Beruflich Dokumente
Kultur Dokumente
25 August 2000
1 THE COURT. The issue raised by this appeal concerns the circumstances in
which an agent should properly be made liable, and if so to what extent, for the
conduct engaged in by the agent during the formation of a contract whereby
work was performed in an industry where such contract was found to be unfair
under s 106 under the Industrial Relations Act 1996. In that respect, the
appellant identified it as directly raising the proper application of the principles
formulated by the High Court in Brown v Rezitis (1970) 127 CLR 157.
2 On 11 June 1999, Schmidt J gave judgment on an application by the present
respondents, Nilda Phillips-Treby and Robert Phillips-Treby, in relation to a
franchise agreement entered into by them in 1995 with Local Home Services
Pty Ltd involving the delivery of videos to the residences of customers. It was
alleged that the franchise agreement was an unfair contract within the meaning
of s 105 of the Industrial Relations Act so as to be amenable to relief under
s 106 thereof. The originating summons made claims for orders against Local
Home Services as the then first respondent; Colin Godfrey as its sales manager
and who was the second respondent, and Felicity Ann Capadonna and Nancy
Babette Catsicas who as directors of Local Home Services signed the franchise
agreement on its behalf and who were respectively the fifth and sixth
respondents; Ace Business Brokers Pty Limited and its managing director,
Michael Godfrey Smith, were respectively the third and fourth respondents for
their role in Ace Business Brokers acting as agent for Local Home Services in
the negotiations with the applicants leading to the making of the franchise
agreement.
3 It transpired that prior to the hearing of the claim by her Honour, Local
Home Services was placed in liquidation and Mr Godfrey and Ms Capadonna
were declared bankrupt; no orders were sought against them. Ms Catsicas, who
was not represented in the proceedings, was also declared bankrupt shortly
before the hearing concluded but an order was sought against her. For the
purposes of this appeal, however, Ms Catsicas is not an appellant so that her
position may be put to one side. The only parties actively challenging her
Honour’s decision are the present appellants, Ace Business Brokers and
Mr Smith, as to the findings made against them. Her Honour published reasons
for decision and directed the parties to file agreed minutes of the orders
reflecting that decision and formal orders were entered on 24 November 1999;
in these reasons, however, and as did the parties, we deal with the issues by
reference to the decision itself and not to the orders ultimately made.
4 As noted in the judgment of Schmidt J, the parties made the franchise
agreement in April 1995 and in December 1995 the appellants, who were the
franchisees, abandoned the business. Her Honour observed that many of the
factual circumstances were not in issue and that indeed was the way in which
the appeal was argued before us. The appellants made it clear that the issue on
appeal was not whether her Honour ought to have made a finding that the
contract was unfair within the meaning of s 106 of the Industrial Relations Act
but rather whether it was properly open, in terms of principle, to find that the
appellants should be jointly and severally liable for the payment of certain
moneys to the respondents under s 106(5).
5 It is convenient, therefore, to cite from her Honour’s judgment the way in
which the present dispute arose, as follows:
‘‘Mr and Mrs Phillips-Treby learnt of the franchise opportunity from an
advertisement placed in a newspaper by Mr Smith, who met with them at
the offices of Ace in February 1995. At the meeting a disclosure document
about the franchise business, which had been prepared by LHS, was
provided to the applicants by Mr Smith who also made arrangements for
Mr Phillips-Treby to accompany another franchisee, Mr Clancy, on his
rounds. Mr Clancy confirmed advice already given to the applicants by
Mr Smith, that he was earning about $1,000 per week from his franchise.
A second meeting was held which Mr and Mrs Phillips-Treby,
Mr Smith and Mr Godfrey attended. At this meeting in March, a franchise
agreement was provided to the applicants about which they later sought
legal advice. Their solicitors raised two matters of concern with LHS — as
to advertising and the franchise operations manual, which the applicants
sought to inspect before final agreement was reached. A written response
was provided by LHS on 5 April 1995.
A third meeting took place on 12 April, before Mr and Mrs Phillips-
Treby had received their solicitor’s final advice about LHS’ response. The
applicants executed the franchise agreement at the meeting. They were
then concerned that they might lose the opportunity to secure the particular
franchise area in which they were interested.
Mr and Mrs Phillips-Treby paid LHS a franchise fee of $39,950. LHS
paid Ace a brokerage fee of $4,000 in respect of this transaction. Under
the franchise agreement Mr and Mrs Phillips-Treby received various assets
from LHS including a fitted out van, various videos, promotional fliers
and stationery. Their evidence was that they initially had some difficulties
with the videos not matching what they had been promised (which was
rectified), but they never received other items promised such as business
cards or importantly, the franchise operations manual.
The franchise agreement included a term guaranteeing Mr and Mrs
Phillips-Treby earnings of $600 per week. The franchise operated until
about July 1995, with takings in that period increasing, but never reaching
$600 per week and LHS making up the necessary difference. In this period
both Mr and Mrs Phillips-Treby worked in the business together, with
Mr Phillips-Treby working as the main operator and Mrs Phillips-Treby
providing various support, including clerical support. There was a conflict
in the evidence of the applicants as to the hours which Mrs Phillips-Treby
worked in this period — on her evidence some 40 hours per week and on
Mr Phillips-Treby’s some 24 per week. Mr Phillips-Treby worked 40 to 48
hours per week.
