FEDERAL COURT OF AUSTRALIA Australian Competition & Consumer Commission v Grant [2000] FCA 567 AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v STEPHEN FREDERICK GRANT S 91 OF 1999 MANSFIELD J 5 MAY 2000 ADELAIDE IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY S 91 OF 1999 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPLICANT AND: STEPHEN FREDERICK GRANT RESPONDENT JUDGE: MANSFIELD J DATE OF ORDER: 5 MAY 2000 WHERE MADE: ADELAIDE THE COURT ORDERS THAT: 1. The application for summary judgment be refused. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY S 91 OF 1999 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPLICANT AND: STEPHEN FREDERICK GRANT RESPONDENT JUDGE: MANSFIELD J DATE: 5 MAY 2000 PLACE: ADELAIDE REASONS FOR DECISION 1 This is a motion for summary judgment under O 20 r 1 of the Federal Court Rules ("the Rules') for orders in terms of pars 1-6 of the application dated 29 October 1999. 2 Any such application must be approached with caution: General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 118 at 130 ("General Steel"); Webster v Lampard (1993) 177 CLR 598 at 602-603 ("Webster"); Church of Scientology Inc v Woodward (1982) 154 CLR 25 at 31. 3 The applicant alleges that the respondent was involved in contraventions of Pt V of the Trade Practices Act 1974 (Cth) ("the TPA"), namely contraventions of ss 52 and 59(2), by The Furniture Wizard Pty Ltd ("the Company"). The respondent was at material times the managing director of the Company. The orders sought are for a declaration that the respondent aided and abetted, or was directly or indirectly concerned in or a party to, those contraventions, for injunctive orders under s 80 and 80A, and for orders under s 87(1A) and (1B) for the payment of compensation to four persons or families who invested in a franchise business allegedly in reliance on the conduct of the Company which is said to have contravened ss 52 and 59(2) of the TPA. In addition, the applicant seeks formal findings of fact which it contends may be made under s 83 and which it or others may then use in other proceedings against the applicant. 4 The Company was registered on 9 September 1996. It carried on business as a mobile furniture repairer in Queensland, and as a franchisor of mobile furniture repair businesses known as "Furniture Wizard" ("the franchise business") in South Australia, Victoria, New South Wales, Queensland and Western Australia. It was placed into liquidation on 26 March 1999. 5 The Company earned income from the franchising or sale of the franchise business in respect of particular areas. It received franchise fees, really a one-off purchase fee for the right to conduct the franchise business in a particular designated area, from franchisees. It also received, under those arrangements, 15 per cent of the turnover of each franchisee by way of royalty; 20 per cent of that fee was to be applied to a promotion fund for the company to promote the franchise businesses and 80 per cent of that fee was to be received by the Company on its own behalf. 6 The alleged contraventions of ss 52 and 59(2) of the Act by the Company occurred in promoting the sale of the franchise business in respect of areas or territories within Australia. The representations alleged were made in 1997 and in 1998 in advertisements in magazines, in correspondence from the Company, in Information Packs and like materials provided by the Company, and orally by officers of the Company including the respondent. They concerned the potential earnings of franchisees, the capacity of the Company to provide work to its franchisees, the history of the Company, the number and nature and extent of its existing clients, the capacity of the Company to provide other support to its franchisees, the preparedness of the Company to refund franchise fees paid if a franchisee was dissatisfied, and certain other matters ("the representations"). 7 The applicant claims that the representations were false. 8 The respondent does not now dispute that, with a limited qualification, the representations were made. There is ample evidence to that effect. The qualification concerns the oral representations. He claims in his evidence (a statement was signed by him on 15 March 2000 and adopted as his evidence on the hearing of this motion on 16 March 2000) ("the respondent's evidence") that certain of the oral representations allegedly made by him were not made, and that he does not accept that the oral representations made by other officers of the Company were made and he further claims that any such representations were made without his knowledge or authority. With similar reservations, the respondent does not now dispute that the representations were untrue. Although it has not been expressly addressed, it is also clear that the respondent does not claim that the Company had reasonable grounds for making such of the representations as were made with respect to future matters: see s 51A of the TPA. Those matters appear from the defence and from the respondent's evidence. 9 I am prepared to assume in favour of the applicant on this motion that it has established the contraventions of ss 52 and 59(2) of the TPA by the Company which it has alleged. For reasons which appear below, I do not think it is necessary to review the evidence on those matters in any detail, or to explore in detail the extent to which there may be a dispute about the making of oral representations. 