Industrial Relations Commission of New South Wales in Court Session CITATION : Stephen John Pilgrim and anor v Wendy's Supa Sundaes Pty Ltd and ors [2002] NSWIRComm 198 FIRST APPLICANT Stephen John Pilgrim SECOND APPLICANT Julie Anne Pilgrim FIRST RESPONDENT Wendy's Supa Sundaes Pty Limited PARTIES : SECOND RESPONDENT Oraka Pty Limited THIRD RESPONDENT Bryan Clifford Johnson FOURTH RESPONDENT Ann Margaret Johnson FILE NUMBER: IRC1028 of 1999 CORAM: Peterson J CATCHWORDS : Unfair contract - franchise of retail ice cream business - franchise business purchased from outgoing franchisee - franchise agreement executed without subsisting lease - promise of free future refurbishment not met - additional costs experienced - business not financial disaster but marginally successful - business handed back - arrangement found unfair in certain respects - order for payment to applicants of price paid and refurbishment. Industrial Relations Act 1996 s106 LEGISLATION CITED : Evidence Act 1995 Stamp Duties Act 1920 Wimpole v McIlraith (1923) VLR 553 Jones v Dunkel (1959) 101 CLR 298 Alexander v Rayson [1936] 1 KB 169 Napier v National Business Agency Ltd [1951] 2 All ER 264 CASES CITED : Gozzard v McKell (1931) 32 SR (NSW) 39 The Official Trustee and Bankruptcy v D'Jamirze and ors (1999) NSWSC 1249 Bullock v London General Omnibus Co. (1907) 1 KB 264 WorkCover Authority of New South Wales (Inspector Dawson) v Plastachem Pty Ltd & Ors [2001] NSWIRComm 244 Boner v Anderson (No 2) (1993) 52 IR 114 HEARING DATES: 06/18/2001; 06/19/2001; 06/20/2001; 06/21/2001; 06/22/2001; 07/19/2001; 08/13/2001; 02/15/2002 DATE OF JUDGMENT: 08/12/2002 APPLICANTS Mr J B Whittle SC with Mr J V Gooley of counsel SOLICITOR Barry Lazarus Lawyers SYDNEY. FIRST RESPONDENT Mr D J Hammerschlag SC LEGAL REPRESENTATIVES: SOLICITOR Piper Alderman Lawyers SYDNEY SECOND TO FOURTH RESPONDENTS Mr I M Neil of counsel SOLICITORS Gordon & Johnstone Lawyers SYDNEY. JUDGMENT: - 33 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: PETERSON J DATE: 12 AUGUST 2002 Matter No. IRC1028 of 1999 Stephen Pilgrim and Julie Pilgrim v Wendy's Supa Sundaes Pty Limited and anor. Application under s106 of the Industrial Relations Act 1996. JUDGMENT 1 The applicants, Stephen John Pilgrim and Julie Pilgrim, are husband and wife who, together, operated a franchised ice cream shop in The Bay Village Shopping Centre, at Bateau Bay, near The Entrance, although Mr Pilgrim alone was the signatory to the franchise agreement. The first respondent, Wendy's Supa Sundaes Pty Limited, ("Wendy's") is the national franchisor of the franchise known as Wendy's; the second respondent, Oraka Pty Limited ("Oraka"), is the master franchisee for New South Wales. The third and fourth respondents, Brian Clifford Johnson and Ann Margaret Johnson, are also husband and wife and are the directors of Oraka. 2 The Pilgrims operated the shop from 22 March 1993 after paying the previous operator, Barry Madeley, and his company, Frozen Fun, $165,000 comprising plant, fittings and chattels valued at $72,460 and goodwill of $92,540. They also paid him $20,000 in cash. 3 As at 22 March 1993 Mr Pilgrim and Oraka had executed a franchise agreement enabling the conduct of the business but without there being any subsisting lease for a term in relation to the premises. In December 2000 the Pilgrims surrendered the franchise thereby losing their investment in the shop and also $70,000 borrowed from the ANZ Bank to cover the cost of relocation and refurbishment of a new shop in the Centre to which the business was required to move in September 1995. 4 The relief claimed upon the basis of appropriate declarations of unfairness is, in the first alternative, the amount of $185,000 initially paid for the business; $70,000 relocation costs; and amounts to cover an alleged shortfall in wages when compared with the rate provided by the Shop Assistants Award for Stephen Pilgrim of $151,260.57 and for Mrs Pilgrim of $49,440.23. The alternative claim incorporates the sum of $185,000 already identified, together with $153,172.28 being the franchise fees paid by the Pilgrims during their period of occupancy and $57,910.89 being interest paid on borrowings in relation to the business. 5 An important feature of this case is the fact that the evidence was substantially put forward only in the applicants' case; the respondents, while taking the opportunity to cross-examine and to tender certain documentary material, did not adduce evidence from any witness involved in the formation, operation or ending of the franchise arrangement. While the applicants' case was still open, Mr Neil of counsel for Oraka and Mr and Mrs Johnson, informed Mr Whittle of senior counsel, who appeared with Mr Gooley of counsel for the applicants, that he did not intend to call Mr Johnson although a substantial affidavit had been filed and served in the proceedings. Mr Whittle then sought to read paragraphs 139 and 167 of Mr Johnson's affidavit to which course Mr Neil objected. He submitted, relying on s135(b) of the Evidence Act 1995, that the affidavit should be tendered by Mr Whittle as a whole and that the court should refuse to admit only part of it for the reason that its probative value would be substantially outweighed by the danger that the evidence might be misleading or confusing. After hearing argument on the matter, I ruled (although in substance I think the ruling was consistent with the ultimate submissions of all counsel) that the whole of the affidavit would be admitted in evidence but that only the paragraphs sought to be read in the applicant's case would be admitted therein and Mr Neil would not be entitled to rely upon any other parts of the affidavit save those which might qualify the particular paragraphs read in the applicants' case as admissions. This ruling applied one of the approaches referred to by Mann J, in Wimpole v McIlraith (1923) VLR 553. 6 The limitation of the evidentiary case largely to that put forward by the applicants impacts upon the case made for the respondents. A substantial attack was made both in the course of cross-examination and also in the context of the submissions, upon the credit of the applicants. Mr Whittle submitted that it was a bold approach to attack the credit of the applicants when the respondents had not been prepared to take the step of going into evidence, particularly from Mr Johnson. While it might be said that a court is able to, and must, assess the credibility of individual witnesses, including the applicants in the circumstances of this case, difficulty arises where an applicant/witness is a person of limited business experience, demonstrably limited business ability and of seemingly ordinary intellect. Evidence given by Mr Pilgrim in cross-examination sometimes caused me to think it reflected the talents, not inconsiderable in this case, of the cross-examiner/s rather than the witness's intention. 7 I found Mr Pilgrim to be an unsatisfactory witness in a number of respects. Mr Pilgrim gave his evidence in a way which I am inclined to think was designed to create, but if not so designed having the effect of creating, the impression that he had paid some regard to documents such as the "Important Facts You Should Know About Wendy's" and the Franchise Agreement, when in fact he was incapable of reading without the aid of glasses which he did not, or would not use, and he tended to express reliance on his wife as having read the documents, with the benefit of her banking experience. 8 Further, some of his evidence was truly incredible. For example, he claimed that in considering the business he gave no thought to the proposition that interest would be payable on the money he was borrowing from the bank to assist in funding the enterprise. That suggestion does not enable him to avoid the consequence of the reality which any normal-thinking person must have recognised. 9 Despite these features of Mr Pilgrim's evidence, I did not find him to be a witness whose word should be rejected in all respects. I propose to be cautious in my response to his evidence, particularly where there is an absence of independent support for it. Nevertheless, that caution will be necessarily limited by the absence of evidence contravening Mr Pilgrim's evidence. In respect of evidence identifying conversations between Mr Pilgrim and Mr Johnson or Ms Coles, for example, the absence of evidence from the respondents in that regard is a powerful reason for finding in Mr Pilgrim's interests. While countervailing propositions were put in cross-examination by counsel, those propositions can, in the absence of supporting evidence, amount to no more than ideas. In the absence of an agreeable response from a witness, they cannot establish facts. 