Towards the end of July 1995, Mrs Phillips-Treby went overseas to visit
her ailing mother. She was away until early November and during this
time Mr Phillips-Treby worked alone in the business, on his evidence
increasing his hours to some 72 hours per week. Mr Phillips-Treby began
experiencing difficulties in contacting LHS and did not receive the level of
support he was expecting. The franchise began to flounder, with takings
declining. LHS stopped making up the $600 guaranteed each week. There
was some acrimonious correspondence to LHS from Mr Phillips-Treby as
to the level of support it was providing and from LHS as to the level of
work which Mr Phillips-Treby was putting into the franchise.
After Mrs Phillips-Treby’s return to Australia the position deteriorated
further. LHS apparently stopped trading sometime in November. Mr Smith
was aware of some of these difficulties. Mr Smith and Ace stopped acting
for LHS when he could no longer make contact with LHS or Mr Godfrey.
Mr and Mrs Phillips-Treby abandoned the business in December 1995
when their takings had reduced to some $130 per week. In February 1996,
Mr Phillips-Treby obtained new employment, but earning less than $600
per week and less than he had been earning in the position from which he
had resigned in April 1995 to begin operating the franchise.’’
6 The respondents’ originating summons set out the grounds of alleged
unfairness of the franchise agreement in the following way:
‘‘(a) the Applicants’ (Mr and Mrs Phillips-Treby) entry into the franchise
agreement was procured by misrepresentations by both the Second
(Mr Godfrey) and Fourth (Mr Smith) Respondents;
(b) the Applicants paid $39,950.00 for rights which were worthless;
(c) the Applicants’ rights under the franchise agreement to a cooling off
period were denied by the First Respondent (Local Home Services)
by the late supply of goods essential to the operation of the business;
(d) the Second Applicant was required to work in excess of 40 hours per
week for remuneration that dropped to approximately $130.00 per
week by December, 1995;
(e) the First Respondent acted in breach of its contract with the
Applicants by failing to provide them with marketing support and a
wage guarantee;
(f ) the failure to communicate with the Applicants in combination with
the factors referred to above have occasioned the Applicants serious
financial harm and distress; and
(g) the Fifth (Ms Capadonna) and Sixth (Ms Catsicas) Respondents
procured or authorised the breach of the franchise agreement by the
First Respondent.’’
7 The specific orders sought by the respondents at first instance were:
‘‘1. A declaration that the contract whereby the Applicants performed
work in the video rental industry in New South Wales (the Contract)
between the Applicants and the Respondents was unfair pursuant to
Section 106.
2. An Order declaring void in whole or in part either ab initio or from
some other time the Contract except in so far as the said Contract
confers on the Applicants’ right to remuneration.
3. An Order that the Respondents jointly and severally pay to the
Applicants:
(a) the sum of $39,950.00;
(b) a sum in respect of further out of pocket expenses incurred by
the Applicants to be particularised at a later time;
(c) the sum of $16,386.50 and continuing at $104.00 per week in
respect of moneys lost as a result of the Second Applicant
leaving his previous employment to work under the Contract;
and
(d) such amount of money in connection with the said Contract so
avoided or varied as the Commission in Court Session considers
just in the circumstances of the case.
4. An Order that the said Respondents jointly and severally pay to the
Applicants their costs of and incidental to these proceedings.
5. An Order that the said Respondents jointly and severally pay to the
Applicants interest upon the amounts of money ordered to be paid
pursuant to Order 2.’’
8 Section 106 empowers the Court to ‘‘make an order declaring wholly or
partly void, or varying, any contract whereby a person performs work in any
industry if the Commission finds that the contract is an unfair contract’’: see
subs (1) thereof. A contract may be found to be unfair ‘‘at the time it was
entered into or that it subsequently became an unfair contract because of any
conduct of the parties, any variation of the contract or any other reason’’: see
subs (2) thereof. A contract may be declared wholly or partly void, or varied,
‘‘either from the commencement of the contract or from some other time’’: see
subs (3) thereof. A further order may be made ‘‘as to the payment of money in
connection with any contract declared wholly or partly void, or varied, as the
Commission considers just in the circumstances of the case’’: see subs (5)
thereof. Section 105 defines a ‘‘contract’’ as meaning ‘‘any contract or
arrangement, or any related condition or collateral arrangement . . .’’ and an
‘‘unfair contract’’ is defined inter alia as one ‘‘that is unfair, harsh or
unconscionable’’.
9 In her decision, Schmidt J found in favour of the present respondents by
holding that the franchise agreement was unfair due to the reliance placed by
them on representations made by the second appellant, Mr Smith, for which
there was no foundation and upon which he was aware the respondents would
rely. In the process of so finding, her Honour carefully and extensively
reviewed the respective cases put in light of the authorities relied upon and, as
to the essential nature of the case, said:
was no proper foundation and which were never in fact met by LHS. In
doing so Mr Smith was well aware that the applicants were relying on
what he had represented and indeed expected that to be the result of his
conduct on behalf of LHS.’’
