Pampered Paws Connection Pty Ltd (ACN 116 460 621) (on its own behalf and in a Representative Capacity) v Pets Paradise Franchising

PETS PARADISE FRANCHISING (SA) PTY LTD (ACN 069 620 391)

PETS PARADISE FRANCHISING (NSW) PTY LTD (ACN 006 919 222)

PETS PARADISE (FRANCHISING) PTY LTD (ACN 006 626 455)

REASONS FOR DECISION 1 The respondents, by notice of motion dated 26 May 2009, seek an order under s 33N of the Federal Court of Australia Act 1976 (Cth) (the FCA Act) that the matter no longer proceed as a representative action (the s 33N motion). The s 33N motion ultimately came on for hearing on 25 February 2010. 2 On that date, after hearing argument, I indicated that I would permit the action to proceed as a representative action for the time being, and at least to the end of the applicant's case, requiring the applicant to present its case in totality but otherwise limited to the issues which are common to the applicant and the other group members. I also indicated that I would consider whether to rule at this point that the action cease to be a representative action from that time, or would stand over the s 33N motion to that time to then further consider it. I gave directions to progress the action to hearing, to that extent, including fixing a hearing date. 3 I reserved my ruling in relation to the precise degree of commonality on issues between the applicant's case and the group members' case. I now make a formal ruling on the degree of commonality of the disputed issues, which is set out below, so that it is clear what common issues will be tried with the applicant's case. 4 I also indicated that I would give the respondents leave to amend their defence by pleading any facts which, if proved, would mean that any group members' claims are different from the applicant's claim, and therefore would not give rise to common issues. I said I would allow 6 weeks for that to occur but it can be a rolling time table (in other words, as long as it is done by end of hearing of applicant's case) if the parties agree. 5 These are my formal rulings on those issues and my reasons for those rulings.

BACKGROUND 6 This is a class action under Pt IVA of the FCA Act. In earlier reasons in this matter, Pampered Paws Connection Pty Ltd v Pets Paradise Franchising (QLD) Pty Ltd (No 3) [2009] FCA 138 I set out the background to these proceedings at [2] to [7]. Also, again in earlier reasons, Pampered Paws Connection Pty Ltd v Pets Paradise Franchising (QLD) Pty Ltd (No 4) [2009] FCA 817, I recited the progress made in this matter since the No. 3 reasons. I do not propose to repeat that background information provided in either of those reasons. I will refer to the progress made since the No. 4 reasons and other details specifically relating to the s 33N motion to the extent necessary. 7 The s 33N motion was set down for hearing on 9 July 2009. I then adjourned the hearing of the s 33N motion until 4 August 2009 as the applicant's proposed further amended statement of claim had not yet been filed. Following the filing of the further amended statement of claim on 4 August 2009, the s 33N motion, at the request of the respondents' counsel, was stood over to a date to be fixed with liberty to call it on with reasonable notice. As noted, it was re-listed for hearing on 25 February 2010. 8 A security for costs application was brought by the respondents, by order 2 of the notice of motion dated 26 May 2009 (the security for costs motion). It was scheduled for hearing on 14 December 2009. On that day the parties indicated they had reached agreement about the terms of a consent order disposing of the security for costs motion. The applicant and group members were to provide security for costs to be incurred after the end of the first day of $200,000.00, in the following form: · a bank guarantee to be provided by the directors of the applicant for $100,000.00; · a bank guarantee to be provided by the directors of group member Whiley Investments (Qld) Pty Ltd for $75,000.00; and · a third registered mortgage in the sum of $25,000.00 in favour of the respondents over the property situated at Lyndoch in South Australia) of a director of group member Marshelle Pty Ltd. 9 That security has since been provided. 10 At the time of the hearing of the security for costs motion, no notice was given by the respondents of their intention to revive the s 33N motion. 11 Subsequently, at a directions hearing on 15 January 2010, the respondents then indicated that they wanted to relist the s 33N motion. That prompted the applicant to apply for a stay of the respondent's s 33N motion (the stay application). On 28 January 2010, I ordered that the s 33N motion be listed for hearing on 25 February 2010, and that the stay application be heard at that time. 12 On the stay application, the solicitor for the applicant submitted that the s 33N motion should be stayed permanently, pursuant to Order 20 Rule 5(1)(b) of the Federal Court Rules 1979 (Cth) (FC Rules), as an abuse of process of the Court. The submission was primarily based on the fact that the respondent failed to relist the s 33N motion prior to the security for costs being obtained from the applicant and group members, and that the security for costs would not have been agreed to and provided, including by some group members, if they had known that the s 33N motion was to be re-enlivened. Senior counsel for the respondents acknowledged that, if an order under s 33N was made, it would be unfair that the security for costs order should stand, and it could be revisited to take into account the fact that group members would no longer be parties to the action. 13 In any event, I do not need to make any order on the stay application at this point having regard to the orders to be made on the s 33N motion. 14 Counsel for the respondents on the s 33N motion presented two options. First, that a s 33N order should now be made. In the light of the pleadings, counsel did not strongly press that option. That was a proper position for the respondents to take. There are a number of common issues between the applicant and the group members on the one hand, and the respondents on the other, which it is expeditious and efficient and economic to resolve together. Clearly, there are other issues which are not common. That gave rise to the second option presented. 15 The second option was that the Court should intimate that it would make an order under s 33N or 33Q at the end of the applicant's case. 16 The respondents submitted that, in the interests of justice, the matter should then no longer proceed as a representative action as: · a number of issues raised on the pleadings are either admitted or can be determined on the case brought by the applicant alone; · once found, those issues may be relied upon in separate group member proceedings; · the nature of the claim means that, on the major causes of action, there will need to be an individual inquiry in relation to whether conduct was misleading or deceptive, whether there was exclusive dealing in each case, whether in each case there was a breach of the Franchising Code of Conduct, and on all three causes of action individually on reliance, causation and loss; and · the costs of the proceeding if it continues as a representative action on all matters are likely to exceed the costs that would be incurred if each group member conducted separate proceedings. 17 In response, the solicitor for the applicant submitted that the s 33N motion should be dismissed now. He did not, however, object if a decision on the s 33N motion were reserved until the close of the hearing of the applicant's case. It was submitted that the mere existence of issues needing an individual inquiry is not sufficient to enliven a finding that s 33N is satisfied. It was further submitted that if a s 33N order was now made, the benefit accruing to group members from the issues admitted by the respondent on the pleadings or the common issues as determined, would be destroyed, as they would no longer bind the respondents so far as group members are concerned. In addition it was argued that findings made in a non-representative proceeding would not bind the respondents or group members in future proceedings. Solicitor for the applicant also submitted that there was no evidence to support the respondents' assertion that the cost of 41 separate proceedings would be less than the costs of the representative proceeding.