10 In my judgment, the real obstacle confronting the applicant is s 75B of the Act. It is clear that the liability of the respondent depends upon s 75B of the Act. In Yorke v Lucas (1983) 158 CLR 661 ("Yorke"), it was held that s 75B(a) and (c) is satisfied when a person has intentionally aided or abetted a contravention of the Act, or when a person has been an intentional participant in the contravention. The necessary intent involves knowledge of the essential matters which make up the contravention, even if it is not appreciated that those matters amount to a contravention of the TPA. Contravention of ss 52 and 59(2) involves conduct which is misleading or deceptive, or is likely to mislead or deceive. In this matter, the conduct alleged against the Company is the making of false representations. Without knowledge of the falsity of the representations, the respondent could not be said to have intentionally participated in the contraventions. 11 In considering that issue, I have not overlooked the respondent's expressed desire to have these proceedings generally completed as quickly as possible. He did not contend that the claim should not be disposed of summarily. His opposition to the motion was really in relation to the orders under s 87(1A) and (1B) of the TPA which were sought against him. 12 However, the defence expressly denies the allegations in the statement of claim that he knew the representations were untrue or were misleading or deceptive. In the respondent's evidence, he said (pars 11, 12 and 82): "11. Company Documents I agree that the company did publish documents that, in hindsight and on legal advice that I have received since the proceedings were commenced, were misleading … I am prepared to admit there was a breach by the company publishing these documents. I now see that as a former director I can be held responsible for the breach. … 12. Advertisements On reflection I now know, based on legal advice, that the ads placed for the company were misleading. … I agree, in hindsight and based on legal advice received that I unknowingly at the time aided and abetted the company in contravening the Trade Practices Act." 13 In his submissions on the hearing of the motion, the respondent explained his position in the following way: "There are a couple of issues, the main one being that if this matter were to go to trial I don't have the money or the knowledge to take this matter to trial, and I've admitted in my affidavit that I appear to be guilty or something that being the managing director of contraventions of the Trade Practices Act. That was completely unintentional. To save the court's time and the taxpayer's money, I would like to go for this summary judgment to let you look at it and deal with it now, your Honour, or whenever you can. … Yes, your Honour, because I'm faced with representing myself and fighting barristers and reams of paperwork. I just do not know how to do it and I think I'm big enough to admit that I've messed up in certain areas based on the pro bono advice that I've received, so I think what I've put in you can make your own mind up on, your Honour." 14 He also said that "as the managing director I am guilty of contravention of" the TPA, but at the same time he reasserted his lack of awareness of certain oral representations made by others and that they were unauthorised. He also indicated that he opposed any orders being made under s 87(1A) and (1B) of the TPA that he repay to certain identified franchisees of the Company the monies which they paid for those franchises. 15 In Webster Mason CJ, Deane and Dawson JJ said at 603, after referring to the need to exercise exceptional caution in exercising the power to grant summary judgment: "Nowhere is that need for exceptional caution more important than in a case where the ultimate outcome turns upon the resolution of some disputed issue or issues of fact. In such a case, it is essential that "great care … be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal"." The quoted passage is from General Steel at 130. 16 It is apparent, in my judgment, that despite his expressed desire to have this matter dealt with expeditiously, the respondent has denied in his evidence that he had the state of mind necessary for him to be liable by reason of s 75B for the acknowledged contraventions of the TPA by the Company. Although he has in one sense acknowledged responsibility for those contraventions, he has only done so on the basis of some view as to the law which is not apparently consistent with the decision in Yorke. His claim that he should not be liable for the consequences of the contraventions of ss 52 and 59(2) of the TPA, at least in so far as they may involve orders under s 87(1A) and (1B) of the TPA, is also apparently inconsistent with him having acknowledged that he is also liable by reason of s 75B for those contraventions and their consequences. 17 The applicant submits that, notwithstanding the respondent's evidence, the case is so clear that the application should succeed. It relies in part upon the assertions made by the respondent in pleadings in matter Q 287 of 1999 in this Court between himself as applicant and Barry Eddington ("Mr Eddington") as respondent ("the Queensland action"). 18 The statement of claim in the Queensland action was signed by the respondent on 30 November 1999. It is virtually a replication of the statement of claim in these proceedings except that it deals with two rather than four of the franchisees. As it is dated after the statement of claim was filed in this action, it is easy to infer that the respondent used the statement of claim in this action as the basis for the allegations in the Queensland action. The significant difference is that the respondent has alleged that the Company and Mr Eddington, but not himself, contravened the TPA. It alleges Mr Eddington aided abetted counselled or procured the Company to contravene the TPA, or was knowingly concerned in the contraventions. There is a question whether assertions in signed pleadings in another action can be used as admissions (see Laws v Australian Broadcasting Tribunal (1990) 170 CLR 70, although Mason CJ and Brennan J at 85-86 appear to have confined their decision to pleadings which are not required to be verified). It was argued that the position may