They had received Mr Spooner's (another franchisee) Business Plan and said they may need some assistance with the cash flow and convincing the bank manager until the property had been sold to free up some money but noted that, for eight years, she had worked for the NAB in senior positions. The applicants had other assets such as shares but preferred not to sell those unless it was absolutely necessary noting that they had an excellent credit rating and would both receive reasonable packages if they resigned. Mrs Ferfolia asked Mr Ollis if there was anything else in the meantime that they could or should be doing before the 11 April 1999 meeting. She also asked for additional copies of the franchisee information booklet, saying that it was useful to give to the Lake Macquarie Regional Development Board, real estate agents and the like. In his affidavit evidence, Mr Ollis made no observations about this letter. Importantly, the terms of this letter made it clear that Mr Ferfolia intended to teach the franchise programme.
33 Between attending the Mudgee franchise and deciding to take up a franchise, Mrs Ferfolia had a number of conversations with Mr Ollis in which he told her that the franchise business was going really well and that the territories were being snapped up. She had asked Mr Ollis on a number of occasions what was the cost of a franchise but was told that he could not say much about it until they had a formal meeting and he could not talk much about the franchise in case they did not go ahead. Other franchisees had told the Ferfolias that there were three levels of entry payment into the franchise being $10,000, $25,000 or $45,000 with the entry fee being related to the amount of the continuing franchise fees. Mr Ollis denied making these statements and stated that he had always been happy to discuss pricing of franchises with potential franchisees prior to entry into formal discussions but he had never sold or advertised any franchisees for prices of $25,000 or $45,000. Not surprisingly, it is to be noted that the franchise information booklet carried no price or price indication but did state that, at the interview, the interested parties would be free from the pressure of having to make a decision. There was no selling during the interview as it was an opportunity for the franchisee to explore the suitability of the business and there would be no commitment in any form by either party at the time of the interview. Undoubtedly, Mr Ollis was proud of his growing franchise business and the fact that it had been taken up interstate and the statements Mrs Ferfolia said were made to her are consistent with the promotion of the franchise. Mrs Ferfolia's evidence regarding these conversations is accepted.
34 Prior to attending the interview on 11 April 1999 and in order to assist in being accepted as franchisees, Mrs Ferfolia forwarded to Mr Ollis a copy of an application she had made for employment that set out her background and qualifications. In her evidence, Mrs Ferfolia said that she was conscious of the statement in the first respondent's franchise information booklet that the first respondent was seeking "gifted teachers" and she was concerned that her husband was not actually a teacher. The letter set out Mrs Ferfolia's background and experience in a number of jobs as well as teaching, showing her training skills including selling skills and involvement in business. The letter mentioned that her husband was a scientist in the food industry and because of his excellent reputation in the industry, he had been offered consultancy projects leading the couple to set up Ferfolia Consultants Pty Ltd. They were in this business together working on projects including obtaining Quality Accreditation for companies and training health officers overseas for the World Health Organisation. Mrs Ferfolia described herself as a very experienced trainer and administrator, having attended professional courses over the years and having extensive sales and marketing training and experience and a background in and a commitment to customer service, as well as training and experience in recruitment. In relation to this evidence, Mr Ollis stated that the first respondent's franchise system had never required both franchisees to be teachers and at the time of his discussions with the applicants in approximately March and April 1999 and thereafter, it was always his understanding that the applicants intended that Mrs Ferfolia was to be the teacher. Statements had been made to him by the applicants to the effect of Mrs Ferfolia saying that she would be doing the teaching and her husband would be running the office. In this conversation, Mrs Ferfolia is to be believed in light of the evidence that Mr Ollis offered to train Mr Ferfolia to be a mathematics and science teacher and in light of the terms of the letter dated 28 March 1999 where Mr Ollis was informed that Mr Ferfolia, if required to do so, was prepared to undertake a Diploma of Education at the University of Newcastle in order to teach in the franchise.
35 Among the conversations that occurred between Mrs Ferfolia and Mr Ollis before the formal interview, there was a conversation in which Mrs Ferfolia asked Mr Ollis if the franchise definitely provided a full-time income for two people. Mr Ollis replied that the first respondent's most successful centres were the ones where both people had given up other jobs to work in the centre full-time and that he had several of those centres and they all had over 400 students. Mr Ollis denied that conversation took place. Mrs Ferfolia's version of these conversations are consistent with Mr Ollis' offer to train Mr Ferfolia and Mr Ferolia's preparedness to obtain a Diploma of Education. Mrs Ferfolia is to be believed in relation to these important conversations.