10 This left the evidence in the unusual position where the evidence of Mr Pilgrim, although unsatisfactory in many respects, was not put in issue save to the extent of cross-examination. Without seeking to diminish the impact of cross-examination where it was effective, the consequence must be that evidence of Mr Pilgrim which asserts the content of conversations with Mr Johnson, for example, which has not been impugned by cross-examination, must be accepted as evidence of truth in the absence of a finding that the witness could not be believed on his oath. This is a case when Jones v Dunkel (1959) 101 CLR 298 inferences may properly be drawn, that, for example, Mr Johnson's evidence on these conversations would not have assisted him. 11 As to Mrs Pilgrim's evidence generally, I had considerably less difficulty with it than I found with Mr Pilgrim's. She too, for example, expressed her position as having been that she gave no consideration to interest on the loan they were taking from the bank. That obviously appears incredible, given her work experience over many years as a bank employee. If her evidence in that regard were accepted, it would simply mean that she had failed to do the obvious thing. I do not consider her evidence was designed to be misleading in that regard or generally. 12 Overall, the applicants' evidence seems to me to establish that they were approaching this business with the degree of gullibility so often found in unsuccessful franchise operators. They were taking a view of their prospects which was if not irrational, certainly over-brimming with confidence. 13 I find this case to be a reasonably good example of the problem which emerges all too frequently with franchise operations; namely, that the gullible, ill-prepared and commercially unwise franchisee, if not actively enticed into a franchise, will be permitted to advance to the point of a substantial expenditure and the achievement of an ultimate loss without any real support, or even expressed concern, on the part of the franchisor for the circumstances which develop to the franchisee's detriment. As the evidence shows here, when the going for the applicants was becoming tough financially, the response of Oraka was to threaten a breach notice with potential consequences of termination of the franchise arrangement rather than to deal constructively with the problem, devastating as it appeared to be to the applicants. 14 Before detailing the evidence, it is convenient to utilise parts of a chronology (produced by counsel for the applicant during the course of the proceedings) to introduce some non-contentious history leading up to the events which require consideration in the context of the evidence itself. 18 October 1989 Oraka established a Wendy's franchise at shop 21 at the Bay Village Shopping Centre (the "Bay Village") in Bateau Bay (the "Bateau Bay franchise"). Oraka entered into an assignment of the lease for shop 21. The lessor was Legal & General Property Investment Ltd ("Legal & General"). The lessor's agent was Byvan Management Systems Pty Ltd ("Byvan"). The Bateau Bay franchise was purchased for $200,000 by Frozen Fun Pty Ltd ("Frozen Fun") whose principal was Barry Madeley. 7 August 1990 Legal & General announced it would upgrade the Centre. 26 August 1990 The assignment of the lease to Oraka expired. 15 February 1991 Johnson wrote to Byvan re the issue of relocation costs. December 1991 Mr Pilgrim met Mrs Madeley at Bateau Bay and enquired re the sale of the franchise and its price. January 1992 Mrs Pilgrim was shown the Bateau Bay franchise for the first time. March 1992 Mr and Mrs Pilgrim sold their home in Sydney and moved to the Central Coast. June 1992 Mr Pilgrim visited Brian Johnson at Wendy's head office and enquired about the availability of the Bateau Bay franchise. 4 September 1992 Oraka received a lease proposal from Byvan. The proposal related to shop 21 and was for a five year term. There was to be a relocation clause with costs to be borne by the lessee. 29 September 1992 Oraka received a revised lease proposal from Byvan. The proposal related to shop 21 and was for a five year term. There was no relocation clause. October 1992 Mr Johnson advised Mr Pilgrim that the Wendy's franchise at Gosford was for sale. Mr Pilgrim said that he was not interested in this franchise. 14 October 1992 The Pilgrims complete a finance application to ANZ Bank for the Bateau Bay franchise using a Wendy's application form. November 1992 The Pilgrims had further discussions with Oraka and Mr Johnson and Jenny Coles. The Pilgrims were given various documents and forms to complete, including a document headed "Important Facts I should know about a Wendy's Franchise". 8 December 1992 The Pilgrims' accountant wrote to Barry Madeley indicating their willingness to purchase the Bateau Bay franchise. 10 December 1992 Oraka was notified by Byvan that ownership of the Bay Village had changed and that all tenant negotiations had to cease. 18 December 1992 Barry Madeley offered the Bateau Bay franchise to Mr Johnson for $185,000. December 1992 Mr Pilgrim met with Mr Johnson who it is alleged made various representations, including that there would be a "free" refurbishment of the Bay Village. Mr Pilgrim spoke with Ms Coles at Wendy's head office about the Bateau Bay franchise and was advised that he would need 35% capital and that he could borrow up to 65% and that he would need $100,000. He was also advised that Wendy's would help organise finance. 21 December 1992 Oraka issued a receipt to the Pilgrims for $18,500 paid as a deposit for the Bateau Bay franchise. 12 January 1993 Mr Peter Kernan, the solicitor for the Pilgrims, received a sample Shop Franchise Agreement from Ms Coles. January 1993 Ms Coles, on behalf of Oraka, provided a financial summary of the Bateau Bay franchise to the Pilgrims. These records contained details of sales performance and projections in relation to profitability of the operation of the Bateau Bay franchise. The financial summary showed gross sales of $225,000 for the 1991 year. January 1993 Mr Pilgrim resigned from his employment with Peter's Ice Cream. 3 February 1993 Mr Johnson sent an acceptance fax to Byvan. 8 February 1993 Byvan responded to Mr Johnson's fax dated 3 February 1993. Byvan stated, inter alia, that the owners and their solicitors were currently reviewing the relocation clause. 23 February 1993 Byvan letter re proposed terms of lease was forwarded to Mr Kernan. 17 March 1993 The Pilgrims executed an Agreement for Sale of Business in relation to the Bateau Bay franchise. The vendor was Frozen Fun and the purchase price was $165,000 comprising plant, fittings and chattels valued at $72,460 and goodwill of $92,540. In addition the Pilgrims paid Barry Madeley $20,000 in cash. Franchise Agreements were also executed at around this time. March 1993 Mr Johnson sent the Pilgrims to the Wendy's store at Ashfield for 4 days training. They then went to South Australia for 1 week's training. 22 March 1993 The Pilgrims began operating the Bateau Bay franchise from shop 21 without a lease. 23 March 1993 & Peter Kernan wrote to the solicitors for Oraka 20 May 1993 requesting details of the lease. 10 January 1994 Byvan advised Oraka of increased rent on the "casual lease agreement". 1 July 1994 Wendy's advised the Pilgrims that they were going to introduce a renewal fee on all stores. 13 October 1994 McDonalds opened outside the Centre. 31 January 1995 Mrs Pilgrim sent to Mr Johnson a store sales report form for period 13 October 1994 to 29 January 1995 showing decreased sales of $50,000. January 1995 Renovations to the Centre began. June 1995 The Pilgrims were advised that the Bateau Bay franchise would be required to relocate. The Centre's manager advised the Pilgrims that it would be prepared to enter a 7-year lease with Oraka. Mr Pilgrim contacted Oraka and requested that Oraka enter into a 7-year lease. 1995 Mr Johnson advised the Pilgrims that they were required to move premises almost immediately and that they would have to bear the cost of relocation and refurbishment of the new premises. The represented cost of relocation and refurbishment was $30,000 to $40,000. The Pilgrims protested. 