the evidence that the representations as to ongoing assistance and support rendered the agreement and arrangement unfair. There was no real opportunity for the representation to be met, although the applicants did receive training shortly before entering into the franchise. The real vice in the arrangement was in relation to the turnover representation, and, to a lesser extent the fit out representation. 178 There is one final representation (the location of the franchise) upon which the applicants rely in their case. Under the territory licensee agreement the territory licensee's obligations included taking all reasonable steps to ensure that retail outlets were located in quality premises. On the evidence both Mr Turner and Mr Payne were involved in locating the Erina Fair site. The promotional material claimed as one of the many benefits of owning a Chooka's franchise, the location of an "appropriate site", and access to a site which individuals may not be able to secure on their own. The disclosure document included the acknowledgement: "The territory franchisor recognised that site selection is of major importance in the success of any retail business". Mr Turner began searching for potential Chooka's outlets in May 2002. He first went to Erina Fair on 24 May 2002 where Lend Lease showed him a plan of the precinct known as "The Corner". Mr Turner selected a shop in the precinct and was told by Lend Lease that the shop was in a prime site. A couple of days later Mr Turner returned to the shopping centre with Mr Payne. There they inspected the new precinct. Mr Payne thought the rent was "a lot". Mr Payne drafted a letter of offer for the site. Later on 25 July 2002 Lend Lease sought to interest the respondents in another site located in The Corner described as a "prime site" opposite Coles. 179 At the time of these negotiations and later the parties were aware that the Erina Fair shopping centre was undergoing substantial redevelopment. When the applicants executed the franchise agreement and later commenced trading, sections of the Erina Fair centre had still to be opened up. In about June 2003 another food section opened for trading. This event coincided with a significant downturn in the franchises' trading figures which continued until the applicants vacated the business on 1 September 2003. 180 The applicants submit that the site did not prove to be a viable one. That may be so but there is little or no suggestion on the evidence that any of the respondents deliberately or culpably misrepresented to the applicants that the location would be satisfactory. On the contrary the respondents, it seems to me, genuinely held the belief that the location was and would be a good one. Nor should the respondents be held liable in some way because a new food court at Erina Fair opened up in June 2003 which may or may not have further impacted on the franchise's poor trading situation. 181 One further matter should be mentioned briefly. The applicants originally claimed as part of their case that a further representation, which I termed the trading hours representation, also resulted in the agreement and wider arrangement being unfair. I do not understand the applicants to be pursuing this claim. No submissions have been made on behalf of the applicants to the effect that the trading hours representation was made by the respondents and resulted in an unfair transaction or transactions. I therefore make no finding on this aspect except to say that it seems to me on the evidence that Lend Lease and not the respondents made the representation that trading hours would be extended. The applicants placed some reliance on this representation which turned out to be incorrect. Nevertheless, on the applicants' case it appears to have made little appreciable difference to the trading figures when the trading figures for the late night trading on Thursday and Friday nights were taken into account. 