Industrial Relations Commission of New South Wales in Court Session CITATION : Gallagher & Anor v Modern Garages Australia Pty Ltd (in liquidation) & Ors [2000] NSWIRComm 184 FIRST APPLICANT: Allan Geoffrey Gallagher SECOND APPLICANT: Penrith Garages Pty Limited ACN 065 402 137 FIRST RESPONDENT: Modern Garages Australia Pty Limited (in liquidation) ACN 061 399 764 PARTIES : SECOND RESPONDENT: Wellplace Holdings Pty Limited ACN 010 166 819 THIRD RESPODNENT: John Michael Montesalvo FOURTH RESPONDENT: Barry Graeme Hughes FIFTH RESPONDENT: Sam Montesalvo FILE NUMBER: 6043 of 1997 CORAM: Schmidt J CATCHWORDS : Unfair contract - franchise agreements - company in liquidation - unrepresented litigants - allegations as to pre-contractual misrepresentations - contract claimed to be unfair as formed and performed - orders sought against company in liquidation - nunc pro tunc - proceedings stayed as to this aspect - credit of witnesses - agreements unfair as formed - various misrepresentation made out - consideration of applicants' breach of franchise agreements - orders against personal respondents - quantification of money sum - orders on joint and severed basis against franchisor and individual respondents Companies Act 1936 LEGISLATION CITED : The Corporations Law Industrial Relations Act 1991 Industrial Relations Act 1996 Ace Business Brokers Pty Limited v Phillips-Treby [2000] NSWIRComm 163 Brown v Rezitis (1970) 127 CLR 157 Davies v General Transport Development Pty Ltd [1967] AR (NSW) 371 Halim v Fast Food Service Development Pty Limited (formerly Big Al's Sandwich Joints Pty Limited (1982) 2 IR 128 CASES CITED : Harcourt Brace & Co (Australia) Pty Ltd v Cory (1998) 81 IR 321 Port Macquarie Golf Club Limited v Stead (1996) 64 IR 53 Re Sydney Formworks Pty Ltd (in liquidation) [1965] NSWLR 646 Stevenson v Barham (1977) 136 CLR 190 Swann v Ultratune Aust Pty Ltd (1983) 5 IR 284 HEARING DATES: 02/07/2000; 02/08/2000; 02/09/2000; 02/10/2000; 02/11/2000; 03/01/2000; 03/02/2000; 03/03/2000; 03/23/2000; 03/24/2000 DATE OF JUDGMENT: 09/08/2000 APPLICANTS: Mr CD Freeman of counsel SOLICITORS: Coode & Corry Solicitors FIRST RESPONDENT: (in liquidation) SECOND RESPONDENT: LEGAL REPRESENTATIVES: No appearance THIRD RESPONDENT: Mr John M Montesalvo (in person) FOURTH RESPONDENT: Mr Barry G Hughes (in person) FIFTH RESPONDENT: No appearance JUDGMENT: - 92 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: Schmidt J DATE: 8 September 2000 MATTER NUMBER IRC 6043 OF 1997 ALLAN GEOFFREY GALLAGHER & ANOR v MODERN GARAGES AUSTRALIA PTY LIMITED (in liquidation) & ORS Application under s106 of the Industrial Relations Act 1996 JUDGMENT 1 This is an application brought under s106 of the Industrial Relations Act 1996 ('the Act'). The proceedings concern a franchise arrangement between Allan Gallagher and Modern Garages Pty Ltd ('Modern Garages') which came to an end in 1997. A liquidator of Modern Garages was appointed in September 1999. The applicants did not seek leave of the Supreme Court to continue the proceedings against that company and Modern Garages was not represented at the hearing. The Court was informed that no orders would be sought against it. The proceedings were brought by Penrith Garages Pty Limited, the franchisee and by Allan Gallagher, a director and shareholder of that company. The proceedings were also pursued against: - Wellplace Holdings Pty Limited ('Wellplace'), the original franchisor, whose interest in the franchise arrangement was assigned to Modern Garages in July 1995. - John Montesalvo, a director and shareholder of Modern Garages and Wellplace and formerly employed as the managing director of Modern Garages. - Barry Hughes, formerly a director and employee of Wellplace and Modern Garages. - Sam Montesalvo, Mr John Montesalvo's brother and formerly an employee of Wellplace and the applicants. 2 The orders sought in the summons were: '(1) An order declaring void in whole or in part ab initio or varying the contract or arrangement between the first and/or the second applicant and the first and/or the second respondent called Modern Garages Franchise Deed dated 4 May 1994 in respect of a business conducted at Unit 9, 55-61 York Road, South Penrith. (2) An order declaring void in whole or in part ab initio or varying the contract or arrangement between the first and/or the second applicant and the first and/or the second respondent called Modern Garages Franchise Deed dated 4 May 1994 in respect of a business conducted at Unit B1, 23-25 Windsor Road, Northmead. (3) A declaration that the contract(s) or arrangement(s) entered into between the applicants and respondents on 4 May 1994: a) Was and is unfair; b) Was and is harsh and unconscionable; c) Was and is against the public interest; d) Provides and has provided a total remuneration less than a person performing the work would have received as an employee performing the work. (4) An order that the contract(s) or arrangement(s) entered into between the applicants and respondents on 4th May 1994 be varied such that a term be imposed requiring the respondent to pay to the applicants upon termination of the contract such sum or sums as the Court considers just in the circumstances of the case representing: a) the goodwill of the applicants' business upon the termination of the contract(s) or arrangements(s), such goodwill to be determined by reference to the representations made to the first applicant by or on behalf of the respondents prior to 4th May 1994, or alternatively by reference to the price(s) paid by the first applicant to purchase the businesses. b) the difference between the remuneration received by salaried sales representatives of the respondent and the remuneration received by the applicant's for the financial years ending 30th June 1994, 30 June 1995, 30 June 1996 and 30 June 1997 in respect of which the remuneration received from salaried sales representatives that of the respondent. c) the opportunity lost by the applicant's (sic) in selling their business plus all moneys injected into the business by the applicants, either of them, after 4th May 1994 to date and which has not been repaid to the applicants. d) the applicants' further losses of the business consequent upon the respondent terminating the contract and as may be further particularised by the applicants. e) in the alterative (sic) to sub paragraph (b) above that the respondents pay to the fist applicant the salary lost by him from 4th May 1994 to date by resigning from the Police Service. 5. An Order that the contract(s) be varied so that it contained: a) a requirement that if the representations made by any of the respondents and which materially induced the first applicant to enter into the contract(s) prove to be false or misleading or have been made without a reasonable basis therefore the respondents will buy back the businesses from the Applicants at a price(s) equal to that paid by the first Applicant plus any other monies injected into the business less any profits or dividends paid to the Applicants; b) a warranty that any representations made to the First Applicant to induce him to enter into the contract(s) are true in substance and in fact. (6) An order that such one or more of the respondents as this Commission deems fit should pay to either or both the applicants such amount or amounts of money in connection with the contracts referred to above as the Commission considers just in the circumstances. (7) Interest on the monies referred to in order (3) above at the rates set out in Schedule J to the Supreme Court Rules. (8) Costs. (9) Such further or other order as the Commission may deem fit. 3 The orders advanced in submissions were '(a) A Declaration that the contract between the first applicant (as franchisee) and subsequently the second applicant (jointly of the one part) and the second respondent (as franchisor) and subsequently the first respondent (jointly of the second part) entitled "Modern Garages Franchise Deed" dated 4 May 1994 in respect of a business conducted at Unit B1, 23-25 Windsor Road, Northmead in the State of New South Wales was an unfair contract within the meaning of section 105 of the Industrial Relations Act 1996 (NSW) . (b) An Order declaring void ab initio the contract between the first applicant (as franchisee) and subsequently the second applicant (jointly of the one part) and the second respondent (as franchisor) and subsequently the first respondent (jointly of the second part) entitled "Modern Garages Franchise Deed" dated 4 May 1994 in respect of a business conducted at Unit B1, 23-25 Windsor Road, Northmead in a the State of New South Wales. (c) A Declaration that the contract between the first applicant (as franchisee) and subsequently the second applicant (jointly of the one part) and the second respondent (as franchisor) and subsequently the first respondent (jointly of the second part) entitled "Modern Garages Franchise Deed" dated 4 May 1994 in respect of a business conducted at Unit 9, 55-61 York Road, South Penrith in the State of New South Wales was an unfair contract within the meaning of section 105 of the Industrial Relations Act 1996 (NSW). (d) An Order declaring void ab initio the contract between the first applicant (as franchisee) and subsequently the second applicant (jointly of the one part) and the second respondent (as franchisor) and subsequently the first respondent (jointly of the second part) entitled "Modern Garages Franchise Deed" dated 4 May 1994 in respect of a business conducted at Unit 9, 55-61 York Road, South Penrith in the State of New South Wales. (e) An Order pursuant to section 106(5) of the Industrial Relations Act 1996 (NSW) that the second, third, fourth and fifth respondents pay to the applicants the sum of $601,410. (f) A Notation that for the purposes of the preceding order, the respondents' liability to pay the sum of $601,410 is joint and several. (g) An Order that the interest is to accrue on the sum of $601,410 or such amount as remains unpaid at the rate prescribed by section 372 of the Industrial Relations Act 1996 (NSW) from 1 June, 1994 until the date of payment. (h) An Order that the second, third, fourth and fifth respondents pay the applicants' costs of and the incidental to the proceedings. (i) An Order that the applicants be granted liberty to apply to the Court on 7 Days notice for leave to enter judgment against the first respondent if the liquidator of the first respondent does not admit the applicants' proof of debt and the applicants first obtain leave to proceed against the first respondent in accordance the provisions for the Corporations Law. 4 The applicants' called evidence from Frank Gallagher, concreter; Ronald Winter, solicitor; Stewart Byrne, general manager of Penrith Garages Pty Ltd; Eric Jamieson, ex-franchise manager; Cynthia Cuthbertson, shop assistant; Dennis Cuthbertson, coal miner; Bruce Coode, solicitor; and Robert Bell, chartered accountant. 5 Phyllis Gallagher, wife of the first applicant and a director of the second applicant, was not required for cross examination. 6 The third and fourth respondents gave evidence themselves and also called evidence from Bert Vethman, retired salesman. 7 The case arose in circumstances where the applicants had purchased two franchises from Wellplace in 1994, one at Parramatta and the other at Penrith. The franchise business involved the sale and installation of garages manufactured by Wellplace. The two franchises had been established by Wellplace and were being operated by Mr Sam Montesalvo, when in early 1994 Mr Gallagher became aware of the opportunity to purchase them through his brother, Mr Frank Gallagher, who had performed some concreting work for Wellplace in Newcastle, while Mr Sam Montesalvo was operating another franchise there. 8 At that time Mr Gallagher was a member of the New South Wales Police Force, where he had been employed for over thirty years. He was considering retiring and was looking for a business opportunity in which to invest the proceeds of his superannuation entitlements. After discussions with Mr Sam Montesalvo, which took place over the course of several months, Mr Gallagher met with Mr Hughes over the course of a day. Mr Hughes was satisfied with Mr Gallagher as a potential franchisee, despite his lack of experience in this industry and discussed various documents with him, including a disclosure document and franchise agreement. 9 Mr Gallagher obtained legal advice, but no accounting advice in relation to the two franchises and the agreements were entered on 30 May 1994. Mr Gallagher undertook two weeks training in Queensland where Wellplace manufactured the garages, which included training with Queensland franchisees. During this time Mr Sam Montesalvo continued operating the business for Mr Gallagher. On any view it did not do well during this time and Mr Sam Montesalvo's involvement ceased in August. 10 Mr Gallagher operated the business for almost four years, during which a number of difficulties arose. He had complaints as to the quality of certain garages provided; problems in relation to the completion of work which was on foot when he took on the franchise; rectification of work done previously and payment in respect of such work; problems as to the need to obtain a builders' licence in NSW or to employ a licenced builder in the business; problems with a new type of garage which Modern Garages introduced after it had replaced Wellplace as franchisor; continuing complaints as to a lack of profitability in the two franchises and in 1996, after he failed to sell the Parramatta franchise, the franchises terminated and Mr Gallagher continued operating a business from the Penrith premises. 11 Twenty-four pre-contractual representations were alleged to have been made by the respondents, but not to have been made good by them, so as to render the franchise agreement in question unfair as at the time of commencement. It was also alleged that the contract was unfair as it later operated. 12 A new company MGA Steel Buildings Pty Ltd ('Steel Buildings'), was later established. It was not a party to the proceedings, but Mr John Montesalvo was initially one of its directors, but on his evidence, its managing director at the time of the hearing was his daughter. That company is also in the business of manufacturing garages and had apparently obtained from Modern Garages the patent for the new type of garage which it had introduced prior to the dissolution of the franchises in question and it going into liquidation. 13 All of the respondents were initially represented in the proceedings by Messrs Barker Gosling. After Modern Garages went into liquidation the liquidator did not appear in the proceedings and no leave to continue the proceedings against the Company was sought. Mr John Montesalvo and Mr Hughes appeared for themselves at the hearing, with Mr Montesalvo generally advancing submissions for both of them. There was no appearance in the proceedings for either Wellplace or Mr Sam Montesalvo. 14 Although there were some submissions advanced for the respondents as to a lack of notice of the hearing, especially so far as Mr Hughes was concerned, in my view nothing turned on this in the proceedings. It is a matter for the parties to the proceedings to ensure that they or their representatives, if representation alters, take the necessary steps to ensure that they are adequately informed as to what is occurring in the proceedings. There was nothing put from which it could be inferred that any difficulties flowed to the respondents from steps taken, or having failed to be taken, by the applicants as to such matters. 15 In written submissions Mr John Montesalvo made some observations as to the difficulties which he and Mr Hughes had encountered in the proceedings, given that they were unrepresented litigants. While I have sympathy for their position, which indeed I sought to accommodate during the hearing, it must be observed that it is difficult for any judge to devote Court time to the making of enquiries at the outset of any hearing as to a party's understanding of matters such as how to tender an exhibit, the rules as to calling for documents, that daily transcripts are available and the consequences of evidence having been put on by way of affidavit. Inevitably, such matters may arise to be dealt with in a case and, of course, if they do, they will be attended to, as the Court endeavours to ensure that justice is done as between the parties. Nevertheless, even unrepresented litigants have a responsibility for ensuring that they have an understanding of the applicable processes if they choose to represent themselves before the Court. 16 I, however, note these submissions and will take steps to drawn them to the attention of the President, so that in a general way they might be considered by the Court in reviewing what assistance might be made available to unrepresented litigants, prior to the commencement of a hearing before the Court. The submissions 17 I note that in an endeavour to conserve costs in this matter, particularly given the way in which the case developed, the time the hearing took and the fact that the personal respondents resided in Queensland, submissions were put in writing. They were substantial. 18 The case advanced for the applicants, by Mr CD Freeman of counsel, was that the respondents were 'breaking their necks' to have the applicants acquire the two franchises. It was known that Mr Gallagher had a substantial superannuation payout due to him, indeed Mr Sam Montesalvo had been pursuing Mr Gallagher through his brother for some time. Mr Gallagher was selected as a franchisee after a four hour meeting with Mr Hughes. The two businesses were start ups, which were receiving limited income, given that it took some three months from contract to payment for an installed garage. It was submitted that the sales/profit estimates set out in the disclosure documents were unsustainable, given the start up nature of these businesses. Indeed, the actual sales achieved by Mr Sam Montesalvo were modest, which was not disclosed to the applicants and the businesses were making losses when they were taken over and continued to do so. 19 The two franchises were sold for $95,000 and $75,350 in circumstances where the respondents knew the applicants had no relevant experience in business, the businesses had no viable trading record and were not financially viable. The businesses lost $40,648 in the first month of trading. 20 It followed that the contracts were unfair, both as formed and performed. As to performance, it was relevant that the applicants had to support the businesses to the tune of $236,314 over the first three years of operation. The total amount expended on the businesses took up all of Mr Gallagher's superannuation savings, with a devastating effect on his retirement. Overdrafts and mortgages had been incurred in order to keep the doors open. 21 By way of contrast, Modern Garages had benefited by offloading two franchises costing it money in respect of continuing liabilities such as wages and rent, had received over $170,000 for them, and had sold its product at a markup to the applicants thereafter, of some $1,400,000. 22 Twenty-four precontractual representations were relied upon. In assessing the evidence as to these matters, it was submitted that neither the evidence of Mr John Montesalvo or that of Mr Hughes should be relied upon. 23 As to Mr Montesalvo, it was submitted that regard would be had to his former position as managing director of Modern Garages, the evidence that it went into liquidation with creditors of over $2million; that this included a loan of some $1,298,954 to the JM & AM Montesalvo Trust and a loan of $162,965 to Celstone Pty Ltd, neither of which were apparently recoverable; that Mr John Montesalvo was the trustee of that trust and a director of Celstone Pty Ltd, which on his evidence had no assets and did not trade and the fact that he was now in business again through Steel Buildings. 