36 During the course of negotiations between the Ferfolias and the respondents, it appeared that a franchise in Bathurst would not be available and that the applicants would need to go elsewhere and that as a consequence, Mr Ferfolia would have to leave his job. In that context, Mrs Ferfolia said that she had a conversation with Mr Ollis where she said that this was a really serious step for them and if they had to move, Mr Ferfolia would be leaving his job which was a $72,000 per year package and would have to rely on the income from the centre. She asked Mr Ollis if he was sure that the centre would definitely provide them with a superior lifestyle. Mr Ollis replied that they would be making more money than that and be buying new cars like Master Coaching Penrith had and they would be the fifth couple to move to open a centre and be successful in establishing a new centre. Mrs Ferfolia said that she made enquiries of other franchisees but did not find any other franchisees who moved their place of residence to open up a new centre and were both dependent on the new centre for their income. Mr Ollis denied that conversation ever occurred and that he said the words that were attributed to him by Mrs Ferfolia. For reasons already expressed, Mrs Ferfolia's evidence is to be preferred.
37 In March 1999, Mrs Ferfolia attended the Franchise Fair held at Darling Harbour, Sydney which she described as a franchising and investment opportunity exposition. She had a conversation with Mr Ollis after the Fair telling him that she had attended the Fair and was surprised that Master Coaching was not represented. She had spoken with representatives from ACE Tutoring who said that their franchises provided part-time income up to about $30,000 per annum. Mr Ollis replied that ACE Tutoring was "puny" while Master Coaching was big, full-time and professional and the best. He said that the first respondent did not need to exhibit at Franchising Expos because it had potential franchisees "knocking on our doors". Mr Ollis denied that a conversation to that effect ever took place or that he made those comments but gave no other detail of what was discussed. Mrs Ferfolia's evidence is preferred.
THE 11 APRIL 1999 MEETING
38 At the meeting on 11 April 1999, Mr and Mrs Ferfolia were present together with Mr Ollis and Mr Stephen Brennan, the first respondent's development manager. Mrs Ferfolia said the meeting ran for most of the day, including lunchtime. Shortly after arriving, Mrs Ferfolia said that Mr Ollis congratulated them on their résumés and noted how very well qualified they were and how impressed Mr Ollis was with their great range of experience and said they would be very welcome in the franchise. Mrs Ferfolia then asked about her husband not being a teacher and referred to the "prospectus" that only teachers were considered in the business and they expressed the view that Mr Ferfolia would need to be a teacher. Mr Ollis and Mr Brennan "chuckled" and Mr Ollis said that there was no problem and the respondents would train him up and in fact stated that Mr Ollis would teach Mr Ferfolia to be the "best maths teacher ever". During the morning session, Mr Ollis said that they would be joining the best coaching institution in Australia, that it was a very dynamic organisation and approximately seven years ago he had started selling franchises. The Ferfolias would be franchise number 34 but it would soon be up to 200. They were not the pioneers but they were still at the forefront of a period when they could expect good growth in the business. Mr Ollis also said that the most successful franchises were run by couples who were actively engaged in the franchise. The business would make enough to support a couple and they could get a good living out of it. Mr Ollis denied the terms of that conversation and stated that successful franchisees operating at that time, and even at the present time, under the first respondent had a mixture of different organisational and management structures as between the franchisees. Not all successful franchisees of the first respondent involved both franchisees being actively involved in teaching. As earlier noted, it has been accepted that Mr Ollis said he would train Mr Ferfolia to teach mathematics and science and that he well understood both of them would be involved in teaching at the franchise. Mrs Ferfolia's evidence is preferred in relation to this conversation.
39 In the course of this meeting on 11 April 1999, Mrs Ferfolia said that both Mr Ollis and Mr Brennan spoke "glowingly" about the franchise business and the expected future of it. After a general discussion, Mrs Ferfolia asked if they could be shown any paperwork that would assist them to see what they could expect from the conduct of the business. Mr Ollis said that he had some figures but they were very old and that all the centres were doing much better than the figures showed. Mr Ollis then produced a three-page document carrying the title "Master Coaching - Profit Forecast".
