Heaney Enterprises Pty Ltd v Just Cuts Franchising Pty Ltd [2018] VSCA 25

1 The respondent conducts a business as a franchisor of unisex hairdressing salons. It has approximately 170 franchises that are located mainly in shopping centres throughout Australia.

2 In October 2010, the applicant acquired a franchise from the respondent at the Point Cook Town Centre. In July 2011, the applicant acquired a second franchise from the respondent at the Pacific Werribee Shopping Centre, some seven kilometres from the Point Cook franchise. In November 2013, the respondent considered establishing a franchise at the Williams Landing Shopping Centre, some three kilometres from the Point Cook franchise. The director of the applicant was not interested and expressed concerns about the proximity of that franchise to the Point Cook franchise. In the event, another person acquired the Williams Landing franchise. Thereafter, sales in the Point Cook franchise declined and did not improve.

3 In January 2016, the applicant issued a proceeding in the County Court against the respondent seeking, among other things, damages for an alleged breach of the Franchising Code of Conduct and unconscionable conduct. Relevantly, the applicant contended that the respondent had denied it the right to negotiate an exclusive territory that would have protected the goodwill created by the Point Cook franchise. The respondent also filed a counterclaim seeking relief against the applicant for alleged breaches of the franchise agreements in relation to the Point Cook franchise and the Werribee franchise.

4 On 19 May 2017, the trial judge dismissed the applicant's claim for damages. He also dismissed the respondent's counterclaim. On 31 May 2017, he ordered that each party bears its own costs of the proceedings.

5 On 13 June 2017, the applicant filed an application for leave to appeal the orders made by the trial judge on 19 May 2017 and 31 May 2017. The application contains twelve proposed grounds of appeal. For present purposes, it is necessary only to extract the tenth and eleventh proposed grounds:

1. The judgment should be set aside in relation to the fraudulent evidence of the sole director of [the respondent] that [the respondent] had never varied the terms and conditions of the franchise agreement in relation to its provisions as to territory.
2. The judgment should be set aside in relation the [sic] failure of [the respondent] to discover the franchise agreements that contained an exclusive territory.

6 In its written case, the applicant contended that the falsity of the evidence given by the sole director of the respondent, Denis McFadden, was based on other evidence which was 'newly discovered'.

7 On 4 August 2017, the respondent filed its written case. In that written case, it contended that 'the assertion that this "false evidence is newly discovered" is unexplained, no "fresh evidence" is identified and there is no application to rely on any fresh evidence'. In relation to the assertion that it had failed to discover franchise agreements that contained an exclusive territory clause, the respondent contended that the existence of such documents had not been identified and that the applicant 'does not seek leave to admit fresh evidence of such documents or explain how such documents would have changed the outcome'.

8 On 23 October 2017, the applicant filed an application to adduce further evidence. Later, on 22 January 2018, it filed an application for leave to issue subpoenas to seven entities listed in an affidavit of Carolyn Jeanette Heaney sworn on 22 January 2018. The applicant said that the subpoenas 'are required to obtain further evidence that will be relied upon for grounds 10 and 11 of the application for leave to appeal'.

9 On 7 February 2018, the respondent filed its notices in opposition to the application to adduce further evidence and the application for leave to issue subpoenas. Among other documents, it filed an affidavit affirmed by Mr McFadden on 7 February 2018.

10 In his affidavit, Mr McFadden described how the respondent had made discovery in the proceedings in four tranches. He denied that he had given false evidence at trial. He deposed that he has reviewed that evidence, particularly in relation to whether the respondent has ever granted an exclusive territory. He said that, on the whole, he maintained the truth of that evidence. In relation to the list of persons whom the applicant is seeking leave to subpoena, Mr McFadden deposed that he has obtained 'all possible documentation' that he was able to obtain. He exhibited numerous franchise agreements with respect to the entities listed in the affidavit of Ms Heaney sworn on 22 January 2018.[1]

11 On 14 February 2018, the respondent provided to the Registry of the Court of Appeal a supplementary affidavit of Mr McFadden affirmed on 14 February 2018. That affidavit exhibited franchise agreements that Mr McFadden had located since affirming his first affidavit.

12 The application to adduce further evidence and the application for leave to issue subpoenas were listed to be heard on 15 February 2018. No date has been set down for the hearing of the application for leave to appeal.

