Industrial Relations Commission of New South Wales in Court Session CITATION : King v Cake It Away Pty Ltd & Ors [2002] NSWIRComm 140 APPLICANT Gregory John King RESPONDENTS First Respondent Cake It Away Pty Ltd Second Respondent Cake It Away Franchising Pty Ltd Third Respondent Paul Tartak Fourth Respondent Michael Tartak PARTIES : Fifth Respondent Tony Tartak Sixth Respondent Mary Tartak Seventh Respondent Pauline Tartak Eighth Respondent St George Bank Ltd Ninth Respondent Advance Leasing Ltd FILE NUMBER: IRC 6142 of 1998 CORAM: Marks J CATCHWORDS : Unfair contract- Franchise agreement -Alleged misrepresentations by franchisor covering trading figures and other matters - Applicant introduced to bank by franchisor to finance the franchise - Alleged unfair conduct by bank representatives - Held applicant misrepresented his financial state of affairs to franchisor and the bank - Applicant abandoned business after six month's trading - No finding of unfairness in all the circumstances against the franchisor or the bank - Summons dismissed. LEGISLATION CITED : Industrial Relations Act 1996 s105 s106 CASES CITED : Baker v National Distribution Services Ltd (1993) 50 IR 254 HEARING DATES: 11/08/1999; 11/09/1999; 06/11/2002; 06/12/2002; 06/13/2002; 06/14/2002; 06/17/2002; 06/18/2002 DATE OF JUDGMENT: 07/12/2002 APPLICANT Mr Gregory John King in person RESPONDENTS First to Seventh Respondents SOLICITORS LEGAL REPRESENTATIVES: Mr S A Levitt Selby Levitt Solicitors & Attorneys Eighth and Ninth Respondents Mr J J E Fernon of Counsel SOLICITORS Watson & Watson JUDGMENT: INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: MARKS J Friday 12 July 2002 Matter No IRC 6142 of 1998 GREGORY JOHN KING v CAKE IT AWAY & ORS Application under s 106 of the Industrial Relations Act 1996 JUDGMENT 1 The applicant Gregory John King brings these proceedings seeking certain relief under s 106 of the Industrial Relations Act 1996 ("the Act"). The summons seeks an order declaring a franchise agreement dated 7 May 1997 made between the applicant and the second named respondent in the proceedings Cake It Away (Franchising) Pty Ltd to be void or in the alternative varying it on the basis that it was unfair within the meaning of that word as used in s 106. The first respondent named in the proceedings, Cake It Away Pty Ltd is alleged to own the "Cake It Away" business system and associated trademarks and is said to be the licensor of that system. The second respondent is said to have acquired the rights to franchise the Cake It Away business system. The summons names five individuals, all members of the Tartak family as third to seventh respondents respectively. They are alleged to be associated with the first and second respondents either by way of directorship or other office holder, or ultimate beneficial shareholder, save for the fifth respondent who was a consultant to the first and second respondents. 2 The summons also names the St George Bank Ltd and Advance Leasing Ltd as eighth and ninth respondents respectively. I shall hereafter refer to these respondents collectively as "the Bank". St George Bank Ltd is the successor to Advance Bank Ltd. The summons alleges that there was an arrangement between the first respondent and/or the second respondent and/or the fifth respondent Mr Tony Tartak whereby the applicant was financed by the Bank respondents to enable him to enter into the franchise agreement. Orders were sought declaring the arrangements void ab initio on the ground that they were unfair within s 106 of the Act. The same orders were sought with respect to the documentation which secured the bank loans. 3 Sections 105 and 106 of the Act are as follows: 105 Definitions In this Part: contract means any contract or arrangement, or any related condition or collateral arrangement, but does not include an industrial instrument. unfair contract means a contract: (a) that is unfair, harsh or unconscionable, or (b) that is against the public interest, or (c) that provides a total remuneration that is less than a person performing the work would receive as an employee performing the work, or (d) that is designed to, or does, avoid the provisions of an industrial instrument. 106 Power of the Commission to declare contracts void or varied (1) The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract. (2) The Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason. (3) A contract may be declared wholly or partly void, or varied, either from the commencement of the contract or from some other time. (4) In considering whether a contract is unfair because it is against the public interest, the matters to which the Commission is to have regard must include the effect that the contract, or a series of such contracts, has had, or may have, on any system of apprenticeship and other methods of providing a sufficient and trained labour force. (5) In making an order under this section, the Commission may make such order as to the payment of money in connection with any contract declared wholly or partly void, or varied, as the Commission considers just in the circumstances of the case. 4 The grounds upon which the applicant brings the proceedings as outlined in the summons are extensive. Because of the diverse nature of the evidence which was given in the proceedings it is necessary to set out in full a substantial part of these grounds: "8. Between March 1966 and September 1997 the applicant negotiated the purchase of a Cake It Away franchise with Tony Tartak and Michael Tartak, who represented themselves and the other respondents in these negotiations. 