9 June 1995 Oraka received an initial offer of lease from Byvan. 5 July 1995 The Pilgrims sought the assistance of Oraka to obtain finance for the relocation and refurbishment. Ms Coles provided figures as to the profitability of the business to the Pilgrims for submission to Oraka's bank, ANZ, in South Australia. July 1995 Ms Coles advised that the relocation cost was $60,000. The eventual cost was $70,000. 25 August 1995 The solicitor for the Pilgrims expressed concern to Wendy's about the demand by Wendy's for refurbishment costs to be paid by the Pilgrims. 28 August 1995 Byvan notified Mr Johnson that handover of shop 69 for fitout was 28 August 1995. 29 August 1995 Wendy's National Franchise Manager responded to the 25 August letter, suggesting the $60,000 spent on refurbishment be offset against the 2.5% levy on gross receipts on account of maintenance and repairs. This letter also mentioned the absence of a lease, Mr Pilgrim's knowledge of that and the possibility he could have lost possession of the premises. September 1995 The Pilgrims began operating the Bateau Bay franchise from shop 69. The Pilgrims were granted a licence by Oraka to occupy the premises. The licence was to operate in the period 1 September 1995 to 31 August 2002. The Pilgrims paid Oraka's costs of the lease and the licence agreement as well as stamp duty. 12 September 1995 Wendy's threatened the Pilgrims with termination of the franchise agreement because of their failure to pay bills associated with renovation and relocation. 15 September 1995 The solicitor for the Pilgrims responded to the 29 August 1995 letter, denying knowledge of the possibility of lost possession and claiming that a lease was to have been put in place. It asserted a desire to maintain a healthy working relationship, with security through a lease. 15 September 1995 ANZ notified the Pilgrims that their loan application for $60,000 was successful. 16 November 1995 Lease between Oraka as lessee and Permanent Trustee as lessor executed. Term is 7 years. Commencement date was 1 September 1995 and termination date 31 August 2002. December 1995 Westfield Tuggerah opened. 12 December 1995 Mr Johnson complained to Mr Pilgrim about not receiving weekly sales reports. 9 February 1996 Mr Pilgrim executed a licence to occupy with Oraka. Date of commencement 1 September 1995. May 1996 The Pilgrims had to renegotiate the terms of the loan with the ANZ Bank as they were having difficulties servicing the loan. 16 August 1996 Byvan advised Oraka of rental increase of 5%. 8 September 1997 Mr Johnson advised the Pilgrims that Wendy's would begin direct debiting from the Pilgrims' bank account. 31 December 1997 Oraka on its own behalf, and on behalf of Wendy's, sought to have the Pilgrims enter into a new franchise agreement. The Pilgrims refused to execute this Agreement. The former franchise agreement expired. January-June 1998 The Pilgrims unsuccessfully advertised the sale of the Bateau Bay franchise. 18 March 1998 The Pilgrims were issued with two breach notices from Oraka for selling a "Regular Chocollo" on two occasions for an amount greater than the maximum price and for not paying Franchise Service Fees and Advertising Contributions. August 1998 Wendy's increased their advertising levy from 3% to 5%. December 2000 The Pilgrims surrendered their business to Oraka. The Wendy's Franchise System 15 Wendy's is a corporation based in Adelaide, South Australia, which owns the trademark "Wendy's" and has appointed various entities as master franchisees throughout Australia, with the right to own and operate in their own right and also to franchise retail businesses utilising the Wendy's name and system. Wendy's published a document, a copy of which was supplied to Mr Pilgrim by Oraka headed Wendy's Supa Sundaes - Important Facts I Should Know About A Wendy's Franchise. It was in a question and answer format; some of the questions and answers were as follows: Question 2: What is a Wendys Franchise? Answer: It is a Licence to operate a Wendys outlet. An agreement exists between three parties, the Franchisor (The Wendys Company), Sub-Franchisor (the Master Franchisee) and the Franchisee (Store Operator), whereby the Franchisor provides through its Sub-Franchisors certain expertise, recipes and business systems, for which the Franchisee pays a Franchise Fee and a Franchise Service Fee based on gross sales. The Franchise may be held in the name of a Company or an individual. In the case of a Company Franchise, the Company must meet certain criteria laid down by Wendys Supa Sundaes. Question 3: What are the advantages for me? Answer: You are part of a proven business system, enjoying a high profit return. You enjoy the benefits normally applicable only to large businesses - group advertising, corporate identification through printed material, and nationally negotiated prices. "You are in business for yourself, but not by yourself". Question 4: What will Wendys require regarding my entry qualifications? Answer: Wendys will require you to:- 1. Be prepared to be totally involved in the franchise (see question 16) 2. Provide up front capital of no less than 35% of the required purchase price of the business. Question 5: What will my costs be? Answer: Your major costs will be:- 1. The purchase of the business including Franchise Fee, fittings and equipment. Currently approximately $150,000 plus. Your cash requirement will be 35% of the purchase price. 2. A Franchise Service Fee of 6% of all gross sales. 3. An Advertising Contribution of 3% of all gross sales. 4. Initial working capital of approx. $10,000 which includes legal fees, training and associated start up costs. Question 6: How can I best check the reputation of Wendys? Answer: Talk to existing Franchisees and ask them for their opinion. Also talk to friends etc. who are customers of Wendys for their opinion of the product and the business. Question 7: How long is the Franchise Agreement? Answer: The term of the Franchise Agreement runs for the period of the lease on your outlet, with a review period for a further equal term. Question 8: What products do Wendys sell? Answer: Wendys Supa Sundaes has established a reputation for specialising in treats. The menu includes soft serve, ice cream, soft frozen yogurt and Vitari which are presented as decorated cones and sundaes. Also with a specialty range of drinks, fresh fruit salad and hot dogs. Question 9: Is there a strong continuing demand for Wendys products in the market place? Answer: Since 1979 Wendys has been the leader in the market place, providing quality "impulse treats", satisfying demand with current sales of 12 million cones per annum. Question 10: When did Wendys begin business? Answer: The first Wendys Supa Sundaes outlet opened for business on July 31st, 1979 in the Gallerie Shopping Centre in Adelaide. Question 11: What training is available? Answer: Wendys training is comprehensive as Wendys realize many in-coming Franchisees have had little or no prior business experience. The training is in three stages (compulsory): 1. Wendys will train you in a Company outlet for one week prior to opening. 2. You also receive one week of intensive training in Adelaide with Head Office. 3. Wendys will also provide an additional five days training during the first six weeks of operation in your own store. You will also be provided with a confidential Wendys Operational Procedures Manual for further reference. Question 12: How long is the lease on the outlet? Answer: This depends on the Landlord, but Wendys will negotiate for a minimum three year term. Question 13: What does the 6% Franchise Service Fee cover? Answer: The use of the name "Wendys Supa Sundaes" and the on-going use of the business systems, including retail supervision, technological developments, latest equipment advice, nationally negotiated prices, new products and regular cost analysis, to ensure profitability etc. Question 14: What does the 3% Advertising Fund Contribution provide? Answer: Participation in a group advertising scheme, where Wendys Marketing Department liaises with a national advertising agency, for the creation of in-store promotions, a quarterly newsletter, various promotional point of sale and media involvement, including national television campaigns. Question 15: Is my Franchise territory exclusive? Answer: The Wendys Company will not position another outlet within your territory without considering two important points: 1. We will initially conduct a feasibility study to indicate whether the new outlet will substantially affect your existing business. 