Pilgrim and anor v Wendy's Supa Sundaes and ors

THIRD RESPONDENT Bryan Clifford Johnson

FOURTH RESPONDENT Ann Margaret Johnson FILE NUMBER: IRC1028 of 1999 CORAM: Peterson J CATCHWORDS : Unfair contract proceedings - issues arising from primary and supplementary judgments concerning contribution, costs and interest determined - declarations and orders made. LEGISLATION CITED : Industrial Relations Act 1996 CASES CITED : Robert Rolles and ors v Donald Scott Surgicals Pty Limited and anor (Fisher P, Cahill V-P, Bauer J - Matter No. 1498 of 1986, 19 February 1988, unreported. HEARING DATES: 08/30/2002 DATE OF JUDGMENT: 11/22/2002

APPLICANTS Mr J B Whittle SC with Mr Gooley of counsel

SOLICITORS Barry Lazarus Lawyers SYDNEY.

FIRST RESPONDENT Mr V F Kerr of counsel

LEGAL REPRESENTATIVES: SOLICITORS Piper Alderman Lawyers SYDNEY

SECOND TO FOURTH RESPONDENTS Mr I M Neil of counsel

SOLICITORS Gordon & Johnstone Lawyers SYDNEY.

JUDGMENT: - 3 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES

STEPHEN PILGRIM AND JULIE PILGRIM V WENDY'S SUPA SUNDAES PTY LIMITED AND ORS.

Application under s106 of the Industrial Relations Act 1996.

1 The primary judgment in this matter was given on 12 August 2002. It concerned s106 proceedings relating to the loss by the applicants of a franchised ice cream shop at Bateau Bay on the Central Coast.

2 By that judgment it was indicated that the applicants should have the benefit of an order in the sum of $255,000 being the price paid for the business plus the cost of refurbishment, plus interest.

3 An indication then of my thinking was given with respect to costs issues and an opportunity was extended to any party wishing to put further submissions on those issues.

4 Due to an error in identifying the respondent which received the benefit of the handing back of the franchise business, supplementary submissions were received from the parties and dealt with by a supplementary judgment given on 13 September 2002. After discussing the power of the court to take this step, a matter which was not put in issue by the parties, I said: 10 In the present matter it seems to me sufficient that I withdraw my orders and only so much of my reasons as I have identified which relate to the primary but erroneous finding. Accordingly, I recall my judgment and orders of 12 August 2002 for the purpose of withdrawing and correcting the finding of fact and the observations to which I have referred.

11 In substitution for that finding of fact now withdrawn, I find that the franchise was returned to Wendy's in December 2000.

5 Oraka and Mr and Mrs Johnson had submitted that the withdrawal of those findings should cause the order for repayment to the applicants not to operate against them. In the course of the supplementary judgment the following paragraph appears: 18 The question then arises whether I should maintain a liability in Oraka and Mr Johnson in that respect. They were associated to an equal if not greater degree than Wendy's in the arrangement and shared the proceeds by way of franchise fees. They are clearly open to inclusion in the liability on the principles in Brown v Rezitis . It is clear enough that the major contribution in this respect ought be Wendy's, but I consider there is no reason why Oraka and Mr Johnson ought not be included in the same way as was Wendy's initially. I therefore maintain the order originally identified with respect to the sum of $185,000.

6 Thus that argument was rejected and the order for the repayment of $185,000 of the total sum (the balance being attributable solely to Oraka and Mr and Mrs Johnson) was left on the basis that the first, second and third respondents, that is to say Wendy's Supa Sundaes Pty Limited, Oraka Pty Limited and Mr Johnson would be jointly and severally liable in respect of the sum of $185,000. Again, in the light of these further findings, the issue of costs was left for further submissions.