11 As to the effect on a contract of it being made following representations and
the need for parties to be on ‘‘even terms’’, in the sense discussed by Sheldon J
in Davies v General Transport Development Pty Ltd [1967] AR (NSW) 371
at 374, Schmidt J referred to the well known line of cases decided by this Court
and its predecessors where the unfairness of a contract flowed from false or
misleading representations by reference to cases such as Halim v Fast Food
Service Development Pty Ltd [1982] AR (NSW) 332; Swann v Ultratune Aust
Pty Ltd [1983] 5 IR 284; and Smith v Nutshack Franchise Pty Ltd (unreported,
Maidment J, CT96/1168, 28 August 1998). In concluding on the facts that the
parties here were not on ‘‘even terms’’, her Honour then found ‘‘that the
franchise agreement was relevantly unfair, harsh and unconscionable in not
containing as terms of the agreement the representations advanced by Mr Smith
and Mr Godfrey on behalf of LHS’’. In that respect, her Honour expressed
much assistance from the approach of Perrignon J in Re Witek v Starr [1971]
AR (NSW) 1000 and from the approach adopted by the Court of Appeal in
Ex parte Ashfield Brokers and Consultants Pty Ltd; Re Witek (unreported,
Sugerman P, Asprey and Holmes JJA, 72/118, 29 June 1972) in upholding the
orders made by Perrignon J. After reviewing those authorities as to the
culpability of an agent in a business transaction, and hence its liability to an
order under the unfair contracts provisions of the statute, Schmidt J then
considered the nature and extent of the power as referred to by Barwick CJ
(with whom McTiernan, Menzies, Windeyer and Owen JJ agreed) in Brown v
Rezitis (at 168) her Honour concluded:
‘‘Mr Smith and Ace were content to advance representations as to the
viability of the LHS business for which they had no foundation. At the
least they were reckless as to the representations which they made. As
earlier indicated, I am satisfied that it has been amply demonstrated that
Mr Smith and Ace were culpably responsible for the acts which induced
the applicants to enter into the franchise agreement with LHS which I have
found to be unfair.
In all of these circumstances, I am satisfied that a proper exercise of the
discretion to make monetary orders under s 106(5) of the Act would not
restrict the payment which Mr Smith and Ace should properly be ordered
to make to the applicants to the $4,000 brokerage fee received by Ace
from LHS, but would extend to the $39,500 franchise fee. In my view, on
the evidence in this case, it is also proper that the orders made against
these two respondents should be made on a joint and several basis as
between them.’’
12 Having so found, her Honour turned to consider the practical implications of
such an order in the case before her where it was acknowledged that the
appellants as the agent or broker would bear the entire burden even though the
respondents were also induced to enter into the franchise agreement by the
conduct of the franchisor and its sales manager, Mr Godfrey. Her Honour,
therefore, expressly considered the appropriate exercise of discretion as to the
appellants bearing the sole burden of repaying the franchise fee to the
respondents and in meeting the claim for the make-up of earnings from the
business being the difference between what the respondents earned under the
agreement and the guarantee of $600 per week for a period of one year.
Specifically, her Honour considered the question as to who should be liable for
the respective elements to make restitution to the respondents.
13 Again by reference to the judgment of Barwick CJ in Brown v Rezitis, her
Honour reviewed the particular facts of the case to determine the relevant
culpable association with the franchise agreement in question. Her Honour said:
‘‘The applicants took legal advice on the proposed venture and while they
did not take final advice, were satisfied with the responses made by LHS
to their solicitor’s inquiries before they entered the agreement. They
understood that the expected returns of $800-$1,000 per week depended
upon 100-120 customers being achieved, working hard in the business and
that Mrs Phillips-Treby, on her evidence, at least understood that this
involved the applicants converting leads into customers. There was
evidence that telemarketing work was undertaken by LHS, as well as
training provided to the applicants; but that the important operations
manual was never provided to them. The evidence suggested however that
it existed and indeed that Mr Clancy was operating in accordance with it.
At the end of the day the necessary level of customers was never achieved
by the applicants, but, as was known to the applicants, Ace and Mr Smith,
it had been achieved for Mr Clancy, who was seemingly content with the
franchise he had purchased, and how it was operating.
Mr Phillips-Treby particularly accepted in cross-examination that what
he had learnt of the franchise operation from Mr Clancy was an influential
factor in his decision to pursue the franchise. There was no suggestion that
Mr Clancy had misled either the applicants or Mr Smith and Ace as to his
experience. Mr Phillips-Treby on the other hand, on his own evidence, had
some difficulty in what was required of him in order to convert leads into
customers. There is also to be considered the matters I earlier mentioned,
namely LHS’ dissatisfaction that the applicants were putting in the
necessary effort into the franchise and the discrepancy in the evidence of
the two applicants as to how many hours worked was being put into the
business.’’
14 In those circumstances as found on the facts, Schmidt J was ‘‘not satisfied
that the association between Mr Smith and Ace and the contract in question
was of such a nature that a proper exercise of the discretion would warrant the
making of orders against them as to the earning makeup claims’’.