2. Assuming that part 1 is satisfactory, we reserve the right to offer the new store to you. Specific boundary arrangements are outlined in our Franchise Agreement. Question 16: Is my investment guaranteed? Answer: No! Nothing is guaranteed in business, but Wendys experience in building and operating over 145 successful outlets provides us with a well tested proven path to follow. Our future growth relies on satisfied Franchisees. Question 17: How many hours do I need to work? Answer: We require our Franchisee to be personally involved in the day-to-day operation of the Franchise. A minimum of 30 hours per week is appropriate, allowing an additional 10-12 hours for cleaning, bookwork, wages, ordering etc. 16 Later, under the heading Summary, the following was recorded: One further point to consider before embarking on a Franchise - a potential Franchisee must understand that the Franchise world is no place for the rugged individualist. For instance, our Franchisees are required to make weekly returns and may only purchase approved products from nominated suppliers. To be successful, the Franchisee must be able to take directions, and be willing and able to change. In the right hands, Franchising is an effective, profitable and dynamic way of marketing a vast number of products and services in today's economy. The concept of Franchising almost ensures its success, being based on the premise that 'mutual contribution leads to mutual benefit', to the extent that both the Franchisor and the Franchisee maximise this contribution, they minimise the risk of failure and the generate confidence in Franchising. 17 The document referred to a publication which might be of interest to a potential applicant: "Managing The Small Business Series, named Evaluating A Franchise written by the Department of Industry and Commerce and available in your capital city from the Commonwealth Bookshop". It then identified Master Franchisees in the various states including for New South Wales/ACT Mr Bryan Johnson, P.O. Box 382, Glebe NSW 2037 (02) 692 8333. The document also contained a list of Wendy's Stores as at December 1990. 48 locations in New South Wales were identified, 32 in Queensland, 36 in Victoria, 28 in South Australia, 3 in Tasmania, 2 in the Northern Territory, 11 in Western Australia, 2 in the ACT and 7 in New Zealand. 18 Leaving aside the applicants' circumstances, there is nothing to suggest that the Wendy's franchise system has not been a substantially successful one. Indeed, the submissions made for Wendy's in the proceedings were to the effect that it is "a successful and large franchise operation of independent ice cream shops. It is by no means a 'fly by night' operation". The Applicants 19 Mr Pilgrim had been employed in sales work since the age of 17 when he joined his family's business of van sales of paper and packaging to fast food stores. After about 10 years in that business he left to work for Kimberly Clarke Australia and in 1989 joined Coca Cola. From about September 1990 his work included the selling of Vitari Soft Serve to retail outlets including a number of Wendy's Franchises. It was in this context that he first met Mr Johnson. From time to time he took Wendy's employees and franchisees to sporting events on behalf of Coca Cola. This included the Operations Manager of Oraka, Ms Jenny Coles. 20 From his experience Mr Pilgrim formed the view that Wendy's staff and franchisees "worked very hard but seemed very motivated and dedicated to Wendy's". 21 Mrs Pilgrim joined a bank on leaving school and over time became employed as a bank supervisor. She then left to have a child in 1988 and did not return to work until the attaining of the Wendy's franchise. 22 In about 1992 the applicants decided to move from Sydney to the Central Coast to be closer to Mrs Pilgrim's family. Mr Pilgrim was interested in running his own business "as a means of doubling my wage" in order to support a daughter who required particular medical attention. After moving to the Central Coast in March 1992, Mr Pilgrim continued to work for Coca Cola until June or July that year when Coca Cola sold the Vitari range to Peters Ice Cream and Mr Pilgrim's position was made redundant. He subsequently obtained a position with Peters Ice Cream on a higher salary but on what he regarded as less favourable terms and conditions than previously. 23 Mr Pilgrim had informed Mr Johnson in December 1991 of his interest in the Bateau Bay shop. Having taken Mrs Pilgrim to the Bateau Bay store in January 1992 and then meeting Mr Madeley and discussing the possibility of a sale, in mid year he spoke with Mr Johnson about the possible sale to be told "I'm having no luck talking to Barry Madeley". Mr Johnson had said "I'll make a call to Barry and see if he is interested in selling and get back to you". In October 1992 Mr Johnson mentioned to him that the Gosford franchise was sale but Mr Pilgrim was not interested in that area. In November 1992 he received an application form and the "Important Facts I Should Know about a Wendys Franchise" document. Ms Coles at this time said to him "All you have to do is talk to the franchisees and get their general feeling about the system". The applicant deposed that he did this himself in any event "from the time that we became interested in the Bateau Bay franchise because I already had substantial contact with the 25 franchisees in Western Sydney through my work at Coca-Cola". 24 In December 1992 Mr Pilgrim and Mr Johnson had the following conversation: Pilgrim: "My accountant has got in touch with Barry Madeley and he wants to sell." Johnson: "How did you get him to sell?" Pilgrim: "My accountant wrote him a letter. The deal is he doesn't want to deal with you." Johnson: "That is fine with me. I have had no satisfaction with him. I've tried to contact him but he never rings me back. But now you are here let me ring him anyway." "There is going to be a refurbishment of the Centre further down the track. We don't know if it will be in the next 12 months or whether it will be longer. For you guys this will mean nothing because you will get a free refurbishment out of it. I don't want Barry Madeley to know however so just play along with me." 25 Mr Johnson then telephoned Mr Madeley and was heard by Mr Pilgrim to say: "Barry I've got a guy here interested in your business. He is happy to pay the money and knows he has to pay for a fit-out. Are you happy with that? OK I will be in touch." He then hung up and said words to the following effect: "Look I don't want Barry to know you are getting a free refurbishment because he will want to stay and charge more money for the shop. You can't afford that and I want him out of the system. It's a way of getting rid of this guy." Pilgrim: "Fine. I will leave it all in your hands." 26 Mr Pilgrim then visited Mr Madeley at home on the Central Coast and had the following conversation: Madeley: "The shopping centre is going to be refurbished but I don't know when. It's possibly a free refurbishment but I don't know what Johnson is doing about that." Pilgrim: "Don't worry about it. I'm happy just to buy the shop." 27 In late 1992/early 1993 Mr Pilgrim was provided by Ms Coles with financial records and projections in relation to the Bateau Bay store. She said: "You don't need to get figures from the franchisee. We have those here on file." 28 It was put to the applicant in cross-examination that Ms Coles did not say this, a suggestion which Mr Pilgrim rejected. Ms Coles was not called in evidence. 