7 As a result of the observation that the major contribution ought be Wendy's, Oraka and Mr and Mrs Johnson have now submitted that the findings require an order that: (a) stipulates that the first respondent on the one hand, and the second and third respondents on the other hand, shall be jointly and severally liable to pay the applicants the sum of $185,000.00;

(b) fixes the individual liability of the first respondent in respect of that sum on the one hand, and the second and third respondents on the other hand, either as percentages of the total mount of $185,000.00, or as stipulated amounts that together add up to the total sum, such that, consistent with the finding referred to in paragraph 7 of these submissions, (i) the first respondent is made liable to make the major contribution to the total sum, and

(ii) the second and third respondents are made liable to contribute only the balance of the total sum; and, (c) in order to give effect to the foregoing, stipulates that, in the event that the applicants elect to recover the full amount from only one of the first respondent on the one hand, or the second and third respondents on the other, the party which has thereby not been required to make the payment to the applicants shall thereupon be liable to pay the other party the amount of that party's contribution. (By way of illustration, if the first respondent's contribution were fixed at, say, 95%, and the second and third respondents' contribution at 5%, and the applicants recovered all of the amount from the second and third respondents alone, then the first respondent would thereupon by the operation of the order be liable to pay $175,750.00, or 95% of the total amount, to the second and third respondents.) Such a right of contribution is an ordinary incident of an order for joint and several liability, but in a case such as this, where the two groups of respondents are unrelated, it is appropriate to make the position entirely clear, so as to avoid the risk of further proceedings.

8 With respect to interest it was accepted by Oraka and Mr and Mrs Johnson that the usual practice ought be followed, namely that interest in respect of their sole liability for the sum of $70,000 should run only from the date on which the proceedings commenced, 8 March 1999. This was consistent with the position adopted by the applicants. However, it was submitted that different considerations apply with respect to interest on the sum of $185,000 and that Wendy's should bear the whole liability to pay interest on that amount or at least make the major contribution towards it as aforesaid and interest should only run from the date on which the applicants lost the business which was 31 December 2000.

9 It was submitted that it would be a proper exercise of the discretion residing in the court with respect to costs to order that subject to special orders with respect to costs: a. the first, second and third respondents should pay to the applicants 25% of their party and party costs of the proceedings, and the applicants should pay to the first, second, third and fourth respondents 75% of their party and party costs of the proceedings, or, in the alternative,

10 It was submitted that it would be not just to order that the applicants should have their costs of the proceedings given that they were unsuccessful on most of the issues that they raised. The amended summons raised five allegations of unfairness and the applicants succeeded on only one part of one of those allegations. Most of the trial (at least 75%) was devoted to the applicants' claims that the business was unprofitable. On that issue, and those related to it, they failed.

11 The further submissions of Wendy's adopted the same position with respect to the date from which interest should run in relation to the business, namely 31 December 2000. Alternatively, it was submitted that interest should be calculated from the date the proceedings were commenced and not from the acquisition of the business by the first applicant.

12 As to joint and several liability, Wendy's submitted that the question of liability between the respondents was not dealt with in the proceedings. The issues raised in that respect by the further submissions of Oraka and Mr and Mrs Johnson were not matters before the court. There was no cross-claim or contribution proceedings (nor could there have been) and no evidence called going to those matters. The issue was not raised on the pleadings, in submissions nor in the evidence. Wendy's may well have given evidence of any number of matters going to the issue had it been alive. Accordingly, it was submitted there is no basis for making any allocation between the respondent parties; that is a matter for another time.

13 Wendy's adopted the submissions of Oraka and Mr and Mrs Johnson with respect to costs generally.

14 As to the special cost orders referred to in the primary judgment, Wendy's submitted that the applicants' election not to read the evidence of their expert meant that costs incurred by Wendy's in responding to that evidence were wasted. Those costs included the preparation of expert evidence in reply and the costs of and incidental to the issuing of a summons for production on the Australian Securities and Investment Commission. It was submitted the applicants should meet those costs.

15 It was also submitted that Wendy's costs in relation to additional days of hearing occasioned by Mr Pilgrim's inability to read should be paid by the applicants on an indemnity basis.