15 We interpose to comment that as to Ms Catsicas, her Honour considered she
should be jointly and severally liable for both the re-payment of the franchise
fee to the respondents and solely liable for the make-up claim. However, as
indicated earlier, the position concerning Ms Catsicas following her bankruptcy
may be disregarded for present purposes.
16 In the result, Schmidt J concluded that an order should be made against the
appellants for the payment to the respondents on a joint and several basis of the
franchise fee of $39,500 (specified earlier in her Honour’s reasons and in the
originating summons as an amount of $39,950), including the $4,000 brokerage
fee, but not the make-up payment as to loss of earnings which was made
referable to Ms Catsicas only.
17 The notice of application for leave to appeal and appeal set out the reasons in
support of leave in the following way:
‘‘1. The issues on appeal are important issues and directly raise the
proper application of the principles set out by the High Court of
Australia in Brown v Rezitis (1970) 127 CLR 157 by the
Commission.
2. The First Appellant acted as agent and the Second Appellant was a
servant officer and agent of the First Appellant. The First Appellant
received only $4,000 from its participation in the sale of the
franchise. The consequential orders foreshadowed by the Com
mission make the Appellants liable to the same extent as the
principal franchisor. It is the position of the Appellants that nothing
in their conduct warranted such an order against them. To allow such
an order to stand is against both principle and the weight of evidence
and would result in injustice as against the Appellants.’’
18 The grounds of appeal were stated in this way:
‘‘1. That the findings of her Honour as to the culpability of the
Appellants such as to support the form of order for consequential
relief was against the evidence and the weight of evidence.
2. That the findings as to liability and the extent of such liability as
found by her Honour as against the Appellants was against the
evidence and the weight of evidence and contrary to established
principles of the Commission.
3. That her Honour erred in apportioning or assessing a liability upon
the Appellants. Her Honour erroneously took into consideration the
financial position of the Respondents to the proceedings below other
than the Appellants at the time of the making of her findings to
support the consequential orders to be made. The fact that each of
the other persons who were natural persons became bankrupt either
before or during the proceedings and the corporate Respondent was
placed in liquidation can have no impact upon the form of order or
the assessment of liability.
4. The appellants reserve their right to state further grounds in support
of the Appeal upon obtaining the Transcript of the proceedings and
following the making of final orders by her Honour.
5. For and upon such other grounds as appear appropriate to the Full
Bench of Commission in Court Session on appeal.’’
19 The relief claimed on appeal by the appellants was for an order effectively
setting aside or quashing the decision by Schmidt J with substituted therefor
‘‘appropriate orders . . . based upon the evidence and according to established
principle and the proper exercise of discretion such as to reflect the culpability
of the Appellants including any order as to liability for compensation’’.
Counsel for the appellants, Mr M J Kimber SC and Mr R Moore of counsel, in
a written submission on leave to appeal identified the present facts and
circumstances as raising ‘‘important issues in terms of the exercise of the
Commission’s discretion in relation to the finding of an unfair contract’’ and
also as raising ‘‘questions as to the manner in which the discretion contained in
s 106(5) should be exercised in a case where there is no finding of fraudulent or
deceitful conduct by an agent but conduct of a lesser kind (recklessness)’’.
Further, counsel put that the appeal raised ‘‘questions as to how the culpability
of an agent not acting in concert with a principal to defraud or deceive can have
his culpability and liability assessed and whether in making such assessment
the necessary connection is established as between the contract avoided and the
actions of the agent’’. On the facts as found here, counsel submitted ‘‘that the
discretion miscarried in a manner such as to conflict with the principles as laid
down [in Brown v Rezitis] and to result in an injustice in respect of the
Appellants’’. Although it was acknowledged that the appeal was against the
exercise of a discretion or a series of discretions, it was submitted that ‘‘it is
important for the Full Bench to maintain a supervisory role over the exercise of
such discretions’’.
20 Mr W R Haylen QC and Ms E A Collins of counsel, for the respondents,
resisted the grant of leave to appeal and emphasised that Schmidt J clearly
applied the relevant principle contained in Brown v Rezitis and, further, the
appeal was against the exercise of a discretion so as to attract the usual
principles that a decision so made will not be disturbed on appeal unless some
error had been made in so exercising the discretion: see House v The King
(1936) 55 CLR 499 at 504-505. In the circumstances of this case, so it was
submitted, the conclusions reached by her Honour were available on the
evidence and no relevant error had been disclosed in deciding the material
facts.
21 We are constrained to say that during the course of our deliberations in this
matter we wavered on the question of leave to appeal but, on balance, we will
grant leave. Suffice it to say that we accept the proper application of the
principle in Brown v Rezitis in the very many cases coming before the Court as
an important issue. It is both timely and appropriate, in our view, particularly in
light of the circumstances of this case, for the application of the principle to be
revisited. We propose to do so.