24 It was also relevant that the liquidator's dividend estimate for the creditors of Modern Garages was $nil, in circumstances where the company's major creditors were all entities controlled by Mr Montesalvo. He had, by way of contrast, started up an identical new business at Steel Buildings with more than 25 distributors/agents/licensees. His advice to the liquidator that Steel Buildings was not operating the same business as Modern Garages was plainly false, given his concessions in cross examination as to various matters, including that it markets and sells the same steel garage formerly sold by Modern Garages; its advertising flier had pictures and slogans taken directly from the Modern Garages brochures; it used the same logo as Modern Garages; the same internet address; was commonly referred to by the same acronym 'MGA'; charged the same fee for distributorships that Modern Garages had charged; took over Modern Garages' staff and exploited intellectual property rights attaching to the new garage product developed by Modern Garages. 25 It followed, that the Court would conclude that the liquidation of Modern Garages had been a convenient device to allow Mr John Montesalvo to operate the same business, selling the same products, in the same States, while sheltering himself from the consequences of this litigation. 26 Mr John Montesalvo's evidence as to the involvement of he and his daughter as directors of the business was patently unbelievable, as was his denial that he had not sought to arrange his personal affairs in order to avoid responsibility in this matter. 27 It would also be concluded that Mr Montesalvo had deliberately refused to comply with a notice to produce documents, which, on the evidence, were at the offices of Modern Garages before the liquidation, but later could not be produced by the Liquidator. The documents would have shown the franchisees or distributors which had failed and their turnover and would have supported the case the applicants sought to advance, particularly as to misrepresentation and problems with the product supplied. In the absence of this material the Court would reject any contentions that Modern Garage franchises had been successful. Mr Montesalvo's answers, in cross examination, as to these matters were such that the Court would be satisfied that he was contemptuous of the Court and intent on keeping information as to these matters from the Court, because it would not assist his case, particularly in relation to the purported quality of the Modern Garages' product. 28 It was further submitted that the Court would be satisfied that in various respects Mr Montesalvo's evidence was evasive and dishonest, including that given in relation to his own and his daughter's position at Steel Buildings and his evidence as to his presence at a meeting of franchisees of Modern Garages, where the quality of the new garages was discussed. 29 As to Mr Hughes, it was submitted that while his demeanour was different to that of Mr Montesalvo, being polite would not be accepted as equating to being truthful. His untruthfulness was particularly demonstrated by the evidence as to what he had informed Mr Gallagher to be the case in relation to the need for him to hold a builders' licence. 30 As to the evidence of Mr Vethman, it was submitted that it illustrated the completely different approach which he took to Mr Hughes, whose job he took over, and relevantly so far as the applicants were concerned, by demonstrating the unfairness of the respondents' precontract conduct. 31 Detailed submissions were advanced as to how the various alleged misrepresentations had been demonstrated on the evidence. I do not propose to outline those submissions here, but have had regard to them. 32 As to the evidence of Mr Gallagher, it was submitted that his evidence would be accepted, given his frank concessions even where they went against his interests. He was a witness of credit who would be believed, particularly having in mind the corroborating evidence of witnesses such as Mr Byrne, Mr Jamieson, Mr and Mrs Cuthbertson and Mr Winter. 33 As to the accounting evidence given by Mr Bell, it was relevant that it had first been made available to the respondents in 1997, but had never been challenged. It was relevant that it was uncontested that on the evidence of Mr John Montesalvo himself that he was unsurprised as to the evidence of these losses, consistent with the assessment of Ms Bourn, Modern Garages' accountant, that Mr Gallagher's business was in a parlous financial state. 34 The applicant's losses of $601,410 were not disputed. Mr Bell's methodology and the reasonableness of his approach had not been challenged and they would be accepted. 35 As to the comments by Mr John Montesalvo as to the 'value' of the business, its debts could not be overlooked. Despite long having had the opportunity to bring evidence demonstrating that Mr Gallagher was better off, this had not been availed of. If it were accepted by the Court that some account should be taken of any current value of the business, then it would be small given the respective positions of the parties. 36 Here the Court would have regard to the conduct of the parties, their respective capacity to appreciate the bargain which they had made and their comparative bargaining positions. Here the Court would conclude that the contracts were unfair as formed and performed. The contracts had been entered upon representations demonstrated to have been false, particularly as to the manner of conduct of the business and its resulting profit. 37 It was relevant that Mr John Montesalvo, Mr Hughes and Mr Sam Montesalvo were personally responsible for the representations made and had benefited from the contracts. Given their own positions with the corporate respondents, it followed that they ought to be held personally liable for the scheme of franchising and promotion of Modern Garages, it having been a particular creature of their entrepreneurial activities. (Halim v Fast Food Service Development Pty Limited (Formerly Big Al's Sandwich Joints Pty Limited) & Ors (1982) 2 IR 128 at 137 and Brown v Rezitis (1970) 127 CLR 157.) 38 It was further submitted that while the Court could not make orders against Modern Garages, as it was in liquidation, it could make factual findings concerning its position. The orders sought would be made against Mr John Montesalvo, Mr Hughes and Mr Sam Montesalvo, not only because of their personal responsibility for what had occurred, but also if it did not do so, the Court's orders would be practically unenforceable and nugatory. 39 The submissions advanced by Mr John Montesalvo were that while it was clear from Brown v Rezitis, that the Court may make orders under s106 of the Act against persons who were not parties to the contract, so long as the orders were reflective of their actual involvement, in this case the Court had no power to make any orders at all. 40 This flowed from s471B of The Corporations Law, which relevantly provided that no action could proceed against a company in liquidation without leave of the Supreme Court. Here no such leave had been sought or granted in respect of Modern Garages and it followed that no order could be made against that company. 41 If this was the case, it also followed that no order could be made declaring any contract to which it was a party void or otherwise varying it. If this was the case, it further followed that the Court was precluded from making any consequential orders against Mr John Montesalvo and Mr Hughes. 42 While the applicants had acknowledged the provision of s471B of The Corporations Law and their consequences, nevertheless, orders against Modern Garages were sought. The applicants' refusal to seek the necessary leave from the Supreme Court had rendered the proceedings useless. The opportunity to seek leave could not be availed of after the event. It followed that the proceedings were unlawful and there was no power to make any orders as to the primary questions concerning the fairness of the contract. 43 As to the submissions advanced by Mr Freeman for the applicants, it was argued that they ignored the evidence, particularly if it did not support the applicants' case and especially as to the alleged representations. It was further submitted that the evidence supporting the applicants' case was distorted and that a biased, one sided, half truth account of the facts had been put forward in the submissions, inconsistent with Mr Freeman's obligations as an officer of the Court. 44 The real position was that Modern Garages was not breaking its neck to sell the franchises to the applicants. Mr Hughes had interviewed a number of prospective franchisees who were found unsuitable prior to interviewing Mr Gallagher. He had interviewed Mr Gallagher over some six hours and had been impressed by his resume and by him. Mr Gallagher had already been sold on the idea of the franchises and was selling himself to Mr Hughes. 45 Mr Gallagher had been sold on the franchises, perhaps by his brother or by Mr Sam Montesalvo, to whom he had been speaking for months. The inference from the applicants' submissions was that the franchise should not have been sold to Mr Gallagher, a police officer with over 30 years experience, who was plainly intelligent, articulate and determined. Franchises had been sold to people from all walks of life, such as farmers, schoolteachers and shop owners. Mr Hughes' evidence was that some of them had become millionaires from their franchises. There was no reason why the franchise should not have been sold to Mr Gallagher. 46 The submissions advanced about budget estimates would not be accepted, particularly when the budgets in question were compared to budget estimates Mr Gallagher himself prepared when he decided to sell the Parramatta franchise. Nor would it be accepted that Modern Garages had hidden from him the fact that the two franchises were startup operations. 47 As to the trading figures upon which the Bell report was based, it would be accepted that they were false. They disclosed, for example, a loss of $40,000 in the first month of trading. During cross examination by Mr Freeman, Mr Montesalvo had recognised for the first time that the records showed advertising expenditure of $22,445 in that month. Mr Gallagher had spent three weeks in that month training in Brisbane. Under the franchise agreement the franchisor was responsible for the cost of advertising. There could not have been such an amount spent on advertising in that period; the account was a fabrication. 48 The report prepared by Ms Bourn in June 1996, on which the applicants relied, demonstrated that the applicants had kept no accounting records at that time. Mr Vethman's evidence was similar. It followed that the accounting records relied upon were prepared later, when the applicants were seeking legal advice. They were unreliable. 49 There were similar problems in the June 1994 trading figures in relation to matters such as consultant's fees, legal costs, licence permits, printing, postage and stationery, hire of plant, staff training and electricity and gas. This business involved the sale of garages. The premises were two showrooms. Mr Gallagher was in Brisbane for a substantial part of this time. What consultant had been engaged, what legal fees incurred, what licences and permits acquired, what plant hired and what staff training engaged in? Mr Gallagher had not provided information requested in relation to these expenses, he apparently not having retained the relevant records. 50 It followed that the 1994 accounts were a fabrication designed in order to benefit Mr Gallagher's case. It would also be accepted that within the first 12 months of operation, Mr Gallagher had drifted away from the franchise arrangement. He failed to follow the procedures laid out in the operations manual and had allowed his general manager to produce advertising inconsistent with that of Modern Garages. He also engaged in other businesses apart from that of the franchise. It was not now open to argue that his losses were the fault of Modern Garages. 51 It would be accepted that the alteration in the parties' respective positions were starkly different. Mr Gallagher was still operating a garage business at Penrith which had turned over $1.8million this financial year. Mr John Montesalvo had lost a business he had operated successfully for over 20 years. Mr Hughes was an ex-employee of Modern Garages seeking to earn a living. 52 It was submitted that the circumstances of the liquidation of Modern Garages had no relevance to the proceedings, particularly given that the misrepresentation case did not allege that any of the misrepresentations had been made personally by Mr John Montesalvo. It was submitted that the allegations made as to the liquidation of Modern Garages were unsubstantiated and unsupported by the evidence and that further, the submissions made as to the establishment of Steel Buildings and Mr John Montesalvo's interest in that business, were also irrelevant. It was further submitted that the liquidator's report demonstrated that a debt of Modern Garages had been secured by Mr Montesalvo's wife's home which had been sold to satisfy the debt. In those circumstances, how could it be concluded that the failure of Modern Garages was contrived? While on his evidence Mr Montesalvo had accepted his responsibility as a director of Modern Garages for its failure, which had had regrettable consequences for creditors, what bearing did this have on the case? 53 Account would be taken of Mr John Montesalvo's evidence that the Modern Garages business which had successfully operated for 20 years failed after decisions for change were taken which caused acrimony within the group and led to its demise. Franchisees like Mr Gallagher's, thereafter, continued operating, using the Modern Garages' logo, until it was pointed out that this amounted to passing off. 54 Nor would the inference that Mr John Montesalvo had closed one business and opened another be accepted. Steel Buildings had been operating since 1994 and its business was different to that of Modern Garages. It involved the sale of garages delivered directly to the end user, through agents who were paid a commission. It did not manufacture and sell garages to franchisees who resold and installed them. 55 The attacks on Mr John Montesalvo's credit would be rejected, they having no foundation in the evidence. It was rather the credit of Mr Gallagher which was at issue in the case, it being his evidence that various things had been said to him before he acquired the franchises. 56 As to the allegations made as to Mr John Montesalvo's failure to produce documents, they had been produced by Modern Garages and access given to them before the liquidation. At that time, no copies had been sought. After the liquidation, Mr John Montesalvo had no knowledge of what had happened to the documents and had believed that the case would not be pressed and hence had no interest in what had become of them. In any event, if the applicants had really believed a copy of the franchise agreements of other franchisees would have assisted their case, they could have been obtained from those franchisees, whose names and addresses the applicants had. Furthermore, the evidence had demonstrated that other franchisees had paid prices for their franchises ranging from $1 to $60,000. This reflected the cost of set up of the site in question, Modern Garages having been in the business of selling garages, not profiting from the set up of outlets. 57 As to the claim against Wellplace, the position was that it had not traded since 1995. In July 1995, it had assigned its interest in the franchise agreements to Modern Garages. While Mr John Montesalvo remained a director of that company, in these circumstances, no orders would be made against it. 58 It was submitted that it was irrelevant whether at the time the franchises were purchased they were making a profit or a loss because they were start up businesses, being sold without trading figures or history. Mr Gallagher, however, had obtained the benefit of $40,000 worth of work which had been taken on prior to his acquisition of the franchise. 59 As to Mr Hughes, his job was to assess potential franchisee's suitability, not to 'permit' them to purchase a franchise. Given his experience, he was well able to make such an assessment in the timeframe involved in his meeting with Mr Gallagher. Mr Gallagher began assessing the franchise in February 1994 and signed the agreements on 30 May. He had ample time to make his own assessments of the business he was acquiring. This accorded with the timeframe Mr Vethman gave evidence about. 60 Detailed submissions were made in relation to the alleged misrepresentations, to which I have also had regard, but do not outline here. 61 Submissions were also advanced as to the evidence of Mr Gallagher and the case otherwise advanced on his behalf. It was submitted that he would be accepted to have been demonstrated to be a liar. He was a policeman with over thirty years' experience, who advanced conversations of which there were no records on the one hand, suggested that he had never read or understood the franchise documents supplied to him on the other and yet expected his recollections of conversations to be accepted. 62 The evidence demonstrated that prior to the termination of the franchises, he had been in breach of the franchise agreement, including purchasing garages from a company which competed with Modern Garages, in direct breach of the franchise agreement. After he had terminated those agreements, he continued to trade using the Modern Garages' name. As to existing customers, he wrote giving them three options, which represented their choices in such a way as to make it inevitable that they would chose to do business with his new company. 63 After the agreement had been terminated, Mr Gallagher continued displaying the Modern Garages' name at his place of business in an illuminated sign visible to passing trade for 12 months. His evidence that he had never noticed the sign would be rejected. Mr Gallagher plainly had passed himself off as Modern Garages throughout that period. 64 Mr Gallagher had given evidence demonstrated to be false in a number of respects, including in relation to the circumstances in which Mr John Mountford had offered to buy the Parramatta franchise. In that context, he had supplied Mr Vethman with statements as to his profits and losses to be provided to potential purchasers, inconsistent with the case he advanced in these proceedings. That document showed profits of $78,363 to 30 June 1995, demonstrating that his claimed losses in these proceedings were a fabrication, or that he was prepared to deceive a potential purchaser. 65 Other documents prepared by Mr Gallagher, in order to sell the Parramatta franchise, had also to be considered. The statements made therein were diametrically opposed to much of the evidence Mr Gallagher gave in these proceedings. Either way, he had been demonstrated to be a liar and his evidence would not be believed. 66 It would also be accepted that the accounting records produced were internally inconsistent and a fabrication. 67 Mr Vethman, who had no vested interest in the proceedings, would be accepted as a witness of truth. His evidence as to Mr Gallagher's contact with Mr Vethman, who he knew was to be called to give evidence would be viewed with concern. He denied statements attributed to him by Mr Gallagher. Those denials would be accepted. 