16 Wendy's also sought costs in relation to a motion filed by the applicants on 11 October 2000 seeking injunctive relief to prevent their eviction from the premises. It was submitted that the injunctive relief sought was wholly inconsistent with the ultimate relief sought by the summons in the proceedings which was monetary compensation on the basis the franchise had come to an end. The motion was misconceived and futile and ought not to have been brought at all.

17 Oraka and Mr and Mrs Johnson filed submissions in reply which contested the submissions by Wendy's that the proportional liability of theirs and Wendy's with respect to the sum of $185,000 should not be determined in these proceedings. It was submitted the contribution of each respondent to meet any liability was always an issue in the proceedings. All respondents conducted the proceedings to avoid any liability to make a payment in respect of any order of the court. For example, Wendy's submitted that Mr Johnson and not it had made any representations as to relocation and refurbishment so that Wendy's should not be liable to make any payment in that respect and Oraka and Mr and Mrs Johnson submitted that any orders that might be made as a consequence of Wendy's resumption of the business should be made only against Wendy's. Thus the nature and extent of the contribution each respondent should make was in issue.

18 The applicants' submissions in relation to interest were that there are circumstances in the case which warrant interest being paid from the date the franchise agreement was executed, that is 17 March 1993, for the following reasons: (a) the court has determined that the arrangement and franchise agreement were unfair and should be avoided from inception;

(b) the avoidance of the arrangement from inception was based upon the third respondent's representation as to relocation and refurbishment and the failure of the franchise agreement to provide for Mrs Pilgrim as a party;

(c) the requirement for approval by the first and second respondent of any sale of the business; and the unfair withholding of such approval;

(d) the service by Oraka upon the applicants of a breach notice, the series of which were criticised in the primary judgment, first occurred in March 1998, some two and a half years prior to the applicants surrendering their business; and

(e) the most substantial capital expenditure by the applicants was their payment for the franchise at the commencement of their operation.

19 The applicants submitted on the issue of costs generally that they were substantially successful in the proceedings and are entitled to a costs order in their favour.

20 An additional submission was made in favour of an order of interest on bank borrowings, such interest totalling $57,910.89. It was submitted this issue should be clarified and that an order should be made in compensation in that amount.

21 Franchise fees of $153,172.28 were also sought in the summons but not specifically referred to in the judgment. It was submitted this should be the subject of a further order.

Conclusions 22 In my primary judgment in this matter of 12 August 2002 I expressed my inclination with respect to costs in the following way: 73 My inclination is that the respondents should have their costs in relation to the three identified issues, namely the costs of ASIC, the costs in relation to experts' reports and the extra day of hearing made necessary by Mr Pilgrim's late revelation of his reading disability. As to the first issue the money sum is already identified and fixed. In relation to the third issue, namely the reading disability, I consider that that matter is so exceptional as to justify an indemnity costs order. The matter obviously arises as a result of Mr Pilgrim's unreasonable, indeed inexplicable, behaviour. The exceptional nature of an indemnity costs order (as to which see the judgment of the Full Court in Workcover Authority of New South Wales (Inspector Dawson) v Plastachem Pty Ltd & Ors [2001] NSWIRComm 244, adopting what was said by Hill J in Boner v Anderson (No 2) (1993) 52 IR 114) would seem satisfied in this case.

74 As to the matter of the experts' reports I consider a different approach ought be adopted. The decision not to utilise evidence prepared in the proceedings does not constitute a circumstance which is particularly exceptional and demanding of criticism. I consider the applicants ought meet the respondents costs on that matter on a party-party basis.

75 As to the matter of Mrs Johnson's costs my inclination would be to make no order in her favour in that respect. She, Mr Johnson and Oraka were represented by the same counsel. An order in her favour as to costs would be likely to ameliorate the costs position as against the latter two respondents if the costs order was made in Mrs Johnson's favour. On the other hand, if particular and additional costs were identifiable in respect of Mrs Johnson, other considerations might apply.