22 Nevertheless, and notwithstanding the grant of leave, this appeal falls to be
considered in accordance with the ordinary principles as an appeal stricto sensu
and having in mind the statutory requirement in s 191(3) of the Industrial
Relations Act obliging the Full Bench to follow the principles applying to
appeals from discretionary decisions: see Big W Discount Stores v Donato
(1995) 58 IR 239 at 242-244; Re Solicitors (State) Award (No 3) (1997) 72 IR
225 at 234-235 and the cases cited therein. In the result, it is only open for us to
view the challenged decision on appeal in accordance with the proposition that
the exercise of a discretion by the primary judge has long required that an
appellate court is not justified in interfering with the decision made unless it
reaches the clear conclusion that by reason of some error, whether of fact or of
law, the primary judge not only has taken a different view but has failed
properly to exercise the discretion conferred: see also Mace v Murray (1955) 92
CLR 370 at 378; and Port Macquarie Golf Club Ltd v Stead (1996) 64 IR 53
at 58-60. The principle was restated by a Full Bench (Wright J, President,
Walton J, Vice-President and Peterson J) of the Court in Drake Personnel Ltd
t/a Drake Industrial v WorkCover Authority (NSW) (Inspector Ch’ng) (1999)
90 IR 432 at 446 and again in Abboud v State of New South Wales (Department
of School Education) (1999) 92 IR 32 at 42-43 (per Wright J, President, and
Walton J, Vice-President); it needs no further elaboration here.
23 It is convenient at the outset to quote the relevant extracts from Brown v
Rezitis dealing with the statements of principle relevant for present purposes
and about which the argument on appeal focused. Barwick CJ said (at 163-
166):
‘‘In my opinion, even if the proceedings for the variation or avoidance of
purchasers to sign the worthless contracts and to part with the purchase
price for a business which each was aware was worthless. In these
circumstances, in my view, the actions of the Agent have as real and as
close a connection with the loss of the purchase price as those of Starr so
as to make them equally responsible with Starr for the restitution to the
respondents Witek of the sum of $2,500. This is I think, a proper case for
the making of an order for restitution imposing upon both Starr and the
Agent a joint and several obligation for the restitution of the moneys in
question.’’
Holmes JA agreed with Sugerman P.
26 The former Industrial Commission in Court Session (Fisher P, Cahill and
Bauer JJ) in TNT Management Pty Ltd v White (1984) 7 IR 331 again
considered the necessary ‘‘connection’’ between an order made under s 88F and
the impugned contract as to the liability to a monetary order of a person not a
party to the contract concerned. After considering the views expressed in
Brown v Rezitis and in Ashfield Brokers and Consultants; Re Witek, their
Honours outlined the facts which involved a contract for the sale of a truck-in-
work from one lorry owner-driver to another so as to enable the purchaser to
undertake carrying work for TNT Management Pty Ltd, a non-party to the
contract concerned. Their Honours observed (7 IR at 337):
‘‘It is clear that TNT had the right to approve or not to approve the
reception into its business of prospective purchasers of trucks in work
operated by existing lorry owner-drivers. We see that as a real benefit or
advantage which TNT possessed. It so approved White in that regard and
White thereupon purchased Gilbert’s business. By this method of approval
of purchasers TNT was able, within reason, to ensure that the standard of
lorry owner-drivers was such that the contract between it and Norman
Ross would not be impaired through inefficiency or customer dissatis
faction.’’
The ultimate conclusion was reached by their Honours in the following way
(at 338-339):
‘‘Our consideration of the whole of the evidence in this case leaves us in
no doubt that TNT had a very close connection with the contract between
Gilbert and White declared void by Macken J. TNT had, in truth, the right
to accept or not to accept the prospective purchaser into its organisation.
Without signification of such approval the contract would never have
come into being. It was open to be inferred that TNT recognised that a
substantial purchase price, largely for ‘goodwill’, was involved. It
undoubtedly recognised that a reasonable period of work was important, if
not vital, to the purchaser and it informed him, after specific inquiry, that
the contract between TNT and Norman Ross had recently been re-
executed for a further period of 12 months. The work the subject of the
contract was, of course, to be performed by White for TNT. Upon the
execution of the contract TNT had the benefit of White’s services as a
lorry owner-driver and thereupon was able to assume a reasonable degree
of supervision and control over his work in order to ensure that that work
was performed satisfactorily and so as not to impair the existing
obligations resting on it under its contract with Norman Ross. All in all we
are of the view that there was sufficient evidence to enable a finding
properly to be made that the test of ‘in connection with’ had been
was accepted by the appellants that it was open to Schmidt J to find that the
franchise agreement was unfair so that what they sought to address on appeal
was whether her Honour appropriately exercised the discretion to make the
appellants in their capacity of agency liable to pay money to the respondents.
Mr Kimber’s approach was, on the authorities, that her Honour was required to
consider the relative culpability of the various parties instead of focusing on the
culpability of the appellants. In doing so, submitted senior counsel, her Honour
was misled by the fact that ‘‘so many of the players dropped out of the game
either before it started or during it and did not come and did not actively seek
to defend the proceedings — allied with the fact that the applicant did not press
for orders against some of those respondents’’. It followed that the discretion
miscarried and appellable error occurred. Further, although no challenge was
made to her Honour’s finding that the appellants were ‘‘reckless’’ in the
representations they made to the respondents, the necessary finding to have
been made to support the orders was for the appellants to have been
‘‘recklessly indifferent’’ — no such finding was or could, on the evidence,
have been made.