68 Various submissions were advanced as to the evidence of the Cuthbertsons and the failure to call evidence from other ex-franchisees. It was submitted, that it would be accepted that as they and Mr John Montesalvo had parted under acrimonious circumstances, it would not be expected that they would be called by Mr Montesalvo. They should have been called by the applicants. 69 As to suggestions that particular evidence was not challenged, it would be accepted, given the evidence in the affidavits, that while not every statement in the applicants' case may have been challenged, that did not make them true. If that were to be the test, it would be accepted that evidence of respondents' such as to the circumstances of the Mountford sale advanced by the respondents, would be accepted by the Court, given the applicants' failure to advance relevant challenges. 70 It would also be accepted that the evidence demonstrated that Mr Gallagher had breached the franchise agreements in numerous respects. His decision to leave the franchise network was not motivated by the complaints he advanced, but rather because he no longer needed or desired to remain a part of it. 71 Thereafter, Mr Gallagher pursued a profitable business, as a proper reading of his evidence demonstrated, set to achieve sales of $1.8million this year. It would also be accepted that any losses, which he had earlier suffered, had flowed not from the respondents' failures, but rather from factors identified by Ms Bourn, such as the failure to keep accounting records or to follow the franchise operations manual. 72 The evidence of Mr Byrne was that the applicants' advertising had been altered, because the applicants wanted to create an image. This was done at a time when Mr Gallagher was purchasing garages from other sources. Both he and Mr Byrne conceded they were then involved in more than one business. Losses incurred as a result could not be laid at the respondents feet. 73 In reply, it was submitted for the applicants that the only requirements for the Court's jurisdiction to be enlivened was for it to be established that the contract in question was one 'whereby work is performed in an industry'. In so far as orders were sought against particular respondents, it had to be demonstrated that they were 'involved in the contravention' (Brown v Rezitis). 74 Wellplace was the original contracting party and it followed that jurisdiction to make orders against it existed. Such orders would be made both against Wellplace, which was not in liquidation and against the natural respondents, if the necessary connection was established. 75 Section 471B of The Corporations Law only prevented orders being made against a company in liquidation, if leave of the Supreme Court was not first obtained. No orders requiring the payment of money or imposing any other obligation on Modern Garages were here sought by the applicants. If it were necessary to obtain orders from the Supreme Court, as put by the respondents, that would not be a matter for this Court, but rather for the applicants. 76 The respondents' approach to jurisdiction would, in any event, be rejected, because it would open the floodgates to recalcitrant respondents seeking to avoid liability under s106 by having the corporate vehicle in question put into liquidation and commencing activities under another corporate veil. For public policy reasons such an approach would not be countenanced. 77 As to the respondents' submissions in relation to the alleged misrepresentations, it was submitted that they focussed on the applicants' counsel rather than addressing the evidentiary and legal issues raised. It would, nevertheless, be accepted that Mr John Montesalvo was involved in making the representations, especially those made in writing in documents he himself had produced and that they were relevantly false and misleading. 78 Even if the respondents' submissions as to misrepresentation were correct, nevertheless, the contracts were still unfair as performed and hence offended s106 of the Act. 79 As to Mr Sam Montesalvo, account would be taken of the fact that he was available, but not called by the respondents. As to the veracity of the witnesses, Mr Gallagher would be accepted as a witness of credit, especially given the supporting evidence of credible and independent witnesses called by the applicants. 80 The submissions of the respondents would be accepted as being misleading and underlining his lack of credit. 81 As to the attack on the expenses in the first month of trading, it would be recollected that this was at a time when Mr Sam Montesalvo was running the business for Mr Gallagher, including being a signatory to the cheque account. 82 As to the submissions that Mr Gallagher was operating another business apart from that of the franchise, his evidence that he purchased products from other suppliers if Modern Garages did not provide the product or it was in short supply would be accepted, particularly as this was done in order to avoid loss of profits on particular jobs. 83 As to the complaints made as to passing off, it would not be ignored that in the contracts in question Mr Gallagher had placed orders with Modern Garages and later informed the customers of their choices. 84 As to complaints that Mr Hughes had late notice of the hearing, the fact was that he was represented by Barker Gosling, which had not filed a notice of ceasing to act for him when the hearing dates were fixed, but, in any event, the applicant had notified him of those dates. In any event, his evidence was that he had consulted another lawyer on 2 January 2000. 85 It would also not be accepted that Mr Hughes received no benefit from the transaction. He was director of the companies in question, made representations on their behalf and earned his living from them. 86 The natural respondents were clearly involved in the contravention and orders of the Court would be rendered unenforceable if they were not made personally against them. Consideration The jurisdictional argument 87 This claim raises a number of difficult issues, not the least of them the difficulties flowing from the applicants' decision not to seek leave to proceed against Modern Garages under s471B of The Corporations Law. That section provides: ' 471B Stay of proceedings and suspension of enforcement process While a company is being wound up on insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with: (a) a proceeding in a court against the company or in relation to property of the company; or (b) enforcement process in relation to such property; except with the leave of the Court and in accordance with such terms (if any) as the Court imposes.' 88 It follows that, in so far as these proceedings were commenced against Modern Garages, the applicants were not entitled to proceed further against that company, without leave of the Supreme Court. At the outset of the hearing Mr Freeman announced that orders would not be sought against Modern Garages. That position altered somewhat given the orders finally sought. It follows, in my view from the terms of s471B, that the applicants were not entitled to seek to have the Court determine the question of whether the franchise agreement to which Modern Garages was a party after July 1995, fell within the provisions of s106 of the Act. 89 I accept the submissions of the respondents that as a consequence of The Corporations Law, the applicants are not entitled to pursue some of the orders which they formulated in their submissions. 90 It is plain that the Supreme Court may grant leave to the applicants to proceed against Modern Garages nunc pro tunc. I do not, however, take the view that this possibility makes it appropriate that I deal with all of the issues in this case, as if such leave had been obtained or would be granted if later sought. To do so would have obvious consequences . If leave were sought the issues concerning Modern Garages would already have been decided, perhaps against it, without it having had the opportunity to deal with those matters. That is not insignificant in this case where, for example, it was said against the applicants that very significant sums were owing to Modern Garages under the franchise agreement and that the conduct of the applicants had led to substantial losses being suffered by Modern Garages. These aspects of the case were not explored, in the absence of anyone representing its interests. 91 These questions have been much considered. In one oft cited decision, in Re Sydney Formworks Pty Ltd (In Liquidation) [1965] NSWR 646, McLelland CJ in Eq dealt with a case where an action for damages had been brought against a company in the Supreme Court, by inadvertence, without leave of the Court, after an order had been made to wind up the company. When the matter came on for hearing, it was adjourned, the Court being informed of the circumstances. An application for leave to commence the proceedings nunc pro tunc was then made. It was concluded by McLelland CJ that the predecessor to s471B, s218 of the Companies Act 1936, did not bar the action. The Supreme Court had power both to permit the action to continue or to grant leave nunc pro tunc and the leave was given, on the basis of an undertaking that no action would be taken to enforce any judgment without further leave being granted. 92 It seems to me to be relevant that here the applicants seek to proceed, not inadvertently but knowingly, without seeking leave in accordance with s471B in respect of orders which were directed to Modern Garages, as well as to the other respondents. In all of the circumstances, I have concluded that the proper course is to adjourn the hearing of those aspects of this case which concern Modern Garages. 93 That, however, is not the end of the matter. The hearing commenced on the basis that orders were no longer sought against Modern Garages. The proceedings were also brought against Wellplace and the three personal respondents. It is plain that Wellplace, the original franchisor under the agreements, is properly a party to the proceedings, even though it elected not to appear in the proceedings. The fact that it transferred the benefit of the franchise agreement to Modern Garages in July 1995, provides no jurisdictional bar to orders being made against it in these proceedings if a case is made out against it. That it might have entered into some contractual arrangements with Modern Garages in relation to the franchises is not a matter with which the Court is concerned in these proceedings. Nor did Wellplace appear to defend the claim or to raise such matters. They provide no bar to jurisdiction. As was observed by the High Court in Stevenson v Barham (1977) 136 CLR 190 at 201: 'It follows, then, that if the contract is one which leads directly to a person working in any industry it has the requisite industrial character - it is a contract "whereby a person performs work in any industry". This is the relevant jurisdictional fact which needs to be established .' 94 The steps involved in consideration of a claim brought under the predecessor to s106 of the Act, s275 of the Industrial relations Act 1991, were described by the Full Court in Port Macquarie Golf Club Limited v Stead (1996) 64 IR 53 at 59. The initial question was described as: 'The initial question which arises, once it be established that the impugned contract or arrangement meets the necessary jurisdictional test of being one under which a person performs work in any industry, is whether the contract or arrangement offends one or more of the grounds in pars (a), (b), (c), (d), (e) or (f) of s275(1); that process involves a mixed question of fact and law: Hodges at 63; and Autobake at 20.' 95 Here there was no issue that the franchise in question was one under which work was performed. The claims advanced concerned misrepresentations in the pre-contract stage which made the contract unfair as formed and later the unfairness of the contract as performed. 96 The Full Court in Port Macquarie further described the steps involved in consideration of a claim under s275 as: '5. The nature and degree of the unfairness within the purview of s275, as a matter of law, relates to ordinary standards of fairness by directing attention to the particular circumstances of the individual contract or arrangement concerned; whether or not a contractor arrangement is unfair is a matter to be decided upon examination of the facts of each particular case: Incitec Ltd v Barry (1992) 45 IR 148 at 154; and Baker at 270. 6. Unfairness may arise either from the terms of the contract or arrangement itself, the surrounding circumstances and/or from the manner of performance or operation of the contract or arrangement: Barry v Incitec Ltd (1991) 45 IR 143 at 146; Incitec v Industrial Court of New South Wales (1992) 45 IR 155 at 157-158; and Baker at 270-271. 7. The test of unfairness involves the commonsense approach characteristic of the ordinary juryman by applying standards providing a proper balance or division of advantage and disadvantage between the parties who have made the contract or arrangement, bearing in mind the conduct of the parties, their capability to appreciate the bargain they had made and their comparative bargaining positions when entering into the contract or arrangement: Davies v General Transport Development Pty Ltd [1967] AR (NSW) 371 at 374; A & M Thompson Pty Ltd v Total Australia Ltd [1980] 2 NSWLR 1 at 13; and Baker at 271-272. 8. If a contract or arrangement be found to relevantly offend one or more of the grounds, such as it being unfair, contained in s275(1) then the next question involves the exercise of a discretion, to be performed judicially, as to whether the contract or arrangement should be avoided or varied: Hodges at 63; Autobake at 20; and Baker at 267. 9. If it be decided to avoid or vary the contract or arrangement under s275(1) then a further discretion arises as to whether an order should be made under s275(3) for the payment of money in connection with the contract or arrangement declared void or varied: Hodges at 63; Autobake at 20 and Baker at 267. … 11. The discretions allowed by s275 to the court are extensive and the Court should not interfere with bargains freely made by a person who was under no restraint or inequality, or whose labour was not being oppressively exploited: Stevenson v Barham (1977) 136 CLR 190 at 192; and Baker at 276. 12. The nature of the orders which may be made under s275(3) for the payment of money cover a wide field; underlying the subsection is a broad concept of a restitution of the parties to a situation which existed before the making of the contractual arrangement as well as in an appropriate case to make the remedial provision for what has taken place or been done under the contract in the meantime: Brown v Rezitis (1970) 127 CLR 157 at 164; and Baker at 277.' 97 While I take the view that no orders can be made in these proceedings against Modern Garages, that conclusion does not properly lead to the view that no orders can be made against the personal respondents in this case or against Wellplace. That must depend on the conclusions reached in relation to the case advanced against each of them in the proceedings. 98 What it does mean is that in so far as any findings against the personal respondents depend upon findings in relation to matters which concern Modern Garages, then those are matters which cannot presently be decided in these proceedings. 99 It is still, however, necessary to have regard to some of the evidence as to what occurred in this subsequent period, in order to deal with that part of the case advanced which I have concluded may be pressed at this stage. 100 It is relevant to the conclusions which will be reached as to those matters that the personal respondents were directors and/or employees of Wellplace. The credit of witnesses 101 In this case strong attacks were made by the respective parties, not only upon the credit of the first applicant, Mr Gallagher and the respondents, Mr John Montesalvo and Mr Hughes, but also as to the way in which the respective cases were pursued for the applicants and the respondents. 102 Having considered the question of credit, I have come to a number of conclusions, particularly by having regard to the evidence given by other witnesses called, such as Mr Vethman and Mr Jamieson, who I regarded as witnesses of truth. I have concluded that the evidence of each of Mr Gallagher, Mr Hughes and Mr John Montesalvo must be approached with some care and that it cannot be accepted as having been given truthfully in every respect. Care needs to be taken to consider the evidence which they each gave as to various matters, particularly where documentary evidence and the evidence given by others as to the same topics is available. 103 I also reject the attack on the credit of Mr Winter. I accept that the corrections made as to his affidavit followed upon a proper realisation that he had fallen into error, which he corrected when he gained access to the file held by Mr Gallagher's solicitor, Mr Coode. Nevertheless, given the subject matter and the way attention was drawn to it by the respondents during the hearing, that their suspicions were ignited by this evidence can be well understood. Mr Winter, after all, had acted for both Wellplace and the applicants and had not taken steps to seek alterations to the franchise agreements in relation to the building licence, which would have protected the position of the applicants. I also note that Mr Winter's evidence contradicted that of Mr Gallagher's in some respects, for example in relation to whether Mr Hughes was present when Mr Gallagher obtained advice from Mr Winter. I accept Mr Winter's evidence that he had two meetings with Mr Gallagher, a long one where he advised him about the franchise agreement when Mr Hughes was not present and a later, shorter, meeting when he was present. 104 I do not accept the various criticism directed to the way in which the parties ran their respective cases. I am satisfied that, in all of the circumstances, each of the parties were faced with their own difficulties in the pursuit of the cases which they wished to advance and that they eventually advanced their respective cases with vigour, as they were each entitled to do. 105 I do observe that the circumstances in which certain documents produced to the applicants by Mr John Montesalvo for Modern Garages later went missing, without copies which had been requested having been supplied, were rather troubling. Neither the receiver and manager nor the liquidator came into possession of these documents. Nevertheless, at the end of the day, I take the view that nothing much turns upon the documents. They could have been pursued with the individual franchisee, but were not. I cannot speculate on what they might have contained, but must deal with the evidence as it is. The complaints as to the circumstances in which the agreements were entered 106 I reject the complaints advanced as to the circumstances in which the franchise agreements were entered. It is abundantly plain, from the evidence, that under the franchise agreements it was in the interests of both the franchisor and the franchisees that the applicants trade profitably, so as to maximise their turnover. 