Traderight (NSW) Pty Ltd v Bank of Queensland Ltd - [2015] NSWCA 94 - NSWCA 2015 case summary — Zoe

NSWNSWCA

Traderight (NSW) Pty Ltd v Bank of Queensland Ltd

[2015] NSWCA 94

Court of Appeal (NSW)|2015-02-18|Before: Bathurst CJ, Beazley P, Barrett JA, Ball J

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At a glance

Source facts

Court

Court of Appeal (NSW)

Decision date

2015-02-18

Before

Bathurst CJ, Beazley P, Barrett JA, Ball J

Catchwords

250 CLR 640 Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60
218 CLR 592 Campbell v Backoffice Investments Pty Ltd [2009] HCA 25
104 FCR 564 Mackman v Stengold Pty Ltd [1991] ATPR 41-105 Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31

Source

Original judgment source is linked above.

Catchwords

250 CLR 640 Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60218 CLR 592 Campbell v Backoffice Investments Pty Ltd [2009] HCA 25104 FCR 564 Mackman v Stengold Pty Ltd [1991] ATPR 41-105 Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31

Judgment (29 paragraphs)

[1]

Solicitors: File Number(s): 2014/140171 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division Date of Decision: 13 February 2014 Before: Ball J File Number(s): 2006/258216

[2]

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

[3]

HEADNOTE [This headnote is not to be read as part of the judgment] In 2003, Bank of Queensland Ltd ("BOQ") embarked upon a program of interstate expansion. Between August 2004 and April 2007, BOQ appointed a number of franchisees in New South Wales and enabled them to undertake banking operations as its agents through "owner managed branches" (or "OMBs"). Some of the OMBs were unsuccessful and their proprietors suffered losses that forced them to cease trading. Some unsuccessful proprietors brought proceedings against BOQ alleging misleading or deceptive conduct in the course of the negotiation and formation of the franchise agreements in contravention of Trade Practices Act 1974 (Cth) or Fair Trading Act 1987 (NSW). Ball J found that BOQ had not engaged in misleading or deceptive conduct and ordered that the unsuccessful franchisees pay BOQ's costs. Ten franchisee groups appealed. Two types of allegedly misleading or deceptive conduct were before the primary judge: conduct by way of the making of particular statements or representations; and conduct in the form of maintaining silence in circumstances where it was said to be misleading or deceptive not to speak. The representations allegedly made were referred to as "target statements" and "break-even statements". The claim of misleading or deceptive conduct by silence concerned "pre-opening non-disclosure". The "target statements" were, in broad concept, statements to the general effect that a metropolitan franchisee would need to write $4 million, and a regional franchisee $3 million, in new loans on average per month to have a successful business and that a franchisee ought to be able to meet those targets. The "break-even statements" were statements to the general effect that if a franchisee wrote new loans to that level each month, there would be a break-even point of 8 to 12 months. The statements were allegedly made in the course introductory meetings at which Mr Allsopp, a BOQ employee, presented prospective franchisees with an "expression of interest" ("EOI") letter, which he then went through with them. The EOI letter stated that the franchisee retained responsibility and liability for the success and viability of the branch and that BOQ could not give any assurances or make any predictions about matters like the costs, revenue or future profitability of your branch or the suitability of its location; also, because the franchisee would need to accept and manage these, the franchisee should think carefully before becoming an Owner Manager. At the end of the meeting, Mr Allsopp suggested that the prospective franchisee prepare and submit a business plan along with a signed copy of the EOI letter if they wished to proceed with the franchise agreement. If a prospective franchisee returned a signed copy of the EOI letter, he or she was invited to meet Ms Quinn, another BOQ employee, at one of a number of small cocktail evenings at which she would present on BOQ and the OMB model generally. If Mr Allsopp and Ms Quinn decided that BOQ should proceed with a particular a franchisee, that franchisee would then be sent an "approval letter" and bundle of documents that included a "franchise disclosure document". The financial disclosure document stated that franchisees were responsible for assessing their own financial resources and capabilities to deal with the requirements of the franchise business, making enquiries about the franchise and the business of franchise, getting independent legal, financial and business advice and preparing a business plan. There was also a statement that BOQ "encourages OMB agents to make inquiries with existing OMBs" and a warning that, because of geographical differences and the fact that some of the earlier appointments had been on different terms comparison might be "difficult or impractical". In dismissing the appeal with costs, the Court held, In relation to the "target statements" and "break-even statements":

That the primary judge correctly held that the statements made by Mr Allsopp, as established by his evidence, were not, in terms of s 51A of the Trade Practices Act (and s 41 of the Fair Trading Act), representations "with respect to any future matter", being the actual financial performance of a particular OMB because: (1) Neither Mr Allsopp nor anyone else within BOQ had any ready means of assessing whether the circumstances in a prospective OMB would operate would bear any resemblance to the assumptions on which the modelling was based: [154]; (2) It was not sensible or indeed possible for someone in Mr Allsopp's position to speak meaningfully of what a particular OMB in a particular location, operated according to future decisions made by particular proprietors in a particular local environment who had formulated a particular business plan, could or would achieve in terms of volume of business over any particular period: [154]; (3) Any statement made by Mr Allsopp was, at most and of its nature, an opinion to the effect that, if actual circumstances in a particular case precisely matched the Zillman assumptions, there was a statistically objective basis for a conclusion that particular financial consequences would likely follow: [149]; and, (4) Commercially sophisticated persons such as the appellants should have appreciated Mr Allsopp's statements as such: [154], [146].
Any statement to the effect that BOQ required a franchisee to generate a certain level of business cannot be taken as any form of representation by BOQ that particular OMB could or would achieve that particular level of business: [155]-[156].
Whether a representation is misleading or deceptive or calculated to mislead or deceive must be assessed objectively. Whether the person to whom a particular representation was made was misled or deceived by the representation is irrelevant. Only if monetary relief (or some other order) is sought by a plaintiff who alleges that a particular misrepresentation was made to him or her does that plaintiff need to establish a causal link between the impugned conduct and the loss that is claimed: [159]-[163]. Trade Practices Act 1974 (Cth) ss 51A, 52, 82 and 87; Fair Trading Act 1987 (NSW) ss 52, 68 and 72. Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; 250 CLR 640, Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; 218 CLR 592, Henville v Walker [2001] HCA 52, 206 CLR 459 applied. In relation to "pre-opening non-disclosure":
Silence may amount to a misleading and deceptive conduct if the circumstances taken as a whole are such as to give rise to a reasonable expectation of disclosure of some relevant fact known to exist. The language of reasonable expectation is not statutory but is an aid to characterising non-disclosure as misleading or deceptive: [185]-[190]. Trade Practices Act 1974 (Cth) s 52; Fair Trading Act 1987 (NSW) s 42; Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546, Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; 241 CLR 357, Fabcot Pty Ltd v Port Macquarie-Hastings Council [2011] NSWCA 167 applied.

[5]

Proceedings brought between OMB franchisees and BOQ

Over a period of about four years to 2010, no fewer than fourteen separate proceedings were commenced in respect of franchise arrangements for OMBs in New South Wales. In most cases, a franchisee sued BOQ (and sometimes individual officers). In some cases, however, it was BOQ that sued a franchisee. Some actions were brought in the Supreme Court of Queensland, some in the Federal Court of Australia, some in the Industrial Relations Commission of New South Wales and the remainder in the Supreme Court of New South Wales. The proceedings commenced otherwise than in the Supreme Court of New South Wales were ultimately cross-vested to that court.
It will be necessary, in due course, to refer in some detail to the causes of action asserted by the franchisees. For the present, it is sufficient to note that the predominant allegations made by franchisees were that, in connection with the establishment of franchises, BOQ engaged in misleading or deceptive conduct or unconscionable conduct in contravention of the Trade Practices Act 1974 (Cth) or the Fair Trading Act 1987 (NSW) as in force at the relevant time; and that the franchisees thereby suffered loss or damage. Causes of action in tort (for negligent misstatement and other negligence) were also before the court, as were claims based on provisions of the Industrial Relations Act 1996 (NSW). In some of the proceedings, BOQ pursued debt claims against the franchisee and related claims against guarantors.
The proceedings were heard by Ball J over 101 hearing days between September 2012 and October 2013. His Honour announced his decision on 13 February 2014: Traderight (NSW) Pty Ltd v Bank of Queensland Ltd (No 17) [2014] NSWSC 55. He found that none of the franchisees had established an entitlement to relief as against BOQ and that, in some cases, BOQ was entitled to a money judgment against a franchisee (and, if applicable, a guarantor or guarantors). Orders reflecting that decision were made on 14 April 2014. After a subsequent hearing, there were orders that the unsuccessful franchisees pay BOQ's costs: Traderight (NSW) Pty Ltd v Bank of Queensland Ltd (No 18) [2014] NSWSC 733.

[6]

Appeal by franchisees

By notice of appeal filed on 25 June 2014, the franchisee groups adversely affected by the orders of Ball J assert error correction of which requires the making of declarations that BOQ and other defendants engaged in conduct that was misleading or deceptive or likely mislead or deceive, contrary to s 52 of the Trade Practices Act or s 42 of the Fair Trading Act (as in force at the material time), by making certain statements or representations to franchisees and also by silence.
The franchisee groups by which the appeal has been instituted are made up of a total of 36 persons and companies. It is sufficient to refer (as the primary judge did) to separate OMB franchisees by the following abbreviations with the relevant branch locality for each shown, together with the names of the franchisee's principals and the date of opening of the OMB: Franchisee Locality of Principals Date Branch Opened Traderight NSW Pty Ltd Castlereagh Bronwyn Smith, 03/11/2004 (Traderight) Street, Sydney Geoffrey Versace Rossmick No 2 Pty Ltd Ross Chapman, (Rossmick No 2) Hurstville Luke Nolan, 12/09/2005 Michael Bradley Rossmick No 1 Pty Ltd Maroubra Ross Chapman, 19/09/2005 (Rossmick No 1) Junction Michael Bradley Jude Financial Services Pty Ltd (JFS) Bathurst Russell Gardner, 19/12/2005 Penelope Gardner Shamarbre Pty Ltd Hornsby Ronald Johnson 21/12/2005 (Shamarbre) Geraghty & Palmer (NSW) Pty Ltd Rhodes Shauna Geraghty, 03/01/2006 (Geraghty & Palmer) Barry Palmer SME Business Assist Bondi Junction Scott McCoy 03/01/2006 Pty Ltd (SME) Leokate Pty Ltd (Leokate) Miranda Stephen Sargent, 20/03/2006 Lauren Sargent Best Deal Pty Ltd Toronto Jeffrey Jones 24/08/2006 (Best Deal) LJH Group Pty Ltd Hurstville (Jin Yu Yang) 10/03/2007 (LJH) Yun Xu Southpole Financial Harunur Chowdhury, Services Pty Ltd Bankstown (Iftekhar Hassan) 23/04/2007 (Southpole) (Ikthedar Murad)

[7]

