(g) the fact that driver discounts (discounts on sales given by drivers to customers as a result of complaints) increased from 0.42% of sales under the defendants to 1.3% of sales under the plaintiffs. They also pointed to the fact that Mr O'Callaghan stopped ordering from the plaintiffs because of the decline in product and service compared to the position under the defendants, and that he now ordered from other pizza suppliers including Pizza Hut.
120 Though the defendants contended that there were many possible causes for the decline of the business apart from competition from the new Pizza Hut delivery outlet, there was no specificity as to what they were, except the claim of business ineptitude. In several respects the trial judge's rejection of business ineptitude was based on credit findings. First, the rejection of the nine witnesses on the subject was credit based. Among those nine witnesses were two who were subjected to particularly severe attack, mostly not appealed against, namely Mr and Mrs Hardy. Another of the nine witnesses was Mr Brooks, severely damaged by his purported support for Mr Hardy's fabricated evidence about Mr Tidyman. Yet another was Mr Leatham, whom the trial judge had rejected in relation to this evidence that Mr Matthews had known about the new Pizza Hut delivery outlet before completion. Secondly, the trial judge's credit-based acceptance of Mr Matthews favoured adoption of his evidence that he had done all he reasonably could to make the business work. He, Glenn Matthews and Linda Matthews, worked long hours. The store operated for longer periods than required by the Franchise Agreement. He opened the store for lunch every day. He terminated payment of his wife's salary. He monitored food costs. He instituted numerous measures to increase productivity. He advertised extensively by means of "killer leaflets" (offering very cheap product) and in other ways (Blue 1/17-18 and 264-266; Black 223Q-1/228R).
121 There was some independent evidence that the decline of the business coincided with the commencement of the new Pizza Hut delivery outlet. In order to assess the significance of that evidence, it must be remembered that despite the defendants' attack on the plaintiffs' business competence, and as part of that attack, the defendants tendered through Mr Leatham, Pizza Haven Field Service Manager for New South Wales, certain Pizza Haven business records, being records of surveys of shoppers. These revealed that in the last months the defendants were in charge (between July and October 1996) they scored 62%, 61% and 60%. In the early period of the plaintiffs' operation, they scored 60%, 70%, 86%, 76%, 50% and 76% from October 1996 to June 1997 (Blue 2/535 and 537-542; Black 4/893-896). Mr Leatham agreed that the total score percentage line showed in general an improvement from and after November 1996, in which month the plaintiffs began to run the business without any assistance from the Hardys. This is evidence of superiority under the plaintiffs, even though Mr Leatham said the desired target was 90% and anything below 80% required action. The defendants submitted that the percentages referred to, though they reflect the results of individual survey forms completed during random surveys of members of the public within Pizza Haven Franchise Area No 41 by Pizza Haven Head Office, show the experiences of only eight members of the public over a year. They submitted that the lower scores gained by the defendants for the last month of their tenure related to only three customers; the results for the previous year were not in evidence; and the July, September and October 1996 period was not a representative sample. It was the defendants who put this evidence in, and presumably could have put in evidence for other periods; Pizza Haven must have thought the surveys had value as a guide to efficiency; and the defendants must have thought so too, because their counsel went to great lengths to obtain explanations about the genesis and significance of the documents in Mr Leatham's oral evidence in chief (Black 4/879-893).
122 The defendants also called evidence in the form of Pizza Haven business records tendered through Mr Christou, who with his three brothers ran the Pizza Haven franchisor company, proving the sales of the business from the time when it opened in the week ending 15 June 1993 to the time when it was sold by the franchisor in September 1998. These documents revealed a growth from $10,919 in the first week in June 1993 to a peak of $30,086 in the week ending 2 January 1996. The figures for the four weeks before the new Pizza Hut delivery outlet opened on 11 October 1996 were $20,574, $21,536, $22,401 and $21,596. The next week (being the first week that the new Pizza Hut outlet operated) produced sales of $18,775. The next week grossed $16,363 (a fall of $5,233 in two weeks, or 27% - not a fact, incidentally, revealed to the plaintiffs before completion). Those two weeks were the last two weeks of the defendants' ownership. Though the defendants pointed to other quite large drops and rises from week to week from 1994 to 1997, there had never been so large a fall over a two week period. That is, on occasion there was a large fall in one week followed by a partial recovery in the next. Over the previous three years the trend was always up. The next two weeks, under the plaintiffs' ownership but with the defendants in attendance helping, produced $15,661 and $16,602. From then on there was a steady decline. The two weeks in 1996-7 corresponding to the week ending 2 January 1996 (which generated $30,086) grossed $14,632 and $16,760. In the week ending 11 November 1997 the plaintiffs abandoned the business and the franchisor took over. The figures achieved under its control were even worse. That fact alone negates the plaintiffs' business ineptitude as an explanation for what happened: if the franchisor itself, which purported to train, advise and warn franchisees, with its nation-wide and intense experience of operating the Pizza Haven chain, could not do better than the plaintiffs and return the business to where it had been, there must have been an external circumstance confronting the business which was beyond the control of even the most capable operator. If, as the defendants submitted, the decline was caused by simple matters such as the failure of the plaintiffs to deliver pizzas quickly or at a warm temperature (the evidence for which was not extensive in any event), it must have been capable of being arrested by the franchisor. It was not. The only evidence of an external circumstance incapable of being controlled by an efficient business operator was the evidence that on 11 October 1996 the new Pizza Hut delivery outlet opened.