31 In summary, Mr Kimber stated the following ten factors which he said
Schmidt J failed to have proper regard in deciding appropriate monetary orders:
(1) The inducement and representations to enter into the franchise agreement
came not only from the appellants but also from Local Home Services
and Mr Godfrey.
(2) It was relevant that Local Home Services as the franchisor received the
franchise fee of $39,500 out of which the appellants received only $4,000
as a brokerage fee.
(3) During the negotiations for the franchise, another franchisee confirmed
the appellants’ representation that earnings of $1,000 per week were
possible.
(4) The respondents took legal advice before signing the franchise agreement
and were satisfied with what they had been told by Local Home Services
and Mr Godfrey before they so signed.
(5) The franchise actually operated from April to July 1995 with earnings
increasing during that period and Local Home Services complied with the
$600 per week guaranteed amount payable to the respondents.
(6) The respondents were indeed satisfied with the bargain they had made
with Local Home Services and if the agreement had been honoured they
would not have taken these proceedings. The promise that about 100 to
120 customers would be available to ensure the representation as to
earnings was made by Mr Godfrey and not by the appellants.
(7) The second appellant made an independent inquiry of another franchisee
as to his earnings and confirmed the amount of $1,000 per week was
realistic.
(8) It was likely that the appellants would have to pay all of the amount of
$39,500 ordered by her Honour even though Ms Catsicas was jointly and
severally liable.
(9) The default for the non-performance of the franchise agreement could not
properly be laid at the feet of the appellants.
(10) The information received by the respondents from other franchisees
regarding the operation of the franchise was an influential factor in their
decision to make the franchise agreement.
Those above factors, Mr Kimber submitted, supported the view that the level of
the appellants’ responsibility should not have translated into an order against
them for re-payment of the full franchise fee.
32 In the result, Mr Kimber put:
‘‘Her Honour made no findings that the appellants must be taken to have
been aware of the position of LHS and its inability to make good its
proposition, so there is no finding to that effect. Her Honour made no
finding that the franchise was worthless; no finding that the agents had
received complaints from others and yet nevertheless went on promoting
their franchise; no finding that the appellants knew that what they were
doing or saying was wrong; no finding that the appellants’ conduct was
decisive in the deliberations of the applicant, and we say that the mere fact
that the first, second and fifth respondents (at first instance, being
respectively Local Home Services, Mr Godfrey and Ms Capadonna) did
not participate in the proceedings and no orders were ultimately sought
against them did not provide a proper basis for ignoring their relative
culpability for the inducement when deciding how much the appellant
should pay. . . .
For all those reasons, the positive findings and the findings her Honour
did not make, this is not a Witek case, it is not in that league at all and no
other factors identified that justified the level of the order made, although
we concede that some level of responsibility was open to her Honour on
the evidence. We submit that the appeal, because of the important question
that has been raised about the test between culpability, if you like, or
responsibility, it is an important question, and her Honour’s judgment
reveals that was not a good and proper consideration. We submit the
orders should be varied to bring my clients’, the appellants’ contribution
down to the extent of their commission or, if not, to such other figure
between $4,000 and $39,500, that the Commission thinks is fair in the
circumstances of the case. That is the order we seek.’’
33 In their written submissions, counsel for the respondents emphasised the
frank concession made by the appellants that the appeal was essentially not
against the jurisdiction or power to make the challenged orders below but
against the exercise of a discretion or a series of discretions. The fundamental
submission then made was that there were no grounds for concluding that the
exercise by Schmidt J of the discretion miscarried as would warrant
intervention on appeal in accordance with the principles in House v The King.
34 Mr Haylen characterised the appellant’s case as one based on the proposition,
as he said, ‘‘that one must apportion on the basis of culpability in making
orders for payment of money’’; to the extent the appellants relied on Brown v
Rezitis and Ashfield Brokers and Consultants; Re Witek for that approach, it
was misconceived. Senior counsel relied upon the 1976 Full Bench decision in
Custom Credit Corporation v Goldsmith, which referred to Brown v Rezitis,
and on TNT Management v White decided in 1984 which also applied Brown v
Rezitis by reference to the 1972 decision in Ashfield Brokers and Consultants;
Re Witek. Mr Haylen then analysed those cases and submitted:
‘‘The importance of that analysis as a starting point is this. The appellants
come here and say, ‘we have no difficulty with the fact that there is
sufficient connection in the Brown v Rezitis sense’. Her Honour had
jurisdiction to make the orders. So all that analysis in Brown v Rezitis and
in Ashfield Brokers, takes this appellant’s case nowhere. It is the next step
for which they have no authority, that is that this case was that discretion
can only be exercised by apportioning or making an analysis, an
assessment of the relevant culpability between respondents. That is where
we say the whole fundamental linchpin of their case on appeal falls
down.’’
In concentrating on the relevant discretion to make a monetary order ‘‘in
connection with’’ the contract found to be unfair as distinct from the concept of
‘‘culpability’’, senior counsel added:
‘‘The appellants come into it and say: ‘No, you read the limitation into the
exercise of this broad jurisdiction where the Court is entreated to do
justice to the case.’ Their analysis, in our submission, just does not stand
up. Why then have the cases as I have taken you to over such a long
period of time accepted the notion that there is power to order more
money than you actually have received?