Persons whose names are bracketed were investors who were not active in the operation of an OMB. Otherwise, the named persons were active in the respective businesses.
As relevant to the issues raised by the notice of appeal, findings of the primary judge were, in summary, that (a) BOQ had, in the course of negotiations and discussions with prospective franchisees, made certain statements as to the volume of business that a New South Wales franchise could be expected to generate; and (b) BOQ did not have reasonable grounds for those statements; but (c) there was no misleading or deceptive conduct by BOQ because: (i) the statements related to what was possible in a hypothetical sense and therefore did not amount to representations with respect to future matters for the purposes of s 51A of the Trade Practices Act or s 41 of the Fair Trading Act; and (ii) the statements were not misleading as they were not relied on by the franchisees; and (d) failure by BOQ to inform franchisees of unfavourable trading conditions being experienced by other franchisees already operating at the time of the opening of the relevant franchisee's OMB did not constitute conduct prohibited by s 52 of the Trade Practices Act or s 42 of the Fair Trading Act.
References in these reasons to the Trade Practices Act and the Fair Trading Act are references to those Acts as they stood before the extensive amendments flowing from the adoption of the Australian Consumer Law in 2010. References to provisions of the two Acts are references to the provisions as in force at the time of relevant events.
Two types of allegedly misleading or deceptive conduct were before the primary judge for consideration: conduct by way of the making of particular statements or representations; and conduct in the form of maintaining silence in circumstances where it was said to be misleading or deceptive not to speak.
The notice of appeal, as filed, sets out 14 grounds of appeal. Of these, 11 are concerned with particular representations that the primary judge found had been made by officers or other representatives of BOQ to prospective franchisees. The representations fall into three groups described as "target statements" (grounds 1 to 5), "approval letter statements" (grounds 6 and 7) and "break-even statements" (grounds 8 to 11). The remaining grounds of appeal (grounds 12 to 14) are concerned with "pre-opening non-disclosure" and the proposition that BOQ contravened the statutory provisions by remaining silent.
The "target statements" were, in broad concept, statements made on behalf of BOQ to the respective franchisees to the general effect that, from BOQ's modelling, a metropolitan franchisee would need to write $4 million, and a regional franchisee $3 million, in new loans per month to have a successful business; and that a franchisee ought to be able to meet those targets. The "approval letter statements", broadly expressed, were statements in BOQ's approval letters to successful franchise applicants that BOQ expected franchisees to be writing $4 million new loans per month. The "break-even statements" were statements allegedly made by BOQ to the general effect that, from BOQ's modelling, if a metropolitan franchisee wrote $4 million and a regional franchisee $3 million in new loans per month, there would be a break-even point of 8 to 12 months.
I have given only a broad description of each type of relevant statement or representation since, naturally enough, each of the appellants, as a plaintiff, pleaded the use of particular words on particular occasions and much depends on evidence of what happened on particular occasions of oral communication. The appellants, in their notice of appeal, have framed grounds of appeal which, according to BOQ's assessment, seek findings with respect to representations that do not correspond with the pleaded cases of the appellants. It will be necessary to return to this matter.
The grounds of appeal concerning "pre-opening non-disclosure" concentrate on the allegation of statutory contravention by silence and the circumstance that BOQ did not disclose to the relevant franchisees allegedly pertinent information it had about the financial performance of other New South Wales franchisees.
Not all grounds of appeal set out in the notice of appeal apply to all appellant franchisees and, in the course of submissions on the appeal, there was a further narrowing of scope. Nor, in the end, were all grounds of appeal pressed. The case ultimately advanced on appeal did not extend to the "approval letter statements". The grounds of appeal pressed by the appellants were as follows: Ground 1 (concerning "target statements" and applicable to each of Traderight, Rossmick, JFS, Geraghty & Palmer, SME, Best Deal, LJH and Southpole, that is, all appellants other than Shamarbre and Leokate): The primary judge: "(a) erred in holding that statements made on behalf of BOQ to each of the franchisees that: (i) from BOQ's modelling, a metropolitan franchisee would need to write $4million, and a regional franchisee $3 million, in new loans per month to have a successful business; and (ii) a franchisee ought to be able to meet those targets, (target statements) were statements about BOQ's belief about 'whwas possible', rather than representations with respect to future matters. (b) should have held that in each of the Traderight, Rossmick, JFS, Geraghty & Palmer, SME, Best Deal, LJH and Southpole matters the target statements were representations with respect to future matters." Ground 2: Abandoned. Ground 3: Abandoned. Ground 4 (concerning "target statements" and applicable to Traderight, Rossmick, JFS, Shamarbre, Geraghty & Palmer, SME, Leokate, Best Deal, LJH and Southpole, that is, all appellants): The primary judge: "(a) when considering whether there was contravening conduct for the purposes of s 52 of the Trade Practices Act 1974 (Cth) (TPA) AND S 42 of the Fair Trading Act 1987 (NSW) (FTA) - erred in considering reliance and finding that relevant franchisee parties had not relied on (cf. whether the alleged contravening conduct, objectively viewed, was capable of inducing error) the representations arising from the target statements and referred to in grounds 1(b), 2(b) and 3(b) … (b) should only have considered reliance and made such findings when dealing with the question whether loss or damage had been caused 'by' any misleading or deceptive conduct, as alleged in relation to the target statements and for the purposes of s 82 of the TPA and s 68 of the FTA, with such loss or damage, as acknowledged by the Court ([2456]), to be determined on a case-by-case basis after the question of liability is resolved." Ground 5: (concerning "target statements" and applicable to all appellants): "Because BOQ did not have reasonable grounds for the target statements ([2031])-([2041)], the primary judge: (a) should have held that each of the representations arising from the target statements and referred to in rounds 1(b), 2(b) and 3(b) above constituted conduct that was misleading or deceptive or likely to mislead or deceive, contrary to s 52 of the TPA and s 42 of the FTA; and (b) should have held that BOQ was liable to each franchisee party pursuant to s 82 of the TPA and s 68 of the FTA for all loss or damage caused by the misleading or deceptive conduct as alleged in relation to the target statements, with such loss or damage, as acknowledged by the Court ([2456]), to be determined on a case-by-case basis once the question of liability is resolved." Ground 6: Not pressed. Ground 7: Not pressed. Ground 8 (concerning "break-even statements" and applicable to Rossmick only): The primary judge: "(a) erred in finding in the Rossmick matter ([1352]) that no statement was made on behalf of BOQ about a break-even point of 8-12 months when the Court: (i) had earlier accepted ([1222]) that it was BOQ's agent's practice to refer to BOQ's modelling and a break-even point of 8-12 months as contained in that modelling; and (ii) proceeded later to refer to and apply that agent's practice in the Rossmick matter ([1353]); and (b) should have found in the Rossmick matter that a statement was made on behalf of BOQ about a break-Even point of 8-12 months in accordance with the practice of BOQ's agent." Ground 9 (concerning "break-even statements" and applicable to all appellants): The primary judge: "(a) erred in holding that statements made on behalf of BOQ to each of the franchisees, that from BOQ's modelling if a metropolitan franchisee wrote $4 million and a regional franchisee $3 million in new loans per month there would be a break-even point of 8-12 months (break-even statements), were statements about the effect of modelling done by BOQ concerning an hypothetical franchisee rather than representations with respect to future matters …; and (b) should have held that the break-even statements were representations with respect to future matters." Ground 10 (concerning "break-even statements" and applicable to all appellants): The primary judge: "(a) when considering whether there was contravening conduct for the purposes of s 52 of the TPA and s 42 of the FTA - erred in considering reliance and finding that relevant franchisee parties had not relied on (cf. whether the alleged contravening conduct, objectively viewed, was capable of inducing error) the representations arising from the break-even statements …; and (b) should only have considered reliance and made such findings when dealing with the question whether loss or damage had been caused 'by' any misleading or deceptive conduct, as alleged in relation to the break-even statements and for the purposes of s 82 of the TPA and s 68 of the FTA, with such loss or damage as acknowledged by the Court ([2456]), to be determined on a case-by-case basis after the question of liability is resolved." Ground 11 (concerning "break-even statements" and applicable to all appellants): "Because BOQ did not have reasonable grounds for the break-even statements ([2055]), the primary judge: (a) should have held that the representations arising from the break-even statements constituted conduct that was misleading or deceptive or likely to mislead or deceive, contrary to s 52 of the TPA and s 42 of the FTA; and (b) should have held that BOQ was liable to each franchisee party pursuant to s 82 of the TPA and s 68 of the FTA for all loss or damage caused by the misleading or deceptive conduct as alleged in relation to the break-even statements, with such loss or damage, as acknowledged by the Court ([2456]), to be determined on a case-by-case basis after the question of liability is resolved." Ground 12 (concerning "pre-opening non-disclosure" and applicable to Rossmick, JFS, Shamarbre, Geraghty & Palmer, SME, Leokate, Best Deal, LJH and Southpole): "In the context of: (a) BOQ's target statements, approval letter statements (as applicable) and break-even statements (whether or not any of those statements constituted misleading or deceptive conduct); and (b) BOQ not having reasonable grounds for any of those statements ([2031] - [2041], ([2055]), the primary judge erred in holding, in relation to information about the performance of other franchisees in NSW pre-opening, 'that it was not misleading for [BOQ] not to have disclosed the relevant facts' …" Ground 13 (concerning "pre-opening non-disclosure" and applicable to the same appellants as Ground 12): The primary judge: "(a) when considering whether there was contravening conduct for the purposes of s 52 of the TPA and s 42 of the FTA - erred in considering reliance and finding that relevant franchisee parties had not relied on (cf. whether the alleged contravening conduct, objectively viewed, was capable of inducing error) the pre-opening non-disclosure …; and (b) should only have considered reliance and made such findings when dealing with the question whether loss or damage had been caused 'by' any misleading or deceptive conduct, as alleged in relation to the pre-opening non-disclosure and for the purposes of s 82 of the TPA and s 68 of the FTA, with such loss or damages, as acknowledged by the Court ([2456]), to be determined on a case-by-case basis after the question of liability is resolved." Ground 14 (concerning "pre-opening non-disclosure" and applicable to the same appellants as Grounds 12 and 13): The primary judge: "(a) should have held that the pre-opening non-disclosure constituted conduct that was misleading or deceptive or likely to mislead or deceive, contrary to s 52 of the TPA and s 42 of the FTA; and (b) should have held that BOQ was liable to each of Rossmick, JFS, Shamarbre, Geraghty & Palmer, SME, Leokate, Best Deal, LJH and Southpole pursuant to s 82 of the TPA and s 42 of the FTA for all loss or damage caused by the misleading or deceptive conduct, as alleged in relation to the pre-opening non-disclosure, with such loss or damage, as acknowledged by the Court ([2456]), to be determined on a case-by-case basis after the question of liability is resolved."

[8]

Approach to the appeal

The appeal has two aspects. The first concerns the alleged "target statements" and "break-even statements". The central issue there goes to the content of representations made by BOQ personnel to the representatives of prospective franchisees and the quality of those representations in terms of the relevant legislation. There is, in general, no dispute as to the general import of what was represented. Nor is it disputed that successful pursuit of any cause of action under the Trade Practices Act (or Fair Trading Act) in respect of a "target statement" or "break-even statement" depends on a finding, first, that the statement was, in terms of s 51A(1) of the Trade Practices Act (or s 41 of the Fair Trading Act), a "representation with respect to any future matter" and, second, that BOQ did not have "reasonable grounds for making the representation" with BOQ carrying the burden of proving that, in making the representation, it had such reasonable grounds. If the s 51A (or s 41) elements are established, the statement in question is deemed to be misleading and the making of the statement is therefore prohibited by s 52 (s 42).
The appellants' challenge to the primary judge's decision on the positive representations part of the case centres on his Honour's view that the relevant statements were not representations "with respect to any future matter" but, rather, statements of hypothetical possibility. There is also a challenge to the primary judge's approach concerning reliance and his view that, because prospective franchisees did not rely on the positive representations, those representations were not of the s 52 (or s 42) quality. The appellants say that the reliance question is irrelevant to characterisation of conduct and goes only to the question arising under s 82 (s 68) or s 87 (s 72) as to whether loss or damage was suffered "by" contravening conduct.
The second aspect of the appeal - the "pre-opening non-disclosure" aspect - involves an examination of BOQ's knowledge about the financial performance of existing New South Wales franchisees at the time immediately before particular OMBs were opened by appellant franchisees and whether BOQ's failure to communicate that knowledge to franchisees about to open branches was itself misleading or deceptive conduct within s 52 (s 42). There are again issues about the primary judge's approach to the reliance issue.
The first aspect of the appeal turns substantially on evidence and findings about negotiations leading up to the making of each relevant franchise agreement, plus questions as to the characterisation of statements made. The second aspect involves examination of what BOQ knew at certain times and an assessment of the significance of its knowledge and its remaining silent while possessing the knowledge.
Against that general background, I turn to factual matters.

[9]

The Zillman modelling

Before embarking upon the program of expansion into New South Wales, BOQ conducted certain investigations. Market research was undertaken. In addition, Mr Zillman, a BOQ employee, prepared two financial models, one for a hypothetical metropolitan OMB and the other for a hypothetical regional OMB. There were two versions of each model - a "base case" and a "stretch" version.
Mr Zillman's work relied in part on known factors (such as BOQ's commission structure for OMBs) and in part on assumptions. The assumptions went to matters such as the average level of deposits and lending an OMB would achieve each month, the types of loans and deposits that would be achieved, the average length of loans and deposits and the costs of establishing and operating an OMB.
The initially assumed monthly loan level was $4.25 million for a metropolitan branch and $3 million for a regional branch. The $4.25 million figure was later adjusted to $4 million. Ms Quinn was a Group Executive of BOQ and the officer in charge of the interstate expansion project. She gave evidence of informal inquiries she had made of some of her banking contacts in New South Wales about the reliability of the initial $4.25 million figure for metropolitan business and the average deal size. Her inquiries were made principally of persons with whom she had worked during her previous employment by Westpac. Ms Quinn was of the opinion that the information she received supported the $4.25 million assumption. The informal inquiries were apparently the only basis for this. No similar work was undertaken in relation to regional branches and the primary judge found that it was "not clear" how OMB arrived at the $3 million figure.
Ms Quinn also gave evidence about inquiries made as to the costs of rent and fit-out.
Among Mr Zillman's assumptions were assumptions as to the rate at which business would be generated. The model assumed that there would be a ramp-up period of 4 months, starting with a nil amount for month 1 and increasing to 100 per cent (that is $4.25 million) in month 4. Mr Zillman could not recall how the percentage of each monthly step was determined.
The primary judge dealt at some length with the question whether Mr Zillman's work provided to BOQ reasonable grounds for believing that, if a metropolitan OMB wrote $4 million per month in loans, that OMB would break even within a reasonable time. Mr Zillman's model was examined in some detail. His Honour said that, in order to provide reasonable grounds, the model did not have to be perfect. It needed to be soundly constructed; and there was no dispute that it was. In addition, it needed to make reasonable assumptions. What amounted to a reasonable assumption in the particular context was seen by the primary judge as depending on the nature of the assumption, its significance to the model and how the assumption was treated. Where the assumption had a major effect on the model, it was obviously necessary to conduct some investigation concerning the reasonableness of the assumption. His Honour concluded that, on that approach, the assumption concerning $4.25 million in new lending per month used in the model as an example was one in respect of which BOQ did not have reasonable grounds. Where the assumption related to minor matters, such as minor expenses, a reasonable approach, his Honour said, may have been to make an estimate of the expense without conducting any investigations or, if the expense was small, to discount it all together. In some cases, where it was difficult to determine the reasonableness of an assumption, it may have been appropriate to consider alternative assumptions to determine how sensitive the model was to the assumption in question.
The appellants criticised Mr Zillman's model on various grounds. The primary judge found that there was substance in some of the criticisms but not in others. His overall conclusion was stated at [2055] in these terms: "I have concluded that the Bank did not have reasonable grounds for making a number of the assumptions made in Mr Zillman's model. It is unclear what effect those assumptions have on Mr Zillman's model. However, under s 41 of the FTA, the Bank bears the onus of proof of establishing that it was entitled to rely on Mr Zillman's model. Having regard to what I have said, I am not satisfied that it has discharged that onus."

[10]

Mr Allsopp and his standard practice

The principal witness for BOQ was Mr Allsopp, Regional and Accreditation Manager NSW and ACT. He reported to Ms Quinn and was the main contact between BOQ and prospective franchisees. He had no specific recollection of any of the meetings at which he was alleged to have made relevant representations. As the primary judge said, that is not surprising since he dealt with some 1200 candidates over several years. Mr Allsopp did, however, give evidence of his general practice which involved, at an early stage, a meeting with a prospective franchisee.
Mr Allsopp's evidence was that events at the initial meeting were typically as follows:
The prospective franchisee signed a confidentiality agreement.
Mr Allsopp handed the prospective franchisee a copy of the "expression of interest" (or "EOI") letter addressed to the prospective franchisee. The EOI letter included a Schedule 1 setting out details of the commissions and fees payable to BOQ. Also handed over was a sheet headed "Owner Managed Branch Fees".
Discussion took place, including on the content of the EOI letter.
Mr Allsopp completed "Checklist A". This identified topics to be covered by Mr Allsopp. He generally did not disclose its content to the prospective franchisee. He used it for his own guidance.
It was suggested by Mr Allsopp that the prospective franchisee prepare a business plan to be submitted to BOQ with information about the candidate and with a copy of the EOI letter signed by the candidate.
A prospective franchisee then set about preparing a business plan and cash flow using, for guidance, materials provided at the first meeting. Depending on circumstances, Mr Allsopp might have subsequent meetings with the interested persons.
If the prospective franchisee returned the signed copy EOI letter, he or she was invited to meet Ms Quinn. This happened mainly at small cocktail gatherings at which up to 12 candidates were present. At those functions, Ms Quinn gave a short presentation about BOQ and the OMB model and usually spoke only briefly to individuals.
It was Mr Allsopp who reviewed information provided by interested persons, including their business plans. Based on that information and the interview he had conducted, Mr Allsopp made a decision whether the candidature should be progressed. If his decision was positive, he recorded his approval of the applicant, the proposed site and other relevant matters. After completing his checklist, Mr Allsopp discussed it with Ms Quinn and, if she agreed with him, she counter-signed his recommendation.
BOQ's legal department then prepared a letter to the prospective franchisee. This was referred to by the primary judge as an "Approval Letter". Like the EOI, it was in a standard form, although accommodating particular matters arising from Mr Allsopp's appraisal of the particular case. The prospective franchisee was required to sign an acknowledgment that he or she had received and understood the letter and to return a copy to BOQ.
At the next stage, Mr Allsopp completed a further checklist, "Checklist D", and forwarded a package of documents to the legal department and the "OMB government department". He also dealt with the credit department in relation to the applicant's application for finance.
The legal department then prepared a number of documents, referred to by the primary judge (at [64]) as the "OMB Documents", as follows: "● A standard form letter (the Appointment Letter) which described the documents enclosed, gave instructions for their completion and other information concerning the terms on which the Bank granted the franchise; ● A franchise disclosure document required to be given in accordance with the Franchising Code of Conduct; ● The OMB Agency Agreement, which was for an initial term of 5 years; ● The Representations Deed; ● Fixed and floating charges for each OMB company and guarantees and indemnities from each director; ● Independent legal advice and financial advice forms to be completed by an independent lawyer and accountant respectively. The legal advice form required an independent lawyer to certify that he or she had explained the legal and practical nature and effect of each of the documents provided to the franchisee and the effect of default under those documents to the directors of the franchisee. The financial advice form required an independent accountant to certify that he or she had explained the accounting and financial nature and effect of each of the documents provided to the franchisee and the transactions under them."