182 One final matter needs to be addressed before moving on to consider whether, having found the arrangement unfair, the application is amenable to relief. On 6 September 2005 I received a document headed "Supplementary Submissions" signed by Mr Newall of counsel on behalf of the third and fourth respondents which contains a further argument that the impugned agreement is not within jurisdiction. The supplementary submission is dated 31 August 2005 and does not appear to have been filed in the Registry. The argument concerning jurisdiction advanced in the submissions purports to be based on a recent decision of the Court of Appeal New South Wales in McDonalds Australia Holdings Ltd & Anor v Industrial Relations Commission of NSW & 2 Ors [2005] NSWCA 286, 25 August 2005. 183 According to the submissions the effect of the McDonalds decision is that the Court in the present proceedings has no jurisdiction to proceed with the matter, both in relation to the franchise agreement and the wider arrangement. It will be recalled that the initial position of the third and fourth respondents in relation to this aspect was a concession that the franchise agreement was within jurisdiction. That concession has now been withdrawn. 184 On 8 September 2005 I heard further oral submissions on the point made by Mr Metcalfe on behalf of the first and second respondents, and by Mr Neil on behalf of the applicants. I have taken all of these submissions into account in this judgment. 185 In McDonalds the majority, Mason P and Handley JA held that a series of transactions comprising leases and licences were not collectively or separately contracts, whereby one of the opponents, Mr McLaughlin performed work in any industry. By way of brief background McDonalds authorised McLaughlin's Family Restaurants Pty Ltd (MFR) and Mr McLaughlin, pursuant to the licence and lease agreements to operate from McDonalds Restaurants in New South Wales. Spigelman CJ, in the minority found that the agreements fell within s106(1) because he was bound to follow the authority of Stevenson v Barham. His Honour said (at [51]): ...the literalist test adopted in Stevenson v Barham , which this Court must apply, prevents the Court from concluding that the role performed by a proprietor of a business as such is not encompassed by the statutory formulation of 'performance of work in an industry. 186 Handley JA, with whom Mason P agreed found that the agreements fell outside the meaning of s 106(1). In so finding his Honour distinguished the factual circumstances from those found in Majik Markets and Caltex Oil (Australia) Pty Ltd v Feenan [1981] 1 NSWLR 169. In both those cases the requisite jurisdiction under s 106(1) was found to exist. The major distinguishing feature for Handley JA appears to be the size of the workforce of the working proprietor's company which employed some 350 staff. By contrast in relation to the factual circumstances in Feenan and Majik Markets his Honour said: I have no difficulty in characterising the franchise agreements in Feenan and Majik Markets as contracts within the section although they contemplated the employment of additional staff by the franchisees. The Court could also find, without difficulty, that the terms of the contract had a recognisable and direct impact on the working conditions and remuneration of the proprietors. 187 In the present circumstances the facts are more closely akin to those before the Court in Majik Markets, and to which I have earlier referred in this judgment. Here the franchise agreement was between the first respondent and Mr and Mrs Robberds, and, as I have found led, directly to the performance of work by the applicants. The McDonalds decision therefore does not impact on my earlier finding that the impugned franchise agreement falls within s 106(1). Orders sought