29 The figures supplied were gross sales figures since opening in October 1989 as follows: (figures rounded off): 1989 - October to December $ 54,269 1990 $219,942 1991 $225,945 1992 - January to May $ 94,603 30 Forecasted store profitability figures were also provided as follows: Existing Gross Turnover $226,000 Food Costs - 30% $ 67,800 Wages - 10% $ 26,000 Rent - 9.05% $20,450 Franchise Service Fee $13,560 Advertising Levy 3% $ 6,780 Overheads 6.2% $14,000 TOTAL FIXED COSTS $148,590 ($148,590) PROFIT $ 77,410 31 Mr Pilgrim agreed to pay Mr Madeley $185,000 to purchase the Bateau Bay franchise. On 21 December 1992 Ms Coles, on the letterhead of Wendy's New South Wales and Oraka Pty Ltd, issued to Mr and Mrs Pilgrim a receipt in the following terms: Julie & Steve Pilgrim This is to acknowledge receipt of $18,500 representing a 10% deposit on the outlet at Bateau Bay. Purchase price is $185,000. Monies to be held by Oraka Pty Ltd. Signed Jenny Coles 32 On 12 January 1993 Ms Coles sent to the applicants' solicitor, Peter Kernan, a "Sample Shop Franchise Agreement ref: Steve and Julie Pilgrim, Wendys Supa Sundaes, Bateau Bay, as requested. Please return to our offices within 14 days. If you have any queries please do not hesitate in contacting me." 33 At about this time Mr Pilgrim became aware that there was no existing lease over the premises. Solicitors for Oraka forwarded to Mr Kernan a licence agreement for completion by the applicants and also a copy of a memorandum Dealing No. XI50532 of which Oraka's solicitors said "we understand is the Memorandum for the proposed Head Lease". This was sent under cover letter dated 17 March 1993. 34 Despite the agreement to pay, and the payment of, $185,000, the Agreement for Sale of Business between Mr Madeley's company, Frozen Fun, and Mr and Mrs Pilgrim, identified the sale price as being $165,000. 35 The Franchise Agreement was executed between Wendy's as the national franchisor, Oraka, as the Master Franchisee, and Mr Pilgrim. Mrs Pilgrim deposed to her understanding being that she too was a party to the franchise agreement. Although she was the de facto partner of Mr Pilgrim in the business and they operated it together, she clearly did not execute the Franchise Agreement. The agreement makes provision for the recording of the date upon which it is made and assumes a date in 1993. It was not, however, completed. Clause 2, Term, of the Franchise Agreement, refers to it taking effect from the date set out in Item 3 of the Schedule thereto and to continue for the period set out in Item 5 of the Schedule. No such schedule was annexed. 36 There was, of course, a proposal on 2 February 1993 for a 5 year lease, made to Oraka by Byvan, the Managers of the Bay Village. On 3 February, Mr Johnson faxed an acceptance of that offer of lease but subject to certain conditions. On 8 February Byvan indicated that the owners and their solicitors were currently reviewing the relocation clause in the lease. 37 From the applicants' point of view, they were operating at this stage on the understanding that a free refurbishment would be given to them, having regard to Mr Johnson's conversation with Mr Pilgrim in December 1992. They relied also upon his words, said by Mr Pilgrim to have been expressed on many occasions: "Don't worry about it. Leave it to me to negotiate the new lease. You just get in there and run the business." Training 38 In March 1993 the applicants were both given four days training at an Ashfield store owned by Oraka. They then had one week's training in South Australia supplied by Wendy's. This involved stock control and staff training. They there met the directors of Wendy's. There was, thereafter, no provision of any notable advice or assistance in the actual running of the business. Trading Position of the Store 39 From the commencement of the franchise operation on 22 March 1993 the business traded in conformity with expectations. Thereafter, external and other influences came to bear, impacting on the business. 13 October 1994 - McDonalds opened outside the Centre 13 October - 29 January 1995 - Decreased sales of $50,000 December 1995 - Westfield, Tuggerah, opened. 1 July 1994 - Wendy's advised of introduction of a renewal fee on all stores. 16 August 1996 - Rental increase of 5% August 1998 - Wendy's increased their advertising levy from 3% to 5% The Lease 40 The franchise agreement expressed itself as depending for its term of operation upon the term of a subsisting lease from 22 March 1993; no lease was in place until the execution of a lease between Oraka and the owners of the Centre, Permanent Trustee, on 16 November 1995, for a term of 7 years until 31 August 2002. On 9 February 1996 a licence to occupy was executed between Mr Pilgrim and Oraka commencing from 1 September 1995. 41 In the meantime, in June 1995 the Pilgrims were given notice to relocate their shop within the Bay Village. They were advised by Mr Johnson that they would have to bear the cost of the relocation and refurbishment at an estimate of $30,000 to $40,000. This eventually became an actual $70,000. 42 Mr Pilgrim's evidence included the following conversation, participated in by his wife, with Mr Johnson: Mrs Pilgrim: Steve negotiated the seven year term because we were seen by the Centre to be good tenants and I supplied you with the figures to obtain a rent reduction on our behalf. So what did you do? You have done nothing other than attend the meeting notifying Byvan Management Head Office of the details we had obtained on your behalf." Johnson: "But you knew you would have to pay for your relocation?" The Pilgrims: "Why? We were going to get a free refit." Johnson: "When you purchased the shop you knew you would have to pay for a relocation." The Pilgrims: "We would not have purchased the business if we did not have your assurance that we would not have to pay for a refit. You told us that we would not have to pay for a refit as you had negotiated with the shopping centre for a relocation and fit out at no cost to us. You had done this before we purchased the business but did not want to disclose to Barry Madeley as you wanted him out of the Wendy's system." Johnson: "You knew there was a possibility you would have to pay for a refit as you had no lease. I had no bargaining power without a lease." The Pilgrims: "If we had known that we would have to pay for a refit about two years into the business we would not have purchased the business. You know we did not have the money." Johnson: "I've got more than just your shop to worry about." Mrs Pilgrim: "It does not matter what we say we are going to end up paying for it. You organise the finance and get out of our shop." 43 Following this conversation the Pilgrims discussed the matter with their solicitor, Mr Kernan, and after deposing to not having previously considered terminating the agreement Mr Pilgrim's affidavit continued: We were trying to maintain a healthy working relationship with Mr Johnson as the Master Franchisee for New South Wales. We had paid all franchise fees and advertising contributions throughout this period, although there was no lease in place. At this point in time we had no option but to continue as a Wendy's franchisee as we did not have the expertise or knowledge to organise plans or signage at such short notice and to take any other steps that might be necessary to become an independent operator. The Centre were within weeks going to demolish our present site and relocate us. Had we not been pressed for time in this way I am certain that we would have become independent operators as we were not happy with the way that the Wendy's franchise was being run from State management level. We were forced to continue as franchisees because there were bank loans to be repaid and we could not afford to close. 44 On 26 May 1998 the Pilgrims wrote to Mr Geoff Davis, the Executive Chairman of Wendy's, in relation to the increase in the promotional levy from 3% to 5%. The letter advised that the Pilgrims were not refusing to pay the increase, they were unable to pay it. It referred to the purchase of the Store in March 1993 for $185,000, borrowing $100,000 for the shop with no lease in existence and a possible relocation at no expense to themselves, per Mr Johnson. It detailed the subsequent history and asked for reconsideration in the Pilgrims' case of the additional 2% promotional levy. 45 On 22 June 1998 Mr Johnson answered the letter to Mr Davis, indicating that Mr Davis had asked Mr Johnson to clarify a paragraph in their letter regarding the 2% refurbishment contribution made by the previous franchisee, Mr Madeley. The letter contained the following paragraphs: You were never informed there was no money collected because that was in fact the case. Back in 1993 it was national policy that refurbishment funds were not retained by the incoming franchisee or the State Office. You were aware when you purchased the store it was subject to relocation in the very short term and under the terms of the existing lease had it happened during that term of the lease such relocation would have been paid for by the landlord. It is now a matter of fact that it took 2-1/2 years to complete the supposed "short term" relocation