[11]

Particular findings about Mr Allsopp's standard practice

The primary judge recorded several findings about Mr Allsopp's standard practice. He referred, at [1088], to Mr Allsopp's evidence that he began a first meeting interview by referring to the appointment of the first owner manager 20 years earlier and providing a brief summary of BOQ's history in Queensland and its background. He asked the candidate for their personal details and then asked the candidate to sign a confidentiality agreement. According to him, the meeting was based around the EOI Letter and that he read out substantial sections of the letter to each candidate.
Mr Allsopp also gave evidence that he also referred to a checklist ("Checklist A") to check that he had covered each topic on that list. He told the candidate how many OMBs were operating in Queensland and about the change from private agencies to OMBs. He also said that he stated that BOQ had been operating successfully in Queensland and that the OMB model had been successful; that BOQ was expanding into New South Wales and would like to be successful in that State as well. He said that he read out to candidates the responsibility for risk section of the EOI letter and that he explained that BOQ was "never going to be the best and never going to be the worst when it came to price", and that the basis of the OMB model was that better service would be provided through OMBs than by competitor banks. This was because OMB franchiseess had a financial interest in the business and therefore an incentive to work hard.
The modelling undertaken by Mr Zillman played a part in Mr Allsopp's communications with prospective franchisees. In part of his evidence about his general practice at the first meeting (referred to by the primary judge at [1093]), Mr Allsopp stated that he told candidates that the Bank's modelling indicated that an OMB would need to write $4 million in lending and take $2 million in deposits a month from the first month to be successful if their expenses were reasonable. He said to them that he did not know what their expenses and location would be so that, as part of the process, they would need to produce a cash flow. He said that candidates often did not ask further questions about that subject matter. He could not recall why he used the figure of $4 million when the checklist referred to a figure of $4.25 million. He said that he distinctly recalled that, in the context discussing the necessary level of business an OMB would need to write, he talked about expenses and pointed out that an OMB in Pitt Street would have higher expenses compared to an OMB in, for example, Campbelltown. He said, however, that the difference in expenses between New South Wales and Queensland never came up, although the primary judge found that he "promptly retreated from that evidence" and said that, if it had come up, he would have said that expenses in New South Wales would be higher than those in Queensland because costs in New South Wales were higher. He said that he told candidates that they would need to work out their own expenses. Mr Allsopp said that he talked to candidates generally about their ability to write $4 million of new loans per month. He denied that he expressed any view on how long it would take to start writing $4 million in loans after the OMB opened.
His Honour stated (at [1141]) that he found "Mr Allsopp's account of the approach he took to the first meeting he had with candidates to be plausible". He continued (at [1142]): "It would have been natural for him to follow a practice when interviewing candidates. The Bank had developed a set of procedures for interviewers to follow when interviewing candidates. Mr Allsopp gave evidence that he was given training in relation to those procedures and what he should and should not say, as would be expected. It is clear that Mr Allsopp did not follow the procedures developed by the Bank closely and his record keeping seems to have been poor. However, it was natural for Mr Allsopp to use the EOI Letter as a guide to what he should say. The letter set out much of the important information concerning the franchise. Although it may have been somewhat unusual for Mr Allsopp to read significant parts of the letter to applicants, there is no reason to doubt him when he says that he did. At least some of the OMB Parties, although by no means all, gave evidence that is consistent with the practice Mr Allsopp says he adopted. Mr Johnson accepts that Mr Allsopp gave him a copy of the EOI Letter and described Mr Allsopp as 'very rehearsed'. Mr McCoy said that Mr Allsopp handed him a copy of the EOI Letter and used it as a guide for the meeting. Although Mr Jones does not suggest that Mr Allsopp gave him a copy of the EOI Letter at the beginning of the meeting, he said that Mr Allsopp went through what appeared to be a well rehearsed 'spiel'. Mr Versace said that when Ms Smith started asking Mr Allsopp questions, Mr Allsopp replied that he had a set speech which he wanted to go through and they could then ask questions. Mr Chapman said that at some stage Mr Allsopp said '[w]ell, let's now go through the expression of interest letter to make sure I have covered everything' and Mr Chapman's notes on his copy of the letter are consistent with Mr Allsopp taking him through it."

[14]

The approval letter

Successful applicants were sent an approval letter. It was in a fairly standard form but was altered to fit particular circumstances in some cases. The general nature of the relevant section of such letters may be understood by looking at four examples.
The form used in relation to Traderight included the following under a heading "Sales Targets": "All Bank of Queensland branches must meet cross sale targets as set down by the Bank annually. Performance in this area forms an integral part of the Bank's assessment of an Agent's success in the Bank's site. The Bank expects all Agents to participate in all Business Development Campaigns to a level that maximises the Bank's performance in that particular site. The Bank sets all Branches (including all Owner - Managed Branches) a minimum lending draw down target to ensure that the Bank is maximising its representation in each particular location. Please note that the Bank will expect the new OMB at [location] to be writing $4 MILLION in lending draw downs on a monthly basis in the initial 12-month period. Failing to meet the target will not in itself be a breach of the OMB Agency Agreement if the Bank determines that the OMB has used its best endeavours to promote the supply of products on behalf of the Bank. Obviously, the Owner Manager's ability to meet targets will impact upon the Bank's decision to renew the term of the OMB Agency Agreement."
In the case of Rossmick, the corresponding section was in these terms: "The Bank sets all Branches (including all OMB®s) a minimum lending draw down target to ensure that the Bank is maximising its representation in each particular location. Please note that the Bank will expect the new OMB at Hurstville to be writing $4 MILLION in lending draw downs on a monthly basis in the initial 12-month period. A deposit growth objective will be set at $2 MILLION per month. Failing to meet the target will not in itself be a breach of the OMB® Agency Agreement if the Bank determines that the OMB® has used its best endeavours to promote the supply of products on behalf of the Bank. Obviously, the Owner Manager's ability to meet targets will impact upon the Bank's decision to renew the term of the OMB® Agency Agreement."
For JFS, the corresponding section read: "All Bank of Queensland branches must meet cross sale targets as set down by the Bank annually. Performance in this area forms an integral part of the Bank's assessment of an Owner Manager's success in the Bank's site. The Bank expects all Owner Managers to participate in all Business Development Campaigns to a level that maximises the Bank's performance in that particular site. The Bank sets all Branches (including all OMB®s) a minimum lending draw down target to ensure that the Bank is maximising its representation in each particular location. Please note that the Bank will expect the new OMB® at Bathurst to be writing $3 MILLION in lending draw downs on a monthly basis in the initial 12-month period. A deposit growth objective will be set at $1 MILLION per month. Failing to meet the target will not in itself be a breach of the OMB® Agency Agreement if the Bank determines that the OMB' has used its best endeavours to promote the supply of products on behalf of the Bank. Obviously, the Owner Manager's ability to meet targets will impact upon the Bank's decision to renew the term of the OMB® Agency Agreement."
In the case of Shamarbre, a slightly different form was used: "All Bank of Queensland branches must meet cross sale targets as set down by the Bank annually. Performance in this area forms an integral part of the Bank's assessment of an Owner Manager's success in the Bank's site. The Bank expects all Owner Managers to participate in all Business Development Campaigns to a level that maximises the Bank's performance in that particular site. The Bank sets all Branches (including all OMB®s) a minimum lending draw down target to ensure that the Bank is maximising its representation in each particular location. As at April 2005 the Bank's sales targets are as follows: ● Insurance - ten insurance policies per month; ● Merchants - 12 new merchants per year; ● Lending - $4 million worth of new lending per month; and; ● Deposits - $2 million worth of new deposits per month. Failing to meet the target will not in itself be a breach of the OMB® Agency Agreement if the Bank determines that the OMB® has used its best endeavours to promote the supply of products on behalf of the Bank. Obviously, the Owner Manager's ability to meet the targets will impact upon the Bank's decision to renew the term of the OMB® Agency Agreement."

[16]

The OMB agency agreement and the representations deed

These were the documents by which negotiations were brought to a conclusion by appointment of the OMB franchisees as an agent of BOQ to conduct business for it.
The representations deed contained a provision as follows: "5. The Agent and the Directors acknowledge and agree that no representative of the Bank has made ANY statements to any director or other representative of the Agent to the effect that: (a) the Agent will achieve, or is likely to achieve, a certain minimum level of sales of Bank products in its operation of the Agency; (b) the Agent will receive, or is likely to receive, a particular minimum amount of total commission payments at any particular time; (c) the costs of establishment or operation of the Agency will not be more, or are not likely to be more, than a certain maximum amount; (d) the Agent will achieve, or is likely to achieve, a particular minimum level of profitability in operating the Agency; (e) the proposed location and site of the Agency will be, or are likely to be, a good or suitable location and site for operation of the Agency; (f) there is no financial or other risk for the Agent associated with becoming an agent of the Bank; (g) any business plan, budget or financial prediction provided to the Bank by the Agent is accurate, complete or likely to be fulfilled; (h) the Agency has or will have a certain value or ease of transfer or will attract a certain minimum transfer price in the future; (i) the Bank will provide advertising, marketing, promotion, training or any other assistance to a greater extent or of a greater value or quality than specified in the formal written agreements entered into between the Bank and the Agent for the operation of the Agency; or (j) the Bank will permit the Agent to operate the Agency other than in accordance with the formal written agreements entered into between the Bank and the Agent for the operation of the Agency. 6. the Agent acknowledges and agrees that it has not relied on any statement described in clause 5 of this Deed in deciding to enter into an agreement with the Bank for the operation of the Agency. 7. the Agent acknowledges and agrees that it cannot take any action or make any claim under the Trade Practices Act 1974 (Cth) against the Bank in relation to misleading or deceptive conduct on the basis of any statement described in clause 5 of this Deed. RELEASE OF THE BANK'S LIABILITY 8. The Agent and the Directors agree to release the Bank and its representatives from any current or future liability arising out of any statement described in clause 5 of this Deed. 9. Where the Agent is unable to release the Bank and its representatives from liability as required by clause 8, the Agent agrees to indemnify the Bank against any such liability. …"
The OMB agency agreement contained a like clause: "33.4 Operation of this document (a) Subject to any contrary provision contained in any Transaction Document, this Agreement contains the entire agreement between the Parties about its subject matter. Any previous understanding, agreement, representation or warranty relating to that subject matter is replaced by this Agreement and has no further effect. (b) …"

[17]

The positive representations case - "target statements" and "break-even statements"