123 Neither side sought, by means of subpoenaing Pizza Hut documents or large-scale consumer surveys, to demonstrate what levels of success the new Pizza Hut outlet had. An endeavour to do so would no doubt have caused the costs to swell beyond their already wholly disproportionate levels. There is some force, however, in the conclusion that Pizza Hut planned to enter the area with a view to success, did so on a large scale, and were accustomed to compete vigorously. The evidence of Messrs Tidyman, Purkiss, Neumann, Hardy, Walker, Baird and Acheson discussed in paragraphs 59-62 above, suggests that the threat which Pizza Hut posed was likely to be damaging when it materialised. If total sales were unchanged, the likeliest cause of Pizza Haven losing sales would be Pizza Hut's gains in sales. There was no evidence as to whether total sales were unchanged. There was some generalised evidence that the entry of Pizza Hut would have been likely to cause total sales to rise. But even if they did rise, Pizza Hut was facing much greater competition in 20% of the area than before, accepting that it enjoyed something less than a monopoly. Mr Neumann said Pizza Hut was "a major long term threat" to the defendants' franchise which "could cause a permanent depression of sales". Mr Baird saw it as "a significant element of new competition" which "had to be taken very seriously by" an incoming franchisee. Mr Acheson said, contrary to the arguments of the defendants on appeal about endemic sales fluctuations and the ending of school holidays, that even if Mr Hardy had been managing the business up to and including 22 October 1996 in accordance with his usual standard, it was "likely" that the drop in sales was caused by the opening of the new Pizza Hut outlet on 11 October 1996, and that that opening was a reason for the drop in sales thereafter, assuming that the Matthews were running the business as well as or better than the Hardys. There was evidence that they were.
124 In short, the arguments put by the defendants on the general character of the pizza delivery business as being merely a small part of the fast food market, and the position of the defendants' business in Pizza Haven Franchise Area No 41 just before 11 October 1996, as a means of attacking the trial judge's findings on misleading conduct were largely rejected above. The trial judge made some errors, but they were trivial. The redeployment of these arguments for the different purpose of attacking his conclusions on causation is equally unconvincing.
125 The defendants pointed to evidence that they had controlled costs, that costs rose under the plaintiffs, and that driver discounts rose under the plaintiffs. In particular Mr Christou's statement is full of ex post facto criticism of the cost levels under the plaintiffs. Leaving aside the fact that his company's officers apparently never told the plaintiffs much about this, if it were valid, at the time when it might have done the plaintiffs some good, none of this explains the steep fall in gross sales, which must have been the fundamental reason for the collapse of the plaintiffs' business.
126 The defendants in the end placed little reliance on the evidence of the nine "ineptitude" witnesses except for Mr Christou and Mr Acheson. Mr Christou was certainly well qualified by his experience of running the Pizza Haven franchise business as director of the franchisor. But his statement was prepared at a time when his company was a defendant. He had an interest in down-playing the impact of the new Pizza Hut business. Indeed, though in general terms the merits of Mr Christou's evidence were urged on the court, the court was taken to very little of it.
127 Rather, particular reliance was placed on Mr Acheson. He was on the face of it well-qualified and independent. The general character of his evidence consisted of generalised reasoning to the effect that the decline in sales could not have been caused by the new Pizza Hut outlet. The trial judge's criticisms of this evidence as not conforming to traditional criteria applicable to expert evidence have some force. Though the evidence was not objected to, those criticisms legitimately bear on its weight.
128 The defendants argued that the rejection on credit-based grounds of Mr Acheson's evidence related only to the issue of business competence. They submitted that they:
"rely on his evidence on the issue of causation generally, in particular to show that the impact would be of short term duration only and could be mitigated by good marketing strategies and good service [Black 4/960R] and for the propositions that because the market is the fast food market generally, the expansion of competition in the pizza area does not produce a direct reduction in pizza sales [Black 4/971W]; because sales of pizza are inherently liable to fluctuation and influenced by a number of factors, causation by Pizza Hut's expansion cannot be inferred ([Black 4/957R] - referring to the decline in the two weeks immediately prior to settlement)."