CONSIDERATION 18 A number of common issues between the applicant's claim and the group members' claims were acknowledged between the applicant and the respondents by the hearing. The applicant provided a Pleading Issues Mapping Table as an annexure to its outline of submissions. The Table sets out the issues remaining for determination on the pleadings in the applicant's claim, and issues remaining on the pleadings in the group members' claims. The Table shows issues which, the applicant contended, if determined in the applicant's claim, would resolve corresponding issues either wholly or partially in the group members' claims. 19 The Table identified a total of 40 common issues. The respondent agreed that 28 of those issues were common to both the applicant's and group members' claims. There is dispute over whether the remaining twelve issues are common. 20 Eighteen further common issues were set out in schedule 1 of the respondents' outline of submissions. The applicant agreed with them. 21 Accordingly, the parties agreed that there are 46 issues which are common to the applicant's claim and the group members' claims. 22 The 12 disputes about "common" issues can be broken down into five general topics, as they were by counsel for the respondents in oral submissions. They are: 1. whether the alleged implied representations were continuing or not (it being a common issue as to whether the documents upon which the alleged implied representations were capable of conveying those representations); 2. whether the alleged conduct was misleading or deceptive or likely to mislead or deceive (it being a common issue that the documents which were said to constitute that conduct were published); 3. whether there were implied terms of the franchising agreements; 4. whether the fourth respondent was the only approved supplier of stock; and 5. whether there was a requirement to pay Budget Shopfitters Pty Ltd (Budget) fees. 23 As to the first topic, the respondents' counsel correctly submitted that the issue of whether representations which were made or were capable of being made by undisputed communications continued at all material times depended on the individual knowledge and understanding of each group member. The applicant's solicitor agreed that, if a supervening event happened in relation to the applicant or to any group member, the benefit of a finding in relation to the continuation of the representation might be lost. However it was submitted that it is too difficult at the moment to know how the circumstances might be different for the applicant than for other group members. 24 In my view, there are three separate questions which arise. The first is whether the implied representations were made or were capable of being made upon the basis of the communications which, in essence, were common to all the group members. That is clearly a common issue. The second is whether each individual group member in fact, from the communications on which the implied representations are said to arise, drew those representations. That clearly requires the evidence of each individual group member. At present, it is pleaded on behalf of each group member that the implied representations were made. I see the second question, therefore, as focusing on the undisputedly individual issues of reliance, causation and loss. The third question is whether, notwithstanding those communications, the respondents allege against any particular group member or members any fact or facts which should be asserted to avoid that group member being taken by surprise: see O 11 r 10 of the FC Rules. At present, the defence contains no such plea; the respondents simply put each individual group member to proof. There is nothing to indicate that, assuming a group member did read and understand those communications as alleged, any group members' position is different from that of others, including the applicant. 25 Having regard to the state of the pleadings, I see no reason why - subject to each group member being put to proof on issues of reliance, causation and loss - the matters concerning the making of the implied representations should not be common issues. If they are made out, in respect of the group members, the finding can amount to no more than that those representations were capable of being made by the conduct engaged in. Each group members' case would then involve proving that that group member in fact took that meaning from that conduct. On that matter of proof, unless the respondents have pleaded and then later proved an alternative factual case, possibly involving additional facts, the outcome would appear to rest on acceptance of the particular group members' evidence as reliable. That, however, is for another time. 26 For present purposes, in my view, the matters in issue raised by this topic are common within the limitations expressed. 27 As to the second topic, the respondents' counsel correctly submitted that it cannot be determined in a vacuum whether or not a particular representation was misleading or deceptive. For example, it was argued that although the Court can make factual findings about the content and meaning of each disclosure document, the extra step of finding that each was misleading and deceptive in relation to each of the group members is not a common issue as it requires an individual inquiry into the objective circumstances relating to each group member. The applicant's solicitor disagreed and submitted that this step is merely a legal conclusion that has to be made, and the factual inquiries that need to be made are common to the applicant and the group members. 