It was virtually inevitable that the subject of likely or possible financial returns and performance should be discussed in the meeting or meetings Mr Allsopp had with each prospective franchisee. Likely or expected volumes of business were necessarily discussed. Each of the appellants, as a plaintiff, alleged particular representations by BOQ, through Mr Allsopp, on that matter. In each case, a representation referring to the writing of loans of an average of $4 million per month was alleged. It is uncontroversial that such a figure played a part in the Zillman modelling which was shared with potential franchisees. But the franchisees' allegations concerning $4 million per month were by no means consistent or uniform.
The franchisees also alleged statements by Mr Allsopp as to the point at which a business established by them would "break-even" in the sense of moving from an unprofitable introductory phase to ongoing viability.
The representations allegedly made by Mr Allsopp as to financial performance are referred to as "target statements". Those concerning transition from initial losses to profitable operation are referred to as "break-even statements". There is a connection between the two in that expectations as to when "break-even" might be achieved were, of necessity, dependent on expectations about business volume and profitability.
It is necessary to identify the particular allegations advanced by franchisees concerning "target statements" and "break-even statements". Traderight
Traderight, in its fifth further amended statement of claim, referred to a second meeting between its principals (Ms Smith and Mr Versace) and Mr Allsopp and made the following allegations:- ● "working capital of approximately $50,000 to $70,000 was needed for the first three (3) to six (6) months of operation until the branch achieved break even (the Working Capital Representation)." ● "the OMB would break even within three (3) to six (6) months of opening." ● By the two immediately preceding allegations, BOQ "impliedly represented that it did believe on reasonable grounds that an OMB branch conducted by or on behalf of Smith and Versace could and would achieve break even turnover within 3 to 6 months (Break Even Representation". ● "In order to reach break even turnover, the OMB Franchise would need to generate loan draw downs to the value of $4,000,000 per month." ● "If Smith and Versace did some business development activities, it would be relatively easy for them or they would not have any trouble achieving a turnover of $4 million per month within three (3) to six (6) months of opening the OMB Franchise, as they had an extensive client base from their own practices." ● "that in order to be approved, the BOQ required Business Plans to forecast estimated mortgages, both business and home loans, in the order of $4 million per month." ● "that writing $4million in lending draw downs per month was necessary to reach break even point." ● "that it will be easy for the OMB Business to achieve break even point in the first three (3) to six (6) months of opening the OMB Business." ● "that once the OMB Business is writing more than $4 million per month in lending draw downs, the OMB Business will be making a profit." ● "Smith and Versace, or an OMB conducted by or on behalf of Smith and Versace, would have no problems in reaching the break even target of $4 million in lending per month."
BOQ denied each of those allegations. Rossmick
In the case of Rossmick, the third further amended statement of claim alleged representations by Mr Allsopp at the initial meeting with the Rossmick principals, as follows: ● "An OMB in NSW, or in metropolitan Sydney, would average or should do $4 million in new lending each month." ● "The break even point for a NSW OMB would be 6 to 8 months." ● "To progress the matter further, Chapman had to prepare a business plan including a detailed cash flow of the proposed OMB business and that the cash flows should show a monthly new lending amount of $4 million and that this level would be reached at approximately six months." ● "That the figure of $4 million per month in new lending would be the budget set by BOQ for any Sydney Metropolitan OMB and that any cash flow that did not forecast this level of new lending would not be approved by BOQ." ● By the immediately preceding representations, BOQ "impliedly represented that it did believe on reasonable grounds that an OMB branch conducted by Chapman could and would achieve $4,000,000 loan turnover within 6 months (the 'Turnover Achievable Representation')." ● In the approval letter of 23 July 2004 in respect of the Maroubra OMB, BOQ, through Mr Allsop, stated that "it was expected by the BOQ that the OMB at Maroubra Junction (the 'OMB Maroubra Approval Letter') would write $4 Million in lending drawdowns on a monthly basis in the initial 12-month period. The OMB Maroubra Approval Letter also included a number of items that required changing in the cash flow forecasts". ● By that statement, BOQ represented that the particular level of lending drawdown "was a reasonable expectation for the Maroubra OMB or that reasonable grounds existed for having such an expectation (the 'Maroubra Approval Letter Representation')". ● "Based on the performance of branches in Queensland and the size of average loans in Sydney compared to Queensland, an OMB in Metropolitan Sydney could expect to write a minimum of $4 million in new lending each month and that writing $4 million in new lending each month is easily achievable." ● "To progress the matter further, Chapman had to prepare a business plan including a detailed cash flow of the proposed OMB business and that the cash flows should show a monthly new lending amount of $4 million and that this level would be reached at approximately 6 months" ● "That the figure of $4 million per month in new lending would be the budget set by BOQ for any Sydney Metropolitan OMB and that any cash flow that did not forecast this level of new lending would be approved by BOQ."
Rossmick then alleged that, by the representations thus pleaded, BOQ: "impliedly represented that it did believe on reasonable grounds that an OMB branch conducted by Chapman could and would achieve $4,000,000 loan turnover within 6 months (the 'Turnover Achievable Representation')."
BOQ denied all these allegations (although, in relation to some, admitting that some of the words - excluding the $4 million reference - had been spoken). JFS
In the case of JFS, the fourth further amended statement of claim alleged representations by Mr Allsopp to the JFS Principals (Mr and Mrs Gardner) as follows: "● "city branches of the BOQ in NSW were writing approximately $4 million in loans per month (as outlined in the 'Expressions of Interest' document)." ● "that BOQ data and experience had revealed that a new branch took three (3) to four (4) months to reach $3 million of total per month for regional locations." ● "in relation to marketing, business development and the support that the BOQ represented that it was willing to provide to OMB's, Allsopp represented that: (i) if Mr Gardner did some business development activities, such a level of lending ($3 million per month) would be easy to achieve; … (vi) BOQ would provide ongoing marketing and advertising from a corporate level which would include brand and product marketing; … (ix) the mail drop had been a successful way of launching a new branch." ● "given Mr Gardner's business development experience and, in particular, having been the Branch Manager at CBA at Bathurst for 2 years, Mr Gardner would be able to, with a reasonable amount of local business development, reach a level of total loans of $3 million per month, particularly for both home and business lending . . ." ● "that an OMB branch operated by Mr Gardner would easily be able to reach home and business lending of $3 million per month from around months 3 to 4 from opening." ● "that an OMB branch operated by Mr Gardner would be able to reach break even after around 8 months of operation."
JFS further alleged, by reason of the statements thus alleged, BOQ had impliedly represented "that it did believe on reasonable grounds that an OMB branch could and would achieve $3,000,000 turnover within 3 to 6 months.
BOQ denied all JFS's allegations. Shamarbre
Shamarbre does not pursue any appeal in relation to target statements. It does, however, challenge the judge's decision (unfavourable to it) in relation to break-even statements.
The particular representation was pleaded by Shamarbre as follows: "During the First Meeting, Allsopp made representations to Johnson in trade or commerce by saying words to the following effect: ... (i) it would take an OMB operated by Johnson about 7 to 9 months to become profitable."
BOQ denied this allegation. Geraghty & Palmer
In the case of Geraghty & Palmer, the fifth further amended statement of claim alleged representation by Mr Allsop to Ms Geraghty and Mr Palmer at their first meeting, as follows: ● "to succeed, the OMB franchise would have to write loans of $4,000,000 per month and this was the starting point." ● "to achieve the monthly lending target of $4 million, an OMB operated by Geraghty would need to draw down 10 loans per month, which was very easy to achieve given that the average size of a home loan in NSW was in the order of $400,000." ● "based on the performance of the OMBs in Queensland and on the volumes that the New South Wales OIMBs were already achieving, it would be very easy for an OMB operated by Geraghty to achieve a minimum of $4 million per month within 6 months of opening." ● "that the Bank expected branches in Sydney would be writing loans of $4,000,000 per month within six (6) months of opening the OMB." ● "the OMBs already operating in NSW were already achieving or exceeding $4 million in monthly lending." ● "the existing branches in New South Wales were having no trouble reaching the target of $4 million a month in lending and some branches were exceeding this target." ● "Geraghty should expect to break even after 6 months from the opening of her OMB."
It was further alleged that, by those representations, BOQ impliedly represented "that it did believe on reasonable grounds that an OMB branch conducted by Geraghty and Palmer could and would achieve $4,000,000 loan turnover within 6 months".
It was alleged that, by its approval letter of 12 July 2005, BOQ noted its expectation that the OMB would write $4 million in lending drawdowns on a monthly basis in the initial 12 months period and, by that part of the letter, represented that the writing of $4 million in lending drawdowns per month in the initial 12 months was a reasonable expectation for the OMB and that reasonable grounds existed for having such an expectation.
All the Geraghty & Palmer allegations were denied by BOQ. SME
In the case of SME, the fourth further amended cross-claim alleged that, at their first meeting, Mr Allsopp made the following representations to Mr McCoy: ● "having regard to the size of mortgages in Sydney, writing loans of $4,000,000 per month was easily achievable in the Sydney market and there was no doubt that McCoy had the capacity to do that." ● "the writing of loans of $4,000,000 per month would be sufficient for the intended OMB franchisee to pay expenses to operate the business, all borrowing costs, appropriate salaries for principals and to give a good return to the franchisee on the investment." ● "the Bank expected that branches in Sydney would be writing $4,000,000 in loans per month within 3 to 6 months of opening the branch, so that they would break even within 6 to 8 months."
These were said to entail an implied representation by BOQ that "it did believe on reasonable grounds that an OMB branch conducted by McCoy could and would achieve break even turnover within 6 to 8 months".
SME further alleged that BOQ, by its approval letter of 19 May 2005, noted an expectation that the OMB would write $4 million in loans and thereby represented that that was a reasonable expectation for the OMB and that reasonable grounds existed for the representation.
BOQ denied the making of these representations. Leokate
Leokate does not appeal in respect of target statements. It does, however, challenge the judge's decision on break-even statements.
In its fourth further amended statement of claim, Leokate alleged that, during the first and second meetings with the Leokate principals, Mr Allsopp made various representations, including the following: "if Stephen and Lauren wrote on average loans of $4,000,000 per month from day 1, they would break even within 12 months of opening the OMB." Best Deal
In the case of Best Deal, the third further amended statement of claim alleged that, at the first meeting with that company's principal, Mr Jones, representations were made as follows by Mr Allsopp: ● "the BoQ's minimum lending and deposit targets for all of its branches (both OMB and corporate branches) as at April 2005 (and operating as at 18 January 2006) was that: (i) $4 million in new lending would be written per month, which amount was achievable." ● "The BoQ's minimum lending and deposit targets were easily achievable and realistic." ● "That having regard to the size of mortgages in New South Wales, writing loans of $4 million per month was achievable." ● "The writing of home loans of $4 million per month would be sufficient to cover all of the business' overheads and start making a profit." ● "That usually the writing of $4 million in loans per month occurs at between six (6) to twelve (12) months of opening the branch with most OMB's achieving this amount after around 6 months." ● "That given Jones' background an OMB conducted by him would be able to reach the target of writing $4 million in loans per month, even sooner than within 6 months. Given the average loan size in NSW, an OMB conducted by Jones would have no trouble writing $4 million in loans per month."
Best Deal also pleaded: ● "By the statement as to the expectation of writing $4 million in lending draw downs on a monthly basis, the BoQ represented in trade or commerce to Jones that it was a reasonable expectation for Jones' OMB or that reasonable grounds existed for having such an expectation." ● "The Bank impliedly represented that it did believe on reasonable grounds that an OMB branch conducted by Jones could and would achieve $4 million loan turnover within 6 months."
BOQ denied these allegations. LJH
In the case of LJH, it was alleged in the fourth further amended statement of claim that, at the initial meeting between Mr Allsopp and Mr Xu, the principal of LJH, Mr Allsopp made the following representations: ● "the BoQ's minimum lending and deposit targets for all of its branches (both OMB and corporate branches) was that: (i) $4 million in new lending would be written per month, which amount was achievable." ● "that both the North Parramatta and Penrith OMBs were performing exceptionally well. If Xu worked hard and wrote $4 million lending per month, he could be like those branches and make a profit." ● "that because New South Wales loan sizes were bigger than in Queensland, with the average loan size in New South Wales of $300,000 to $400,000, to achieve the target of $4 million lending per month Xu would need to write 10 to 12 home loans per month." ● "that if Xu worked hard $4 million in lending per month would be easily achievable." ● "that the Bank expected that branches in Sydney would be writing $4 million in loans per month within 4 to 5 months of opening the branch, so that they would be making a profit after 4 to 5 months."
It was further alleged that by the statement as to the expectation of writing $4 million in lending draw downs on a monthly basis, BOQ "represented in trade or commerce to Xu that it was a reasonable expectation for Xu's OMB or that reasonable grounds existed for having such an expectation".
There was also an allegation that, by reason of the specific representations, BOQ "impliedly represented that it did believe on reasonable grounds that an OMB branch conducted by Xu could and would achieve $4,000,000 turnover within 4 to 5 months". Southpole
In the case of Southpole, the third further amended statement of claim alleged that at meetings attended by Southpole's principal Mr Chowdhury, representations as follows were made by Mr Allsopp: ● "that to be successful, the OMB franchise needed to write loans of $4 million per month. That target was achievable if he worked hard." ● "that Chowdhury could expect his OMB to achieve the lending target of $4 million per month within 6 months of opening if he worked hard". ● "that Chowdhury would initially require about $100,000 as working capital. Within 6 months of operations, if he worked hard, the branch would break even and would not require any more working capital. By that time, the branch would have enough of a portfolio to do $4 million or more every month thereafter so that it would cover its costs and be successful. He should be able to break even within 6 months."
It was further alleged that, by those representations, BOQ "impliedly represented that it did believe on reasonable grounds that an OMB branch conducted by Chowdhury could and would achieve $4,000,000 turnover within 6 months".
BOQ denied making the representations.

[18]