107 The evidence was that Mr Gallagher became aware of the opportunity from his brother and in about February 1994, first met Mr Sam Montesalvo, who was operating the two franchises. Mr Gallagher met with him on a number of occasions and with Mr Hughes in May, when, over five or so hours, they went over the disclosure documents and the franchise agreement and discussed the opportunity available to acquire the franchises. Mr Gallagher thereafter had legal advice about the agreement in May. Mr Hughes attended the second of those conferences when certain changes to the franchise agreement were made. Mr Gallagher's evidence that he had not really read, understood or absorbed those documents, especially the disclosure document or parts of them, in the light of that evidence was not credible and I do not accept it. Even if it were correct, I cannot see how this would support the case advanced. 108 People who wish to go into a business venture must accept some responsibility for reading the documents provided to them in connection with the business they are acquiring and if necessary obtaining advice thereon. Mr Gallagher impressed me as someone well capable of reading and understanding such documents, particularly having had the benefit of the advice he received from Mr Winter. 109 I also observe at this point that in my understanding s106 of the Act does not oblige franchisors to act as guarantors for franchisees, in the sense that they must guarantee that a franchise business will succeed and that if it fails, the franchisee will be entitled to recover both the cost of acquisition of the franchise and any losses sustained in its operation. Nor is a franchisor under an obligation to make an accurate assessment that a franchisee has all of the necessary personal qualities and experience in order to ensure that the business in question will succeed. Persons who wish to enter any business must bear their own responsibility for assessing such business opportunities and their own suitability for such a venture. 110 Notions such as these have long been considered by the Court and its predecessors. In Davies v General Transport Development Pty Ltd [1967] AR (NSW) 371, Sheldon J observed at p 374-5: 'On the other hand, the fact that the Commission has been given such massive power makes it imperative that it should be exercised with proper restraint. In particular, when issues arise under (a) or (b), it should not permit itself to become a refuge for those who are merely disgruntled with a bargain entered into on even terms. In my opinion, the discretion should be exercised to protect victims of wrong dealing not to prescribe anodynes. Of course, under (d) or (e), action may be required even when there is no moral distinction between the parties because there the Commission is enforcing more directly an explicit public policy.' 111 In this case, Mr Gallagher's assessment process took some five months, quite consistent with Mr Vethman's evidence as to what was involved. Mr Gallagher was plainly encouraged by what his brother had told him, by his observations and discussions with Mr Sam Montesalvo, by what Mr Hughes told him and then by Mr Jamieson's advice. I accept that Mr Hughes was quick to form a favourable impression of Mr Gallagher, as his discussion with both Mr Gallagher and Mr Montesalvo on the day of their first long meeting indicated. Mr Gallagher, at that point, was obviously seeking to present himself in a good light to the franchisor. This was not an initial meeting where he was merely seeking information. He sought to impress Mr Hughes with his thirty years background with the police force, having come armed with his curriculum vitae. That he was successful was undoubted. Mr Hughes' favourable impression also no doubt, in part, flowed from the fact that Mr Gallagher was able to pay for the franchises. Indeed, he paid a $2000 holding deposit at the meeting. Of itself it is difficult to see that there is anything remarkable in that. It seems to me that there is nothing unfair in a franchisor being anxious to be assured that a prospective franchisee has the necessary means to acquire and support the business which is being sought. 112 Nor do I accept that Mr Gallagher was under any illusions that these two franchises were start up businesses. His own evidence made that clear. The two franchises commenced operation in January 1994. Mr Gallagher became aware of them in February and when he signed the agreements in May, they obviously did not have much history of trading. Their trading accounts were not provided to him. Nor was there evidence that they were sought by Mr Gallagher. He was, however, promised the benefit of various work on hand, without being required to make any payment therefor. The decision not to seek accounting advice, in those circumstances, was Mr Gallagher's, he having obtained legal advice on the consequences of clause 20.6 and 20.15 of the franchise agreement which provided: '20.6 Entire Deed This Deed sets forth the entire agreement and understanding between the parties and merges all prior discussions between them and one shall be bound by any conditions, definitions, warranties or representations with respect to the subject matter of this Deed other than as expressly provided therein or in any instrument subsequent to the date hereof in writing and signed by the party to be bound thereby. … 20.15 Franchise Acknowledgments 20.15.1 The Franchisee acknowledges that: (a) it has read and understood the provisions of this Deed and has obtained independent legal advice in respect thereof; (b) it has not been induced to enter into this Deed in reliance upon any statement, representation or warranty made by the Franchisor or its directors, employees or agents other than as set out herein or in the Disclosure Document; (c) it understands that the Franchisor does not guarantee or represent to provide a rate of return on investment or profit to the Franchisee (unless the terms of such guarantee or representation are set out in writing) and understands that profit or return on investment to the Franchisee depend wholly upon its own effort and investment; and (d) unless otherwise stated the Franchise is not held on trust by the Franchisee for any party.' 113 These provisions cannot simply be ignored, but form a part of the matrix of facts to be considered, as does the balance of the franchise agreements. On his evidence, Mr Gallagher satisfied himself as to financial matters from his conversations with Mr Jamieson, who was then well satisfied with his own franchise. The franchisor cannot be held accountable for that decision. 114 Mr Vethman's assessment was that the turnover being achieved at the outset of the two franchises was not good, but it was plainly expected that it would increase. This expectation was consistent with the information provided in the disclosure documents, with the evidence of Mr Jamieson's experience in his neighbouring franchise and with the views Mr Gallagher himself expressed in later correspondence. 115 I note Mr Vethman's evidence that when he took over from Mr Hughes in November 1995, Modern Garages had a different practice in relation to new franchisees, requiring that they have experience in the building industry and holding their own building licence, or a willingness to engage a licensed builder. This, of course, is relevant to the allegations of unfairness flowing from alleged misrepresentations, which I will come to. The fact that Mr Gallagher had no building experience before he entered the franchise, of itself, in my view is not a proper basis for a finding of unfairness. I note Mr Hughes' evidence that other franchisors had successfully operated their businesses without a building background. 116 I also note Mr Gallagher's evidence that when he met with Mr Hughes he already had a very favourable impression of the business, Mr Hughes told him that he had seven days to alter his mind and encouraged him to speak to other franchisees. He spoke to Mr Jamieson, who was the only person on the list provided to him by Mr Hughes in the Sydney metropolitan area who had started his franchise up from scratch. Mr Jamieson spoke highly of the opportunity, saying that 'he thought that in Sydney the sky was the limit, the product was excellent, the back up service was good, and he recommended it as something that was worthwhile'. Mr Gallagher did not, however, ask him about the profitability of his franchise, a decision which he made deliberately at the time. 117 Mr Jamieson was a real estate agent who had met Mr Hughes when he was looking for a site for the Campbelltown franchise and himself became interested in the opportunity. Mr Jamieson himself spoke to other franchisors who all indicated to him that they were doing well and otherwise satisfied himself as to the franchise business. The evidence did not suggest that there were problems with this franchise operation at the time the applicants first became interested in it. 118 Mr Jamieson's evidence was that problems later arose when a new building was introduced by the franchisor, which involved a change from a welded to a non-welded product and when the franchisor unilaterally altered the franchise agreement in relation to advertising and the rebate system. The result was that the franchisees were not competitive price wise, because the new product was no better than that of the opposition. Mr Jamieson agreed that the franchisor had to move to a cheaper product in order to be competitive in the marketplace. His evidence was that the older product was excellent, but inflated in price. This innovation however, only brought the franchisees in line with their competitors. At the time of closure of his business, Mr Jamieson was selling about 12 kits a month, with a turnover in excess of $70,000 (which extrapolates to an annual turnover of some $880,000). 119 As to why the applicants acquired two, rather than one franchise, Mr Gallagher explained, in cross examination, that he decided to purchase two franchises rather than one, because he had been impressed by Mr Sam Montesalvo's enthusiasm for the business and had decided that with his involvement in the business, given his experience in building, in which Mr Gallagher was inexperienced, he could concentrate his attention on administrative matters for the two franchises. Mr Hughes' evidence was that he agreed and believed that Mr Gallagher could operate on that basis. Mr Sam Montesalvo knew the garage business backwards, having successfully operated Better Built in Sydney, before he had sold it. 120 Despite this, Mr Gallagher and Mr Sam Montesalvo parted company in August, as the result of the views which Mr Gallagher formed of him. Mr Gallagher then moved to employ his brother and subsequently engaged a licensed builder in the business, who eventually led him to the view that the franchisor's new product was 'rubbish'. The alleged pre-contractual misrepresentations 121 Against that background, I turn to consider the alleged pre-contractual misrepresentations. Twenty four separate representations were advanced, falling into a number of broad categories. I will not deal with each individually, but in a number of broad categories, given the inter-relationship of the various allegations and the evidence as to them. 122 I observe, at the outset, that I have reached the conclusion that some of those allegations were made out, so as to properly lead to the conclusion that the contracts in question were unfair, as that term is understood under s105 of the Act. The alleged misrepresentations as to turnover, the seasonality of the business and its success, the quality of the materials and its value and its success the first, second, third, fourth, fifth and seventh representations 123 It was claimed that it was represented by the respondents, that the businesses would turn over $2million and $1.2million respectively, with profits of $172,600 and $74,460, with Mr Gallagher earning more than three times his salary as a police officer and that these representations were made together with others, such as that other franchisees had become millionaires or had sold their franchises for huge profits. Mr Hughes denied providing the budgets to Mr Gallagher, but admitted making various other representations as a part of his usual sales pitch. He also accepted that he assured Mr Gallagher that he could operate the business despite his inexperience and that the franchisor would support him. On his evidence, that was consistent with the experience of other inexperienced franchisors who had previously had unrelated occupations. However, in cross examination, Mr Hughes explained that in order to succeed in the franchise it was necessary for the franchise system to be followed and, in his opinion, that Mr Gallagher's failure to do so had led to his problems. 124 Various of these representations were submitted to be part of Mr Hughes' 'hard sell'. Some of them could be seen to have been merely 'advertising puff', but in combination it was argued that they took on an entirely different character. 125 Mr Gallagher's evidence was that the budgets in which it was alleged that these representations were made were prepared by Mr John Montesalvo, provided to him by Mr Hughes initially and later, with handwritten alterations made by Mr Byrne, again provided by Mr Sam Montesalvo. Initially, Mr Gallagher was not sure whether this was before or after the agreement was entered, but his evidence later became that Mr Sam Montesalvo had provided these documents to him beforehand. 126 Mr Hughes denied providing these budgets to Mr Gallagher or discussing them with him. His evidence was that he provided to Mr Gallagher the disclosure document which contained the forecasts he always provided prospective franchisees. Mr John Montesalvo agreed that he had prepared the budgets as part of an exercise he was then conducting for all franchisees, in order to discuss with them what was achievable and not for provision to Mr Gallagher. This was consistent with the conclusion of the document, which provided: 'Please do not take any of our assumptions at face value. Question our figures and lets tailor make a budget for you, once this is done we will assist you in the achievement of your budget.' 127 Mr Montesalvo's evidence was that he had given budgets to Mr Sam Montesalvo, who gave no evidence in the proceedings. 128 Mr Byrne's evidence was that he commenced working at the Parramatta franchise with Mr Sam Montesalvo when the fitout was being completed in January 1994. He later discussed with Mr Sam Montesalvo entering a partnership to acquire the two franchises and in March or April obtained a presentation folder of material from Mr Hughes, which he no longer had. He, nevertheless, recollected being provided with documents projecting sales of $1.2million at Penrith and $2million at Parramatta in the first 12 months of operation. 129 Mr Byrne had various meetings with Mr Hughes and Mr Sam Montesalvo about acquisition of the franchise He decided not to proceed. His assessment of the information provided was that even if the sales projected were achievable, the profits were still slim and his experience of working with Mr Sam Montesalvo had given him cause to distrust him. 130 Mr Jamieson gave evidence that when he was pursuing discussions with Mr Hughes as to the franchise which he acquired at Campbelltown in 1992, he was given a document projecting sales figures of $1.25million for the first 12 months of operation. It was not clear from his evidence, whether this was in a disclosure document or in a budget, although the inference was that it was in a budget, given that the disclosure document dealt with projections of $1million and $1.6million. He was informed by Mr Hughes, that these figures were based on market research and the company's experience in the business. 131 In his first 12 months of operation, Mr Jamieson achieved about 75% of the projection and almost achieved it in the following year. Thereafter turnover declined. Mr Jamieson paid a purchase price of $82,000 for his franchise, but in 1997 walked out because of continuing losses. Mr Jamieson, formerly a real estate agent, had been introduced to the franchisor when Mr Hughes had used his services to acquire a site for the Campbelltown franchise. In his opinion, the franchisor had made nothing out of the sale of the franchise to him, it had made its profits from the sale of kits. 132 In Mr Jamieson's assessment, he had not made a profit out of his own franchise. In cross examination, he expressed the opinion that Mr Hughes had misled him. 'I don't know whether it was intentional or just being a salesman but that's my opinion. But I do have a high regard for Barry.' His dealings with the franchisor were excellent. He had not had difficulties in communicating with Mr Hughes or Mr John Montesalvo and believed that the franchisor had mostly acted with integrity throughout their dealings. In re-examination, he explained what he meant by this, namely, with hindsight, the statements made to him by Mr Hughes before he entered the franchise agreement did not involve integrity in every case. The phrase that 'its a licence to print money' was repeated to him by Mr Hughes. Later, there were different problems when it was becoming harder to make a profit, when the environment was changing and the number of sales made did not having the same proportionate bearing on profits and operations were not the same as when the franchise began. 133 Having all of this evidence in mind, I find that representations were made to Mr Gallagher as to potential earnings, in a similar way to those made to Mr Byrne and Mr Jamieson. I have some hesitation about Mr Byrne's evidence. His evidence in chief was given in a way which tended to put a gloss on his recollections, consistent with the applicants' interest in the proceedings, which was often not adhered to in cross examination or not supported by other material. Nevertheless, I accept this evidence. Mr John Montesalvo was the author of the budget in question, although he was not involved in the discussions in which these documents were presented. 134 It was plain from the evidence of Mr John Montesalvo, that the budgets he had prepared were not based upon trading records of the two new franchises, but had regard to his expectations and experience of what was achievable, some earlier market research as to the Sydney market, but without reference to actual trading results, information then available to Wellplace, but which Mr John Montesalvo regarded as irrelevant to what the business could be built up to do. The budgets involved a fair amount of guesswork. Mr Vethman confirmed, in his cross examination, that Mr Montesalvo had prepared these budgets for all franchises after a franchisee seminar in 1994. The budgets can be compared to the figures provided in the disclosure documents, which dealt with turnover of $1million and $1.6million. 135 I have concluded, however, that the applicants' understanding of these budgets and the disclosure documents was that they represented projections and not a promise of what business the franchises would generate immediately. Mr Gallagher was always aware that these were representations as to the potential of the businesses, not actual earnings, consistent with their start up nature. This conclusion flows from various aspects of Mr Gallagher's evidence in cross examination and his letter of November 1995, when he announced his decision to sell the franchises to the franchisor. He there stated that it had been his intention to build the business up to a turnover of $1miillion to $1.5million before selling and that he had made his decision even thought it had not yet reached 'anywhere near its potential.' 136 That leads to the question of the turnover and profits achieved in the franchises and whether the projected figures were achieved. The applicants' case was that they were not, supported by the Bell report. That report, however, needs to be considered in the light of all of the evidence. 