40 The profit forecast document produced at that meeting by Mr Ollis carried these words under the heading: "These are approximate growth figures only, based on previous franchises". The spreadsheet then dealt with months 1 to 24 of the business showing the number of students in groups for junior mathematics and reading students progressing from 12 in month 1 to 80 in months 11 and 12 going to 100 in months 18, 19 and 20, 105 in month 21, 110 in month 22, but then dropping back to 90 in month 23 and 80 in month 24. The number of other students began with 2 in month 1, reaching 40 in months 8 and 9 and dropping back to 30 in month 12 and reaching 45 -50 between months 17 and 21 -22 but dropping back to 40 in months 23 and 24. There was a figure given for the average return per student and then a list of expenditure showing lease payments at $200 per month over a period of two years, loan repayments of $500, rent payments at $1,500 and then electricity costs, advertising costs of $1,200 per month totalling $4,590 per month for the first year and rising to $7,160 per month for the following year. There was a monthly net profit showing early losses of nearly $3,000 but then showing net monthly profits of nearly $8,000 between months 8 and 10 then going to nearly $8,300 in month 11. From month 17 over $8,000 was shown with over $9.000 shown as net profit for months 18,19 and 20 and over $10,000 net profit for months 21 and 22, dropping back to $6,000 net profit in month 24. The net monthly profits were said to exclude coaching wages. At the bottom of the first page the yearly profits were said to be $32,599.65 with the following notation: "Note profit = cash flow total 44/52". The reference to 44/52 was apparently a reference to income actually derived during 44 weeks of the year. The year 2 profit was noted as being $69,384.09 and in handwriting at the bottom of the first page the following words written by Mr Ollis appeared: "These are not predictions".
41 In relation to this document, Mrs Ferfolia stated that Mr Ollis said that the figures were very old and all of the centres were doing much better than those figures and gave the example of the Penrith outlet having paid off their business loan within two years and driving around in a brand new BMW. Mr Ollis had then written on the bottom of the sheet that they were not predictions and he did that because he had heard of a case where a franchisor of a delicatessen business got into trouble for writing figures on a serviette which were claimed to be predictions and not just general forecasts. Mr Ollis said that these figures were just general forecasts, they were very conservative and that they would do much better than those figures. Mr Ollis, however, denied that he made those statements at this meeting. The spreadsheet of figures was provided to the applicants on the last day of their training and that took place after they had purchased the franchise. The spreadsheet was provided only as a "template" into which they could insert their own figures for the purpose of preparing their own business plans or cash flow plans. In giving them the spreadsheet, Mr Ollis said he was not involved in giving them any type of predictions, promises, representations or assurances and that is why he wrote on the document the words, "These are not predictions". He also noted that he was unaware of the Penrith franchisee ever owning a BMW motor vehicle and denied ever saying that they did. The evidence of Mrs Ferfolia is accepted. A detailed spreadsheet monitoring takings and profits was provided but a blank "template" was not supplied. The terms of the document stating that they were approximate growth figures based on previous franchises is inconsistent with Mr Ollis' description of the document as merely a "template".
42 Mrs Ferfolia said that, after the morning session of the on 11 April 1999 meeting, there was a break for lunch and on resumption Mr Brennan said that they had better get down to the "nitty gritty". He wrote on a whiteboard the figure $57,500 and said that was the price of the franchise. Mrs Ferfolia said that it was not the price they were told and that they had been led to believe that the price was $10,000, $25,000 or $45,000. Mr Brennan said that covered options A, B and C and he would explain how that operated. He said option A no longer existed and that they did not like option B and they really needed to pay the full purchase price up front and that price was now $57,500. Option B was $25,000 and they did not like that option because it was only a part-payment and the franchisee had to pay that off and the continuing fees were higher and people did not like paying the interest. Mr Brennan said that they really needed to pay the full price of $57,500 and that they really should be charged $110,000 because the price had gone up, but that they could still have it for $57,500 providing they signed up that day. Mr Ollis then said that they should be charging $110,000 but because the Ferfolias had been talking to the respondents for quite some time before the price was increased, the price would be kept at $57,500 if they signed up that day.
43 Mrs Ferfolia said that they were not able to pay $110,000 and they would not be going on with the deal to which Mr Ollis replied that they could have it for $57,500 but only if they signed up that day. Mrs Ferfolia said they did not know whether they were able to afford that sum. Mr Brennan then asked for the Ferfolias' financial details and was told that the couple had a house at Bathurst worth approximately $195,000, an investment property at Batemans Bay worth approximately $150,000 and an investment property at Fairfield worth approximately $115,000 but they were all mortgaged with $128,000 owing on the Bathurst property, $110,000 owing on the Batemans Bay property and $100,000 owing on the Fairfield mortgage. They owned a 1995 Mitsubishi Lancer worth approximately $20,000 and there was about $7,500 owing on the lease on that vehicle. They had a 1993 Mitsubishi Pajero 4WD vehicle worth approximately $36,000 and there was about $18,000 owing on the lease of that vehicle. They owed about $12,000 on credit cards and $4,000 on an overdraft. Mr Ollis denied that these conversations attributed to him and Mr Brennan had occurred. He said it was his practice and the practice of Mr Brennan to commence these types of formal meetings and presentations with potential franchisees with an explanation of the pricing structure and not to wait until part way through the discussion. Neither he nor Mr Brennan had asked the applicants to sign any contract on that day and that was not their practice. They had always asked franchisees to go away and have a good think about it before signing the agreement. It had always been his practice that the first respondent would only gain any benefit if people became franchisees because they had investigated the business, understood the commitment and were then still enthusiastic at the prospect of running their own franchise business. Mr Ollis relied on his practice but gave no details of the conversation. In particular, he did not explain how he came to accept the $1,000 cheque given to him by the Ferfolias. In terms, he did not deny applying pressure for the sale by saying that the price had risen to $110,000 but that the Ferfolias could buy it for $57,000 if they bought that day. The practice of "no pressure" at this interview was not followed. Mrs Ferfolia's evidence is accepted in relation to these matters.