9. On 7 May 1997 the applicant signed the unfair contract entering into the Cake It Away franchise to be conducted from a shop at 1/194 Canley Vale Road, Canley Heights ("the shop") under the business name of Cake It Away (Canley Heights) ("the franchise business"). 10. The applicant conducted the franchise business between 4 September, 1997 and 13 April 1998. 11. Prior to entering into the unfair contract, the applicant was given two disclosure documents:- (a) In March, 1996 Tony Tartak gave him the March 1996 disclosure documents. (b) In February, 1997 Tony Tartak gave him the August 1996 disclosure document. 12. The following information from the August 1996 disclosure document induced the applicant to enter into the unfair contract and commence operating the franchise business: (a) On page 5 under the heading "the Cake It Away business" the statement "the easy step by step recipes are backed by well developed operational systems, making it easy for a person without prior cooking or pastry chef experience to learn to operate and manage the business after an initial period of intensive training." (b) On page 6 under the heading "concept and presentation of Cake It Away", the statement "Cake It Away has made a substantial investment in developing its corporate image establishing operational systems and further refining the Cake It Away business concept." (c) On page 19 under the heading "annual franchisee income projections", the statement "the information given has been compiled from data available to the franchisor through the operations of existing Cake It Away outlets" and "the directors of Cake It Away ((Franchising) Pty Ltd believe these assumptions are realistic having regard to the experience of Cake It Away outlets." (d) On page 21 under the heading "annual franchisee income projections", the statement "annual sale - four annual sale levels have been projected for Cake It Away franchises based on the performance of existing outlets in New South Wales." (e) On page 21 under the heading "annual franchisee income projections" the statement "gross profit - existing Cake It Away outlets have experienced a cost of goods sold including packaging of between 28% and 34% of gross sales depending on promotion and damaged stock. A cost of goods sold of 30% has been used in the projections." (f) On page 21 under the heading "annual franchisee income projections" the statement "accounting - estimated expenditure based on the anticipated needs of an independently owned Cake It Away franchised outlet. It has been assumed the ongoing bookkeeping functions are performed internally by the franchisee." (g) On page 20 under the heading "annual franchisee income projections based on existing outlets" the statements and in particular: (i) The level 1 income which was stated to be $5,000 per week (apart from the first two weeks of operation the applicant did not achieve sale of $5,000 per week); (ii) The level 1 net earnings of $59,058 per annum. (The applicant did not achieve sufficient sales to enable him to achieve such earnings); (iii) The level 1 net earnings percentage breakdown. (The applicant did not achieve sufficient to enable him to achieve such a percentage breakdown); (iv) The level 1 costs of goods sold percentage breakdown. (During the applicant's operation of the franchise business, the costs of goods sold percentage breakdown was approximately 35-36% not 30%; (v) The level 1 insurance percentage breakdown. (During the applicant's operation of the franchise business the insurance percentage breakdown was approximately 2.9% not 0.5%). 13. In addition to the representations made in the august 1996 disclosure document the applicant was induced to enter into the unfair contract by representations made to him by Tony Tartak that based on experience of other Cake It Away franchisers the applicant could expect the shop to turn over more than $5,000 per week. Details of those representations are set out in paragraphs 7 to 24 of the applicant's affidavit sown in these proceedings. 14. The March 1996 disclosure document contained a guarantee on page 6 in the following terms: "The Cake It Away Guarantee: Cake It Away guarantee that if a franchisee, during the first six months of operating a Cake It Away franchise does not have a period of four consecutive weeks where the turnover averages $6,000 per week, Cake It Away will refund to a franchisee the cost of leasehold improvements equipment and fittings and the initial franchise fee for training." Without notice to the applicant the guarantee did not appear in the August 1996 disclosure agreement. 