The positive representatons case - findings of the primary judge

The positive representations on which the appellants rely (as to both "target" and "break-even") were oral representations said to have been made by BOQ through Mr Allsopp at meetings with the principals of prospective franchisees. The primary judge concluded that those of the principals who gave evidence were not credible witnesses and that their evidence should not be accepted except to the extent that it was corroborated.
The several principals recorded their recollections in affidavits. The primary judge referred to the possibility that, with the passage of time and after discussion with the principals of other plaintiff franchisees, witnesses may have come to embrace versions of relevant events that differed from the events that actually happened. His Honour did not thereby intend any criticism. He did no more than draw attention to the susceptibility of human memory to subsequent suggestion referred to by McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315. At an early stage, therefore, the judge directed that the bulk of each witness's evidence about oral statements be given orally. His Honour said in relation to that direction (at [49]): "Although that went some way in addressing the suggestion that each witness's evidence did not represent his or her independent recollection of events, it was far from a complete solution, since it was evident that each witness had gone to considerable effort (and with mixed success) to remember what was in their affidavits - something that a number of the witnesses conceded in cross-examination they had done."
These observations were made before the judge embarked upon his consideration of each witness's evidence. Particular assessments were then made in relation to the several witnesses. Thereafter, at [1148], the judge recorded a general finding that he did not accept the evidence given by the OMB parties concerning the representations allegedly made to them. Nor did his Honour accept that they relied on many of those representations. He continued (also at [1148]): "I am not satisfied that the OMB Parties have established that the Bank engaged in misleading or deceptive conduct. One reason I have reached that conclusion is that to a large extent I do not accept the evidence given by the OMB Parties concerning the representations alleged to have been made to them. Nor do I accept that they relied on many of those representations. The reasons for that vary from witness to witness; and it will be necessary to explain those reasons when dealing with the individual cases. However, my conclusions also depend on general considerations and it is desirable to say something about those before considering the specific representations that are alleged to have been made."
The primary judge then referred to context, noting that, in many cases, the relevant representations were said to have been made by Mr Allsopp at the initial meeting. The purpose of that meeting was for Mr Allsopp to gather information as an initial part of an assessment process concerning candidates' suitability.
Another purpose of the meeting was to introduce the OMB concept to the applicants and to see whether they were interested. The appellants submitted before the primary judge that Mr Allsopp was likely to have been persuasive at such meetings because, as Mr Allsopp knew, BOQ had an aggressive target for its interstate expansion and he was himself paid a bonus for signing up franchisees. In the judge's opinion, however, the appellants exaggerated the significance of those considerations. He did not accept that a desire to proceed with the interstate expansion as quickly as possible caused Mr Allsopp to say things that he did not believe at the time to be true. There was evidence that Mr Allsopp had received a modest bonus in a few cases. In the judge's view, the prospects of receiving bonuses could not have weighed heavily on Mr Allsopp's mind, added to which Mr Allsopp did not strike his Honour as someone who would deliberately mislead those who applied to become franchisees. Evidence about Mr Chapman's plans for Hurstville and BOQ's reservations about them was referred to by the judge as an indicator that BOQ did not pursue a plan of aggressive expansion.
The nature of the first meeting as an introductory one was, in the judge's mind, confirmed by the fact that interested persons could take material away to consider whether they were interested in pursuing the matter. Each of the applicants must have understood that that was the context of the meeting.
His Honour paid particular attention to the fact that each prospective franchisee was given a copy of the EOI Letter and asked to sign an acknowledgement that they had read and understood the letter. The judge regarded that letter as important. He said that each of the applicants must have understood it in the same way. Many of the OMB witnesses gave evidence that they could not recall reading the letter or that they regarded it as a pro forma letter that they needed to sign in order to proceed. The judge regarded that evidence as implausible. It was, he said, "implausible that the applicants would pay close regard to what Mr Allsopp said at an introductory meeting and ignore the letter that set out the basis on which they would become franchisees", particularly since "Mr Allsopp took them through the letter at the initial meeting and they were required to and did sign an acknowledgment that they had read and understood it".
The judge placed considerable weight on the disclaimers in the EOI letter, given the context in which they appeared. He said (at [1154]): "It is one thing for someone to say that he or she paid no attention to a disclaimer in a standard form document where the disclaimer is incidental to the subject matter of the document. But here, the EOI Letter sets out the basis of the relationship between the Bank and the franchisee. In doing so, the letter made it clear that the applicants would need to accept and manage important risks and that therefore they should think carefully before becoming Owner Managers. It invited them to speak to existing Owner Managers and indicated that they would need to obtain their own independent legal and financial advice. It said that the Owner Managers should consult the Bank's website to obtain a full overview of the Bank's product range and current interest rates. The OMB Parties were invited to speak to the Bank's credit department if they were concerned to know more about the Bank's credit policies. The overall impression created by the letter was that the applicants would need to make enquiries and obtain advice to determine whether they should become franchisees."
His Honour referred to the fact that Mr Allsopp made it clear, as did the EOI Letter, that each applicant would need to prepare a business plan as the next step in the process. The business plan was required to include a three-year cash flow forecast together with an outline of how the Owner Manager was going to attract business. The judge said, in that connection (at [1155]): "Each of the applicants had some business experience. They must have understood from the letter and the requirement to prepare a business plan that the franchise was their business and that they were responsible for making an assessment of whether the business would be profitable. That conclusion was reinforced by various parts of the EOI Letter which made it clear that the applicant needed to undertake his or her own assessment of matters that would affect the profitability of the franchise, including the location of the proposed branch."
His Honour said that a number of the appellants attempted to dismiss the business plan as "another formality that they had to go through in order to become a franchisee". In general, he did not accept that evidence which he considered inherently implausible. His Honour continued (at [1156]: "The obvious purpose of a business plan is to assess the prospects of a business and to set out a plan of how to make the business successful. The relevant OMB Parties must have understood that that is why they were required to prepare a business plan. They approached the task of preparing the business plan with varying degrees of diligence. But all of them sought in one way or another to address the question of how they were going to attract business and what the risks were of failing to do so. None of them could have regarded the business plan as a mere formality."
Central to the primary judge's assessment of the statements made by Mr Allsopp to prospective franchisees was a distinction between what is hypothetically possible and a statement of what will (or may) occur. His Honour described the distinction in this way (at [1128]): "On the other hand, it is necessary to distinguish between a statement concerning what may occur in the future and a statement concerning what is hypothetically possible. To take a simple example, compare these two statements: (1) If you become a Bank of Queensland franchisee you should be able to write $4 million in new loans per month. (2) It is possible for some Bank of Queensland franchisees to write $4 million in new loans per month. Leaving context aside, the first statement appears to be a statement of what a particular individual should be able to achieve as an Owner Manager in the future. It is a statement with respect to a future matter even though it is couched in terms of what is possible or likely. The second statement is not a statement with respect to a future matter at all. It is not saying that any particular state of affairs will or is likely or may come about. It is merely saying what is possible without making any prediction concerning what any particular franchisee might achieve. The statement is consistent with a statement made to a particular proposed franchisee to the effect that 'If you become a Bank of Queensland franchisee there is no possibility that you will write $4 million in new loans per month". Consequently, if made, it cannot carry with it the implication that any particular franchisee will or may write $4 million in loans per month. What character a particular statement has depends on the words used and their context."
The findings the primary judge made in relation to particular cases were as follows: Traderight
His Honour noted (at [1269]) that, in relation to a $4 million figure, Mr Allsopp gave various accounts in cross-examination of what his practice was in dealing with prospective franchisees. In his affidavit, Mr Allsopp suggested that he mentioned the $4 million figure only if a candidate asked what level of lending an OMB would need to achieve. In cross-examination, however, he accepted that he raised that question. He says that it was his practice to say: "From the modelling the bank has carried out, it indicated that you'd need to do $4 million to have a successful business, however, that has allowed for average expenses. At this stage I don't know what your expenses would be or what your location would be, so in this process you'll have the opportunity to produce your own cashflow, identify the level of business."
The primary judge further noted Mr Allsopp's evidence that he did not volunteer a view on whether he thought that $4 million in lending each month was achievable but that if a candidate asked he would say words to the effect of "You ought to be able to do $4 million worth of business a month"; also that Mr Allsopp had conceded that it was his expectation that a person opening an OMB in New South Wales would most likely be able to do $4 million a month because that was what he understood to be the industry expectation. However, he went on to say "I did emphasise for them to go and do - and some did produce budgets and cash flows not showing $4 million and they still had lower expenses." Mr Allsopp denied that he ever said that the candidates' business plan had to show $4 million per month in new lending. He pointed out that, in some cases, BOQ had accepted business plans that showed lower levels of lending than that.
The primary judge found that Traderight's pleaded allegations in relation to a $4 million figure centred on three alleged representations. The first was a representation that, in order for an applicant to be approved, BOQ required the business plan to forecast $4 million per month in lending draw downs. That representation depended on evidence given by Mr Versace. His Honour did not accept that evidence which was uncorroborated and struck him as inherently implausible. BOQ was, on occasions, prepared to approve business plans which showed an OMB writing less than $4 million in loans per month. A target of $4 million in new lending per month for a Sydney metropolitan OMB was referred to in later versions of the EOI letter, but not in the version given to Ms Smith and Mr Versace. His Honour accepted that it was likely that Mr Allsopp referred to the target when he was discussing that part of the letter which stated that the Bank would set sales targets. The Appointment Letter referred to a sales target of $4 million and Mr Allsopp must have known of that target. His Honour's view was, however, that by referring to the target, Mr Allsopp was merely saying that Mr Versace and Ms Smith needed to satisfy themselves that they could achieve that level of business. Mr Versace did not use the $4 million in preparing the business plan. He used figures that were much higher.
The second alleged representation in relation to $4 million (identified by the primary judge at [1271]) was a representation that, in order to break even, an OMB franchise would need to generate loan draw-downs to the extent of $4 million per month. The judge did not accept that Mr Allsopp made a representation in those terms. He considered it inherently improbable that he should have done so. Mr Allsopp himself pointed out in cross-examination that the required volume of business depended on the expenses of the branch and, on Mr Versace's own cash flow projections and the assumptions he and Ms Smith had made in relation to their own expenses, $4 million would not have been enough. The judge observed in relation to this (at [1271]): "Faced with that information, Mr Versace did not complain to Mr Allsopp that he (Mr Versace) had been misled. Instead, he doubled the figures he had included in the cash flow projection so as to project a profit. Mr Versace's conduct is not only difficult to reconcile with the pleaded representation, but is inconsistent with any suggestion that he relied on such a representation. In my opinion, the likelihood is that Mr Allsopp simply explained that the Bank's modelling showed that, on the assumptions made in the model, a branch writing $4 million in loans per month would be profitable. That was largely an accurate description of Mr Zillman's model. I say "largely" because Mr Zillman modelled a figure of $4.25 million in new lending per month, but he said in evidence that using a figure of $4 million rather than $4.25 million would not have made a substantial difference to the model."
The third alleged representation in relation to $4 million identified by the judge (at [1272]) was a representation that an OMB conducted by or on behalf of Ms Smith and Mr Versace would have no problem in reaching the target of $4 million in lending per month. His Honour accepted Mr Allsopp's evidence that he did not volunteer an opinion on the likelihood of candidates meeting the $4 million figure and that he only dealt with the question if asked. It struck him as implausible that he would volunteer that information. The judge said that there was no evidence corroborating the evidence of Mr Versace and Ms Smith that such a representation was made; and, while Mr Allsopp accepted that it was not unusual for candidates to ask whether the $4 million figure was achievable, he did not accept that Mr Versace and Ms Smith asked that question. His Honour's view was that their general approach to the investigation of the financial aspects of the franchise was so inadequate that the likelihood was that it did not occur to them to ask the question.
It is relevant to quote in full what was said by the primary judge at [1273] in relation to the $4 million issue: "In my opinion, when considered in context, any statement made by Mr Allsopp that a candidate ought to be able to meet the target of $4 million in lending per month is likely to have been a statement concerning what was possible, not a statement concerning a future matter. Mr Allsopp could not have been understood to be saying that a branch established by Mr Versace and Ms Smith would or was likely to write $4 million in loans per month. Mr Allsopp had no means of knowing whether that would happen or not. It would depend, among other things, on who Mr Versace and Ms Smith selected as the branch manager and the extent to which Mr Versace and Ms Smith attracted business themselves - all matters about which Mr Allsopp knew nothing. Ms Smith and Mr Versace were told to make their own enquiries and they must have understood from what they were told that they needed to satisfy themselves about how much business they had to write and whether they could write that business. That is what they did, albeit in an unsatisfactory way. In those circumstances, any statement made by Mr Allsopp must be understood as an opinion about what was possible. That statement carried with it an implied representation that Mr Allsopp honestly believed the opinion he expressed. However, I do not think that it carried with it an implied representation that Mr Allsopp had reasonable grounds for holding the opinion. The opinion was expressed in the context of an introductory meeting to give applicants a guide about what they might expect and to help them consider whether it was worthwhile for them to prepare a business plan and cash flow themselves. The statement was not made with the intention that applicants would rely on the statement and the applicants could not have understood that was its purpose given that they were to undertake their own investigations."
As to reliance, the judge (at [1275]) did not accept that Mr Versace and Ms Smith could have relied on the turnover representation given that they were told repeatedly that they needed to undertake their own investigation. Dealing with the break-even statement allegation, the primary judge said (at [1276]): "Finally, it also strikes me as implausible that Mr Allsopp would have said words to the effect that no matter what happened they would break even within 12 months."
The break-even statement allegation was dealt with by the primary judge at an earlier point. He considered in in conjunction with an allegation concerning working capital. He held (at [1228]) that the fate of the break-even statement allegation was the same as that of an alleged representation to the effect that working capital of $50,000 to $70,000 would be needed for the first three to six months of operation "until the branch achieved break-even".
The judge held (at [1220]) that no such working capital representation was made. He held (at [1228]) that the allegation concerning break-even statements "must fail for the same reason". Rossmick
At [1345], the primary judge found that it was likely that Mr Chapman had asked Mr Allsopp how much business a branch could write and that Mr Allsopp had said that an OMB based in Sydney ought to be able to write $4 million in loans per month, thus making what his Honour characterised as "a statement of opinion about what was hypothetically possible", as distinct from "a statement about what a particular branch in an unknown location would or was likely to achieve".
At [1346], after referring to particular evidence of Mr Allsopp about conversations with Mr Bradley and Mr Chapman, the primary judge said: "Mr Allsopp must be understood as saying that he believed that it was possible for a branch in Maroubra to write $4 million per month in new lending. He says that he cannot recall conveying his opinion to Mr Chapman and Mr Bradley. However, the likelihood is that he did. But I do not think that in expressing that belief to Mr Chapman and Mr Bradley, Mr Allsopp was saying that a branch operated by them would achieve that level of lending. That was a matter for them to consider for themselves having regard to Mr Bradley's own experience and their own investigations."
His Honour saw that assessment as warranted by subsequent evidence of Mr Allsopp to the effect that he had not told the persons in question that $4 million per was an achievable lending amount in relation to the conduct of an OMB and that what he had in fact said was that they should go ahead and do their own investigations and see what they believed they could do in the area in which they were going to set up their branch.
The judge considered it inherently implausible (at [1347]) that Mr Allsopp should have told Mr Chapman what his cash flow should show. The purpose of the cash flow was to cause Mr Chapman to make his own assessment of what was achievable and what was necessary having regard to his projected expenses. Mr Chapman and Mr Bradley made inquiries about the amount of lending a branch would do each month. That would not have been done had Mr Allsopp simply told Mr Chapman what the cash flow forecast should contain. BOQ made it clear to Mr Chapman and Mr Bradley that it was their task to determine whether they thought that they would be able to achieve - or better - the figure Mr Allsopp regarded as an industry standard.
Regarding break-even, the judge found (at [1351]) that the pleaded allegation concerning the break-even statement was a representation about the performance of a hypothetical OMB rather than what the particular OMB would achieve. It was therefore not a statement about a future matter but, at most, a statement of opinion concerning the possible or likely performance of a hypothetical OMB in Sydney.
In any event, the judge found (at [1352]) that statements in the terms pleaded were not made. He relied, in part, on a file note of Mr Chapman referring to "break-even" for Queensland (not New South Wales) of 8 to 10 months. JFS
Dealing with JFS and the target statement question, the primary judge said (at [1485]): "The representations pleaded in paras 46(g)(i), 46(h) and 46(o) are all representations about what a branch operated by Mr Gardner could achieve. For the reasons I have given in relation to the Traderight proceeding and the Rossmick proceeding, I do not accept that Mr Allsopp made representations in those terms. The meeting was an introductory one. Mr Allsopp had little knowledge of Mr Gardner and how he intended to run the franchise. Consistently with what Mr Allsopp said to candidates for metropolitan branches, I accept that it is likely that Mr Allsopp said that the Bank only expected regional OMBs to write $3 million in new lending per month (in the sense that that is the budget that would be set for them) and that a regional OMB should be able to achieve that level of lending. That representation is to be understood in the way that I have previously described - that is, a representation about what was possible; not a representation about the future performance of a branch operated by Mr Gardner. I also think that the likelihood is that Mr Allsopp explained that, although the Bank thought that figure was possible, Mr Gardner needed to undertake his own investigations and, as part of that process, prepare a business plan. In those circumstances, I do not think that Mr Gardner relied on any representations Mr Allsopp made concerning the $3 million."
The judge's finding (at [1491] - [1492]) concerning the break-even statement representation allegation advanced by JFS was as follows: "The representation pleaded in para 46(p) is a representation concerning when Mr Gardener's branch would break even. The representation pleaded in para 46(q) goes further than the representation pleaded in para 46(p) since what it alleges is that Mr Allsopp represented not only that the branch would break even, but that it would start making a profit 'very quickly'. I am not satisfied that Mr Allsopp made either representation. I accept Mr Allsopp's evidence that he made a general comment about when a branch could be expected to break even, but that his general practice was to explain that it would be necessary for the candidate to conduct his or her own investigations and to prepare a cash flow that would deal with those matters. There is no reason to suppose that Mr Allsopp departed from his normal practice in his meeting with Mr Gardner. I have already dealt with the Break Even Representation (see section 3.5.5). The pleading of the representation raises nothing new in the context of this case. For the reasons I have already explained, the representation adds nothing to the express representations." Shamarbre
There is no appeal in respect of target representations involving Shamarbre and there is no need to rehearse the findings on that subject. In relation to the break-even statement allegation made by Shamarbre, the finding (at [1547]) was as follows: "I have dealt with similar representations in connection with the Traderight, Rossmick and JFS proceedings. In the present proceeding, the representation is pleaded slightly differently since what is alleged is that Mr Allsopp said that the branch would 'become profitable' within about seven to nine months (as opposed to reach break even point within a similar period). I am not satisfied that Mr Allsopp made any such representation. He had no means of knowing when a branch operated by Mr Johnson would break even or become profitable. That would depend on a whole lot of factors not known to Mr Allsopp. Mr Johnson was required to prepare his own business plan and make an assessment of that question himself. As I have said, Mr Johnson admitted that he did not rely on anything Mr Allsopp said at the first meeting." Geraghty & Palmer
The findings in relation to Geraghty & Palmer and the target statement allegation (at [1635]) were as follows: "I do not accept that Mr Allsopp made a representation in terms of that alleged in para 41(g). I have already made findings about the practice followed by Mr Allsopp in discussing the target of $4,000,000 in new loans per month. There is no reason to think that Mr Allsopp departed from his practice in this case. Mr Allsopp may well have referred to the $4,000,000 figure as a target. Although that figure was not mentioned in the version of the EOI Letter that was given to Ms Geraghty and Mr Palmer, Mr Allsopp knew that that was the target and the letter itself referred to the fact that the Bank would set a target for lending and deposits. Even if the representation was made, I do not accept that Ms Geraghty or Mr Palmer relied on it. The OMB Parties submit that the representation was misleading because it was a statement of opinion and Mr Allsopp did not have reasonable grounds for that opinion. I deal with that issue in section 3.15.5. However, on that basis, the statement is said to be misleading because it had a tendency to make Ms Geraghty and Mr Palmer believe that $4,000,000 was sufficient whereas it was not. In fact, however, it appears to be evident from their business plan that $4,000,000 was not sufficient. That business plan assumes that by month 12 the franchise would be writing $10.42 million in new loans per month."
His Honour added (at [1638]) that Mr Allsopp may well have made the representation referred to in the fourth dot point at [72] above which was consistent with both his description of his practice and budgets set by BOQ. He continued (at [1638]): "As a statement of what the Bank expected, the representation is true. The representation carries with it a representation that the Bank thought that its expectation was achievable by at least some NSW OMBs. For reasons that I have already explained, I do not think it carried with it a representation that Mr Allsopp had reasonable grounds for making the representation. Nor do I accept that the representation carries with it a representation that the Bank's expectation was achievable by a franchise operated by Ms Geraghty and Mr Palmer. It was clear that they needed to undertake their own investigations to determine that question for themselves. For the reasons I have already given, I do not accept that Ms Geraghty and Mr Palmer relied on the representation."
The judge's finding concerning target statement was brief and was bound up with the finding concerning any working capital representation. The pleaded allegation (set out in the last dot point at [72] above) was in paragraph 41(s) of the fifth further amended statement of claim. The judge said (at [1640]: "I have already set out my findings in relation to what Mr Allsopp's practice was when describing working capital requirements and why I do not accept that he made statements to the effect that specific OMBs would require specific amounts of working capital. Apart from the uncorroborated evidence of Ms Geraghty and Mr Palmer, there is no reason to think that Mr Allsopp departed from his practice in this case. I am not satisfied that he did. For similar reasons, I am not satisfied that Mr Allsopp made the representation pleaded in para 41(s)." SME
The target statement findings relevant to SME (at [1701]) were as follows: "In relation to the representation pleaded in para 41(h), I have already described what Mr Allsopp's practice was in referring to the $4 million figure. I accept that evidence. There is no reason to suppose that Mr Allsopp departed from his practice in this case. It is clear that Mr McCoy did not rely on any representation concerning the $4 million. He understood from the EOI Letter that he was to undertake his own investigations. That is what he did. He prepared a business plan which anticipated that his branch would write substantially more than $4 million in new lending per month. He could give no rational explanation of how he arrived at the figures included in his cash flow projection on the basis of any representation made by Mr Allsopp."
The finding concerning the break-even statement allegation appears at [1703] of the primary judge's reasons: "In relation to the representation pleaded in para 41(j), Mr Allsopp may well have said that the Bank would set a budget of $4 million in loans per month and it is possible that he said that that budget contemplated that the target should be reached in three to six months. I have already explained why, in my opinion, a representation in those terms was not misleading. I do not accept that Mr Allsopp said that if a branch wrote $4 million in loans per month within three to six months it would break even within six to eight months. Again, Mr Allsopp had no means of knowing whether that was true." Leokate
In the case of Leokate, there is no appeal concerning target statements and it is not necessary to refer to the judge's findings on that matter. In relation to break-even, the relevant finding concerned paragraph 60(i) of Leokate's pleading (set out at [81] above) and was stated by the primary judge at [1766]: "I am not satisfied that the representation pleaded in para 60(i) was made by Mr Allsopp. Again, the representation depends on the uncorroborated evidence of Mr and Mrs Sargent. I have already indicated that I accept Mr Allsopp's evidence concerning the practice he followed when discussing the question when a branch would break even. There is no reason to think that he departed from his practice in this case. Mr and Mrs Sargent were to prepare their own cash flow analysis. That cash flow analysis would give them an indication of when they could expect to break even based on their own assessment of what their costs and income would be. In those circumstances, I do not accept that they relied on any representation made by Mr Allsopp concerning how long it would take to break even." Best Deal
In the case of Best Deal and the target statement allegation, the judge found (at [1839]) that it was likely that Mr Allsopp said something about the achievability of the target of $4 million in lending drawdowns on a monthly basis. Such a statement was consistent with the normal practice. The judge also said (at [1839]): "However, I do not accept that any statement made by Mr Allsopp could have been understood as a statement that Mr Jones would achieve $4 million in new lending per month. Mr Allsopp had only just met Mr Jones. He knew nothing about Mr Jones' abilities. He told Mr Jones that Mr Jones would need to prepare a business plan so that the Bank could assess Mr Jones' suitability to become an Owner Manager. In those circumstances, Mr Allsopp could not have been understood as saying something about an OMB operated by Mr Jones. Rather, as I have explained previously, any comment made by Mr Allsopp concerning the achievability of the $4 million target must be understood as a statement to the effect that it was possible in an abstract sense to achieve that target. As I have explained elsewhere, that is not a statement with respect to a future matter. It is a statement about what was possible."
The break-even statement allegation advanced by Best Deal (see [83] above) was in terms less explicit than those pleaded in other cases. The second of the allegations at [83], referring to six months, is very much tied to the proposition that $4 million lending drawdowns per month was the hallmark of viability. The judge's finding (at [1850]) was as follows: "I have already described the evidence given by Mr Allsopp of what he says his practice was when discussing the $4 million figure. I am not satisfied that Mr Allsopp departed from his practice when speaking to Mr Jones. The evidence he did so depends entirely on the evidence given by Mr Jones which, for the reasons I have explained, I do not accept. For the reasons I have explained elsewhere, I do not accept that Mr Allsopp's practice involved him engaging in misleading or deceptive conduct. In addition, I do not accept that Mr Jones relied on any representation made by Mr Allsopp concerning the $4 million figure. He prepared his own business plan. He visited the Manly and Carlingford Court branches and he accepts that he was told by the managers of those branches that they were not performing well and were not reaching the target of $4 million in loans per month. It is difficult to see how in those circumstances Mr Jones relied on anything Mr Allsopp said concerning the $4 million figure." LJH
In relation to target statements, the conclusions in relation to LJH (at [1902]) were similar to those in the case of Best Deal: "[A]ccording to Mr Xu, Mr Allsopp said that if he worked hard the $4 million figure was achievable. I think it is likely that Mr Allsopp said something along the lines that with hard work the budget was achievable. A statement to that effect is consistent with what Mr Allsopp says his practice was. However, for the reasons I have explained when discussing the equivalent representations pleaded in the Best Deal 3FASC (see section 3.12.4), I do not accept that any statement made by Mr Allsopp could have been understood as a statement that Mr Xu would achieve $4 million in new lending per month. Nor, for the same reasons, do I think the representation pleaded in para 43 of the 4FASC can be implied from the EOI Letter. Like Mr Jones, and despite what Mr Xu says, Mr Xu must have understood that he was to make his own assessment of what he thought a business operated by him could achieve. That is what he did."
The judge's conclusions with respect to the break-even statement allegation made by LJH were stated at [1912] of his judgment: "The pleading of the Turnover Achievable Representation and the Break Even Representation is, in substance, no different in this case than the pleading of similar representations in other cases. The LJH Group Parties take express representations alleged to have been made by Mr Allsopp, reformulate them slightly and plead that the Bank impliedly represented that there were reasonable grounds for making the reformulated representations. Here, the reformulated representations are that Mr Xu could and would achieve $4 million new lending each month within four to five months and would achieve break even within four to five months. The reformulated representations seem to go beyond the express representations, since a fair reading of the express representations is that they are conditional on Mr Xu working hard. As in other cases, the allegation of reasonable grounds in the implied representations add nothing to the express representations. The express representations, if they were made, were clearly representations with respect to future matters. Consequently, they are deemed to be misleading unless the Bank can establish that it had reasonable grounds for making the representations. The implied representations clearly fail if the express representations do. For those reasons, in my opinion, it is not necessary to consider them further."
This fate of allegations about break-even statements proceeded from the judge's earlier conclusions at [1907], as follows: "The representations pleaded in paras 46(e), 46(f), 46(g) and 46(h) all concern the $4 million lending target. I have already explained what Mr Allsopp is likely to have said on that question. I am not satisfied that he said anything more. I do not accept that what he said was misleading. Nor do I accept that Mr Xu relied on what Mr Allsopp said. Mr Xu understood that he was to prepare his own business plan and to form his own view on whether he could run a successful business. Southpole
In the case of Southpole, the primary judge found (at ([1974]) that a target statement in the particular terms pleaded was not made but that Mr Allsopp "may well have said" that the target set out in the EOI letter was achievable if the owner manager worked hard. His Honour continued (also at [1974]): "I have already explained that a representation in those terms must be understood as an expression of an opinion about a hypothetical OMB. It was certainly not a representation about all OMBs. Nor was it a representation about Mr Chowdhury. The representation was made in a context where Mr Chowdhury was required to undertake his own investigations, and as part of that process to prepare a business plan, to satisfy himself that he could operate a successful business."
The alleged break-even statement in the case of Southpole was that Mr Chowdhury could expect his OMB to achieve the lending target of $4 million per month within six months of opening if he worked hard (paragraph 36(c1) of the third further amended statement of claim, being the penultimate dot point at [88] above). The primary judge did not deal explicitly with that particular paragraph of the pleading. The appellants accept, however, that the conclusion with respect to it is to be gathered from [1976] of the judgment: "The representation pleaded in para 36(c) had two limbs. One is that, to be successful, an OMB franchise needed to write loans of $4 million per month. The other is that that target was achievable by Mr Chowdhury if he worked hard. Both representations depend on the uncorroborated evidence of Mr Chowdhury. I am not satisfied that either representation was made. It is inherently implausible that Mr Allsopp would have made the first representation (which seems to be to the effect that $4 million in new lending per month was both necessary and sufficient for success). Whether $4 million was necessary or sufficient depended on the costs structure of the relevant branch. That was not something that Mr Allsopp could know about. Mr Chowdhury was to undertake his own investigations and determine for himself whether $4 million was necessary or sufficient. The cash flow he produced bore no relationship to the $4 million figure. It is clear in those circumstances that he could not have relied on the representation. The second limb of the representation is similar to the representation pleaded in para 36(a2) except that representation appears to relate to all Owner Managers, whereas the representation pleaded in para 36(c) relates to Mr Chowdhury. I have already indicated that I am not satisfied that Mr Allsopp made a representation concerning Mr Chowdhury's ability to meet the target."