28 My view on this topic is much the same as that concerning the first topic. There are significant issues common to the applicant and to the other group members. They include the presently uncontentious issues as to the terms of the disclosure documents, and so directly what they conveyed or were capable of conveying. The defence of the respondents presently does not assert, either in relation to the applicant or in relation to any of the group members, particular facts or matters which would indicate that the context of the provision of the disclosure documents might result in their apparent meaning not in fact being their meaning, or which would indicate that the meaning was in some instances misleading and deceptive and others not so. In the absence of any such pleading or of any such issue in fact emerging in a proper way, each of the applicant and the other group members - if they are to succeed on the claim on this basis - will have to give evidence accepted by the Court that they did adopt the apparent meaning of those documents and laboured under that meaning when being involved in their particular franchise with one or other of the respondents. In fact, the defence appears to plead in essence the same detailed response to the applicant and to the other group members on the topic. 29 Accordingly, at present, subject to that obvious and accepted rider, in my view the issues on that topic are common. If some additional matters emerge which, it is said, somehow indicate that a different meaning of those documents was taken by a particular group member or that a particular group member did not rely on that meaning, that ruling can be revisited at the conclusion of the applicant's case. 30 The respondents' counsel, in respect of the third topic, submitted that whether or not a term of the franchise agreements will be implied will depend not only on the terms of the documents, but also on the conduct of the parties, and what is said to arise. Therefore this cannot be a common issue as there needs to be an individual factual inquiry into the circumstances surrounding the entering into each respective agreement. The applicant's solicitor disagreed and submitted that any terms implied by the franchise agreements arise from the document itself, and that the franchise agreements for each group member are not materially different from that of the applicant. 31 Again, in my view, there is nothing presently available to indicate that the issues arising on this topic are not common. The franchise agreements themselves are not apparently materially different. There is no pleading in the defence which makes the circumstances of the applicant, or any other group member, different from those of the others. 32 Accordingly, again subject to the same rider, the matters raised by the pleadings at present on this topic should be treated as common ones. If the respondents identify individual circumstances which make the position of one or more group members different from that of the others (beyond the issues of reliance, causation and loss), that should have emerged by the end of the applicant's claim. 33 The fourth topic identified by the respondents' counsel concerned the allegation that the fourth respondent was the only approved supplier of stock for the applicant, but that is not necessarily the case in relation to the other group members. That was said to require factual findings depending on the relevant period of time, and the entity to which stock was provided. In this instance, the respondents' defence identifies other approved stock supplied by other approved suppliers. The applicant's solicitor submitted that, if a finding is made in relation to the applicant, that Global was the only stock supplier at a relevant time, then that finding will be common to and directly benefit the group members in respect of that period of time. 34 The defence at [163] denies that there was an approved stock list. That is apparently a general denial, not particular to one or more group members. It appears to be a general issue. At [163.3], the defence lists a number of alternate approved suppliers. It does not assert that the applicant (or any other group member) was treated differently. It will be necessary to decide in the applicant's case whether that defence is made out. If the range of approved suppliers extended beyond the fourth respondent, or if it did so during particular periods relevant to the applicant's claim, I presently see no reason why those findings would not apply equally to the other group members. 35 At present, therefore, I consider the topic gives rise to common issues. 36 In respect of the fifth topic, the respondent's counsel submitted that there was not in every case a fit-out or a refit done. Therefore, it was submitted, this issue is not common as it will vary from case to case and is a matter that would have to be individually dealt with. This was not addressed by the applicant's solicitor in oral submissions. 37 It seems plain enough from the pleadings that some franchisees from one or other of the respondent acquired existing businesses and some established new businesses. It is unclear whether, in the case of the acquisition of existing businesses, in any instance no fitout was required. It is, so far as the pleadings disclose, common ground that each franchise agreement required a franchisee to obtain and use only such fitout and equipment as the first, second or third respondent specified and approved, the different respondents being responsible for different geographical areas. It is also pleaded that the same entity Budget was the supplier of "fitout or refit" of any incoming franchisee's premises, as designated by those respondents. That is denied, together with the assertion that the respondents cannot further plead without particulars from each group member. 38 In my view, at present, there is a common issue as to whether, at material times, those respondents designated Budget as the supplier of any "fitout or refit" required for an incoming franchisee who is a group member. There is no pleading or other material which suggests that those respondents changed their practice in that regard during any part of the material period. I therefore consider that, at least until the end of the applicant's case, the pleaded issue is a common one. It is obvious, if the allegation is made out, that the individual details of each "fitout or refit" will differ; those matters will go to the issue of loss and damage.