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(iv) the fit out representation made by Mr Turner and Mr Payne. 190 Having made these findings it is not strictly necessary to make a further finding in relation to the franchise agreement, as to whether the second, third and fourth respondents as non-parties are so sufficiently connected or associated to the franchise agreement that monetary orders may lie against them. Nevertheless having earlier found that Mr Turner and Mr Payne by reason of having made the turnover and fit out representations are culpably associated with the making of the franchise agreement it would follow as a matter of course that the necessary association or connection exists such that appropriate orders would also lie against them as non-parties: Brown v Rezitis (1970) 127 CLR 157 at 164; TNT Management Pty Ltd & Anor v White & Ors (1984) 7 IR 331; Ace Business Brokers Pty Ltd at 430 - 436. In my view, Mr Turner and Mr Payne were co-participants in deliberately misrepresenting to the applicants the anticipated trading performance of the franchise. The applicants acted upon the misrepresentations to their detriment. The turnover representation was by far the most critical representation that influenced the applicants to enter the franchise. 191 In relation to the third respondent I found that the territory franchise agreement to which it was a party and the franchise agreement were so sufficiently associated with each other in a practical sense as together to constitute an arrangement of which each agreement was a part. The effect of this arrangement moreover was to advance the interests of both the first and third respondents through the obtaining of prospective franchisees, like the applicants, who in turn entered into the franchise agreement for the benefit of both respondents. As soon as the applicants entered into the franchise agreement and commenced trading the arrangement then became one whereby persons performed work in any industry. 192 It follows from these findings that in the absence of a finding that there existed an arrangement as characterised, there nevertheless exists the necessary connection of the second third and fourth respondents to the franchise agreement as non-parties either on the basis that they had received monies paid by the applicants under the franchise agreement (the third respondent) or were culpably associated with its making or operation by reason of misrepresentations made as to turnover and fit out (the second and fourth respondents): Brown v Rezitis at 168. 193 Although the applicants have asked in the first instance for the arrangement to be varied the more appropriate course in my view, bearing in mind the arrangement has come to an end, is to void the arrangement ab initio except to the extent of any monies paid to the applicants. 194 The power to make orders for the payment of monies which have been paid under the contract or arrangement extends to "ordering the payment of money where the order on the larger view of the jurisdiction given by the sub-section could be considered to be appropriate to effect wholly or partially the situation of the parties to their former position upon the variation or avoidance of the contract or arrangement": Brown v Rezitis at 165. 195 The applicants seek the following monetary orders: (a) the full amount of the purchase price they paid in respect of the franchise being $303,822. (b) less the sum of $32,000 that they received from Mr Turner for the fixtures and equipment he purchased, less the cost of recovering it; (c) plus the legal costs associated with the franchise agreement, being $3,416.21; (d) plus the full amount of the trading losses, being $127,798 or, in the alternative, $83,403; (e) plus the amount they would have earned had they done work as employees; and (f) plus interest in the amounts in (a), (c), (d) and (e) at the rates prescribed under the Supreme Court Act 1970, giving a total of $403,036.21 (or in the alternative $358,641.21) plus the amounts in (e) and (f). 196 The two amounts of trading losses in sub-paragraph (d) immediately above are derived from the applicants' trading losses being $127,798 less the franchise ($33,000 inclusive of GST) and depreciation ($11,390) giving a total of $83,408. 197 The amount sought by the applicants for work done as employees is recognised as an order that may be made in Brown v Rezitis. It was acknowledged in that case that orders of the kind contemplated under the section may be made in relation to an amount referable to the award rate which the parties to the contract performing the work would have received had they been employees: see TNT Management Pty Ltd at 335. 198 In McDonald's case, Spigelman CJ, with whom Mason P and Handley JA agreed, found that the arrangement before him was not within jurisdiction because there was an insufficient connection between the relief sought and the performance of the work. Neither the company, MFA, nor McLaughlin provided services to or on behalf of McDonalds and neither did McDonalds pay MFA or Mr McLaughlin for the provision of work directly or indirectly. 199 According to Spigelman CJ there must be a close connection between the relief sought and the performance of work (at [78], see also Solution 6 at [95]). In relation to the franchise agreement, however, his Honour said it did not follow from this that something analogous to a payment by one party in exchange for the performance of work by the other party to a contract was essential to ground jurisdiction. 200 In my view the arrangement the subject of the present proceedings was closely related to or connected with the performance of work by the applicants in so far as the purchase price for the franchise and the applicants' trading losses are concerned. These monetary amounts are referable to the arrangement. To return briefly to the relevant evidence on this point, the territory licensee agreement provided for the payment of a franchise consent fee on the opening of a franchise. It also expressly provided that payments of the licence fee would be directly sourced from franchise fees paid by the franchisees to the first respondent. One quarter of royalties payable to the first respondent by the franchisees was in turn payable to the third respondent. Under the franchise agreement the applicants agreed to commence trading on the commencement date of the franchise, and, "operate the business continuously and remain open for trading at all times as permitted by law and the lease". The applicants paid the franchise fee, a franchise service fee and the fit out cost as required under the arrangement. They commenced trading at Erina Fair shopping centre on 7 March 2003. 201 The arrangement contains no provisions for payment of wages or salaries to the applicants in exchange for the performance of work. A relationship akin to that of employee-employer whereby the employer pays a wage or salary to an employee in exchange for the provision of work or services is not a feature common to a franchise. 202 The Franchising Code contains a definition of a franchise agreement ( in clause 4): 4 Meaning of franchise agreement (1) a "franchise agreement" is an agreement: . . . . .

Gregory Mervyn Robberds and another v Turner Franchising & Allied Services Pty Limited and others

At a glance

Court

Decision date

Before

Source

Judgment (206 paragraphs)

Parties

Cases Cited (18)