and obviously outside your lease term. This time frame for relocation was not in Wendy's, Oraka's or Bryan Johnson's control. It was not foreseen as ever taking as long as it did, to suggest otherwise is clearly contrary to my understanding of the situation. The landlord's choice of design, changes of mind and management all impacted on the final time frame - all clearly out of our control. All these consequences meant that without a lease the landlord had no obligation to pay for a relocation. Your "free" relocation, as you refer to it, would have occurred if the reconfiguration of the Centre had happened inside the term of your lease. I trust I have clarified that point for you. 46 If the letter did not clarify the point for the Pilgrims, as it claimed, it certainly did clarify Mr Johnson's position in relation to it. The letter seems to be predicated upon the idea that there was a subsisting lease under which a free location and refurbishment was to operate but that it had expired because of the effluxion of the elongated time taken to undertake the renovation. Of course, there never was a lease in operation during the early period of the applicants' occupancy. It follows that Mr Johnson's promise to the Pilgrims of the free location and refurbishment prior to their entering into the arrangement, while an obvious inducement, was never going to come to fruition. 47 I make the following additional findings. The applicants were intent upon acquiring a business. Mr Pilgrim was in a particular position to make an assessment of the type of business which would suit them. He rejected two businesses including a Wendy's franchise at Gosford, which he regarded as having little potential. He was intent upon acquiring the franchise at the Bay Village. The Pilgrims both intended to be parties to the franchise agreement and Mrs Pilgrim was not such a party by reason solely of Oraka's requirement that only one person appear on the agreement as franchisee. The applicants intended that they would jointly operate the franchise. This was understood by Oraka and Mr Johnson. In a practical sense, Mrs Pilgrim was a party to an arrangement which encompassed the intention that she would work in the business as a co-operator. As a party to that arrangement she has standing as an applicant in these proceedings. The franchise business was not, despite the view taken by the Pilgrims, a financial disaster. The business produced a net income before interest and taxation of the order of $70,000 each year. They were able to acquire a new vehicle which, while it was painted in colours related to the business, was essentially for the personal use of Mr Pilgrim. The business suffered a downturn in sales due to three reasons: (a) The establishment of a McDonald's franchise near the Bay Village selling ice cream cones at the very low price of 30 cents. (b) The establishment of the Westfield Centre at Tuggerah, west of the Bay Village had some impact although not precisely determinable. (c) Mr Pilgrim himself declined to wear a rubber glove which would have enabled him to sell a particular style of ice cream, although the impact of this on sales was not developed in the evidence. 48 The evidence also suggests the Bay Village management was having some difficulty with the refusal to sell "face" cones, the gathering of rubbish outside the shop by "rude" shop employees and Mr Pilgrim's persistently parking contrary to direction. 49 There is no evidence upon which it could be concluded that Oraka or Wendy's should be held to any degree responsible for the three impacts on sales referred to in par.48. They were but natural incidents of retail trading. Oraka sold the franchise to Mr Madeley for $200,000 and received franchise fees in the sum of 3% of sales (an additional 3% going to Wendy's). During the period of the trading of the Bay Village, Oraka, through Mr Johnson, desired Mr Madeley to be out of the franchise and was encouraging of the Pilgrims' purchase of it. Mr Johnson promised that the applicants would receive a free relocation and refurbishment. The applicants paid $185,000 for the franchise with fittings and funded an additional $70,000 principally for the purpose of the relocation and refurbishment. Accordingly, the applicants' capital payments were $185,000 plus $70,000. The applicants paid franchise fees totalling $119,119.85 during their occupancy. 50 By vacating the premises upon the expiry of the lease, the applicants thereby returned to Oraka an asset upon which they had spent more than $255,000 but which had returned them income over a period of years. Oraka, having sold the business for $200,000 regained it for nothing. The applicants' loss was thus Oraka's gain. 51 I find the arrangement between the parties unfair in that it resulted in part from a false representation by Mr Johnson that there would be a relocation and refurbishment of the shop premises at no expense to the applicants. The franchise agreement was unfair in that it failed to provide that Mrs Pilgrim was a party to it, when her participation was essential to the functioning of the business, as her training by Wendy's and Oraka's evidences. The franchise agreement was unfair also in that it required the approval of a sale of the business by Wendy's and Oraka, which in the circumstances was unfairly withheld due to the applicants' inability to meet the costs of re-fitting the shop premises to the latest adopted styling. The arrangement was also unfair in that it permitted Oraka to regain at no cost the benefit of the business for which it had been paid full value. 52 The proper view of the business is as I have said that it was not a financial disaster. That view is only sustainable if one treats the capital payments by the applicants not as an item for amortisation over the period of the franchise but as a capital amount able to be recouped upon a future sale of the business. Were the costs to be treated as required to be amortised over the period of occupancy, the return from the business obviously reduces to a point which could only be viewed as unfair. While not defined with any precision in the evidence, the income figure of $70,000 would drop to less than $20,000 per annum. There was also an issue about the "cost" of depreciation utilised in the normal way in the accounts. In a sum, both competing views were correct. Mr Hammerschlag, of senior counsel appearing for Wendy's, submitted that the value attributed to depreciation was just a "book entry" and was more akin to income. Mr Whittle put that it was not artificial - it was an arbitrary but effective allowance for replacement of equipment; just like a sinking fund. Again, while there was no expert accounting evidence, to the extent the amount attributed to depreciation was not actually used to fund replacement equipment, it must be seen as being to the benefit of the applicants. Over time, as equipment would become replaceable, that benefit would obviously diminish. While I am unable to draw any specific conclusions about profitability, I incline to the view the business was marginally successful, subject to the maintenance of a right to sell it. 53 In circumstances where the income may be treated as not unreasonable and, taking into account the need to ensure that these proceedings are not a safety net for disappointed or unsuccessful businesspeople, I take the view that the applicants' claim in respect of wages ought be rejected. There is no independent support for the hours of work alleged. No records were kept and the claim amounts to no more than an ex post facto creation based on likely events rather than actual events. If the applicants are to receive compensation in respect of their capital loss, then, together with the income received and the benefits of receiving it as small business operators, I consider the result would be a just one as between the parties. 54 The applicants unquestionably paid $185,000 for the business, $20,000 of that being in cash and the sale agreement recording only $165,000. Stamp duty was paid on only the lower figure. Mr Neil employed in argument the Stamp Duties Act 1920, as causing the sale agreement to be ineffective in law or equity for any purpose (s29) because it did not comply with s19 of that Act and the applicant had breached s21. 