[19]

The positive representations case - hypothetical versus actual

The appellants contend that the primary judge mischaracterised the relationship of the parties. BOQ, they say, was much better informed about the relevant business than aspiring franchisees were, especially at the negotiating stage. The appellants take particular issue with the following assessment at [1440] of his Honour's judgment: "The relationship was spelt out by the EOI Letter. It was a commercial franchise. Applicants were required to conduct their own investigation of the opportunity and to provide the Bank with information to permit the Bank to make an assessment of whether it thought the applicants were appropriate. The applicants were encouraged to make the enquiries they thought were appropriate including enquiries of other franchisees. The Bank facilitated that process. In my opinion, in those circumstances, the applicants could have had no expectation of disclosure particularly disclosure of general information about the performance of all franchises irrespective of their relevance to the circumstances of the particular applicant and what that applicant proposed."
It was wrong, the appellants say, to regard the relationship as one in which the prospective franchisees were expected to make and rely on their own inquiries and investigations; nor should the primary judge have seen the franchisor and prospective franchisee as treating on equal terms. They refer to Mackman v Stengold Pty Ltd [1991] ATPR 41-105 in which, as McHugh J noted in Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; 218 CLR 592 (at [120]-[121]), Spender J held that a corporation had contravened s 52 of the Trade Practices Act by supplying to a potential purchaser of a franchise business a report containing inaccurate figures concerning profit projections for the business. The corporation had supplied the report as if the figures had been prepared by its accountants, when in fact the accountants had simply accepted the figures supplied to them by the corporation and had represented the figures as their own. The report was to be used to persuade persons to purchase franchises. Spender J held that the corporation was liable although the report contained a disclaimer by the accountants.
The appellants also point out that the information asymmetry and structural imbalance between prospective franchisor and prospective franchisee is sufficiently well recognised that it has received statutory and other regulatory recognition in Australia and elsewhere.
The appellants do not say that s 52 of the Trade Practices Act and s 42 of the Fair Trading Act should be read beneficially for franchisees. What they do say is that the relationship necessarily informs the nature of the franchisor's conduct as assessed objectively by the court.
The appellants take issue with the primary judge's finding that the statements in question were statements about a hypothetical franchise and what was hypothetically possible as distinct from representations with respect to the future financial performance of the particular OMBs. The appellants point, in particular, to the apparently standard content of the approval letter referred to at [49] to [52] above. They also refer to the submissions to the credit department (see [53] above).
The appellants ask rhetorically why Mr Allsopp saw fit to mention a figure of $4 million or a break-even point of 8 to 12 months if those were merely speculation about what was hypothetically possible.

[20]

The positive representations case - characterisation of the statements

The case before the primary judge was that the target statements and break-even statements made to each potential franchisee were, in terms of s 51A of the Trade Practices Act (or s 41 of the Fair Trading Act), representations "with respect to any future matter", being the projected financial performance of the particular OMB. The issue was whether the representations were in truth of that character or merely descriptions of what was hypothetically indicated. The primary judge decided that the representations went only to the hypothetical.
As I have said, the primary judge rejected the evidence of the several OMB principals as to what had been said by Mr Allsopp in the various meetings with him in which they had participated. His Honour stated cogent reasons for doing so. The apprehension that those persons had unconsciously reconstructed events as a result of discussions among them and perusal of one another's written accounts was correctly regarded by the primary judge as a factor fatally compromising their credibility - added to which, of course, he had the opportunity to observe each in the witness box. There is no basis on which this Court can properly depart from the judge's decision on these matters of credibility or reliability. The Court must deal with the matter on the basis of the evidence given by Mr Allsopp and other BOQ witnesses and, of course, contemporary documents in evidence.
The primary judge made findings about research carried out by BOQ into the feasibility and desirability of expansion into New South Wales through OMBs. A report by a market research firm showed "a relatively substantial potential market". However, that research did not indicate whether $4 million (or any other sum) in loans per month was likely. Nor did it indicate the volume of business required in order to cause an OMB to be viable or the point the point at which any newly established OMB would become viable in a break-even sense. The primary judge also referred to the fact that the assumptions underlying the Zillman modelling regarding average monthly lending by OMBs were based on informal inquiries made by Ms Quinn of some of her banking contacts in New South Wales (see [26] above).
There was no firm foundation for any finding that BOQ was in any better position than a prospective franchisee to judge the potential or likely performance of New South Wales OMBs generally or of OMB operations in any given suburban or regional locality in New South Wales. BOQ had not operated in New South Wales. Ms Quinn gave evidence of having obtained what was, at best, anecdotal evidence about New South Wales conditions from contacts she had with persons in that State.
The principals of the prospective franchisees were persons based in New South Wales who, for the most part, had banking experience. In particular:

Mr Chapman (Rossmick) had worked for at least six banks and other financial institutions in the period 1975 - 1993 and, from 1996, had been the principal of a commercial debt recovery firm.
Mr Nolan (Rossmick) had worked for ANZ Bank for 16 years to 2002.
Mr Bradley (Rossmick) had worked for the Commonwealth Bank for 25 years.
Mr Gardner (JFS) had worked for the Commonwealth Bank for more than ten years, including as a branch manager.
Ms Geraghty (Geraghty & Palmer) had held a number of banking positions as a customer service officer, acting assistant branch manager and inbound lending officer.
Mr Palmer (Geraghty & Palmer) had held various banking positions in England, Canada and Australia over a period of some 30 years up to 2000, with emphasis on credit cards.
Mr McCoy (SME) had worked for the Reserve Bank between 1979 and 1987 and thereafter for three investment banks in Sydney, Hong Kong and London occupying senior positions in relation to derivatives.
Mr Sargent (Leokate) worked as a branch manager at two Sydney suburban bank branches for about ten years to 1997 at which point he became an area manager responsible for three branches.
Mrs Sargent (Leokate) worked as a bank teller or customer service officer for about seven years to 1985 and then again from 1990 to 1996, after which she worked in a bank's fraud department for three years.
Mr Jones (Best Deal) worked in the financial services industry for 30 years including, between 1997 and 2000, as a branch manager, relieving branch manager and mobile sales manager of a bank.
Mr Xu (LJH) worked as a bank customer service officer from April 2004 and became a business banker in 2005.
Mr Chowdhury (Southpole) worked as a credit analyst for a bank in Bangladesh and, after arriving in Australia, as a credit officer for two Australian banks.