137 Mr Byrne was dismissed by Mr Gallagher in July 1994, but later re-employed as his general manager. He generated from the applicants' computer system records of the leads received and sales achieved at the Parramatta franchise from February to December 1994, which indicated that both leads and sales fluctuated over that period, with a total of 74 sales from 911 leads. There was no similar evidence as to leads and sales in later years or at Penrith. It is questionable whether such information was available. In cross examination Mr Gallagher explained that he had ceased maintaining lead sheets because he regarded them as useless. He maintained an appointment book. It was not in evidence. 138 The document produced by Mr Byrne indicated that actual sales at Parramatta in 1994 fell well short of both the disclosure document projections and the budget projections, as did the sales in the following years. On Mr Gallagher's evidence, the business which he continued to operate in Penrith at the time of the hearing, was expected to turn over $1.8million this year. That, however, relates to a time long after the termination of the franchise and a business different in a number of respects to that of the franchise. In reality this evidence can throw no light on what the franchise business was capable of generating. 139 The evidence as to the sales achieved at the Parramatta store in 1994 demonstrated that there was little difference before or after Mr Gallagher commenced operating the business. Before he acquired it, it was operated by Mr Sam Montesalvo, in both Mr John Montesalvo and Mr Hughes' assessment experienced in the business, with Mr Byrne's assistance. They both continued working with Mr Gallagher for a short period of time after the franchises were acquired. Their departure seems to have had no appreciable effect on sales. In Mr Hughes' assessment, these figures, if accurate, demonstrated the start up nature of the franchises and he expected them to improve. 140 Mr Bell's assessment as to the profits the two businesses would have generated if the turnover in question had been achieved, demonstrated on the information available to him, the shortfall in relation to actual trading results over three years was $922,363. That, however, brings me to the records upon which these calculations were based which, on any view, gives rise to serious questions as to their accuracy. 141 The report makes plain that Mr Bell was provided with various information, including affidavits of Mr Gallagher, draft affidavits of Mr Byrne and Mr Jamieson and income tax returns and financial statements of the Gallagher Family Trust for the June 1995, 1996 and 1997 years. The tax returns and many of the other documents attached to the report were undated and unsigned. No reference was made to the tax returns of Mr Gallagher and it is not readily apparent what payments were made to him. The franchisee was the trustee of this Trust, but its records did not dissect the operation of the two franchises which it conducted. 142 These records were subject to a serious, but perhaps imperfect attack, given the absence of the assistance of any expert called by the respondents. While that leaves this aspect of the evidence in a difficult position, it must be dealt with on the basis of all of the evidence, such as it is. Mr Bell's report itself was not criticised, so much as the information upon which it was based. 143 Relevant to this consideration were a number of documents including a report prepared by Modern Garages' accountant Ms Bourn, after Mr Gallagher had decided to sell. That report was the culmination of one of a number of visits to franchises by Mr Hughes, who was concerned about the continuing problems Mr Gallagher was experiencing. Indeed, while it was said by Mr Gallagher in his evidence that Ms Bourn's report was wrong, because he did keep records and the report indicated that he did not, it was nevertheless relied upon for the applicants for some purposes in submissions. 144 That report concluded that no accounting records had been kept by the applicants; that no separate records had been kept for the two franchises; that figures provided to Mr Vethman as to sales had been taken from a check of all of the franchisees' actual contracts; that the cheque books did not record what payments had been made or to whom; that no monthly sales figures were being recorded; that payments for work by subcontractors were being made before the work was inspected; that no bank reconciliations were made; that it was difficult to trace what payments had been made into the business and what had been taken out; and that the franchise operations manual was not being observed in a number of respects. 145 The Bell report was premised upon various assumptions, namely: · The budget given to Gallagher by the franchisor is a true representation of the expected business results for the first year, which I have then indexed in accordance with the Consumer Price Index ("CPI") for subsequent years. · Due to start up costs it was expected the business would break even in the 1994 financial year. · The budget was not achieved due to difficulties with and misrepresentations made by the franchisor. 146 Those assumptions were not consistent with the evidence of Mr Gallagher's own understanding. The evidence did not establish that this had been promised. It follows that the premises on which much of the report was based, were not made out. Further, Mr Bell could have had no regard to the conclusions which I have reached in relation to matters such as the applicants' rate of conversion of leads to sales and the effect which these matters had on profits, which I will deal with shortly. As a result, I have not found the report of much assistance in resolving the issues which arise here. 147 I have concluded that Mr Gallagher's evidence that he had kept accounting records in respect of the two franchises at the relevant time must be rejected. Had they existed, presumably they would have been provided to Mr Vethman when he was trying to sell the Parramatta franchise and asked Mr Gallagher for them. Mr Gallagher's explanation in cross examination that they could not be produced at the time because they were with his accountants seemed implausible. He was, after all, trying to sell the business. It is difficult to imagine that such records would not have been required by prospective purchasers. It may well be that given the other evidence that the applicants were operating inconsistently with the franchise agreement at the time, that, as a result, the applicants had good reason not to produce such records to the franchisor. 148 Nevertheless, ordinarily one would presume that such records as existed would have supported the document which was in fact provided to Mr Vethman by Mr Gallagher as to the franchises' turnover, expenses and profits. That document was, however, completely at odds with the figures relied on in the Bell report and the conclusions reached therein. Mr Gallagher's explanation that in retrospect this document was not right, because the figures were not achieved, is difficult to accept. The further suggestion that the sales figures supplied were accurate, but that the others were flawed, made all of this evidence most problematic. 149 As earlier noted, I accept Mr Vethman as a witness of truth. It is useful, at this point, to reflect upon his evidence. He had contact with Mr Gallagher from the earliest days of the franchise agreement and was involved in training of staff whom Mr Gallagher engaged, including the lady who later became Mr Frank Gallagher's wife. Indeed, various members of Mr Gallagher's family were employed in the business. In August 1994, he returned to the franchise in order to review the training, because Mr Hughes' assessment was that Mr Gallagher was having problems settling in. 150 Mr Vethman visited the business on two days in July, on seven days in August and on three days in September, before he left his employment in November. In that time Mr Vethman provided various assistance. He was re-employed in a different role in April 1995, which involved locating and engaging new franchisees and distributors. This had formerly been a part of Mr Hughes' duties. 151 Mr Vethman became involved again with Mr Gallagher in late 1995, when he had decided to sell the Parramatta franchise. In the following January, he informed Mr Gallagher that he needed to provide trading accounts for the franchise, which Mr Gallagher said he was unable to do. Mr Gallagher's position was that he required $175,000 for Parramatta or $350,000 for both franchises, that reflecting 'the money I put in.' Mr John Montesalvo gave similar evidence as to a conversation with Mr Gallagher in response to his November letter, when his intention to sell was announced. 152 Mr Gallagher later provided documents to Mr Vethman which showed a profit of $78,363 for the 1994/95 trading year and $39,142 profit for July 1995 to February 1996. This reflected a turnover of some $995,869 for the 1994/95 year. This compared to the figures provided in the disclosure document of profit of $53,600 on turnover of $1million and $74,460 on turnover of $1.6million. 153 Both Mr Gallagher and Mr Vethman advertised the Parramatta franchise and Mr Gallagher received three responses and Mr Vethman two. Mr Gallagher's advertisement was to this effect: ' MODERN GARAGES - PARRAMATTA This business has been established for many years and during that time has built up reputation and a very good client base. The business is ideally located in an excellent position with regards traffic flow and also being in a strong growth area. The business currently operates under normal business hours however this could be increased along with further promotion to take advantagae (sic) of the Huge potential that this business offers. In expensive lease and excellent premises are just another feature of the business. Golden opportunity to purchasers. ASKING PRICE $159,000 + SAV. Barclays Business Brokers. Phone Buyer Enquiry Centre 02-264 1114. All Conjuncting Agents Welcome ' 154 In cross examination, Mr Gallagher agreed that the advertisement was inaccurate in a number of respects, but insisted that it was accurate in suggesting that the business had a huge potential at that time, that it was ideally located and that it was a business with a golden opportunity. This was supported by evidence that Mr Gallagher had produced another document at this time, which showed that each of the franchises were then turning over $80,000 to $150,000 per month. 155 Mr Gallagher later told Mr Vethman that he was prepared to drop the sale price to $150,000 for the Parramatta franchise and Mr Vethman offered to introduce to him a Mr Mountford, who was interested in acquiring another franchise in South Sydney. Mr Mountford rejected that approach, given the price and the size of the site. He paid Modern Garages a deposit of $8,500 for the South Sydney franchise. 156 The negotiations in relation to South Sydney ran into difficulty because of problems finding a suitable site and Mr Vethman endeavoured to reinterest Mr Mountford in the Parramatta franchise. Mr Vethman brokered an agreement in principle between Mr Mountford and Mr Gallagher and a sale agreement was prepared, for a sum of $90,000 by Mr Gallagher's subcontractor. Modern Garages agreed to release Mr Mountford from his South Sydney commitment and to refer the deposit it had taken to Mr Gallagher. 157 The agreement further involved payment of a $35,000 deposit and payment of the balance by means of a 4% monthly royalty on sales. If the purchaser defaulted on payments, the franchise was to revert back to Mr Gallagher. Mr Gallagher then required Mr Mountford to provide a personal guarantee. Mr Mountford was so incensed by this that he refused to purchase the franchise and withdrew his offer. 158 Efforts to sell the franchise continued, but Mr Vethman encountered difficulties in effecting a sale, because he could not provide prospective franchisees with any accounting records or trading figures. When this problem was discussed and Mr Vethman asked whether Mr Gallagher had prepared tax returns, he was informed that Mr Gallagher had not, but that he would instruct his part-time accountant to write up the books to produce a profit and loss account. 159 In September 1996, Mr Gallagher produced lead intakes for Parramatta, showing in Mr Vethman's opinion, 'abysmally low' conversion rates from leads and when asked to provide details of the last 20 sales figures produced showed sales with average values of $10,816.19. On analysis of the figures, Mr Vethman's view was that if the closure rates on leads were improved to what he regarded as 'normal good selling', the turnover at Parramatta had a potential of $2million to $2.4million for the period May 1994 to June 1995 and $1,750,00 to $2million for the following year. 160 Mr Vethman discussed these matters with Mr Gallagher, who agreed that this performance '… was not anywhere near the potential.' That description accorded with Mr Gallagher's letter of November 1995. That potential was raised with Mr Gallagher by Mr Vethman because it was an important matter to be discussed with prospective purchasers. They also discussed the run down state of the Parramatta franchise and the steps needed to clean it up, especially when potential purchasers had to be bought in. Mr Gallagher's display of out-of-date buildings was also discussed and he agreed to take steps to improve the situation. Mr John Montesalvo gave similar evidence about the state of the Penrith franchise and Mr Jamieson, with some notable hesitation, described the state of the two franchises as having been good, by comparison to his own, which he described as very good. 161 Mr Vethman was cross examined about the conversion rates of leads to sales, particularly in the light of information produced by Mr Byrne as to leads received at the Parramatta franchise. His evidence was that he did not regard the sales achieved there as a good result. This contrasted with Mr Hughes' view that they reflected the start up nature of the businesses. Mr Vethman's evidence was that if he had been selling this franchise in 1994, he would have shown the prospective franchisee these figures, indeed would have expected to be asked for them, because anyone going into a business would want to know what the business had been doing. 162 Mr Vethman's evidence in cross examination was that records of all sales would have gone to Modern Garages in 1994, so would have been available to it when the franchise was sold to Mr Gallagher in 1994. He agreed that it might have been unfair to sell such a franchise to a person inexperienced in building, given its unprofitably. He also accepted, however, that the figures produced by Mr Byrne showed that Mr Gallagher, with no experience in the industry, was achieving sales at a similar level to Mr Sam Montesalvo, who had started the business up. 163 Mr Vethman was also cross examined as to his view of the potential of the franchise when he was endeavouring to sell it, given the information provided to him by Mr Gallagher as to leads. He was firm in his belief that the franchise had the potential to be profitable, given its lead intake, explaining that his view was premised on the franchise being operated by properly trained staff and being properly run. In re-examination, he explained that the staff at Parramatta had been trained by him so that the receptionist took all enquiries, so as to obtain the customer's name and to make an appointment for the salesmen to see them, or to greet customers who attended the display centre and to then hand them on to a salesman. Once the customer was passed to a salesman, he regarded there to be a sales presentation, which should have led to a conversion rate of some 20% into sales. Mr Vethman agreed that if leads fell, so would sales. He doubted that 'tyre kickers' would have had much effect in this business. 164 This evidence was similar to that given by Mr Hughes. He explained that the system as to recording leads, was a useful tool to gauge the success of various forms of advertising, as well as keeping a record of conversion rates of the various salesmen. Mr Hughes vetted these sheets and discussed the problems Mr Gallagher was experiencing with sales staff with him, on a number of occasions. Mr Byrne agreed that there had been such discussions as to conversion rates. 165 Mr Hughes' view was that the franchises had the potential to generate $2million in sales, even in the first year of operation if they had been operated well. He gave evidence, however, that the franchisees' salesmen were failing to follow the operations manual, and even when making sales were underselling so as to maximise their own commissions, to the detriment of the applicants. Mr Gallagher's own evidence demonstrated he had concerns about sales staff. While such matters were frequently discussed and Mr Gallagher agreed that they needed to be attended to, Mr Hughes' evidence was that there was always a reason as to why they were not. It was these difficulties which caused Mr Hughes to send Mr Vethman to assist the applicants with training of staff. 166 Mr Vethman introduced a further potential buyer to Mr Gallagher, Mr Budin and arrangements were made for him to spend two weeks with Mr Gallagher in February 1997. Mr Vethman wrote to Mr Gallagher urging him to attend to the state of the franchise outlet at Parramatta, both to increase sales and to attract Mr Budin. Mr Gallagher later told Mr Vethman that Mr Budin would not be proceeding and he did not attend as earlier arranged. Mr Vethman was not informed as to what had transpired. On 12 March, Mr Vethman was told, when he rang Mr Gallagher to ask about Mr Budin, that he would be closing the franchise on 14 March on advice and that Mr Hughes had told him he would be closed down on 17 March in any event. 167 Mr Vethman's last contact with Mr Gallagher when he delivered him a 'wrongful termination notice' and a number of unpaid invoices on 18 March. They met again the next day and attended to various details. 168 I accept Mr Vethman's' evidence. I found him to be a witness of credit and reject the suggestion put vehemently to him in cross examination that his evidence was false in a number of respects. In this context, I also note that his evidence was later relied upon by the applicants in submissions. In so far as his evidence conflicted with that of Mr Gallagher's evidence, I have concluded that Mr Vethman's evidence must be preferred. 169 The reasons for that conclusion include not only my general impression of the respective witnesses, but also having regard to documentary material, relevant to an assessment of the evidence which they gave about various matters. By way of illustration, I note Mr Gallagher's evidence as to the circumstances in which Mr Mountford came not to proceed with the purchase of the Parramatta franchise. It was plainly wrong. Not only did it conflict with Mr Vethman's evidence and that of Mr Hughes, it conflicted with the sales documentation which his own solicitor had prepared, which demonstrated that Modern Garages had been prepared to direct a deposit of $8,500 which it had already taken in respect of another distributorship, to the purchase of the Parramatta franchise. Mr Gallagher's evidence that after Mr Mountford withdrew from the purchase of the Parramatta franchise, he paid an $8,500 deposit for a distributorship in an adjoining area was wrong. 