44 As Mrs Ferfolia provided their financial figures to Mr Brennan who then wrote them on the whiteboard, he said that their situation would be "pretty tight" but he had been in finance and on those figures the Ferfolias should be able to borrow $95,000 which would give them the purchase price plus $30,000 which the respondents estimated as being the capital needed to get the business up and running. Mr Brennan said that the respondents had banking connections and could help the Ferfolias and with the respondents' support, they could be making the money back in no time. Mr Ollis stated that he did not recall Mr Brennan ever saying words to this effect. In the proceedings, Mr Brennan did not file an affidavit nor did he give oral evidence. There is no reason why Mrs Ferfolia's evidence should not be accepted on these matters.
45 After a discussion, the Ferfolias agreed to purchase the franchise at Lake Macquarie for $57,500. Mr Ollis asked for a non-refundable deposit of $1,000 to hold the territory for up to 12 months and he was given a cheque for that amount to secure the territory. Mrs Ferfolia could not recall whether they actually signed anything on that occasion but following this event, Mr Ollis said that he would get his solicitors to send documents for them to sign and that they should begin looking around for premises in the area. Mr Ollis denied the accuracy of these matters and did not recall a conversation where the Ferfolias had agreed to purchase the Lake Macquarie the franchise for $57,500. Mr Ollis said that the $1,000 payment was not a non-refundable deposit but was a fee to show a commitment prior to him incurring costs with his solicitor and it formed part of the franchise costs. The contractual documents were not to be sent directly to the applicants and had always been forwarded to the franchisees' legal representatives. On 13 May 1999, Mr Ollis had sent a facsimile message to Marsdens Solicitors with two notes. One note was a request to prepare a standard Master Coaching contract in favour of Mr and Mrs Ferfolia for the Lake Macquarie location and that the Ferfolias had opted to pay option A, namely $57,500 for the franchise. A coversheet signed by Mr Ollis contained the following notation: "This contract is the "urgency" (sic) the potential franchisees need to have the contract to take to his bank as part of his business plan for loan negotiations".
46 Having regard to the differences between the parties about these conversations at the meeting on 11 April 1999, again it is relevant that Mrs Ferfolia was able to recall in some detail and with some precision what was said. On the other hand, Mr Brennan was not called by the respondents. He was an important person in the respondents' business and participated in a number of discussions disputed by the respondents as to their content and any representations made to the Ferfolias. Mr Brennan's absence as a witness was not explained by the respondents. In all the circumstances, it may be assumed that he could not add to the substance of the respondents' case in relation to these matters. Mr Ollis adopted the approach, as he had done in relation to previous conversations, of denying that those conversations took place in those terms and sometimes setting out a general practice that was to the contrary. No other evidence was given about that general practice. It is of some significance that Mr Ollis (consistent with the franchise booklet) regarded this as a first formal meeting where no commitments would be made and that is part of the reason why he disputed Mrs Ferfolia's recollection of the events. However, he provided an inadequate explanation for taking a $1000 cheque on that day, denying it was to secure the Lake Macquarie area or that it was a non-refundable deposit but asserting that it was part of the legal fees for the franchise. If that were so, then he regarded the deal as having been concluded as asserted by Mrs Ferfolia and in any event, he had asked his solicitors to send no more than the standard form contract and it is difficult to see how that would involve fees of nearly $1,000. Further, the respondents' disclosure document stated that a $1,000 non-refundable payment was to be made before the agreement was entered into but it would be deducted from the "initial" franchise fee. During the evidence Mr Ollis' memory was shown to be unreliable as to details and he accepted that in relation to some events, including the 11 April meeting, that he had no memory of the details. In the circumstances, it is unsatisfactory to rely upon his mere assertions and what he states to be the normal practice of the business. In relation to the details of the conversation that took place at the formal meeting on 11 April 1999, Mrs Ferfolia's version of those events is accepted.