OMB principals who had no banking experience included Mr Versace and Ms Smith (Traderight), both of whom were practising solicitors. They told Mr Allsopp at an early stage that they were not intending to run the branch themselves. They brought in Mr Bridgman who had worked in the credit department of a large retailer. In soliciting business, Mr Versace and Ms Smith intended to make use of their contacts in the Sydney legal community. Mr Johnstone (Shamarbre) had had some experience with an investment bank in South Africa before coming to Australia and had thereafter two CEO positions in this country over some eight years.
All the OMB principals were thus commercially sophisticated persons with business experience. Most had specific banking experience.
The distinction the primary judge drew between a statement concerning what may occur in the future and a statement concerning what is hypothetically possible was explained in the passage at [1128] of the judgment set out at [101] above. Dealing with specific cases, the judge found that the terms in which particular representations were pleaded necessarily referred to a hypothetical OMB rather than the particular OMB to be established at a particular place by the person or persons to whom the representations were made. The message conveyed, in each case, was that the representation could not have been anything more than a statement of hypothetical possibility, as distinct from a statement of what a particular OMB was likely to achieve.
His Honour's characterisation was, in my opinion, correct. The ultimate source of any $4 million average monthly lending figure was the Zillman modelling. Mr Allsopp's evidence was that he referred to modelling in his discussions with prospective franchisees. But the modelling, obviously enough, dealt with a hypothetical case and was based on a set of assumptions which might or might not, in whole or in part, match the actual circumstances in which a particular OMB was to be established and would operate. The prospective franchisees with whom the modelling was discussed could not have regarded the modelling and the indications extracted from it as anything other than hypothetical.
A statement of opinion, including a prediction (such as a forward estimate relating to the financial performance of a business), may be a statement with respect to a future matter as contemplated by s 51A of the Trade Practices Act (or s 41 of the Fair Trading Act); and such a statement may well carry with it an implied representation that the person making it holds the opinion: Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 238 CLR 304 at [33]. By sharing with prospective franchisees the results of the Zillman modelling and referring at different times to levels of business there indicated, BOQ was no doubt expressing or endorsing an opinion. But the opinion it expressed was not as to what a particular business established by particular persons in a particular locality could or would achieve. It was, at most and of its nature, an opinion to the effect that, if actual circumstances in a particular case precisely matched the Zillman assumptions, there was a statistically objective basis for a conclusion that particular financial consequences would likely follow. It was for that reason and in that sense that BOQ's representations were in the realm of the hypothetical only.

[21]

The positive representations case - reliance

The appellants challenge the primary judge's findings that, if contrary to his Honour's assessment (which I consider to be correct), the target statements and break-even statements were representations by BOQ with respect to a future matter, those statements were not caught by s 52 of the Trade Practices Act (or s 42 of the Fair Trading Act) because the appellants did not rely on them and accordingly were not misled or deceived. Such findings - framed as findings of lack of reliance by the appellants - were made by the primary judge at several points in his judgment.
The appellants make two submissions in this part of their case: first, that the question whether the person to whom a particular representation was made was misled or deceived by the representation is irrelevant to whether the conduct consisting of the making of the representation is misleading or deceptive or calculated to mislead or deceive (the true issue being the objectively assessed capacity of the representation to produce a particular effect); and, second, that, in the particular statutory context, questions of reliance are properly addressed only upon inquiry whether, in terms of s 82 or s 87 of the Trade Practices Act (or s 68 or s 72 of the Fair Trading Act), a person to whom the prohibited representation was made suffered loss or damage "by" the conduct consisting of the making of the representation.
These submissions may readily be accepted. Conduct is of the prohibited kind if "it has a tendency to lead into error". These are words found in a number of decided cases and recently used by French CJ, Crennan, Bell and Keane JJ in Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; 250 CLR 640 at [39]. It is the quality of the conduct in terms of capacity or tendency, objectively ascertained, that must be judged, not its actual impact on a particular person. Where, as here (on the appellants' case), the conduct consists of a representation actively made to a particular person in a one-on-one situation, the quality of the conduct is to be ascertained by reference to the context in which the parties are situated, including such matters as their respective states of prior knowledge and understanding. It is within the whole of that context that the court must address the question whether the representation "has a tendency to lead into error" and make an objective assessment of its likely effect on rational decision-making by a person in the position of the representee. The question whether the representee relied or acted upon the representation is irrelevant to that inquiry. Only if monetary relief (or some other order) is sought by a plaintiff who alleges that a particular misrepresentation was made to him or her does that plaintiff need to establish a causal link between the impugned conduct and the loss that is claimed: see Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; 218 CLR 592 at [37]. That need arises from the word "by" in the phrase "by conduct" in s 82 and s 87. Reliance is relevant to the causation question: see Henville v Walker [2001] HCA 52, 206 CLR 459.
In short, a finding that the representee, in a one-on-one representation case, has not relied on the representation is immaterial to the question whether the making of the representation constitutes conduct within s 52 of the Trade Practices Act (or s 42 of the Fair Trading Act).
To the extent that the primary judge proceeded on the basis that lack of reliance by a prospective franchisee on a particular statement made by Mr Allsopp was material to the question whether the making of that statement was conduct prohibited by s 52 (or s 42), his Honour acted on a misapprehension of the part that reliance plays in the statutory scheme. Since, however, his Honour was correct in his view that, apart altogether from any question of causation, BOQ's conduct was not brought within s 52 (or s 42) by s 51A (or s 41), that misapprehension did not affect the correctness of his Honour's ultimate finding against the OMB parties in relation to the target statements and the break-even statements.

[23]

Pre-opening non-disclosure - findings of the primary judge

The primary judge devoted his greatest attention in this part of the case to the claims made by the Rossmick companies. It is convenient to refer to the judge's findings in relation to the several plaintiffs by which a pre-opening non-disclosure case (of statutory contravention by silence) was advanced. Rossmick
The Rossmick branches opened on 12 September 2005 (Hurstville) and 19 September 2005 (Maroubra). It was pleaded by Rossmick that, between 1 June 2005 and 19 September 2005, BOQ knew a number of facts, including that the great majority of the OMBs in New South Wales had never achieved an average of $4 million new lending per month, that a great majority of the franchisees had been unsuccessful in selling BOQ products to a level sufficient to break even or to be profitable, that a monthly lending target of $4 million was not easily achievable by a New South Wales OMB and that the great majority of those OMBs were not breaking even and were not profitable. Particulars were given of those somewhat broadly framed allegations.
After setting out the various matters of which it alleged that BOQ was aware, Rossmick pleaded that, between 1 June 2005 (the earliest point at which BOQ was said to be aware of the relevant matters) and the date of the opening of each Rossmick branch, the Rossmick principals "had a reasonable expectation that [BOQ] would disclose to them" two classes of information: first, "information that was material to the likely financial performance of" the branch; and, second, "information that was material to the consideration by the plaintiffs whether or not to enter into" the agency agreement for the branch. This "reasonable expectation" was said to be entertained by the plaintiffs because of the various matters known to BOQ but not to the plaintiffs, being matters which, as BOQ knew, were material to decision making by the plaintiffs. The Rossmick plaintiffs did not say that they should have been informed of the relevant matters before entering into the franchise agreements. Their case was, rather, that they should have been informed before the branches opened, at which point they would have promptly terminated the franchise agreements and avoided the costs and other burdens of operating the OMBs until 30 June 2006 as they in fact did. Of course, if the "reasonable expectation" was, in any given case, that disclosure should be made before the franchise agreement was executed, failure to disclose at that earlier time would have been actionable.
The primary judge began with an assumption that the Rossmick plaintiffs had established the matters particularised in this part of their case. Even on that assumption, in his Honour's view, there was a question whether BOQ knew the pleaded facts which, he said, were "expressed at a high level of generality and involve assertions which contain a degree of judgment or carry with them connotations which, to some extent at least, involve something close to an expression of an opinion". He gave an example. As at the start of August 2005 there were 13 OMBs open in New South Wales and nine of those had been open for more than six months. The number of suburban branches was smaller. His Honour wondered whether it could be said that the great majority of OMBs in the State had never achieved $4 million in new lending settlements per month where one out of 13 did so and when only nine OMBs had been open for more than 6 months; and whether "never" was a fair description of the position when the longest any branch had been open was 12 months.
The appellants regard these observations as "remarkable". What the judge was saying in a general way, in my view, is that, because only a very short history of New South Wales operations was available, the characterisation that the pleading sought to place on events was, at best, questionable. Since no branch had been open for more than 12 months and nine of 13 (which included non-suburban branches) had been open for more than six months - and, therefore, four had been open for six months or less - there was not a great deal of established performance against which comparisons could usefully be made. There is, to my mind, substance in that reservation.
The judge went on to say that the matters pleaded by Rossmick were said by it to have been known to BOQ from selected facts which derived largely from financial information collated by BOQ itself. His Honour noted, however, that there was no evidence that BOQ actually performed the calculations from which the particularised facts were derived. He accepted that there must have come a time when it was apparent to BOQ that there was a serious problem with its interstate expansion, so that BOQ then had information that would be of interest to potential applicants concerning performance of other branches. But he considered it "difficult to say that that point had been reached at the time" the two Rossmick OMBs were opened.
The primary judge did not express any concluded view on these matters because he thought that Rossmick's non-disclosure case failed for the simple reason that it was not misleading for BOQ not to have disclosed the relevant facts. His Honour's reasoning was as follows (at [1438] - [1441]): "[I]t was not misleading for the Bank not to have disclosed the relevant facts. The OMB Parties say that it was misleading because they had an expectation of disclosure. That expectation is said to have had two principal sources. First, they say that they had an expectation that the Bank would correct any misleading statement the Bank had made. However, put like that, the claim based on non-disclosure adds nothing to the claim based on the representations the Bank is alleged to have made. Either those representations, having regard to the context in which they were made, were misleading or they were not. If they were, it adds nothing to say that the Bank also engaged in misleading conduct by failing to correct the otherwise misleading impression created by the representation. In some circumstances, it is possible that a representation is not misleading at the time that it was made, but becomes misleading as a result of changed circumstances and there may be a question whether in those circumstances it is misleading not to draw the representee's attention to the change in circumstances. But none of the representations on which the Rossmick Parties rely fall into that category. The second basis on which it is said that the OMB Parties, including the Rossmick Parties, had an expectation of disclosure is that the information was important to their respective decisions to enter into the franchises. In addition, it is said that there was a relationship of candour between the parties characterised by a requirement that candidates sign a confidentiality deed and a requirement that the candidates disclose a great deal of information about themselves and their proposed franchise to the Bank. In my opinion, that submission mischaracterises the relationship between the parties. It is difficult to see what relevance the confidentiality deed has to the characterisation of that relationship. The relationship was spelt out by the EOI Letter. It was a commercial franchise. Applicants were required to conduct their own investigation of the opportunity and to provide the Bank with information to permit the Bank to make an assessment of whether it thought the applicants were appropriate. The applicants were encouraged to make the enquiries they thought were appropriate including enquiries of other franchisees. The Bank facilitated that process. In my opinion, in those circumstances, the applicants could have had no expectation of disclosure particularly disclosure of general information about the performance of all franchises irrespective of their relevance to the circumstances of the particular applicant and what that applicant proposed. Mr Chapman says that he asked if there was any financial information Mr Allsopp could give him and he says that Mr Allsopp replied that there was not because of privacy concerns, but that Mr Chapman could speak to any existing Owner Managers about their financial performance and that he would arrange meetings for Mr Chapman for any Owner Managers he wished to speak to. How Mr Chapman could have had an expectation of disclosure in those circumstances is not apparent. The OMB Parties also suggest that they had an expectation of disclosure because of the substantial costs of setting up an OMB and because the Bank emphasised the exclusivity of the arrangement - that it only wanted the best people as Owner Managers. Why, however, either of those matters gave rise to an expectation of disclosure in the circumstances I have described is not clear."
(Mr Chapman was one of the members of the group that applied for the Maroubra franchise ultimately awarded to Rossmick 2.)
His Honour thus enunciated two conclusions. The first is that, to the extent that the case of contravention by silence was put on the basis that the plaintiffs were entitled to expect that positive but misleading or deceptive representations previously made would be corrected, the contravention so asserted was no more than a re-casting of the alleged contravention consisting of the making of the positive representations themselves. This is consistent with the analysis in Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; 241 CLR 357 at [23]. It was there pointed out that "reasonable expectation" analysis is unnecessary where the undisclosed fact is the falsity of a representation. That falsity itself is sufficient to found the claim of statutory misconduct. Secondly, the primary judge held that circumstances were not such as to give rise to an expectation that BOQ should, as to the matters said by the Rossmick plaintiffs to be material, have actively volunteered information to those plaintiffs rather then maintaining the silence that it in fact maintained. The silence was therefore not conduct prohibited by s 52 (s 42). JFS
The JFS branch opened on 19 December 2005. The pre-opening non-disclosure allegation in that case was substantially the same as in the Rossmick case, except that, since the branch was a regional branch the relevant average monthly lending figure was $3 million. The judge held (at [1510]) that the pre-opening non-disclosure claim should fail for the same reason as in the Rossmick case. Shamarbre
The Shamarbre OMB opened on 21 December 2005. The pre-opening non-disclosure case and the judge's treatment of it (at [1596]) were the same as in relation to Rossmick and JFS. Geraghty & Palmer
The Geraghty & Palmer branch opened on 3 January 2006. The primary judge noted that the pre-opening non-disclosure allegation was the same as in the other proceedings but with some additional particulars said to have been known to BOQ in January 2006. His Honour recorded (at [1654]) a finding that BOQ "knew in January 2006 that most branches were not achieving budget for new lending". Beyond that, he regarded the case as governed by the considerations he had already identified. SME
The SME branch also opened on 3 January 2006. The primary judge (at [1732]) saw that case as governed by the same considerations as Geraghty & Palmer. Leokate
Leokate's branch was opened on 20 March 2006. The judge found (at [1802]) that, by that time, BOQ "knew that a substantial number of branches were not performing as expected" but, for the reasons he had given in relation to other cases, did not accept that BOQ was under an obligation to disclose that fact. Best Deal
The Best Deal branch was opened on 24 August 2006. By that time, the judge said (at [1871]), "BOQ was aware that there was a significant problem with its expansion into New South Wales" but it did not follow that that meant that the Bank engaged in misleading and deceptive conduct by failing to disclose to Mr Jones (or Best Deal) the facts that it pleaded were not disclosed. LJH
The LJH branch opened on 10 March 2007. The state of BOQ's knowledge at that point was described by the primary judge in the terms he had used for Best Deal. His conclusion on the substantive question was also similarly expressed (at [1926]). Southpole
Southpole's branch opened on 23 April 2007. The primary judge said (at [2005]) that the pre-opening non-disclosure case was pleaded in the same way as in the other matter and that the same result applied. Pre-opening non-disclosure - submissions on appeal
The appellants say that, in the context of the whole of the representations made by BOQ to prospective franchisees, the primary judge should have found that it was misleading for BOQ not to volunteer to each franchisee, before the opening of its OMB, the information BOQ had about the financial performance of existing OMBs in New South Wales. The appellants emphasise that this submission does not presuppose or depend on a conclusion that the target statements and break-even statements were themselves misleading. The point is that, in a context where those and other statements (even if only statements of what was hypothetically possible) had been made and possibilities as to levels of performance had been implanted in the minds of prospective franchisees, there arose an expectation that BOQ would communicate information coming into its possession which called into question the validity of the possibilities.
BOQ's response is that, when other elements of context are taken into account, no such expectation could reasonably have been entertained. BOQ points to a finding, in relation to Rossmick, that Mr Allsopp expressly said that no financial information about other OMBs could be given to the appellants. That position was made clear by the franchise disclosure document that each prospective franchisee received before entering into its agency agreement. The disclosure statement said, in unambiguous terms, in clause 17: "BOQ does not provide earnings information about OMB agents and branches."
Also, BOQ points to the primary judge's finding that prospective franchisees were encouraged to make inquiries of existing franchisees and BOQ facilitated those inquiries by providing names and contact details so that a prospective franchisee could, if it wished, seek discussions with existing franchisees.