55 Mr Neil invoked a number of authorities to assist his argument. Alexander v Rayson [1936] 1 KB 169 and Napier v National Business Agency Ltd [1951] 2 All ER 264 were both cases of one party to a contract for an unlawful purpose suing the other party and being held not entitled to have a court enforce it (Napier p.266.3; Rayson p.159). Subject to one matter, they are distinguishable. Of those referred to, I consider only Gozzard v McKell (1931) 32 SR (NSW) 39 is partially in point, in the sense that it involved an agreement for sale of a property, the price of which was £2,600, but only £2,300 was shown in the agreement, £300 being by way of separate promissory notes. In that case, again the parties to the agreement were the parties to the action. However, there had been discussion between them, in the leading up to the agreement, of the saving in stamp duty which would result from insertion of the lower figure, and that the solicitors should not be told anything about the additional £300. The plaintiff there was suing on the promissory notes to recover the £300. The trial judge directed a non-suit be entered, upon his finding that the real effect of the agreement was to defraud the revenue. On appeal the view was taken that the plaintiff would fail to recover if it could be proved, in a new trial, that the consideration for the making of the promissory notes was a promise made by the plaintiff that he would help the defendant defraud the Stamp Commissioner. That was a question of fact for the jury. The trial judge was not bound to notice the issue of illegality if not pleaded. 56 Here, the evidence on the issue comes only from Mr Pilgrim as a result of questions put to him in cross-examination. His evidence was to the effect that he understood what was done was merely what was necessary. He said: I was very keen to buy that particular business, and I was only doing what I was asked to do and that is to get the transaction through. At that time, to me, it was not misrepresenting anything of the truth. I was doing exactly what I was told to do and that was the purchase price was $185,000, and $20,000 in cash and that's how the transaction happened." 57 He also said he believed stamp duty was paid on the full amount. He denied he was warned of the possibility of an offence in understating the purchase price. 58 Critical to the defence of illegality raised here is the satisfaction of an onus on Oraka, Mr Johnson and Mrs Johnson to demonstrate that Mr Pilgrim had an intention to defraud the Stamp Commissioner. Section 19 of the Stamp Duties Act 1920 provided (at the time, it having been repealed later by Act No. 123 of 1997) that: 19(1) All the facts and circumstances affecting the liability of any instrument to duty, or the amount of the duty with which it is chargeable, are to be fully and truly set forth in such instrument. (2) This provision shall not prevent the Commissioner exercising the powers conferred upon him by the next succeeding section, and, if the facts justify it, charging or assessing a different amount of duty than would appear to be chargeable or assessable by a reference to the language and contents of such instrument. 59 Here the evidence raises a question but falls far short of providing a positive answer that the requisite intention existed. 60 Section 21 of that Act provides: Penalty for not fully setting forth facts Every person who, with intent to defraud His Majesty: (a) executes any instrument in which all the said facts and circumstances are not fully and truly set forth, or (b) being employed or concerned in or about the preparation of any instrument, neglects or omits fully and truly to set forth therein all the said facts and circumstances, is liable to a fine of 50 penalty units in the case of a corporation and 20 penalty units in any other case in addition to the amount of duty of which His Majesty has been deprived by any such fraudulent act as aforesaid. 61 Section 29 provides: Inadmissibility of unstamped and other instruments (1) Except as aforesaid, no instrument executed in New South Wales or relating (wheresoever executed) to any property situate or to any matter or thing done or to be done in any part of New South Wales, shall, except in criminal proceedings, be pleaded or given in evidence, or admitted to be good, useful, or available in law or equity for any purpose whatsoever, unless it is duly stamped in accordance with the law in force at the time when it was first executed: Provided that any instrument chargeable with duty before the appointed day shall be deemed to be duly stamped in accordance with the law in force at the time when it was first executed, notwithstanding that the duty chargeable on such instrument is denoted in terms of the currency provided for by Part II of the Currency Act 1965 of the Parliament of the Commonwealth of Australia or any Act passed in amendment of or substitution for the same. (2) Subsection (1) of this section applies to and in respect of an unexecuted copy of an instrument referred to in that subsection (being an instrument that was first executed on or after 20th October 1982) in the same way as it applies to the instrument unless: (a) the court is satisfied that the instrument of which it is a copy is duly stamped, or (b) the copy is duly stamped in accordance with section 73D. (3) No instrument made or executed (whether in New South Wales or elsewhere) on or after 21 November 1986 in respect of a transaction to which Division 3A of Part 3 applies, shall, except in criminal proceedings, be pleaded or given in evidence, or admitted to be good, useful, or available in law or equity for the purpose of proving that a change in beneficial ownership to which the transaction relates occurred, unless: (a) an instrument to effect that transaction has been sufficiently stamped, or (b) any statement required to be lodged under section 44A in respect of the transaction has been lodged and the duty and any fine with which the statement is chargeable have been paid. (4) Sections 27 and 28 and this section do not apply to an instrument or a copy of an instrument tendered as evidence on behalf of a party (not being a person who is primarily liable to duty in respect of the instrument) if the court is satisfied: (a) that the party has informed, or will in accordance with arrangements approved by the court inform, the Chief Commissioner of the name of the person primarily liable to duty in respect of the instrument, and (b) that the party will, in accordance with arrangements approved by the court, lodge the instrument or a copy of the instrument with the Chief Commissioner. 62 The sale agreement recording the price of $165,000 was admitted into evidence without objection. The operation of s29 of the Stamp Duties Act was not raised until addresses. On the face of the section and the authorities in relation thereto (see for example the decision of Hodgson, CJ in Eq., in The Official Trustee and Bankruptcy v D'Jamirze and ors (1999) NSWSC 1249 and the cases there cited) the sale agreement was not "duly stamped" and thus may not be relied on here for any purpose, seemingly regardless of the fact that there was a lack of intent on Mr Pilgrim's part to defraud the revenue. However, the exception to the distinguishing of Alexander v Rayson [1936] 1 KB 169 to which I earlier referred concerns the observations there made about the passing of property under an unlawful agreement. The judgment in that respect provided (at p.185): This distinction between an action brought to enforce an unlawful agreement and one brought to assert a right of property already acquired under such an agreement is further illustrated by Taylor v Chester (1869) LR 4 QB 309. The defendant in that case was the keeper of a brothel and as such had supplied wine and supper to the plaintiff "for the purpose of being consumed there by the plaintiff and divers prostitutes in a debauch there, to incite them to riotous, disorderly, and immoral conduct." When the debauch was over there followed in due course the reckoning. Being unable or unwilling to pay it at once, the plaintiff deposited with the defendant the half of a 50l. note as security. He subsequently repented of this action, and instituted proceedings against the defendant for the purpose of obtaining the return of the half bank note. It was held that he was not entitled to recover. The property in the half note had passed to the defendant, and in spite of the illegality of the agreement under which it had passed, the defendant was entitled to keep it. As was said by Parke B. in Scarfe v Morgan (1838) 4 M & W 270, 281 in a passage quoted by Hannen J. in the course of the argument: "if the [illegal] contract is executed, and a property either special or general has passed thereby, the property must remain." The plaintiff, on the other hand, could not maintain his action without asserting and relying upon the unlawful agreement. He could not, to use the language of Mellor J. in delivering the judgment of the Court, recover without showing the true character of the deposit; and that being upon an illegal consideration, to which he himself was a party, he was precluded from obtaining "the assistance of the law" to recover it back. Much to the same effect is Gordon v. Chief Commissioner of Metropolitan Police [1910] 2 KB 1080. The money that the plaintiff was claiming in that action had been earned by him in carrying on an illegal business. But the money had become his property and he was held entitled to recover it. He was not asking the Court to enforce any illegal contract or to grant relief dependent in any way on any illegal transaction on his part, but solely on the unjustifiable detention of his money by the defendant. 