be different under the Evidence Act 1995 (Cth). I do not need to decide that question. Even if I treat the statement of claim in the Queensland action as containing admissions by the respondent which can be used in this action, I do not think it contains admissions as to his state of knowledge of the misleading nature of representations made by the Company at the time they were made. I have assumed that the Company made the written representations and that they were false. The statement of claim in the Queensland proceedings acknowledges that. However, in my judgment, it does not demonstrate clearly that I should reject the respondent's evidence that, at material times, he did not intend to aid or abet the contraventions of the TPA by the Company or to participate in them. There is, in my view, a disputed issued as to whether the respondent knew at material times that the representations were misleading or deceptive. 19 The applicant has also relied upon an affidavit of the respondent sworn on 17 September 1998 and filed in proceedings in matter 4950 of 1997 in the Supreme Court of New South Wales in which he and the Company are defendants ("the New South Wales proceedings"). One of the plaintiffs in that action was Robert Bray ("Mr Bray"). The respondent, in that affidavit, describes a meeting with Mr Bray on 11 June 1996, at a time when he was proposing to launch the Company. He understood Mr Bray had been in the business of furniture repair and restoration for some time, including providing the service of on-site repair and restoration. Mr Bray also had an existing factory workshop. Mr Grant deposed to having obtained Mr Bray's approval to building "a story around you", so he could say that the mobile furniture repair system had "been around for 8 years and was producing figures in Sydney". He appreciated that it would be easier to sell franchises than if the Company was a new business with no history. He agreed to pay Mr Bray a monthly fee to train franchisees, and an "option for a 2.5% profit share". He also acknowledges that "the statements on page 3 of the information pack were not necessarily accurate". He made them for the purposes of building the credibility of the business of the Company. He refers specifically to the statement that "… the franchise group [the Company] was so impressed with the work, the reputation and the innovation of the people involved [Mr Bray] they joined the company as partners." 20 That did not occur, but he stated that "he deemed it to be necessary to make such statements in order to build the business". Page 3 of the information pack is headed 'Company History'. It refers to the evolution of Mr Bray's idea of providing a mobile furniture repair and restoration service. It creates the impression that Mr Bray's business was thriving, and that its successful expansion was effected through the Company joining with Mr Bray. As Mr Grant acknowledges, that representation that Mr Bray's business was assisted in its expansion by the Company was not correct. It is unclear whether the description of Mr Bray's business is itself incorrect, or if so to what extent. The impression I have from that affidavit is that Mr Bray's business was a modest one, and that the description accorded to it by the respondent in the information pack was hubristic. However, in the face of the respondent's evidence, except where he has specifically acknowledged that he knew that any of the representations was untrue, I do not think that it is appropriate on this application to reject the respondent's evidence. There is no evidence from Mr Bray on this motion. I have also borne in mind that the particular content in the information pack which, in that affidavit, the respondent has acknowledged to have been misleading as to his knowledge at the time is not one of the representations pleaded in the statement of claim, although it is possible to infer from two or three of the twenty representations pleaded that it underlies those specific representations. The respondent's evidence also positively asserted the truthfulness of those (and other) representations, not simply in terms of his belief at the time they were made but also at the time of his evidence. 21 I note that there is other affidavit material from certain franchisees and from Mr Eddington which, in part, directly contradicts the respondent's evidence. It is also evidence which is capable of being used to indicate that the respondent's evidence is unreliable. However, I do not consider that that material, whether taken alone or in conjunction with the other material upon which the applicant relies, is sufficient to lead to the view that the respondent's evidence about his state of mind or awareness at material times should be rejected. I am mindful of the need to exercise exceptional caution before taking such a step. 22 In those circumstances, I am not persuaded that the defence of the respondent is without merit. The determination of his liability for the acknowledged contraventions by the Company of ss 52 and 59(2) of the TPA, by reason of s 79B, will ultimately depend upon whether the respondent's evidence is accepted at trial. There is a disputed issue of fact as to the awareness of the respondent about the misleading character of the representations by the Company at material times. That disputed issue is not one which, in my judgment, should be resolved on this motion. 23 Accordingly, I refuse the orders sought on the notice of motion. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Decision herein of the Honourable Justice Mansfield. Associate: Dated: 5 May 2000 Counsel for the Applicant: Mr M Ward Solicitors for the Applicant: Australian Government Solicitor Counsel for the Respondent: The Respondent appeared in person Date of Hearing: 16 March 2000 Date of Decision (delivered via video link-up between Adelaide & Brisbane): 5 May 2000