[24]

Pre-opening non-disclosure - principles

The legal principles applicable to this part of the appeal are reasonably clear. A useful starting point is the decision of the Full Federal Court in Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546, a case concerningthe sale and purchase of a restaurant business. At all material times, patrons at the restaurant premises were seen to occupy 120 dining chairs placed at 39 tables and eight stools placed at a bar. Before entering into the contract, the purchaser observed the business operating in that way. According to the relevant licence held by the proprietor, however, operations were restricted to a maximum of 84 diners at 26 tables and seating at the bar was not permitted. The vendor did not inform the purchaser of the limitations imposed by the licence. After learning of those limitations following completion, the purchaser alleged misleading or deceptive conduct of the vendor in the form of its failure to make the true position known to the purchaser.
A finding crucial to the conclusion of the Full Federal Court that the vendor had, by its silence, contravened s 52 of the Trade Practices Act was stated by Lockhart J as follows (at 557): "In the present case the vendor sold a business knowing that it was subject to serious limitations upon its lawful seating capacity, limitations imposed by both the licensing authorities and the local council which vitally affected the business, its goodwill, takings and profitability and knowing that in fact the restaurant was being conducted contrary to law with a substantial element of overseating."
Those circumstances were regarded as giving rise to "a duty on the part of Henjo as vendor to reveal the true position to Collins Marrickville, the potential purchaser, before any contract was signed", and it was "no answer" that the purchaser should have relied on its own inquiries.
Reference should also be made to Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (above). In that case, a prospective borrower retained a broker to find loan finance for it. The broker located a lender and the loan was made. When the borrower defaulted and the lender suffered loss, the lender sought redress against the broker and, in so doing, relied on the Trade Practices Act in two alternative ways. Under one alternative, the lender maintained that the broker should have informed it that the insurance policy for which the funding was sought was of a particular type having what was, in the commercial context, an unattractive feature (that is, that it was non-cancellable), being a feature of which the lender was unaware.
In advancing the alternative case based on failure to inform, the financier argued that, in the whole of the circumstances, it had a "reasonable expectation" that, if the policy was non-cancellable, the broker would alert it to that fact. The "reasonable expectation" test emerges from cases such as Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (above), Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 and Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2000] FCA 1572; 104 FCR 564. As those and other authorities make clear, silence is itself a circumstance that must be assessed like any other and, unless the circumstances as a whole are such as to give rise to a reasonable expectation of disclosure of some relevant fact known to exist, there is no basis on which silence of itself can warrant an inference that the fact does not exist. As French CJ and Kiefel pointed out in Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (at [19]): "The language of reasonable expectation is not statutory. It indicates an approach which can be taken to the characterisation, for the purposes of s 52, of conduct consisting of, or including, non-disclosure of information. That approach may differ in its application according to whether the conduct is said to be misleading or deceptive to members of the public, or whether it arises between entities in commercial negotiations …"
In assessing the quality and implications of silence and the conduct of a person that consists of remaining silent, all aspects of the objectively ascertained context will arise for consideration. Shared knowledge and assumptions - engendered, for example, by a course of dealing or a particular commercial setting or practice - of the person who remains silent and the person by whom the silence is experienced will be relevant, as will the separate knowledge of the latter.
It was pointed out by French CJ and Kiefel J (at [21] - [22]) that s 52 does not strike at "the traditional secretiveness and obliquity of the bargaining process" and, in general, "does not require a party to commercial negotiations to volunteer information which will be of assistance to the decision-making of the other party". Even more so, their Honours said (at [22]), the section does not impose on a party "an obligation to volunteer information in order to avoid the consequences of the careless disregard, for its own interests, of another party of equal bargaining power and competence". In the result, all members of the High Court were of the opinion that, having regard to all the circumstances of the transaction, the financier could not have had a reasonable expectation that the broker would alert it to the particular quality of the insurance.
A summary of relevant principles - extracted largely from Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd - appears in the following passage in the judgment of Sackville AJA in Fabcot Pty Ltd v Port Macquarie-Hastings Council [2011] NSWCA 167 at [209] (citations omitted): "(iii) The question in a case of alleged misleading or deceptive conduct as a result of non-disclosure is whether in the light of all relevant circumstances, there has been conduct which is misleading or deceptive . . .While the circumstances in which silence can be characterised as misleading or deceptive cannot be exhaustively defined, unless they give rise to a reasonable expectation that if some relevant fact exists it will be disclosed, mere silence will not support the inference that the fact does exist . (iv) In commercial dealings between individual entities, the characterisation of conduct must be undertaken by reference to circumstances and context. The relevant circumstances include the knowledge of the person who claims to have been misled and any common assumptions or practices established between the parties or in the particular activity or business in which they are engaged. (v) The language of reasonable expectation is not statutory but is an aid to characterising non-disclosure as misleading or deceptive. The judgment as to whether there is such a reasonable expectation is objective. (vi) The invocation of a reasonable expectation that if a fact exists it will be disclosed, directs attention to the effect or likely effect of non-disclosure unmediated by antecedent erroneous assumptions or beliefs, or high moral expectations that exceed the requirements of the general law or of the prohibition imposed by [s 42 of the Fair Trading Act]. (vi) In general, [s 42 of the Fair Trading Act] does not require a party to commercial negotiations to volunteer information which will assist the decision-making of the other party. A fortiori, s 42 does not require a party to volunteer information in order to avoid the careless disregard of its own interests of a party of equal bargaining power and competence."
It may be accepted that, as was pointed out in CPI Group Ltd v Stora Enso Australia Pty Ltd [2007] FCAFC 160 (at 68), it is no answer to a claim of misleading or deceptive conduct by silence to say that the person misled should have made his or her own enquiries and that, had they done so, it would have revealed the true position.
Against that background, it is necessary to refer to certain factual matters.

[25]

Pre-opening non-disclosure - facts

In relation to Mr Chapman (Rossmick - Hurstville), reference has already been made (at [171]) to the finding that, in response to an enquiry Mr Chapman made as to whether financial information was available, Mr Allsopp said that it was not and that this was because of privacy concerns; also that Mr Chapman could speak to any existing owner managers about their financial performance and that he would arrange meetings for Mr Chapman with any he wished to speak to.
In the case of Mr Johnson (Shamarbre - Hornsby), the primary judge found (at [1534]) that he was told that he needed to make his own enquiries and that he was "able to, and did, make enquiries of other franchisees". The judge referred (at [1596]) to Mr Johnson having spoken to owner managers at North Parramatta, Castlereagh Street Sydney and Dee Why, which were all of the metropolitan branches operating at the time.
There was a finding at [1732] in relation to Mr McCoy (SME - Bondi Junction) that he understood that it was for him to make his own enquiries, that he did so and that he spoke to a number of owner managers.
In relation to Mr and Mrs Sargent (Leokate - Miranda), the primary judge noted that each had spent time working at the Castlereagh Street OMB and that Mrs Sargent had also worked at the Menai, Kensington and Campbelltown branches. That being so, the judge found it "hard to believe that Mr and Mrs Sargent were unaware of how those branches were doing or at least unable to make enquiries about that matter if they thought it was significant". Mr Sargent explained in evidence that he did not make enquiries because "I don't inquire of people's finances" because it is socially unacceptable to do so. The judge considered that explanation implausible, adding: "If it had been of significance to Mr Sargent and if it reflected the fact, Mr Sargent could easily have said to the Owner Manager of another branch that Mr Allsopp had told him that he could expect to write $4 million in loans per month (from day one) and to ask whether that reflected the Owner Manager's experience."
In the case of Mr Jones (Best Deal - Toronto), there was an explicit finding at [1822] that he appreciated that he needed to make his own enquiries to determine whether a franchise operated by him would be successful; also (at [1850]) that he visited the Manly and Carlingford Court branches.
Mr Xu (LJH - Hurstville), the judge said (at [1926]), was given an opportunity to be put in touch with other managers and in fact nominates several to whom he spoke.
These are examples of findings to the general effect that the several prospective franchisees knew and understood that it was for them to make a business case for the establishment of a particular branch and, for that purpose, to make such enquiries as they thought fit, with BOQ facilitating contact with the owners of already operating OMBs if that were sought.
Statements to prospective franchisees that they should make their own inquiries were consistent with the content of the EOI letter and the franchise disclosure document. They were also consistent with clause 5 of the representations deed which contained an acknowledgment by the franchisee and its principals that they had, in effect, made and relied on their own investigations.

[26]

Pre-opening non-disclosure - was there "reasonable expectation"?

The crucial question is whether the course of dealing by BOQ with each prospective franchisee group before execution of the agency agreement (or opening of the branch) was such as to give rise to an objectively reasonable expectation on the part of each such group that BOQ should volunteer - that is, communicate spontaneously and without request - information that BOQ possessed about the actual financial performance of established OMBs in New South Wales, whether individually, as a group or on some kind of indicative average basis. As the authorities show, the answer to that question depends on the whole of the circumstances. Reference should be made to several aspects of those circumstances.
In the first place, each prospective franchisee had chosen a particular suburb or town in which to establish a business and had prepared a business plan for that location. As has been seen, all OMB principals were persons of some commercial sophistication, all had business experience and most had specifically banking experience. Their sophistication and experience were to be deployed in establishing a business at a specifically chosen location from which the prospective franchisee aimed to make money by way of commissions paid to it by BOQ. Those commissions were geared to volumes of business transacted.
Second, Mr Allsopp had made statements to the principals of the proposed OMBs about levels of future business which, on the assessment of the primary judge which I consider to be correct, were statements about what was hypothetically possible. They were nevertheless statements that impinged upon the consciousness of those persons and affected their thinking.
Third, BOQ was in a contractual relationship with each of the franchisees who had previously established OMBs in New South Wales. There was a flow of information from each such established OMB operator to BOQ. One of the core functions of the agent prescribed by the agency agreement (clause 3.1(e)) was to "report Branch sales activity to the Bank". BOQ therefore had, at any given time, knowledge about levels of activity achieved by pre-existing OMBs in the areas of business with which the statements of hypothetical possibility were concerned.
Fourth, the principals of each prospective OMB were told by BOQ that it was for them to investigate the feasibility and viability of their business proposal. Documents given to them (particularly the EOI letter and the franchisee disclosure document) made it clear that BOQ could not give assurances or make predictions about revenue or profitability and that they should not only read all of their documents but also talk to other franchisees.
Fifth, Mr Allsopp consistently told individuals who asked that it was for them to make their own inquiries about whether their proposed branch was likely to be successful and that BOQ would, if they wished, put them in touch with existing OMB proprietors.
Sixth, several individuals did approach existing OMB proprietors with a view to obtaining information about levels of business and the like.
Seventh, each prospective OMB operator's proposal was a proposal to enter into competition not only with other banks but also with BOQ and other BOQ OMBs. The financial structure of a franchise was such as to make it desirable that an OMB try to obtain business that might otherwise go to a BOQ corporate branch or another OMB. This point requires some elaboration. An OMB established at, say, Bankstown would compete only in the broadest sense with a BOQ corporate branch or OMB operating at Townsville or in a suburb of Brisbane. A much more meaningful competitive interface would exist between, say, Southpole's proposed new Bankstown OMB and the established OMB at nearby Punchbowl. The same interface would exist between a new Shamarbre OMB at Hornsby and the established OMB at Carlingford; or between Traderight's new Castlereagh Street Sydney OMB and the established OMB at World Square Sydney. In each of those situations, the new OMB entrant would have an incentive to try to attract customers who were already dealing with the pre-existing OMB operating nearby, to seek to do business with customers of the nearby OMB and to deflect potential new customers away from that OMB and towards itself.
In at least one case (Mr Chapman), Mr Allsopp was asked whether there was any financial information that he could give, and Mr Allsopp gave a negative answer because of privacy concerns, but said that Mr Chapman could speak to existing OMB managers about their financial performance and that meetings would be arranged with any to whom Mr Chapman wished to speak. That was a rational and expected response. In citing privacy concerns, Mr Allsopp was, in my view, recognising that specific information BOQ had from and about any pre-existing OMB was of a commercially confidential nature or, at least, might well be regarded by the proprietor of that OMB as being of that quality. Mr Allsop therefore did not regard himself as free to impart such information to a prospective OMB proprietor with whom negotiations were in progress. The franchise disclosure document stated quite clearly that BOQ did not provide earnings information about OMB agents and branches. The circumstance that the new OMB would or could be in competition with one or more existing OMBs is a factor that must have shaped Mr Allsopp's unwillingness. But, of course, if the existing OMB proprietor, having received an approach direct from the prospective entrant at the instigation of BOQ, chose to give certain information, that was a matter entirely for that proprietor.
Viewed as a whole, the context was one in which the positive statements made by BOQ as to what was hypothetically possible in terms of OMB business generation were made to commercially sophisticated persons with business experience to whom BOQ had made it clear, both orally and in writing, that it was for them to investigate the feasibility and viability of their own business proposal; that BOQ did not provide information about OMB earnings; that BOQ could not give assurances or make predictions about revenue or profitability; that they should talk to other franchisees; and that BOQ would facilitate introductions to other franchisees for that purpose. A particular aspect of the context was BOQ's recognition of the commercial reality that information about financial performance received by it from existing franchisees was of a private or commercially sensitive nature so that, if it was to be disclosed by way of assistance to an intending new entrant, that disclosure should properly come from those existing franchisees who could safeguard their own interests (including competitive interests) by choosing what information to give and the form in which it should be given - and, of course, at the threshold, whether any information should be given at all. Furthermore, several prospective franchisees accepted the position presented by BOQ and made approaches to existing franchisees with a view to obtaining relevant information from them.
With the context and circumstances configured in the way just described, the primary judge was, in my opinion, correct in his conclusion that there could have arisen no "reasonable expectation" on the part of prospective or recently signed-up franchisees that BOQ should take positive and unsolicited action to share with them information BOQ possessed about the financial performance and business levels achieved by existing franchisees, which information concerned the separate business operations of those existing franchisees and came to BOQ because of its contractual and business relationships with those parties. That conclusion was sufficient to cause the "pre-opening non-disclosure" case at first instance to fail.

Traderight (NSW) Pty Ltd v Bank of Queensland Ltd

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (29 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (13)

Cited By (17)