76 The applicants also seek an order for costs in the proceedings generally. Subject to the views I have outlined in relation to the first three issues identified and any further submissions, the applicants would, in the usual way, be entitled to an order for costs on a party-party basis.

23 Nothing which has been put in the submissions on costs persuade me that I should take any different course regarding those issues to that which I first intimated. The applicants have been successful, although not wholly, to a degree which is significant enough to regard them as, overall, succeeding in their action. While they did not succeed on all grounds of unfairness alleged, this does not, to my mind, justify a fragmentation of the issues with respect to an award of costs. The respondents referred to a number of authorities on costs in support of the proposition that a party unsuccessful on a particular issue, including any disputed question of fact or law, may be made to bear the costs of that litigating the issue on which they failed. However, in this case I consider it is not appropriate to attempt to separate into discrete parts, save as to the special costs orders I will make, the proceedings on the general issues of unfairness.

24 The proposition that 75% or more of the case was spent on the unprofitability of the business seems to me to be unacceptable. There was a significant interlinking of issues going to purchase, refurbishment etc. and the applicants' attempts to achieve a consensual remedy to their perceived difficulties while they remained in the business. The attempts by the applicants in their case to establish earnings lower than the award rate did not constitute overall a significant part of the case on a temporal basis. The general approach in cases involving multiple issues where a party has succeeded on some issues but failed on others is to award costs of the proceedings to the successful party unless a particular issue or group of issues is clearly dominant or separable. See Ritchie's Supreme Court Procedure (NSW) Part 52A, Costs, paragraph 52A.11.2 and the cases there cited. I consider this to be such a case. The applicants succeeded on what I consider to have been the dominant issues and the remaining issues are not cleanly separable or, I consider of sufficient significance, to justify an attempt to separate them. In all of the circumstances, I think it would be unreasonable to make any order with respect to the general issues in the case other than the usual order, namely that in the exercise of the court's discretion the applicants should have their costs of the proceedings on a party/party basis.

25 I take a different view with respect to the applicants' motion filed and determined by consent in 2000, costs being reserved. The motion was designed to achieve a continued occupancy of the franchise by the applicants but failed to achieve that result. The first respondent is entitled to its costs of the motion on a party/party basis.

26 As to the concept of contribution as between the respondents in respect of the $185,000 value of the business, I consider Wendys' submissions to be correct. The case was not conducted by any party on the basis that contribution was a matter in issue. It was never identified as such and no evidence was called by any respondent, on any issue including this suggested issue. The basis for a joint and several order against the relevant respondents is the connection each had with the subject matter. The observation I made in my supplementary judgment of 13 September 2002 that "It is clear enough that the major contribution in this respect ought be Wendys . . ." was predicated upon the established fact that the business was handed back to Wendy's and not to Oraka or Mr Johnson. However, the facts surrounding those events were not put in evidence. It is impossible for me to know whether any particular level of contribution ought be made by either party, or indeed, whether my observation would be ultimately correct in the light of any relevant evidence on the issue of contribution. Of course, it may be that the whole value of the order with respect should be attributable to Wendy's and no other respondent but that is a matter I am unable to finally determine in these proceedings. Were I to attempt to do so, it would be no more than guessing at the result.

27 Robert Rolles and ors v Donald Scott Surgicals Pty Limited and anor (Fisher P, Cahill V-P, Bauer J - Matter No. 1498 of 1986, 19 February 1988, unreported) was referred to in the submissions for Oraka and Mr Johnson as authority for the proposition that the Commission may and ought fashion its procedure to enable the Commission to decide as between the respondents the degree of liability of them. I consider that judgment to be distinguishable. The issues, arising before the Industrial Commission of New South Wales in Court Session, were defined by the Full Bench in those appeal proceedings as follows: Although apparently complicated, when stripped of forensic complications, the questions to be determined on appeal can be reduced to the following. 1. Does the Commission have jurisdiction to join respondents to original proceedings on the motion of an existing respondent?