13 At the commencement of the hearing on 15 February 2018, the Court drew the attention of the parties to the issue raised in the tenth proposed ground of appeal in the application for leave to appeal - namely, whether the judgment of the trial judge should be set aside on the basis that Mr McFadden had given false evidence at trial - and asked for submissions on the question whether that issue should be determined before the other proposed grounds of appeal. Counsel for the applicant accepted that the tenth proposed ground of appeal, in essence, alleges that the judgment of the trial judge had been procured by fraud.

14 Counsel for the applicant contended that the alleged fraud in this case was 'very clear'. He said that a comparison of the evidence given by Mr McFadden at trial, on the one hand, and the franchise agreements which he had exhibited to his first affidavit, as well as any further franchise agreements which the applicant would obtain by the proposed subpoenas, on the other hand, reveals that Mr McFadden's evidence was false. On that basis, it was submitted, this Court is in as good a position as a court of first instance to determine the issue of fraud.

15 Counsel for the respondent contended that the appropriate course would be for this Court to remit the matter back to the trial judge for the hearing and determination of the issue of fraud. He said that, in any event, an examination of both the transcript of the trial and the franchise agreements that had been produced did not necessarily show that Mr McFadden had given false evidence.

16 In our opinion, it is not appropriate to hear and determine any of the other proposed grounds of appeal in the application for leave to appeal until the issue whether the judgment was procured by fraud is heard and determined. That issue should be determined first and as soon as possible.

17 Fraud is a serious allegation which calls for a high standard of proof. It must be pleaded or particularised with specificity. The proper method of impeaching a perfected judgment on the ground of fraud is by bringing an independent proceeding in which, as in any other action based on fraud, the particulars of the fraud must be given exactly and the allegation established by strict proof.[2] There is also jurisdiction to set aside a judgment tainted by fraud on application made in the original proceeding for a new trial.[3] At any rate, a judgment will be set aside on the ground of fraud only after an affirmative finding of the fraud which is alleged.[4] It is neither practical nor appropriate for this Court to embark on what may be an extensive inquiry which calls for oral evidence and cross-examination.[5]

18 It follows that the appropriate course is to remit the hearing and determination of the issue whether the judgment of the trial judge was procured by fraud to the County Court. Preferably, the matter should be determined by the trial judge himself.[6] In the event that the trial judge recuses himself from hearing the matter, or is otherwise unavailable, the issue of fraud should instead be heard and determined by such judge as the Chief Judge of the County Court considers appropriate.

19 The disposition of the present applications has caused us some anxiety. We do not consider that any part of them should be determined until the issue of fraud has been heard and determined. Accordingly, we propose to adjourn the present applications, as well as the application for leave to appeal, pending the determination of that issue. We should add that we do not consider it appropriate for this Court to make any orders with respect to subpoenas in aid of the hearing and determination of the issue of fraud by the County Court. The determination of the appropriate procedures to that end is a matter for the County Court.

20 We will hear the parties on the form of the appropriate orders to give effect to these reasons.

[1] Mr McFadden deposed that the addressee of one of the proposed subpoenas, Leon Davis, was the solicitor that the respondent had engaged mid-to-late 1990s. He said that Mr Davis was never instructed to prepare an exclusive territory provision and that he was not aware of any documents that Mr Davis could produce other than the ones that Mr McFadden had already produced.

[2] McCann v Parsons [1954] HCA 70; (1954) 93 CLR 418, 425-6 (Dixon CJ, Fullagar, Kitto and Taylor JJ), citing Jonesco v Beard (1930) AC 298, 300 (Lord Buckmaster). See also Flower v Lloyd (1877) 6 Ch D 297, 302 (James LJ). See generally Wentworth v Rogers (No 5) (1986) 6 NSWLR 534, 538-9 (Kirby P, with whom Hope and Samuels JJA agreed).

[3] Hip Foong Hong v H Neotia & Co [1918] UKPC 65; [1918] AC 888; McCann v Parsons [1954] HCA 70; (1954) 93 CLR 418, 426; McDonald v McDonald [1965] HCA 45; (1965) 113 CLR 529, 533 (Barwick CJ), 540 (Menzies J).

[4] McDonald v McDonald [1965] HCA 45; (1965) 113 CLR 529, 535-7 (Taylor J), 540 (Menzies J). See, eg, Nicholls v Carpenter [1974] 1 NSWLR 369.

[5] Drapac v Wain (Unreported, Court of Appeal, Supreme Court of Victoria, Warren CJ, Nettle and Whelan JJA, 7 October 2013) [5]. See also Gann v Hosny [2015] VSCA 43.

[6] Drapac v Wain (Unreported, Court of Appeal, Supreme Court of Victoria, Warren CJ, Nettle and Whelan JJA, 7 October 2013) [7], [9].