47 Prior to the meeting on 11 April 1999, Mrs Ferfolia asked Mr Ollis whether the franchise definitely provided a full-time income for two people to which he replied that their most successful centres were the ones where both people had given up other jobs and worked in the centre full-time. Mr Ollis said to her that he had several of those centres and they all had over 400 students. Mr Ollis denied that such a conversation ever occurred or that he ever said words to this effect to Mrs Ferfolia. Mrs Ferfolia's evidence was that, despite enquiries made of other franchisees, she did not find any other franchisees who had moved their place of residence to open up a new centre and to be both dependant on it. Mr Ollis made a general denial that any such conversation took place. Mrs Ferfolia's evidence is accepted.
48 During the course of negotiations, Mrs Ferfolia said that she and her husband had to confront the possibility that they would have to leave Bathurst if they wished to buy a franchise and thus, her husband would have to leave his job. On this basis she had a conversation with Mr Ollis telling him that it was a really serious matter for them and a very big step if they had to go elsewhere and that her husband would have to leave his job which was a $72,000 per annum package and would have to rely on the income from the centre. She asked Mr Ollis whether he was sure that the centre would definitely provide them with the same lifestyle. Mr Ollis replied that they would be making more money than that and they would be buying new cars like Master Coaching Penrith had and that they would be the fifth couple to move to open a centre and be successful in establishing a new centre. In his affidavit evidence, Mr Ollis denied such a conversation ever took place. Mrs Ferfolia's evidence is accepted.
THE PERIOD BETWEEN THE MEETING ON 11 APRIL 1999 AND SIGNING THE FRANCHISE AGREEMENT ON OR ABOUT 15 JUNE 1999
49 After the meeting of 11 April 1999, Mr and Mrs Ferfolia looked at suitable properties in the Lake Macquarie area, ultimately settling on a property in Warner's Bay Road Mount Hutton. The purchase price of that property was $118,000 and the contract for purchase was entered into on 25 May 1999 and settlement took place on 6 July 1999. The Ferfolias borrowed over $94,000 from SunCorp-Metway Ltd and they also made an application to the National Australia Bank for finance to enable them to purchase the franchise business. The Bank had a requirement that applicants produce a business plan containing a forecast of the likely future of the business. Mrs Ferfolia spoke to the support office of the first respondent and spoke with Mrs Ollis and asked for a copy of Master Coaching's business plan so that it could be presented to the Bank. Mrs Ollis replied that they did not have a business plan and that Mr Ollis would speak to her later. Mr Ollis did call Mrs Ferfolia and told her that the Cairns franchise had a very good business plan and that she could contact the operator, Mr Bill Spooner. Mrs Ferfolia did contact Mr Spooner and after discussion, received from him a copy of the Cairns business plan and she used it as a model to prepare a business plan for their franchise. After preparing the business plan, Mrs Ferfolia had a telephone conversation with Mr Ollis and told him that she had completed the business plan but before giving it to the Bank she wanted him to approve it because she did not want to say anything in it that was not absolutely correct. Mr Ollis told her send the plan to him and he would check to make sure it was correct.
50 Mrs Ferfolia said that she forwarded the business plan to Mr Ollis who sometime later telephoned her and told her he had received the plan and complimented her upon doing a great job and noting that it was well written and "terrific" and that from their point of view, everything in it was correct. Mrs Ferfolia noted that the first respondent kept a copy of the business plan and had provided it to at least one other franchisee. She said that statements in the business plan of the history, status and forecasted future of the Master Coaching franchise were taken from information (written and oral) supplied by the first, second and third respondents. In his affidavit, Mr Ollis denied that he had a conversation with Mrs Ferfolia where he said he had received the plan and complimented her on writing it and that it was really well written and everything was correct from the respondents' point of view. Mr Ollis also denied reviewing the applicants' business plan and denied that any forecast was provided to the applicants. Mr Ollis did not deny putting Mrs Ferfolia in contact with the Cairns franchisee for the purpose of using their business plan and had supplied the document headed "Master Coaching - profit forecast" although his evidence was that he did not provide those figures as forecasts. Given those circumstances, Mrs Ferfolia's evidence is accepted that she sent the business plan to Mr Ollis for checking and he indicated that it was correct as to the franchise business.