CONCLUSION 39 As I am satisfied that there are an extensive range of common issues, as I indicated (and as counsel for the respondents acknowledged), there should be no order under s 33N at present. 40 For the reasons given, but of course subject to the rider or qualification that is self-evident - namely that each individual group member will have to prove that it took the meanings from the communications alleged (assuming those meanings are established in the applicant's case), relied upon them, and suffered loss as a consequence, and the quantum of any such loss - I consider that the proceeding should continue as a representative action in respect of the allegations in paras 1-25, 28-52, 54, 58-89, 92-108, 110-116, 118-131, 133-137, 139-141, 143-170, 172-192, 194-203, 205-206, 208-214, 216-220, 222-226, 228-238, 240-250, 252-299, 303-334, 336-339, 341 and 344-346 of the further amended statement of claim. 41 That is a comprehensive list. To an extent, it includes allegations of the applicant about conduct of one or other of the respondents, and the more or less parallel allegations on behalf of the group members about conduct of one or other of the respondents. The ruling is not intended to relieve any group member from having to prove matters which are particular to its case, or to enable the respondents - if the material suggests any particular group member's position is affected by facts peculiar to it - to raise those facts. Any decisions in the applicant's case on any of those factual allegations, where there is no reason by then identified why they should not apply to that of the group members, will then apply to the group members. I will give the respondents the opportunity at the end of the applicant's case to identify any such matters. Consequently, I do not expect the respondents to adduce evidence during the hearing of the applicant's case which would be admissible only against one or more of the group members other than the applicant on issues of reliance, causation or loss of any of them, and is not relevant to the applicant's case. That may result in the findings in the applicant's case not extending to the benefit of some group members. However, I consider the better course at present is to widely express the potentially common issues, but to protect the respondents' position in that way. The list is intended to exclude allegations of reliance by the group members (as that is a matter for their particular circumstances) and all allegations of loss and damage (for the same reason). 42 There is insufficient reason at present to make any order as to how the group members' claims should be dealt with at the end of the applicant's claim. I will give the respondents liberty to renew their application under s 33N or to make my application under s 33Q at that time. 43 I also direct that the respondents, in the event that they wish to plead any facts particular to any one or more group members in accordance with O 11 r 10 of the FC Rules, should separately file and serve any such document (or documents) identified as a Schedule to the Defence concerning a specified group member, such document or documents to be filed and served as soon as reasonably practicable. I mentioned in the course of submissions the period of six weeks to do so. I will not impose that time limit by order, but anticipate that any such material will be filed and served promptly. It may be provided in waves. In any event, it must be filed and served by the close of the applicant's claim, now listed to be heard. 44 I will give the parties the opportunity to make submissions about the precise form of the order to be made to give effect to these reasons. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.