129 The fundamental difficulty with Mr Acheson's reasoning is that he offered very general theories of franchising which were not closely anchored to the facts of Pizza Haven Franchise Area No 41. An example is his evidence which the defendants relied on at Black 4/957R. At Black 4/957R-958N the following appears:
"Q. You are happy to attribute the whole of the fall in sales in the weeks ending 15 October and 22 October to the opening before Pizza Hut?
A. Well, not necessarily but -
Q. What else might have caused it, Mr Acheson?
A. A myriad of factors.
Q. Such as?
A. There could have been particular events in that area at that time, people may be paid monthly, I haven't --
Q. - I am sorry, people paid monthly?
A. People could be paid monthly or fortnightly.
Q. These are sales figures?
A. Sorry. The way the customers are paid can effect the weekly sales. The way they are paid by their employers, not the employers of the outlet, I'm sorry.
Q. I'm sorry, I don't understand your last answer at all, could you explain it?
A. I am not suggesting that it necessarily is a factor here but in certain localities the way that you will occasionally get greater sales if people in that locality are paid by their own employers, not the Pizza Hut or Pizza Haven, they are paid monthly or fortnightly rather than monthly so they have more disposable income.
Q. If that were the case you would [expect] the sales to jump up in the succeeding weeks, wouldn't you?
A. Yes.
Q. They didn't you can see that?
A. They have gone up in the last week of the month.
Q. They haven't gone within cooee of the 21,600 which was the level of the week end of 18 October 1996 have they, so you can rule out that hypothesis?
A. It is not a large factor in this situation, no.
Q. The overwhelming probability, in your expert opinion, Mr Acheson, is that the fall in sales in the weeks ending 15 October and 22 October 1996 was caused by the opening of Pizza Hut?
A. That's likely to be the major factor, I don't know what was happening in the actual outlet, I can't be definitive in the sales. Is it when the Pizza Hut opened, what sort of sales they did, there may have been a McDonalds that opened."
130 The plaintiffs launched a strongly worded attack upon Mr Acheson's objectivity. They referred the court to extensive passages of his cross-examination. Those passages do demonstrate several instances of what was at best very feeble reasoning uninformed by the particular facts of the matter. For example, paragraph 15.1 of Mr Acheson's statement said that on "taking over the Pizza Haven Castle Hill store, the Matthews family elected to take on a more distant role in the operation of the business and were not 'hands on' operators" (Blue 2/550T-U). One basis of that was that Mr Matthews took a two week holiday in the United States before entering the contract and a one week holiday before completing it: that does not support the conclusion proffered. Another was that he lived on the Central Coast and "was somewhat senior in years" (Black 4/923F-924D). Paragraph 15.2 of his statement said: "The Matthews family were often not on hand during the busiest periods of the business" (Blue 2/550W). The evidence for this was that he had been told that the Matthews "were apparently having some refreshment across the road" on one occasion (Black 4/924M). Paragraph 15.4 of his statement said: "No steps were taken to improve the performance of the store both in terms of profitability and in delivery of quality product and service" (Blue 2/551G). That was contradicted by the evidence of the steps which Mr Matthews did take. At Blue 2/553R-S Mr Acheson's statement asserted: "I believe that the loss suffered by Mr Matthews was occasioned by poor management control by him and the other members of his family who were not involved but had cars, salaries and other expenses charged to the business". In cross-examination he revealed complete ignorance of who were and who were not involved in the business and what expenses were charged (Black 4/927C-928V). At Blue 2/564J he said: "I do not understand why Linda Matthews was being paid a wage". In cross-examination he said, amid a degree of evasiveness, that it did not occur to him to inquire whether she was working in the business (Black 4/928W-930V). He attributed the increase in sales achieved by the defendants to their careful attention to the operations manual without making inquiries on the subject and without listing other contributing factors (Black 4/934H-936N and 939G-H). The trial judge's finding that Mr Acheson exaggerated and was biased or prejudiced against the plaintiffs and in favour of the defendants cannot be said to lack foundation.
131 The defendants' submissions went to quite extreme lengths. The submissions had to face the difficulty that as at 13 September 1996 there were particular competitors in Pizza Haven Franchise Area No 41, followed, after completion, by a drop in takings occurring more or less contemporaneously with the entry of the new Pizza Hut delivery outlet, coupled with evidence that nothing that the plaintiffs were doing in the running of the business could in itself account for the drop in sales. By themselves those facts would be a sufficient basis for drawing an inference that it was the introduction of Pizza Hut, a new and powerful competitor, that was causing the drop in sales. The defendants submitted that for that inference to be drawn the plaintiffs had to discharge a:
"burden of showing that everything was equal once they took over the business, so that the only explanation for their decreased takings was the new Pizza Hut. It would have been impossible for them to do it, because the mere fact that they were new proprietors was a change in the management."