51 Mr and Mrs Ferfolia had originally arranged a loan of $106,000 but that was ultimately reduced by the lender to $94,000. SunCorp-Metway had been recommended to them by Mr Ollis and Mr Brennan. When Mrs Ferfolia was informed that the maximum amount that was available was $94,000 she telephoned Mr Ollis and told him that they had struck a problem with their finance for the premises at Mount Hutton and did not think that they could proceed with the purchase and still pay the franchise fee. She told him that even if it meant they had to forfeit something they felt they would probably not be able to go on with the franchise. She said Mr Ollis told her that she should not do that and that they had a very good future as franchisees and he regarded them as very good prospective franchisees. He said he did not need all the money just then and could lend some of it back to them and they could re-pay the respondent when they could. Mr Ollis said it was very important that they join the family of franchisees and that the respondent could lend them $15,000 to be repaid when they could. The applicants took up that offer. In his evidence Mr Ollis stated that, while it was correct that the first respondent loaned $15,000 to the applicants, he did not recall having that conversation with Mrs Ferfolia as set out in her affidavit. He denied that the loan was on the basis that it would be repaid at a time suitable to the applicants and said that the loan was for a period of three months and was repayable by mid-September 1999. He further noted that the full amount of the loan and interest had not yet been repaid by the applicants.
52 In May 1999, the Ferfolias received a form of contract and a document entitled "Disclosure document for franchisee or prospective franchisee". Mrs Ferfolia thought this had been received from the solicitors acting for the first respondent. The last page of the document referred to a copy of the Franchising Code which was to be annexed but it was not annexed. Mrs Ferfolia wrote a number of notes on the document asking questions, including drawing attention to the fact that the copy of the Franchising Code was not annexed. Her written notes also raised the need for a copy of the franchisor's quality assurance certificate and quality manual for the Ferfolias to be able to obtain their own quality assurance certificate as required by the terms of the contract. This document indicated that the initial franchise fee was between $10,000 and $57,5000, that there were setup costs of just over $21,000 to just over $37,000 plus the costs of the premises obtained by the franchisee and noted that there was an assignment fee of $10,000 or 10 per cent of the sale price, whichever was the higher and that assignment fee was to be paid to the franchisor on the sale of the franchise by the franchisee (with the franchisor's approval). The document also referred to the franchisor requiring a payment of "$1,000 before the Franchise Agreement is entered into". It was stated in the document that this payment was "not refundable" but would be deducted from the initial franchise fee if the franchisee agreement was entered into.
53 The Ferfolias were concerned at the level of the legal fees quoted to them for giving advice about the franchise agreement and so they had their Bathurst accountant look at the documents. He told them that the initial franchise fee and continuing franchise fees were high compared to other franchises but overall, it was difficult to check because this was the setting up of a new business. The accountant asked the Ferfolias if they thought the contract was correct and they stated that they thought that it was and so the accountant advised that they go ahead.
54 Mr Ollis denied that the applicants were not provided with a copy of the Franchise Code of Conduct prior to entering into the franchise agreement and said that document was provided to them in March 1999 with the franchise disclosure document, the Franchise Code of Conduct and the franchise agreement being provided by the respondents' solicitor in May 1999. Mr Ollis also denied that the applicants were not provided with a copy of the Code until some 18 months after entering the franchise agreement. Mrs Ferfolia stated that, if she had know the terms of the Code, she would have insisted on the first respondent honouring its obligations under the franchise agreement and would have utilised the mediation process but she was unaware of these matters until some 18 months after the Ferfolias had entered into the franchise agreement. In particular, Mrs Ferfolia noted that they had not signed or been provided by the first respondent with a statement to the effect that they had decided not to obtain legal advice.
55 On 15 June 1999, Mr Ollis spoke to Mrs Ferfolia on the telephone and told her that they needed to sign the agreement as soon as possible as it had to be finalised by 30 June 1999. He said that the Code of Conduct was coming. Mrs Ferfolia made a note in her diary of that conversation but Mr Ollis denied that conversation occurred and again denied that the applicants were not provided with a copy of the Franchise Code of Conduct until some 18 months after they signed the contract. Mrs Ferfolia said that immediately after receiving that telephone conversation, she and her husband signed the contract and returned it to the first respondent. Mr Ollis said that he believed that the applicants did obtain independent legal advice on 9 June 1999 and that Mrs Ferfolia had said in a letter that they had collected the franchise agreement and accompanying documents and had highlighted queries. Mrs Ferfolia had asked for the documents to be sent back to her as she did not wish to incur any further legal costs. Mr Ollis did not clearly set out how he believed that the applicants obtained legal advice but he was certainly aware that, by the time the queries were being answered, the documents were being sent back to the applicants and they were not obtaining legal advice. Mrs Ferfolia's evidence, including that relating to the Code of Conduct, is accepted.