We know from Custom Credit that you do not need to be culpably
involved to be joint and severally liable. We know from TNT you don’t
need to have to receive any money at all. We know that TNT had the run
and did not receive any money at all but it just had to pay on a joint and
several basis.’’
35 The conclusion reached by Schmidt J was to be seen, on the respondents’
approach, as being that no real attack was made by the appellants on the claim
that the respondents in making the franchise agreement relied upon what they
were told by Mr Smith, the second appellant; the evidence in that respect was
overwhelming and, having in mind the nature of the representations, made it
clear that her Honour exercised the discretion in a proper manner. The
particular representations, which were not met in the operation of the franchise
agreement, relied upon by the respondents’ counsel and as accepted by her
Honour, were:
(a) the terms of the advertisement for the franchise placed by the second
appellant on behalf of the first appellant advised earnings up to
$2,000 per week with a guaranteed minimum of $600 per week
operating for four days per week;
(b) the statements by the second appellant to the respondents that the
franchise was ‘‘a good one for the money you want to spend’’, he
knew the people involved in Local Home Services and the business
was excellent; and
(c) the respondents could make a minimum of $800 per week.
36 Of significance, the respondents’ counsel emphasised that in making the
representations the appellants made no proper inquiries of Local Home Services
so that what the principal informed the agent was accepted without any further
or real inquiry. The second appellant agreed he was bound by the Code of
Ethics published by the Australian Institute of Business Brokers under which he
had the duty to protect the public against fraud, misrepresentation or unethical
practices in connection with transactions and was to act in a professional
manner by ascertaining all available pertinent facts concerning the business for
which the agency was accepted so as to avoid error, exaggeration or
misrepresentation. Nevertheless, as was stressed, beyond discussions with Local
Home Services as the principal, the second appellant agreed he made no
independent inquiries about Local Home Services other than accepting the
information contained in its disclosure document.
37 Finally for the respondents, it was submitted that no relevant error was made
by Schmidt J so that the appeal should be dismissed.
38 A critical finding by Schmidt J, one which was reasonably open on the
evidence and which we think was correct, was that the appellants were content
to advance the representations to the respondents as to the viability of the
franchise but for which they had no foundation other than the instructions of
the principal, Local Home Services, and its sales manager, Mr Godfrey. The
evidence well established that it was those representations, understandably,
which induced the respondents to make the franchise agreement and to pay the
franchise fee. True it was that the franchisor received the franchise fee of
$39,500 out of which the appellants received the amount of $4,000 brokerage
fee as their total benefit from the transaction. However, the real question for her
Honour, it seems to us, under s 106(5) of the Industrial Relations Act 1996 was
whether the monetary order against the appellants was ‘‘in connection with’’
the avoided contract so as to be ‘‘just in the circumstances of the case’’. That
raises the question, not only as to a monetary order in some amount being
required and about which there was little contest, but rather the amount ordered
to be paid on a joint and several basis and where others in connection with the
avoided contract escaped liability.
39 We have cited earlier extracts from the judgment of Barwick CJ in Brown v
Rezitis. As was distilled from that judgment, the Industrial Commission in
Court Session in TNT Management v White (7 IR at 335) concluded that the
relevant test to apply was whether the monetary order could ‘‘reasonably be
thought to have a real connection with the making, variation or avoidance of
the contract or arrangement which has been varied or avoided’’. We have
indicated by reference to that case the basis upon which TNT was made liable
to a monetary order, even though it was not a beneficiary of the purchase price
paid for the truck-in-work. It is unnecessary to deal further with it, other than to
note the finding (at 338-339) ‘‘that TNT had a very close connection with the
contract . . . the right to accept or not to accept the prospective purchaser into its
organisation’’. In any event, it is instructive, we think, in reviewing the bounds
within which a monetary order may be made as a matter of discretion to
consider what Menzies J said in Brown v Rezitis (at 170), as follows:
‘‘It seems to me, without exhausting the meaning of the phrase, that
a payment of money in respect of (1) work done, or (2) money spent, or
(3) obligations incurred, under the avoided contract or arrangement, is
properly to be regarded as a payment in connexion therewith so long as
the person who is ordered to make the payment is a person who was
connected in some way with the making of the contract, or the work done,
or the expenditure made, or the obligation incurred thereunder. Such
persons could, I think, be ordered as it were to recompense the worker for
what he has lost.’’ (Emphasis added.)
40 As to the construction and operation of the statutory provision enabling the
making of a monetary order by reference to what was said in Brown v Rezitis,
Asprey JA in Ashfield Brokers and Consultants; Re Witek formulated the
following principles (at pp 5-6):
‘‘(1) The parties to the proceedings, respondents to an application made
to the Commission pursuant to s 88F, are not necessarily limited to the
the agent as one of the respondents but sought no relief against it. Nevertheless,
Bauer J commented (at 94) that ‘‘substantial authority exists for making orders
against business agents both as to the amount of the commission paid but also
as to the repayment of purchase price and reimbursement for other losses’’ by
reference to Mestrom v Alison Clint Floral Delivery, Grace v Baker, Brown v
Rezitis and Ashfield Brokers and Consultants; Re Witek. As to the
responsibilities of a business agent, his Honour said (at 93) that ‘‘a business
agent does bear a responsibility in a situation such as this to carefully determine
the nature of the business being sold and to represent the business accurately to
any prospective purchasers’’. In the result, his Honour made an order against
the principals for the full losses but with provision for recovery by them from
the agent of the amount of commission received by it.