170 I also note that it was put to Mr Vethman in cross examination that he had told Mr Gallagher that he had sworn his affidavit under pressure from Mr John Montesalvo and that he had been asked to swear a false affidavit. Mr Vethman firmly rejected these suggestions. I believed him and did not believe the evidence which Mr Gallagher gave about his conversations with Mr Vethman as to the statements Mr Vethman denied having made. 171 My impression of Mr Vethman found further support in the evidence given by Mr Jamieson, as to his own experiences. Importantly, this included the matter of closure rates from leads. Mr Jamieson agreed, for example, that his own closure rate was 20%; that in his experience about 99% of enquiries he received were from people with genuine interest and that few enquiries emanated from 'tyre kickers'. He did not give any evidence that his closure rate ever declined. Rather, the inference from his evidence was that the rate of leads fell over time, with increasing competition in the market. 172 I observe that the evidence of Mr Byrne and Mr Gallagher as to such matters was to quite different effect. Mr Gallagher's evidence was that after he had been involved in the franchise for some time, his observation was that salesmen did not, in fact, record all leads received; that later advertising in the Telegraph increased the number of leads which were a waste of time and that many enquiries were received from people with no real interest in purchasing garages. He also gave evidence that he required sales staff to record all enquiries, not just sales presentations made and that up to 60% of the telephone enquiries received did not lead to a presentation to a customer. If that factor was taken into account, in Mr Gallagher's view, the applicants' conversion rate was in excess of 20%. As to Mr Byrne, his closure rate was in excess of 30%, on this basis. 173 In Mr Byrne's view, the applicants' sales manager in March 1996 and later as general manager, that the applicants' problem with sales not eventuating from enquiries lay with the quality of the enquiries the advertising being used was generating. Steps were taken to alter the advertising used, some of which was designed to raise the profile of the business rather than to improve sales. There was no evidence of steps taken to improve sales techniques, other than those which flowed from steps taken by Mr Hughes and Mr Vethman. 174 Mr Byrne's evidence was also critical of the franchisor's approach to leads and advertising. In his view, its approach was quantitative rather than qualitative. While Mr Byrne's evidence was that he did not know whether the changes in advertising he introduced had led to any improvement in sales, some evidence suggested that sales of the franchisor's products later declined. While initially his evidence was that did he know what the applicants' closure rate was, Mr Byrne eventually conceded in cross examination, that it was 10%. While his evidence in chief was that there were a lot of 'tyre kickers', in cross examination he was unable to put any figure on what number of 'tyre kickers' might have been reflected in the applicants' leads. In both of these respects, his evidence was significantly at odds with that of Mr Gallagher. 175 Mr Byrne's views as to many of these matters, like those of Mr Gallagher, were also quite inconsistent with those advanced by Mr Vethman and Mr Jamieson. Most importantly their views as to the conversion of leads to sales which could be achieved were irreconcilable. The evidence as to what Mr Jamieson achieved in his respect was particularly compelling. Mr Gallagher's evidence was also inconsistent with that of Mr Jamieson, as to the response received to advertising, (some of which they placed on a joint basis for the three franchises), and the incidence of 'tyre kickers'. 176 Mr Gallagher's evidence was also inconsistent with that of his brother, Mr Frank Gallagher, whose evidence in his affidavit dealt with his involvement in introducing his brother to Mr Sam Montesalvo. He was later employed at the Parramatta franchise by his brother, but gave no evidence in chief about that experience. He was, however, cross examined as to it. 177 Mr Frank Gallagher's evidence was that he became the manager of Parramatta about six months after his brother acquired it. He worked as the manager and salesman and without any training achieved some 'extraordinary months in sales' of up to $228,000 in a month, after attending to some initial problems with pre-existing sales, which had been underquoted. In his assessment, the business was successful until enquiries dropped away when the advertising fell away, when there was no listing of the businesses in the Yellow Pages, a problem he knew his brother was pursuing with the franchisor. This evidence was inconsistent with that of Mr Gallagher, whose evidence was that his brother lost confidence in selling the new product, which led to a decline in his selling rate. Mr Frank Gallagher remained as manager until the business was closed. On the evidence the problems with Yellow Pages advertising emerged from changes announced by Mr John Montesalvo in December 1994. There was continuing disagreement about Yellow Pages advertising in respect of the applicants' franchises thereafter, which ultimately led to the termination of the franchises in May 1997. There was, however, such advertising in 1995 and 1996, albeit disagreement as to the level and type. 178 Having in mind all of this evidence, I have concluded that I prefer their evidence of Mr Vethman and Mr Jamieson as to matters concerning the conversion of leads to sales. Mr Gallagher's evidence was not convincing and must be regarded as having sought to put a gloss on these matters, which was not properly available, by seeking to draw a distinction between enquiries and sales presentations not accepted by either Mr Jamieson or Mr Vethman. The evidence suggested that Mr Frank Gallagher had a real measure of success with sales. It was this success which was perhaps reflected in the trading figures which Mr Gallagher provided to Mr Vethman when he was attempting to sell the Parramatta franchise, apparently being based on figures taken from all of the contracts which had been written at the time. 179 Nevertheless, on the evidence it must be concluded that the applicants had continuing problems with sales techniques, of which Mr Gallagher was conscious, but which the applicants did not address. I particularly note the evidence of Mr Vethman that the applicants' staff did not act in accordance with the training he had given them. Had these matters been addressed so as to achieve a 'normal good rate of selling' as Mr Vethman described it, it seems that both the turnover and profitability achieved by the applicants in the franchises in this period would have improved, consistent with Mr Jamieson's experience. 180 I also observe that Mr Gallagher's evidence that he discovered that his sales staff were selling a competitor's product, were drinking alcohol prior to seeing customers and were promising incorrect and misleading things to customers, can hardly be problems for which the respondents should be held accountable. His evidence was that he dismissed some sales staff for these matters. Even if these salesmen had been initially engaged by the franchisor, it cannot be doubted that in running the business it was the applicants who had responsibility to deal with such problems if they arose. They were not the responsibility of the respondents. Mr Gallagher was undoubtedly capable of dealing with such matters, as his dismissal of both Mr Byrne and Mr Sam Montesalvo early in the operation of the franchises demonstrated. 181 Similarly, concerns which Mr Gallagher had as to the quality of the subcontractors whom he was using, were matters within his control. He had no obligation to continue using them and indeed on his evidence dismissed one builder immediately upon his return from the initial training in Queensland. Mr Frank Gallagher gave similar evidence about attending to such problems during his employment. 182 Mr Gallagher's evidence that he only made payments to subcontractors after final payment from customers and after a final inspection was inconsistent with the report of Ms Bourn. Matters such as these were advanced by Mr Gallagher as if they were the responsibility of the franchisor. It cannot be concluded, even given Mr Gallagher's inexperience in this industry before he took on the franchise, that the franchise agreement should fairly have operated in that way. 183 These difficulties apparently subsisted over the period when he employed Mr Sam Montesalvo, when he employed his brother Mr Frank Gallagher, when he employed Mr Byrne and when he employed a licensed builder in the business. I cannot see that the applicants can properly look to the respondents as to the consequences of decisions such as these. It was the applicants, not the respondents, who were operating these businesses. 184 There was also evidence of assistance provided to the applicants by both Mr Vethman and Mr Hughes. It was common ground that Mr Hughes' response to Mr Gallagher in respect of a number of matters concerning the operation of the franchise, was that Mr Gallagher had refused to listen or implement the advice he was given. Having in mind the other evidence which supports the correctness of that view, it cannot be simply dismissed as having no foundation. 185 When Mr Gallagher wrote to the franchisor in November 1995 notifying of his decision to sell, he gave family medical reasons for his decision and also mentioned that his intention had always been to sell when the turnover had built up to $1million to $1.5million and that the franchises had not yet achieved their potential. He also referred to the problems which had flowed from the need to engage a licensed builder, which had also influenced his decision. Indeed, in cross examination, Mr Gallagher expressed the opinion that he would have achieved this level of turnover if the franchisor had not introduced the new building. 186 No complaint was made as to a lack of profit. Had it been a concern it would undoubtedly have been raised. The evidence as to Mr Gallagher's understanding of the financial position of the franchises at this time, was completely inconsistent with what the Bell report revealed - including for example a $40,000 loss in the first month of operation. 187 I conclude that the proper findings from this evidence included: - The applicants failed to keep proper accounting records and that this affected the operation of the two franchises and their ability to sell the Parramatta franchise. - The applicants permitted the Parramatta franchise outlet to run down, thereby affecting both sales and their ability to sell the franchise. - The applicants conversion of leads to sales was uneven and overall inconsistent with their potential, a matter which Mr Gallagher acknowledged to Mr Vethman. This affected the turnover which the franchises achieved and consequently their profitability and the need to inject funds into the business and the income Mr Gallagher derived from the business. - Had the applicants been achieving a 20% conversion rate, in accordance with the evidence of Mr Vethman as to what good normal selling practices should achieve and what Mr Jamieson in fact was able to achieve in his franchise, in the period during which Wellplace was involved the turnover represented could have been achieved, with consequential improvements in profitability. - The figures produced to Mr Vethman by Mr Gallagher as to trade, expenditure and profits in 1994/95 and 1995/96 were completely inconsistent with the figures upon which the Bell report was based. The earlier figures showed profits. The figures produced for these proceedings showed considerable losses. They are irreconcilable. There was no evidence that Mr Gallagher ever informed Mr Vethman that the franchises were making losses at this time. The evidence does not provide a safe basis for conclusions to be reached as to the actual profits and losses incurred in the franchise. - The figures produced to Mr Vethman by Mr Gallagher supported the basis upon which the Parramatta franchise was offered for sale by Mr Gallagher, that is, that it was profitable. Such a sale was consistent with Mr Gallagher's plans to sell the franchises, albeit in a context where they had not yet reached their full potential. 188 While Mr Frank Gallagher gave no evidence that the Parramatta operation had been affected by the introduction of the new garage, Mr Gallagher's evidence and that of Mr Jamieson suggested that turnover was affected by the introduction in 1995 of the new style of garage. On Mr Jamieson's evidence, the older style had features which made it easier to sell than the new one, but it was too expensive and franchisees were having difficulty selling it in an increasingly competitive market. The new garage was cheaper, but was only meeting the market in Sydney and, in his view, did not have other features which permitted it to compete effectively. 189 Those views were shared by Mr Gallagher, who indeed refused to sell the new garages for a period and whose builders walked out of a demonstration conducted by the franchisor as to how it should be installed. Those views were not shared by Mr Hughes and Mr Montesalvo. Evidence of minutes of meetings of franchisees suggested that some supported the new building and others did not. The design for the new building was patented and it also won an Australian design award. Nevertheless, some franchisees, including the applicants, resisted its introduction. 190 These developments undoubtedly affected the profitability of the franchises, consistent with Mr Jamieson's experience. They are matters which it must, however, be concluded concerned the applicants and Modern Garages. I take the view that as a consequence, this is an aspect of the claim which cannot be further considered in these proceedings at this stage. Were I to do so, it would, however, require consideration of both of the conduct of the applicants and the respondents as to various relevant matters. The representations alleged as to the builders' licence and the size of deposits taken – the twelfth and twenty-fifth representations 191 Mr Vethman gave evidence that the instructions from the franchisor under which he operated were that only licensed builders or those prepared to engage them should be appointed as franchisees. Persons without experience in the building industry would not be appointed as franchisees. This was stipulated in advertisements which he placed and the way in which he conducted interviews. It follows that this practice was at odds with that adopted by Mr Hughes in relation to Mr Gallagher. Had it been observed, Mr Gallagher would plainly not have been considered, unless he was prepared to engage a licensed builder in his franchise business from the outset. 192 Mr Byrne's evidence was that he asked Mr Hughes about the need for a builders' licence when he met him, because he was conscious that the franchise was trading under the franchisor's builders' licence. He received assurances that there were no problems as to this practice continuing. Mr Gallagher received similar assurances, as had Mr Jamieson earlier and Mr and Mrs Cuthbertson later, although I note that they had not acquired their franchise from the franchisor, but had purchased it from another franchisee. 193 Mr Gallagher was cross examined as to why the express provision of the franchise agreement, which obliged the franchisee to obtain relevant licences, was not amended to reflect his understanding in relation to the building licence. He was not sure why his solicitor had not done so, but believed it was because of the strong assurance given by Mr Hughes that as a franchisee he was entitled to trade under the franchisor's builders' licence, a matter discussed by Mr Hughes and Mr Gallagher at the meeting with Mr Winter. Mr Winter confirmed this evidence, although Mr Hughes denied giving any such assurances. 194 While Mr Hughes denied what was alleged in relation to the builders' licence the proper conclusion on all of the evidence, which included correspondence from Mr Gallagher raising the problems he was encountering in relation to the builders' licence, is that the misrepresentation alleged was made out. Even Mr Hughes' explanation that Mr Gallagher was expected to obtain his own licence within 12 months of the signing of the franchise, ignored the obligation for a franchisee to have the relevant licence. 195 Further, his concession that he didn't respond to Mr Gallagher's letters about the problems he was experiencing in relation to his lack of a licence, because he didn't regard the matter as a problem anyway, further illuminated the unfairness of this aspect of the agreements and the representations made. Mr Hughes' explanation that other building franchisors operated on a similar basis, does not detract from these conclusions. Mr John Montesalvo's evidence similarly illuminated the unfairness of this aspect of the agreements. 196 The practical upshot of these matters was that Mr Gallagher was threatened with prosecution by the Building Services Corporation for operating without the requisite licence. As a result, he had to engage a licensed builder in the business and increase the paid up capital of his business to $35,000, a figure which was negotiated with the Department of Fair Trading. This plainly involved him in increased expenses which he had not anticipated and involved him in a circumstance which he had made plain he did not wish to end up in - having to obtain special licences for which he was not himself qualified or to have added expense associated with the need to have a licensed builder involved in the business. I also accept that it reduced the pool of persons to whom the business could be sold, contrary to his expectations. 197 That the franchisor later altered its practices in relation to this matter when Mr Vethman was engaged to perform the work Mr Hughes had earlier performed in dealing with new franchisee's, demonstrated a change relevant to a consideration of the fairness of this aspect of the franchise agreement when made. The representations made to Mr Gallagher as to this matter, were plainly wrong when made, as was known to Mr Hughes and Mr Montesalvo from Mr Jamieson's experiences as to licensing requirements in New South Wales. I am satisfied that this alone properly leads to the conclusion that the contract, when made, was unfair. 198 The same conclusion follows in relation to the representation made as to the size of the deposit which could be taken from purchasers of garages. This was represented to be 20% of the purchase price, but under New South Wales law, of which the franchisor was obviously not initially aware, the maximum permissible was 10%. While Mr Gallagher conceded that this was not a cause of major loss and it was an inadvertent, rather than deliberate error on the part of Wellplace, it gave rise to a complaint to the Department of Fair Trading, was an embarrassment and undoubtedly affected the franchisees' cashflows, as Mr Montesalvo conceded in cross examination. This underlined the difficulties which flowed from the representations made that only $20,000 capital would be required in order to operate the business. 199 This representation was also plainly wrong. Cashflow was always going to be an issue in this business, when payments depended on completion of construction of garages, which was dependent on council approval for construction of garages sold. The evidence suggested that this timeframe was at least three months. 200 I note that in cross examination, Mr Gallagher explained that when advertising the business for sale, he also represented that $20,000 capital was sufficient, because, he explained that this was consistent with the disclosure document and notwithstanding his own experiences. If Mr Gallagher's evidence is to be accepted, this evidence demonstrates that he too was prepared to misrepresent the position as to capital to a purchaser. This is a matter to which I will return. 