56 Mrs Ferfolia had noticed in the respondents' brochure the claim that Master Coaching was a "quality assured business". After receiving the contract, Mrs Ferfolia telephoned Mr Ollis and said that the franchise agreement stated that they were to obtain a quality assurance certificate within six months and they therefore needed a copy of his quality assurance certificate before they could obtain their own certificate. Mr Ollis told her that his business did not have a quality assurance certificate: he had begun to do some work on it but had not finished it and so had not obtained the certificate. Mrs Ferfolia pointed out that the franchise booklet said that the business was a quality assured business but Mr Ollis said that he was interested in becoming quality assured and perhaps her husband would be able to help him with that issue. He then said that, for the time being, they were just to ignore that part of the agreement. Mr Ollis denied ever having a conversation with Mrs Ferfolia to this effect and denied saying words to the effect as alleged by her. He stated that, from an early stage in the process of discussing the franchise with the applicants, he discussed the issue of quality assurance and he told them that it was a quality assured business since 1997 but it was not certificated and that franchisees could become quality assured without the franchisor being quality assured. Ultimately, the first respondent obtained a quality assurance certificate without any assistance from Mr Ferfolia although Mr Ferfolia assisted in the production of a quality manual for franchisees. This document was only relevant for other franchisees wishing to obtain quality assurance. Mrs Ferfolia stated that, at the time they ceased being franchisees, she was not aware of any other franchise holding a quality assurance certificate.
57 Some days after sending the contract back to the first respondent, on the 16 June 1999 the Ferfolias were notified that the $15000 loan had to be paid back to the first respondent by 16 September 1999. That letter was signed by Mr and Mrs Ollis and had spaces for Mr and Mrs Ferfolia to acknowledge the content of the document. Mrs Ferfolia said that they had been informed that the loan was for one or two years with no interest and so she rang Mr Ollis and asked him what was the point of the document because if they did not have the money then, they were not going to have it by September 1999 and that date was too soon. Mr Ollis said not to worry about the date and to ignore it as his accountants had told him to insert that date. Mrs Ferfolia said that she and her husband had no choice but to sign the acknowledgement and return it so that they could receive the $15,000 loan by cheque from the respondents. Mr Ollis denied that the loan was for one or two years without interest and stated that it was intended only as a bridging loan until such time that the applicants sold some of their properties which he understood were on the market but had not yet sold. He denied saying the words attributed to him by Mrs Ferfolia.
58 In relation to training Mrs Ferfolia noted that, in the respondents' brochure, there was to be an initial start-up training that could be completed "in two enjoyable weeks". In schedule 2 of the contract the first respondent agreed to supply training prior to opening, including three days at the Master Coaching head office. The Ferfolias attended their initial training at the first respondent's support office in Wollongong between 26, 27 and 28 May 1999. Mr Ollis had arranged the training and gave them an agenda when they arrived. The training, however, lasted for half a day on the first day, one day on the second day and half a day on the third day and was conducted by Mr Ollis. Mrs Ferfolia said that he concentrated on mathematics and gave no training on how to run the business. She had sought advice on how to get clients and Mr Ollis used a tape recorder and played a scenario dealing with a particular client. Mrs Ferfolia stated that the total of two training days was the entire period of training provided by the respondents prior to commencing their business. Mr Ollis stated that the training on the last day was carried out between 9.00 am and 5.00 pm and he denied that he had concentrated on mathematics and had given no training on how to run the business. Mr Ollis noted that, in addition to the training in May 1999, the applicants were provided with three days of training with Hunter Calder between 6-8 July 1999, one day training with Stuart Gattenby on internet and computer skills and were given three days of training at the applicants' own centre by himself between 6-8 August 1999.
59 Towards the end of the training period at the support office, Mr Ollis gave the applicants their coaching materials in two boxes but Mrs Ferfolia complained that the documents were almost exclusively related to mathematics and stated that she could not see any folders relating to English. Mr Ollis told her that he had paid the Parramatta franchisee to write some English material "a fair while ago" but the material was outdated and there were a number of errors in it. He was arranging for it to be rewritten and brought up-to-date. Mrs Ferfolia said they needed to have some English materials and Mr Ollis replied that they could have it if they wanted it and then gave her seven folders of English material for Years 4 to 10 and they were placed in a box. In affidavit evidence, Mr Ollis denied the truth of that conversation and reiterated what he had earlier said namely that, in approximately May 1999, the first respondent had available to it a complete set of English materials but at the time the materials were in the process of being edited. At that stage, Mr Ollis had generally decided not to provide such materials to franchisees not because they were not any good, but other franchisees had chosen not to use them preferring to use their own English materials. Nevertheless, the applicants asked for the English materials and he provided it to them. Mr Ollis' proposition is an odd one namely that although, in accordance with the contract, he was providing worthwhile English documents, no franchisee was using them and so he was not providing it anymore. It is more likely that, as suggested in Mrs Ferfolia's evidence, the materials were not being used because they were out-of-date and that the franchisees were in a position of having to create their own teaching materials. Mrs Ferfolia's evidence on this matter is accepted.