47 Our review of the authorities results in the conclusion, as to which we are in
no doubt, that the proper approach and applicable principles are as laid down,
particularly by Barwick CJ and Menzies J, in Brown v Rezitis. Those aspects
were extensively considered by the Court of Appeal in Ashfield Brokers and
Consultants; Re Witek and were summarised therein by Asprey JA with
Sugerman P (with whom Holmes JA agreed) to a similar effect. We
respectfully agree with the relevant principles as formulated in the four
propositions stated by Asprey JA (at pp 5-6); those propositions have been
cited earlier by us with emphasis and there is nothing we can usefully add to
them. Suffice it to say that each case will depend on its own facts as illustrated
by the extracts we have quoted from TNT Management v White, Grace v Baker
and Monahan v Gibbons. However, and in a very real sense, it seems to us that
the Industrial Commission in Court Session in TNT Management v White
encapsulated the relevant test (at 335) as being whether the monetary order
could ‘‘reasonably be thought to have a real connection with the making,
variation or avoidance of the contract or arrangement which has been varied or
avoided’’.
48 In the present case, the appellants’ senior counsel made much of the fact that
her Honour’s finding of ‘‘recklessness’’ against the appellants was insufficient
for the order made and that it was only open to do so if their conduct amounted
to ‘‘reckless indifference’’. This argument seemed to flow from the reference in
Brown v Rezitis by Barwick CJ (at 168) and in Ashfield Brokers and
Consultants; Re Witek by Sugerman P (at p 3) for the person concerned to be in
some way ‘‘culpably associated’’ with the making or operation of the contract
or arrangement. We would not so describe or limit the necessary association of
a person with an impugned transaction which has more the connotation of the
criminal law or as at the level of fraud; in context, we think that comment by
Barwick CJ and by Sugerman P was but an exemplar of what relevant conduct
could be to justify an order. In any event, to be ‘‘culpable’’ means to be
‘‘blameworthy’’. If an agent in dealings with a principal’s customer was
blameworthy in some respect, such as here by making unsupported
representations the truth of which was not ascertained thereby inducing that
person to make a contract found to be unfair, then, we would have thought, the
necessary connection or association with the contract had been established.
Indeed, in dealing with the true measure of the extent of the restitution which
an agent may be required to make, Asprey JA in Ashfield Brokers and
Consultants; Re Witek (at p 7) expressed it in terms as being ‘‘the nature and
the degree or depth of his association with the acts which brought the innocent
party into the transaction subsequently invalidated’’. We respectfully agree.
49 Here, as we have earlier intimated, the relevant findings made by Schmidt J
were reasonably open on the evidence and were not significantly challenged.
The objection put by the appellants was that they were insufficient to meet the
test. We think they did. If ‘‘reckless’’ means, as we think it does, ‘‘lacking
caution, regardless of consequences, rash’’ then the conduct of the appellants as
found by her Honour, in our view, certainly falls into that category.
50 Although it is true that the representations made by the agent appellants were
aided by representations made by the franchisor, Local Home Services, and its
sales manager, Mr Godfrey, it is difficult in viewing the negotiation process
which eventually led the respondents to make the franchise agreement to
conclude other than that the appellants had as real and as close a connection
with the loss incurred by the respondents as that of the franchisor. In other
words, in our view, the appellants on the facts found had as direct a connection
with the respondents making the contract as did the franchisor by them merely
relying upon what the franchisor had set out in the disclosure document and,
without more, representing that to the respondents as the prospective
franchisee. The failure to observe the admitted appropriate standard of
behaviour under the Code of Ethics of the Australian Institute of Business
Brokers surely, it must be the case, involved sufficient reckless or blameworthy
conduct on the appellants’ part to connect them with the contract found to be
unfair.
51 The fact Schmidt J gave attention to the test of sufficient connection with the
actual making of the impugned contract was evident from her Honour’s
reasoning in distinguishing the losses incurred by the respondents in their
earnings make-up claim as to the operation of the franchise from the loss of the
franchise fee itself. On the basis that the respondents had difficulty in
converting leads into customers, likely lack of effort by them and discrepancies
in their evidence as to the hours worked in the business, it was well open, as
her Honour concluded, for no monetary order to be made against the appellants
as to the earnings make-up claim referable to the operation of the franchise. We
see no reason to disturb such finding which, in any case, the respondents did
not challenge.
52 We are satisfied in the circumstances of this case on the undisputed facts or
those as found by Schmidt J that the discretion exercised by her Honour did not
miscarry and was not in conflict with the relevant principles. No appellable
error has been disclosed nor would we ourselves have decided other than her
Honour did.
53 Although leave to appeal is granted, the appeal must be dismissed with the
appellants to pay the respondents’ costs. We so order.