201 These findings lead to a further basis for the conclusion that the franchise agreements were relevantly unfair when made. The alleged representations in relation to advertising - the fifteenth, sixteenth, seventeenth and twenty-third representations 202 Mr Vethman's evidence as to Yellow Pages advertising was that in the franchise agreement a display ad was to be there provided by the franchisor and that it was the largest source of leads for franchisees. He confirmed that when this system was changed there was some discontent amongst some franchisees, including Mr Gallagher, but in his experience most were quite happy. 203 Mr Jamieson's evidence confirmed that a number of franchisees were very concerned about the alteration in the arrangements as to Yellow Pages advertising and that he had counselled Mr John Montesalvo that he could not unilaterally impose such a change to the franchise system. Mrs Cuthbertson gave evidence that she and her husband had ceased operating their franchise in November 1995, after a number of problems had developed, including the changes imposed in relation to advertising, of which they were informed by Mr Hughes, on a basis which gave them no choice. Mr Frank Gallagher's evidence was that leads were affected when the Yellow Pages did not carry an ad for the business. 204 The evidence demonstrated that the alteration in relation to advertising arrangements were introduced unilaterally by the franchisor in January 1995, that decision having been made by Mr John Montesalvo. It is true that those changes went hand in hand with changes in the pricing structure of the garages. On Mr Jamieson's evidence, a franchisee would have been in a similar financial position before and after this change provided that a sufficient number of garages were sold, in order to make up the difference by way of rebate. 205 The letter introducing the change required a franchisee to consent to the change. Mr Gallagher maintained that he did not consent and Mr John Montesalvo that he did. There was no written acceptance of the changes, however Mr Gallagher accepted the reduced prices which went hand in hand with the change as to advertising. 206 Whether the changes in pricing structure were adequate to compensate for the changes was doubtful, on Mr Jamieson's evidence, until a relatively high turnover was achieved. In the circumstances where the applicants were having obvious problems in relation to the conversion of leads to sales and cashflow difficulties, having in mind the consequences of the need to obtain a builders' licence, I take the view that the conduct of the franchisor as to this matter was sufficiently unfair so as to satisfy the test discussed by the majority in Reich v Client Server Professionals of Australia Pty Ltd (Administrator Appointed) [2000] NSWIRComm 143 at paragraph 27. 207 Whether Mr Gallagher's conduct, in having accepted the reduced prices, but refusing himself to place the Yellow Pages ad, particularly when he learnt from Yellow Pages in 1996 that no ad has had been placed for 1997, amounted to a failure to mitigate, are issues which would arise for consideration if this aspect of the case were to be determined. (See Harcourt Brace & Co (Australia) Pty Ltd v Cory (1998) 81 IR 321). In light of the view I have reached as to the case advanced against Modern Garages, I do not, however, consider it further at this stage. 208 There was also evidence that an advertising campaign was conducted by the franchisor in 1994, which was unsuccessful and was not repeated. The applicants also conducted advertising inconsistent with the requirements of the franchise agreements. I also do not propose to consider these matters further at this stage, for similar reasons. The alleged representations as to building materials - the nineteenth representation 209 Mr Jamieson's evidence was that he had experienced few problems in relation to supply of materials or kits. The problems which led to the closure of his franchise stemmed from the fact that the prices of the Modern Garages product were higher than those charged by competitors and that the new product, while cheaper than the old, was no better than that being offered by competitors. Mr Jamieson had produced written evidence to Mr John Montesalvo that franchisees could purchase materials direct from other suppliers and have them delivered on site at 20% less than they were charged by the franchisor. In cross examination, he confirmed, however, that he commended the franchisor for its efficiency, that it made few mistakes and that orders were mostly delivered on time. 210 Mr Jamieson was cross examined as to the method in place as to ordering of kits and confirmed that when he received a confirmation of order from the franchisor, he had a period of two to three weeks to check that the order emanating from the franchisor's factory conformed to the order which had been placed. It was this evidence which helped throw light on the magnitude of the problems apparently experienced by the applicants in relation to the supply of incorrect kits or materials. Mr Gallagher's evidence, in cross examination, was that he placed those orders, but it was not his practice to always make such a cross check. 211 Mr Jamieson also confirmed in cross examination, that he was aware that Mr Gallagher was manufacturing products other than franchise products at his premises. He regarded this as unusual at the time, given the terms of the franchise agreement. It was an arrangement which had been entered with his brother-in-law. He was, however, not aware of what was being manufactured. Mr Frank Gallagher also confirmed that he was aware of this, but was also not aware of what was being manufactured. 212 As I have already noted, I found Mr Jamieson to be a witness of credit. His evidence was given in a disinterested and even way. It corroborated Mr Gallagher's evidence as to pre-contractual promises made to him by Mr Hughes. It, however, did not corroborate Mr Gallagher's evidence concerning problems he was having with the franchisor in relation to timely deliveries and incorrect orders. 213 His evidence was that he had no significant problems as to such matters. Mr Gallagher was cross examined in detail as to these allegations. I have been left with the distinct impression that Mr Gallagher's complaints about these matters were exaggerated and, in part, reflected his own lack of care as to matters such as checking that orders placed and recorded by the factory corresponded. The evidence suggested that some problems flowed from his own errors, others from problems which developed in transportation, some from other suppliers and some which emanated from the franchisor's manufacturing operation. Indeed, in cross examination, Mr Gallagher conceded that problems did not flow from poor quality, but rather from the time of delivery. The evidence also demonstrated that Mr Gallagher had himself arranged for the transport of the garages, at least in some periods, using the same contractor as Mr Jamieson. 214 I cannot conclude on this evidence, that the respondents should be held liable for all of these failures in regard to such matters. That Mr Gallagher sought to lay all of these problems at the feet of the franchisor when, for instance, in cross examination he accepted that some of them had been problems for which suppliers had responsibility and which they had rectified, did not assist the applicants' case. Nor can it be properly available to conclude in a case such as this that a franchisor is obliged to provide a system which is completely free of error on its part. To adopt such an approach would not involve an injection of fairness into an otherwise unfair franchise arrangement, but, in my view, would require the impossible. No finding of unfairness can flow from the evidence as to these matters. 215 Mr Jamieson's evidence also suggested that while the franchise business was initially successful, the market in garages in Sydney became more competitive over time and that the franchisor moved to meet that environment with the introduction of the new product. The older product, while stronger, was more expensive. The newer product was meeting, but not beating, the competition. Mr Gallagher's resistance to the sale of the new product has to be considered in that light. I cannot conclude that it was properly open to him to expect that the business he was in would never change and that he would not have to adapt to meet that new environment. 216 Indeed, on one view, the evidence suggested that he did precisely that, albeit in breach of his obligations under the franchise agreement. The records produced as to the applicants' expenditure confirmed the understanding of Mr Jamieson, that the applicants were producing other garage products contrary to the franchise agreement. The cross examination of Mr Gallagher also suggested that this was a substantial endeavour and not, as he sought to put, simply in order to rectify problems with material delivered by the franchisor or to obtain equipment which it did not supply. Indeed, the evidence went so far as to suggest that material was being obtained from competitors of the franchisor. 217 I note that Mr Gallagher's explanation of the amounts being expended, and the large number of purchases from other suppliers which appeared in the franchisees records, was: 'From a business point of view in order to survive we had to service the customers needs. If Modern Garages were unable to supply a building or unable to supply a product and we could, we did.' He expanded further on this, with: 'It was through pure economic necessity that if you pay $200 to get somebody through the door I wasn't going to send him to somebody else and the businesses were not turning over what I anticipated. I was struggling. I had used my resources. I then entered into a number of jobs which were not supplied by Modern Garages.' This was the position at a time when Mr Gallagher said he had been having a lot of discussions with Mr Frank Agar, who left the employment of Wellplace some four months after the franchise agreements were entered. There was other evidence that when Mr Hughes had been aware of some of the other products being sold by the applicants, no objection was taken by the franchisor and arrangements made to permit this to continue. The evidence did not suggest however, that this had resulted from steps being taken by the applicants to draw these matters to the franchisor's attention. Indeed, the evidence rather suggested that the applicants resented the franchisor becoming involved. 218 That the applicants were operating contrary to the obligations under the franchise agreements was consistent with the evidence of Mr Jamieson that later on, a 20% saving on average could be achieved by sourcing produces from other sources. The evidence as to these matters inevitably led to the view that the applicants' complaints in relation to these misrepresentations were not made out. The respondents' allegations of breach of the franchise agreement by the applicants. 219 This observation brings me to allegations of the respondents that the applicants were in breach of the franchise agreement. Mr Gallagher freely conceded that he had acquired materials from suppliers other than the franchisor in breach of the franchise agreement. His evidence was that he had done so on the advice of Mr Frank Agar, who was employed by the franchisor, who he had told him that 'Everybody else does it'. Mr Gallagher was aware that he was obliged to source building materials through the franchisor, but found it impossible to do so. On all of the evidence, it cannot be concluded that the applicants were confining themselves to those products which could not be supplied by the franchisor. That they were in breach of the franchise agreement, is inescapable. 220 On the evidence, it is impossible to put a figure on to what extent Mr Gallagher was pursuing this practice or how it diverted the applicants from the franchise business. If the applicants made a loss as a result, as they seem to have done given the Bell report, I can find no basis upon which the respondents can fairly be held to account for such losses. 221 The applicants also breached the franchise agreements on termination, by continuing to trade under the Modern Garages' name, which was displayed outside the Penrith premises for over 12 months after the termination. 222 Mr Gallagher also agreed that the applicants continued to receive leads from Modern Garages' advertising after termination, but while he agreed that customers might have had the impression they were dealing with Modern Garages initially, the applicants took steps to inform them that they were no longer trading under Modern Garages, if they decided to proceed. Matters such as these need to be taken into account having in mind the requirements of s106 of the Act. The alleged representations as to the production board – the eighteenth representation 223 This claim was put to rest by the evidence of Mr Byrne. His evidence was that the use of the production board had two purposes. One to do with management and the other with promotion. Despite evidence in chief to different effect, his evidence in cross examination was that he understood that all of the names on the board after February 1994 represented customers who had signed contracts, with the exception of the army job. Mr Byrne had placed those names on the board and did not regard their placement as dishonest, even the army job. His explanation for this was: '… when that enquiry came in, the sergeant that came from the Army base at Mosman indicated that we had the job but they were involved in a political fracas, within their own organisation, so from one day to another it was on again, off again. They were not getting authorities, they were not getting certificates, they were challenging plans and as I recollect my appropriate conversation with the sergeant, I would say to him, "Is this job still going or what do I do with it?", and he would say "Just keep it there. Keep the detail". That is why of all the jobs to stay on the board that one remained. That was a prospect.' 224 When the franchise agreements were entered, Mr Gallagher was supplied with a list of all existing jobs and then himself separated them into those at Parramatta and those at Penrith. The list contained no government contracts and Mr Gallagher made no complaint about this, he did not even notice it. I also note that there was evidence of significant disagreement between the applicants and the respondents as to the applicants' failure to use the production board and other aspects of the franchisor's operating manual. Mr Byrne's evidence as to these matters was again instructive. His evidence was that he was told on number of occasions by Mr Sam Montesalvo not to depart from the operations manual as to this and other matters. He also later overheard a conversation between Mr Gallagher and Mr John Montesalvo as to the applicants' failure to use the production board. 225 It was a board designed to keep a prominent record as to what stage every job was at. Mr Hughes' evidence was that he frequently discussed the use of this board with Mr Gallagher. In his view, it was a useful management tool which, at a glance, indicated what stage and job was at. Mr Gallagher preferred paper records, although his evidence was that he used a production board in his current business. On the evidence as to his difficulties with paperwork, that Mr Hughes might have had cause for concern can be appreciated. There was also a disagreement as to the need for a production board at Penrith. Even after it was installed, it generally wasn't used. The conversation which Mr Byrne overheard was to this effect: 'Montesalvo: " … I've seen reports from Barry Hughes that say you're not following the system set out in the Manual." Gallagher: I have to listen to the market and respond if I'm going to succeed". Montesalvo: "The only thing you must see and listen to is the Manual and the advice from Barry Hughes." Gallagher: "I've listened to Hughes and the only thing I've gotten is that when he leaves, nothing has changed and I'm still left to resolve the issues with customers and staff". Montesalvo: "If you're not prepared to listen to our experience, I can't do anything for you. I want to try to help but you have to be guided by our experience". Gallagher: "I have followed Barry Hughes' guidance but every time he provides it, I lose money. Brian Jamieson has had the same experience. Why is it that nobody in the organisation knows what to do to be successful in the Sydney market? No promotion which you have instigated has been successful". Montesalvo: "That's not the issue. Why won't you follow the manual?" Gallagher: "Because I did when I first started, but they never gave the results I was told to expect". ' 226 I have concluded that the complaints as to the production board were not made out in the evidence. The alleged representations as to mark-ups – representations eight, nine and ten 227 The evidence as to mark ups is troubling in a similar way to that of profits. There were a variety of documents provided to the applicants which showed mark-ups of different levels, ranging from 35% to18% on kit sales, 25-20% on concrete and erection. At the least, from this material the applicants were aware that mark-ups had a range, consistent with the evidence of competition in the market. 228 It was suggested that the respondents' figures were misleading and unachievable. However, what cannot be overlooked is that Mr Gallagher himself produced a document when endeavouring to sell the Parramatta franchise, which indicated that the mark-ups he was achieving were 40% on kits supplied by the franchisor, 20% on concrete and 20% on erection of kits. 229 I can find no basis for misrepresentation as to this matter. The alleged representation as to work on hand - eleven 230 Again, this was the subject of problematic evidence. Undoubtedly, there were discussions as to work on hand. From his conversations with Mr Sam Montesalvo, Mr Gallagher expected $40,000 to $50,000 profit as to this work. 231 Mr Hughes' evidence was that the franchisor would arrange for payment to him ranging from 10% to 25% of the gross sale price of this work, depending on what had been done on the takeover date and whether it was a government job. This referred to work then expected, including for the army, as earlier noted 232 Mr Gallagher's evidence was that the work had in fact been discounted and that various problems were encountered in completing this work, with the result that these sums were not received. In April 1996, he followed these matters up with Ms Bourn who gave him a credit for almost $20,000. This was a lower figure than he had expected because some, at least, of this work had in his view been sold at a loss. Mr Gallagher responded in writing, saying he would take the matter further with Mr Hughes. No agreement was reached. 233 In cross examination, Mr Gallagher conceded that the result of his complaints as to these matters was that he received a payment for work in progress, for which he had made no payment on acquisition of the franchises. He, however, believed that the franchise fee had involved a premium and that this work in progress was to ensure cashflow in the initial period of operation of the two franchises. 