EVENTS FOLLOWING THE SIGNING OF THE FRANCHISE
60 At the training session in May 1999, the Ferfolias were provided with a document described as the Master Coaching handbook. According to Mrs Ferfolia, Mr Ollis told her not to worry too much about the handbook as it was a bit of a "schmozzle", that it had grown like topsy since they started franchising and it really needed to be rewritten and revamped. Sometime after becoming a franchisee and not having received an updated handbook, Mrs Ferfolia telephoned the support office and spoke to Mr Brennan and asked what had happened to the updated handbook. Mr Brennan said that nothing had happened and to use the current editions. Mrs Ferfolia replied that Mr Ollis had told her that it was a real schmozzle, it was a priority to update it and it was a dog's breakfast. Mr Brennan replied that he realised that she was used to better materials having been with the bank and in private business and admitted that it did need to be updated but they were very busy and had to put that issue on the backburner. In his affidavit evidence, Mr Ollis denied ever saying those words in a conversation with Mrs Frefolia and said the handbook had been written by a Quality Assurance expert hired by the first respondent who had been recommended as an excellent consultant. The expert had worked with the first respondent over a three-year period from early 1996 and many franchisees had also contributed to the handbook which was distributed to all franchisees in December 1997. Importantly, Mr Brennan was not called to give evidence. Mrs Ferfolia's version of this conversation is accepted.
61 In making arrangements to purchase a property from where the franchise would operate, the Ferfolias had received approval for a loan of $200,000 from Suncorp-Metway Ltd provided that Mr Ferfolia's mother guaranteed the loan. Shortly before the scheduled date of settlement, his mother declined to do so. The first respondent had referred the Ferfolias to Suncorp-Metway and when informed of the problem with the guarantee, the second respondent made an arrangement with Suncorp-Metway whereby the first respondent lodged $45,000 as security to enable the Ferfolias to obtain the loan. When this was offered Mr Ollis said to the Ferfolias that, until they were making the great income he knew they would, he did not expect to be repaid for years. Mr Ollis denied ever saying those words and stated that the loan was only a temporary arrangement to assist the Ferfolias while they sold other property owned by them. However, within 12 months Mr Brennan contacted the Ferfolias and insisted they replace the $45,000 deposited so that the money could be released to the first respondent. Mrs Ferfolia said she drew on her superannuation entitlement in order to make that payment. On both accounts of this conversation, the loan was arranged for an indefinite period and it is quite possible that Mr Ollis regarded it as short term but even then the facility was made available over a number of months.
62 In relation to the official opening on 6 - 8 August 1999, Mrs Ferfolia stated that this coincided with the two-day training course provided by the first respondent. Mrs Ferfolia stated that there was no training given to Robert Ferfolia and herself and the only training that occurred was the Master Coaching talk "Art of Tuition" to assembled teachers on the Saturday morning, then a primary and junior high school mathematics training session on Saturday afternoon and a senior mathematics training session for teachers on Sunday morning. She stated there was no training given to the Ferfolias of any other aspect of the franchise business. Mr Ollis made no response to these paragraphs but in the bundle of documents filed in Court there was an agenda for the three-day session. According to that agenda the first day was to answer questions raised by the franchisees and "auditing the operation of the premises". Suggested topics were enrolling students, students' reports, organising classes and timetabling, selected lessons with the first lesson based on the result of a diagnostic test. There was no suggestion in this list that there would be time spent dealing with managing the business side of the franchise. The agenda for the Saturday and Sunday was to deal with tuition subjects. That agenda was signed by Mr Ollis. On 12 August 1999, Mr Ollis presented a report on the August 1999 training sessions. In that report Mr Ollis noted that he delivered common stationery and set up the Macintosh computer for reports referring to Term 3, 1999 and up to Term 4, 2001. There was a check of the computer and the April 1988 college English notes. His report contains the following entry:
Check for later corrected version. Parramatta will send latest version. Please confirm that Parramatta have sent the updated material, if it has not arrived in one week please contact me.