63 Applying that reasoning here, the relevance of the sale agreement can only be to prove the purchase and to establish a price paid, which it obviously fails to do. There is an abundance of extraneous evidence to show the price. There is no dispute that the property in the business passed to the Pilgrims, nor that it had a value of $185,000. In these circumstances, I consider the value of the business as it was at the conclusion of the relationship, may be assessed by reference to the price paid for it. 64 This is as it should be on the facts as between the existing parties. The Pilgrims paid $185,000, $100,000 of which came from the sale of their Sydney home. Oraka and Mr Johnson were aware of the price, through Mr Johnson's receipt of an offer of first refusal from Barry Madeley; from Mr Johnson's discussions with Mr Pilgrim and through Ms Coles having issued a receipt for a deposit of $18,500, being 10%, which was held by Oraka. The business, then valued at $185,000 without demur from Mr Johnson, was handed back to Oraka for nothing. 65 In all of the circumstances, I consider the applicants have established a case for the avoidance of the agreement from its inception save to the extent that it gave rise to an entitlement in the applicants to receive moneys, and that they should receive the benefit of an order in the sum of $255,000 being the price paid for the business plus the cost of the refurbishment, plus interest. 66 I take the view that no order should be made against Mrs Johnson. The only status she had in the matter, as it was conceded by Mr Whittle, is "that she is a shareholder of the second respondent and a co-guarantor of its obligation to Wendy's". Other than that, there was no relevant mention of Mrs Johnson in the proceedings. There has not been any culpable association of her with the arrangement and accordingly, I would make no order against her. 67 There seems to me to be a sufficient connection between Wendy's and the arrangement to justify the order extending to it. Wendy's was an integral part of the franchise system in which the applicants participated; it provided training to them in Adelaide and it received 50 percent of the franchise fees which were paid during the term of the franchise by the applicants. Wendy's engaged Oraka as its master franchisor for New South Wales. Further, Wendy's failed to act to deal with the developing problem with the Pilgrims when they sought assistance, choosing to deflect their request back to Oraka. I consider Wendy's was inextricably linked in the whole arrangement and must bear some responsibility for the basic aspects of the arrangement. As I have earlier noted there is no reasonable basis for Wendy's to bear any burden with respect to the costs of the refurbishment. The order for the payment of money ought, I consider, extend to Wendy's, Oraka and Mr Johnson as to the purchase price of $185,000 and to Oraka and Mr Johnson as to the balance of $70,000. 68 At the conclusion of the proceedings, after discussion with counsel, I indicated that I was inclined to give an intimation of my thoughts on the various costs issues which arose without expressly deciding them. I now do so. I will hear any particular submissions which any party would wish to make contrary to this general indication. 69 Wendy's has sought a "Bullock" order (see Bullock v London General Omnibus Co. (1907) 1 KB 264), the effect of which would have the applicants pay the sum of $1,390.98 awarded against Wendy's in respect of the costs of the Australian Security and Investment Commission ("ASIC") in responding to a summons issued by Wendy's. That matter was the subject of an earlier costs order and judgment given on 30 January 2002 [2002] NSWIRComm 4. The summons was issued by Wendy's seeking information about investigations and findings of ASIC relating to the accountant who had been chosen by the applicants to provide evidence of an expert nature in the proceedings. Ultimately, the applicants did not proceed with that evidence and consequently Wendy's was exposed to costs for no purpose. 70 The respondents also sought costs orders on an indemnity basis in relation to reports of experts prepared in response to reports filed and served by the applicants but not utilised in the proceedings. The respondents were put to defending themselves in that regard for, again, no purpose. 71 The third issue concerning costs sought by the respondents goes to the matter of the further hearing made necessary by the late revelation in the proceedings of Mr Pilgrim's inability to read through sight difficulty. That was a matter which arose again for no reason other than Mr Pilgrim's failure to indicate to his legal representatives until late in the case, and also at relevant times during the course of his evidence, that he suffered the disability. 72 Mr Neil also sought to reserve the position in relation to costs of Mrs Johnson. He indicated there were particular submissions he would wish to make. 73 My inclination is that the respondents should have their costs in relation to the three identified issues, namely the costs of ASIC, the costs in relation to experts' reports and the extra day of hearing made necessary by Mr Pilgrim's late revelation of his reading disability. As to the first issue the money sum is already identified and fixed. In relation to the third issue, namely the reading disability, I consider that that matter is so exceptional as to justify an indemnity costs order. The matter obviously arises as a result of Mr Pilgrim's unreasonable, indeed inexplicable, behaviour. The exceptional nature of an indemnity costs order (as to which see the judgment of the Full Court in Workcover Authority of New South Wales (Inspector Dawson) v Plastachem Pty Ltd & Ors [2001] NSWIRComm 244, adopting what was said by Hill J in Boner v Anderson (No 2) (1993) 52 IR 114) would seem satisfied in this case. 74 As to the matter of the experts' reports I consider a different approach ought be adopted. The decision not to utilise evidence prepared in the proceedings does not constitute a circumstance which is particularly exceptional and demanding of criticism. I consider the applicants ought meet the respondents costs on that matter on a party-party basis. 75 As to the matter of Mrs Johnson's costs my inclination would be to make no order in her favour in that respect. She, Mr Johnson and Oraka were represented by the same counsel. An order in her favour as to costs would be likely to ameliorate the costs position as against the latter two respondents if the costs order was made in Mrs Johnson's favour. On the other hand, if particular and additional costs were identifiable in respect of Mrs Johnson, other considerations might apply. 76 The applicants also seek an order for costs in the proceedings generally. Subject to the views I have outlined in relation to the first three issues identified and any further submissions, the applicants would, in the usual way, be entitled to an order for costs on a party-party basis. 77 I direct that any party wishing to put further submissions on the matter of costs inform my Associate and the other parties within 7 days. 78 I direct that the applicants file and serve, within 7 days, orders to give effect to this judgment save in the matter of costs. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.