234 The upshot of the evidence was that there was considerable difficulty with these contracts. Mr Frank Gallagher's evidence was also that many of them had been underquoted. The profits derived from them was plainly less than expected as a result and the franchisor was slow in paying. It must be accepted that the representations as to work-in-progress was a factor in Mr Gallagher's decision to acquire the franchises. The representations were not made good and a finding of unfairness properly flows as a consequence. The alleged representations that Mr Gallagher would need no technical or mechanical or business experience and would only need to work a few days per week in the business, the business was not seasonal, would flourish and would succeed – representations thirteen, twenty, twenty-one and twenty-two 235 The evidence as to these matters was, like many other aspects of the case, rather problematic. In my assessment, there can be no doubt that Mr Hughes and Mr Sam Montesalvo were very enthusiastic about the franchise opportunity which Mr Gallagher was interested in and that this enthusiasm influenced his decision. Mr Gallagher was similarly influenced by what Mr Jamieson had told him. 236 Mr Jamieson had received similar glowing representations from Mr Hughes and was at the time happy with how his franchise was developing and was content to recommend it to Mr Gallagher on that basis. In retrospect, it would be fair to describe his view of Mr Hughes' representations as overstating what could happen. Mr Jamieson had, however, made his own investigations of other franchisees and was himself satisfied with their recommendations. Mr Jamieson's views were given considerable weight by Mr Gallagher. In cross examination, Mr Gallagher said that he viewed Mr Hughes' promises with a grain of salt, but his enthusiasm and that of Mr Sam Montesalvo had influenced his decision to purchase the franchises. 237 Undoubtedly thereafter market conditions altered, especially those in Sydney. The steps taken by the franchisor to meet those changed conditions were not welcomed by Mr Gallagher and some other franchisees and eventually the relationship foundered. In the meantime, Mr Gallagher had been acting inconsistently with his own obligations under the franchise agreement. 238 All of these matters raised for consideration the discussion by Watson J in Swann v Ultratune Aust. Pty Ltd (1983) 5 IR 284 at 292-3. Optimistic projections may not amount to misrepresentation, if they are based on existing experiences. Likewise criticisms of performance and efficiency, may not be enough to render representations as false. Even a 'gilding of the lily' will not be enough to demonstrate that an applicant has been overborne or deluded, particularly where a franchisor makes it plain that a calculated business risk is being taken. Here, there can be no doubt from the disclosure documents and the franchise agreements which the parties entered, that this was made well known by the respondents. I also have no doubt that Mr Gallagher was not overborne by representations made to him by the respondents in these respects. 239 The suggestion that Mr Gallagher was induced to acquire the franchises by the notions that he would have little work to perform in the businesses in particular, was contrary to his own evidence of the reasons for his decision to acquire the two franchises, having regard to Mr Sam Montesalvo's agreement to work for him, so as to give him the benefit of his experience in the building industry and to permit him to run the administrative side of the business. 240 I cannot find these allegations as having been made out. The alleged representations as to the sale of the business - fourteen 241 Mr John Montesalvo's evidence was that the franchisor did not seek to repurchase the franchises when Mr Gallagher wished to sell them in 1996, because that was not the business that the franchisor was in. Mr Hughes denied promising to buy them back if a purchaser could not be found and confirmed that this was not a part of the franchise operation. He did not deny that Mr Gallagher made him aware that he was anxious to acquire a business which could readily be sold by his family, in the event that something happened to him. 242 The difficulties as to any sale were of course affected by the way in which the business was conducted by the applicants. There were real problems as to record keeping, a matter which would affect a sale to any purchaser. The applicants were, of course, also trading contrary to the franchise agreement. 243 Nevertheless, these matters came to a head at a time when Modern Garages was the franchisor. Accordingly I do not propose to deal further with this claim at this stage. The orders to be made 244 A Full Bench of the Court in Ace Business Brokers Pty Limited v Phillips-Treby [2000] NSWIRComm 163 recently discussed the orders which might be made against a respondent who was not a party to the contract in question, in the context of representations which had been made. At paragraph 38, it was observed that the real question under s106(5) 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".' 245 It was further observed that: 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 p 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 (7 IR at pp 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 (127 CLR at p 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 section 88F, are not necessarily limited to the parties to the contract or arrangement sought to be declared void and there may be other persons who are in reality the actors deriving benefit from the making or the execution of the contract or arrangement. An order made against a person who is not a party to the contract or arrangement declared to be void is not necessarily beyond the jurisdiction of the Commission. (2) The power contained in the section to make an order for the payment of money is not unlimited and is at best no more than a power to make such an order as can 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; it will include power to make an order for payment of money which has been paid or which was payable under the contract or arrangement and will extend to ordering the payment of money which can be considered to be appropriate to effect, wholly or partially, the restitution of the parties to their former position upon the variation or avoidance of the contract or arrangement. (3) An order for the payment of money against a person, whether a party or not to the contract or arrangement, which is not limited in amount to represent his association with the making or execution of the contract or arrangement cannot be thought to be an order for the payment of money in connection with the contract or arrangement except, perhaps, in some exceptional circuMstances. (4) In the appropriate circuMstances an order may be made against persons which imposes upon them a joint and several liability for the payment of money. (emphasis added) 41 As to the upper limit of any order which may be made for the payment of money by an agent referable to the amount received by way of commission, Asprey JA added (at pp 6-7) : But, if there is more than one person culpably responsible for the acts which have induced an innocent party to enter into and carry into execution a contract which justifiably attracts the jurisdiction of the Commission to declare it void, I do not think that the amount payable as restitution by a participant in the acts leading to the making of the contract and its execution is necessarily to be measured by the sum of money which, as the result of some agreement between himself and his fellow transgressors, he personally receives from the total amount of the ill-gotten gains. With respect, I do not think that the learned Chief Justice in Brown v Rezitis (supra) laid down any such rule of thumb as that for the implementation of section 88F. 42 His Honour then (at p 7) dealt with the true measure of the extent of the restitution which an agent may be called upon to make 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 . Each case will depend upon its own particular facts but one act may justly require the payment of a larger sum than a series of acts which were of less consequence in the affair which led to the making of the contract and its execution. In the present case, from the findings of fact made by the learned Judge, it is not possible in this respect to make any distinction between the acts of Starr and those of the Agent. (emphasis added) 43 And so it was in that case that Asprey JA concluded (at p 9) : … 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 of 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. As regards the balance of the amount of $3,000, namely, the sum of $500 which the learned Judge arrived at as a "fair result" for the period of work in excess of 110 hours performed under the contracts by the respondents Witek, after taking into account the problematical value of the ornaments manufactured by them in that period and left on their hands, I think that the same considerations must apply to it. The contracts provided that the purchasers of the business would provide a manufacturing service for Starr; and the Agent must be taken to be aware that, having parted with their money, their time and energies would be devoted to performing their obligations under the worthless contracts. (emphasis added) 44 The application of the relevant principles as formulated by the authorities to which we have referred has been often given effect in unfair contract cases. Two such cases were relied upon by the appellant here, namely, Grace v Baker [1972] AR (NSW) 433 and Monahan v Gibbons [1981] AR (NSW) 85. In Grace v Baker (at p 439), Cahill J held that a monetary order could be made against an agent in a sum greater than that received by the agent: see also Mestrom v Alison Clint Floral Delivery Pty Ltd (No 2) [1971] AR (NSW) 216. In considering the particular circuMstances of the case in assessing the amount for which the agent should be held liable, Cahill J, significantly we think, added ([1972] AR at p 440) that : … the company is blameworthy to some extent because of the exaggerated or untrue representations made by its employee Powell to Grace concerning Baker's reputation and reliability; concerning the sense of satisfaction felt by other purchasers of similar contracts with Baker which the company had negotiated; and about the availability of adequate supplies of doorframes. In my judgment, although these representations were a factor in Grace's decision to enter into and continue with his contract, they were not a decisive one. If I had considered otherwise, I would have been very much inclined to make an order against the company for the full amount claimed, namely $3,500. As it is, the case is a borderline one, and, although my mind has fluctuated, I propose to order the company to pay to Grace an amount of $1,000, the amount of commission received by it. I consider that that order is fully justified. 45 Even though his Honour limited the payment to the amount of the agent's commission, a point relied upon by the appellant here, it is plain that that was done because, as his Honour said, "although these representations were a factor in Grace's decision to enter into and continue with his contract, they were not a decisive one"; his Honour pointedly added that if he had thought otherwise then he would have ordered payment of "the full amount claimed" being the total purchase price of the business concerned. 46 Monahan v Gibbons was another case involving an agent, although decided in its own particular circuMstances where the then aggrieved applicants joined the agent as one of the respondents but sought no relief against it. Nevertheless, Bauer J commented ([1981] AR at p 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 ([1981] AR at p 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. 246 The Full Bench then went on to consider questions as to whether representation had been made on a reckless basis. That, on the approach of the Full Bench, was a sufficient basis for orders to flow, in that case against the business agent who had represented the other party to the franchise agreement in question in the negotiations. 247 Not dissimilar questions arise for consideration here. I am well satisfied that monetary orders should be made against Wellplace to reflect the unfairness in the contracts which I have found. Three other questions follow. The amount of such orders; whether the three individual respondents should also have any orders made against them and if so, on what basis. 248 There are, in this case, real difficulties in determining what money orders, if any, should be made. The applicants purchased two franchises for $95,000 and $75,350 a total of $170,350. Both came to an end and one of the premises was closed, the other continued, with the work on hand of both businesses being pursued. That work included existing work which had been taken on in breach of the franchise agreement. Customers were notified of the developments, it must be accepted, in such a way as to encourage them not to take their business direct to the franchisor, inconsistently with the terms of the franchise agreements. The Penrith operation then continued to trade for a very considerable period under the Modern Garages name. 249 The franchise agreements, on the evidence, were undoubtedly unfair as formed, having regard to various of the representations made out, but not made good by Wellplace in the performance of the agreements. Undoubtedly on the Bell report, the applicants made losses in the business. 250 The evidence of Mrs Gallagher, who was not called for cross examination, was that prior to the acquisition of the franchises she and her husband were financially comfortable, with a low mortgage and thus well able to meet their commitments. The result of their investment was that they were eating into their capital in order to meet daily living expenses, had to input large sums into the business, increase their mortgage fourfold and Mr Gallagher had to work much longer hours than he did while employed in the police force and had been unable to take holidays. This had improved since he had terminated his association with Modern Garages, but soon they would be in a position where they would have to find another source of money to meet their mortgage commitments. 251 Mrs Gallagher also gave evidence that one of their daughters had worked full-time in the business without payment for about 14 months. Mrs Gallagher had minded her grandchildren to permit her to do so. Mrs Gallagher also worked in the business on an unpaid basis for up to one day a week for about six months. 252 Mr Gallagher's health had been affected and in late 1995 he was diagnosed with diabetes. There had been resulting effects on his relationship with his family. This had improved since his relationship with Modern Garages ceased. Mrs Gallagher had also been affected emotionally by the experience. 253 These circumstances were undoubtedly distressing. Nevertheless, justice must be done as between the parties, having in mind the findings which the evidence permits. On the evidence, I have concluded that the applicants were responsible for many of the difficulties which led to the losses about which complaint was made, not Wellplace. I have also formed the view that the applicants were in breach of the franchise agreements and further, that information which they furnished as to the profitability of the franchise business was inconsistent with the records on which the Bell report was based. The inescapable conclusion appears to be that the applicants were prepared themselves to mislead potential purchasers or to here advance a case inconsistent with the real position at the time they sought to sell the franchises. 254 Under s106(2) of the Act it is not only the conduct of the respondents which must be considered, but also that of the applicants. All of these matters have made the question of the assessment of what money orders, if any, should be made in favour of the applicants most difficult. 255 I have concluded that the words of Sheldon J in Davies should guide my consideration of this question. The massive power here vested by s106 of the Act should be exercised cautiously and with proper restraint. On that basis, I have concluded that the order made in favour of the applicants should be in the sum of $85,175, being one half of the combined franchise fee. This, in my view, reflects a fair balance of the unfairness of the agreement as formed and operated in respect of those misrepresentations by Wellplace, as I have found them and the respective conduct of the parties. That is the sum which Wellplace should be ordered to pay. 256 I have also concluded that Mr Hughes and Mr John Montesalvo should have orders made against them. Mr John Montesalvo made plain in his evidence that the business of Wellplace was his, he having built it up and operated it for many years before Modern Garages acquired it and being ultimately responsible for its later demise. I conclude that he had the closest possible association with the franchise scheme which Wellplace operated and should have that connection reflected in the orders made against him. 257 As to Mr Hughes, it is undoubted that he played an important part in promoting this business and making representations on behalf of Wellplace, as did Mr Sam Montesalvo. They were each demonstrated to have had a close and culpable connection with the formation of the contract and Mr Hughes with its operation. It is proper, in my conclusion, that he be ordered to bear some part of the monetary order, but to a lesser extent than Wellplace and Mr John Montesalvo. The orders will reflect a 40% liability on his part for the sum ordered. 258 I have considered the position of Mr Sam Montesalvo with some concern. He chose not to be represented in the proceedings, but has been demonstrated to have had a culpable connection with some of the misrepresentations which were made out by the applicants. He, of course, was particularly concerned with the work in hand, which on the evidence had numerous difficulties connected with it, which led to lower payments than promised being received by the applicants from Wellplace as a result. I have concluded that he should be ordered to bear one half of the amount directed towards Mr Hughes. 259 Interest and costs were claimed. The applicants costs are to be borne by Wellplace, Mr John Montesalvo, Mr Hughes and Mr Sam Montesalvo on the same basis as earlier outlined. I will also make an order for interest, but only from the date of application. That amount is to be borne by Wellplace and Mr John Montesalvo alone. Orders 260 For all of these reasons I make the following orders: 1. I declare that the franchise contracts between the applicants and Wellplace were unfair. 2. I vary the contracts as to the franchise fee, by reducing it by 50% in total to a sum of $85,175. 3. I order that Wellplace and Mr John Montesalvo, pay the applicants $85,175 on a joint and several basis. 4. I order that Mr Hughes be jointly and severely liable with Wellplace, Mr John Montesalvo and Mr Sam Montesalvo for 40% of the sum ordered in order 3. 5. I order that Mr Sam Montesalvo be jointly and severely liable with Wellplace, Mr John Montesalvo and Mr Hughes for 20% of the sum ordered in order 3. 6. I order that the applicants' costs, as agreed or assessed, be paid by Wellplace, Mr John Montesalvo Mr Hughes and Mr Sam Montesalvo, on the same basis as provided in orders 3, 4 and 5. 7. I order that Wellplace and Mr John Montesalvo be jointly and severally liable for interest on the sum of $85,175 at Supreme Court rates, as from the date of application to the date of judgment. 8. The proceedings are otherwise stayed until leave is obtained from the Supreme Court under s471B of The Corporations Law in relation to the orders sought against Modern Garages. ------------------------ DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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