Does the fact that the purpose of the joinder of the additional respondents was so that the Commission might decide as between the respondents the degree of liability, affect the jurisdiction of the Industrial Commission to join the additional respondents?

Does the fact that there was a settlement of the application as between the applicant and the original respondents, affect the jurisdiction or discretion of the Commission to make orders affecting the additional respondents?

28 It may be readily seen that the objective of joinder of additional respondents in that matter was to enable the contribution as between them for any order made in favour of the applicants was at the heart of the matter. That position did not arise here.

29 With respect to interest on the amount of $185,000, I consider the avoidance of the franchise agreement from its inception save with respect to the entitlement of the applicants to receive money under it is not determinative of the date from which interest ought run. The relevant date is either the date of commencement of proceedings (the usual case) or 31 December 2000, being the date on which the franchise business was handed back by the applicants to Wendy's. The proceedings were commenced on 8 March 1999 in circumstances where the applicants were seeking relief while they remained in the business. Indeed, the motion later filed by them on 11 October 2000 sought interlocutory orders preserving their occupancy of the business after 31 December 2000. In those circumstances and bearing in mind the findings relating to the profitability of the business, which was such as not to justify any interference in the context of earnings, it would not be appropriate to order interest from a date earlier than 31 December 2000. Some three months have now been taken up since the date of the primary judgment, 12 August 2002, in receiving submissions on and determining these supplementary questions. I will award interest on the amount of $185,000 from 31 December 2000 to the date of this supplementary judgment. As noted in para.8 herein, interest on the amount of $70,000 should run from 8 March 1999 to 22 November 2002.

30 The applicants also claimed interest on a loan taken from the ANZ Bank in relation to the $70,000 refurbishment costs. It was submitted that the primary judgment in this respect should be clarified. It was contended in reply for Oraka and Mr Johnson that the matter was determined by the primary judgment, the decision in favour of an order of $70,000 relating to refurbishment. There was no ground upon which to reopen the finding. I regard the respondents' submissions in this regard as being correct. The primary judgment disposed of the issues with respect to the cost of the business and refurbishment by the conclusions there expressed. There is no opportunity available to reopen those conclusions.

31 I note that the applicants did not contest the special costs orders foreshadowed in my primary judgment in par.73 (see par.22 hereof).

32 Accordingly, I make the following declarations and orders: The Court declares that: 1. The contract or arrangement whereby the applicants performed work in the retail industry in New South Wales was unfair pursuant to s106 of the Industrial Relations Act ;

2. the contract or arrangement be avoided ab initio except insofar as it conferred upon the applicants' rights to remuneration and profit;

3. the first, second and third respondents jointly and severally pay to the applicants the sum of $185,000.00;

the second and third respondents jointly and severally pay to the applicants $70,000.00;

(i) in relation to order 3 interest be paid from 31 December 2000 to 22 November 2002 at Supreme Court rates,

(ii) in relation to order 4 interest be paid from 8 March 1999 to 22 November 2002 at Supreme Court rates;

the proceedings against the fourth respondent be dismissed with no order as to costs;

the first, second and third respondents jointly and severally pay the applicants' costs of the proceedings except as provided in orders 8, 9, 10 and 11 below;

the applicants pay the first respondent $1,390.98, being the costs of the Australian Securities Investment Commission in responding to a Summons issued by the first respondent;

the applicants pay the costs incurred by the respondents in the preparation of expert evidence of Mr Claude Jugmans in response to accounting evidence prepared by Mr Michael Gilowitz on behalf of the applicants, those costs to be paid on a party-party basis;

the applicants pay the costs of the respondents in relation to the extra days hearing made necessary by Mr Pilgrim's late revelation of his reading disability, those costs to be paid on an indemnity basis;

the applicants pay the costs of the first respondent in relation to the 2000 motion on a party/party basis.

33 The parties shall discuss the amounts of interest due under order 5 and the applicants shall file and serve within 7 days a draft form of order incorporating amounts of interest.

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