15. In about May 1997, Tony Tartak completed a cash flow projection sheet for the franchise business (which he knew the applicant was obtaining to support an application for finance) and gave it to the applicant. It projected without any qualification:- (a) twelve months sales of $260,000 an average of $5,000 per week; (b) twelve months expenses of $184,904 an average of $3,555 per week; and (c) a resulting average profit of $1,444 per week. 16. The disclosure documents provided that the second respondent had agreed to comply with the franchising code of practice as at 1 January 1995. 17. The second respondent did not comply with the franchising code of practice in at least the following respects: (a) On page 6 of the code, dealing with the following requirement - "standard of conduct" - in this regard the respondents did not: (i) provide financial information in relation to the operation of franchise business that was reasonable and realistic: The information that the respondents provided in relation to projected income was inflated and did not represent the true earning potential of the franchise business; (ii) The respondents had access to the relevant financial information that would have enabled them to provide the applicant with realistic and reasonable financial information; (iii) The respondents therefore did not truly represent the risk that the applicant would be taking in purchasing the franchise; (iv) The respondents overvalued the equipment that the applicant would be acquiring when the franchise business commenced operation. (b) On page 8 of the code dealing with "disclosure document requirements" The respondents did not disclose that Tony Tartak, one of the second respondents corporate consultants, was an undischarged bankrupt in the March 1996 disclosure document and a discharged bankrupt in the August 1996 disclosure document. 18. Pursuant to the unfair contract the applicant paid, or was obliged to pay the second respondent: (a) an initial franchise fee of $35,000 (b) an initial fit out fee of $172,000 (c) an opening promotion fee of $5,000 (d) a franchise service fee equivalent to 8% of the weekly gross sales of the franchise business (e) a franchise advertising fee of 2% of the weekly gross sales of the franchise business. 19. Prior to opening the franchise business the applicant entered into a sub lease of the shop with the second respondent dated 2nd September, 1997. 20. In order to assist him to pay the franchise fee and other payments required by the franchise agreement and to make the shop ready for the franchise business the applicant: (a) borrowed $1000,000 from the Advance to cover the cost of the shop fit out and to purchase the equipment for the franchise business. (b) borrowed another $100,000 from the Advance Bank which was secured against the property 24/6 Clifford Ave, Canley Vale. (c) borrowed $35,000 from his brother John Sullivan which he used to pay the initial franchise fee. (d) later borrowed additional amounts from his brother totalling $14,000 over the expenses of the franchise business. 21. Pursuant to clause 3 of the unfair contract the second respondent agreed to provide training to the applicant and his initial staff at a level which was adequate to properly instruct the applicant and his staff in the efficient conduct of the franchise business and to provide supplementary training during the term of the franchise when appropriate. 22. The arrangement, whereby the applicant was funded to enable him to enter into the franchise agreement, was an unfair contract. 23. The loan agreements between the applicant and the Advance Bank Ltd and Advance Leasing Ltd were a necessary precursor for the applicant to enter into the franchise agreement which is itself unfair. 24. Advance Bank Ltd was and the Eighth Respondent (sic) is the banker for the First and Second Respondents and some or all of the Third, Fourth, Fifth, Sixth and the Seventh Respondents. Accordingly Advance Bank Ltd had a pecuniary interest in the successful expansion of that business including through the entering into agreements with franchisees. 25. The Fifth Respondent Mr Tony Tartak arranged the meeting between the applicant and Mr Mark Hudson an officer of the Advance Bank Ltd. That meeting occurred in early May, 1997 at the offices of the First and/or Second Respondent. The applicant never attended a meeting at the bank premises of Advance Bank Ltd. 26. The conduct of the Advance Bank Ltd in loaning money to the applicant was unfair in several ways including: (a) The Advance Bank Ltd by acting for both the franchisor and the applicant breached its fiduciary duty. (b) The Advance Bank Ltd, through its authorised employee(s) made negligent mis-statements both misrepresenting the financial strength of the franchise business and the level of support which would be provided by the franchisor. (c) The Advance Bank Ltd was negligent in that it failed to monitor and advise about the risks involved in the franchise operation. (d) Mr Hudson relied on Mr Tartak for the cash flow projection even though Mr Hudson knew that at least one franchise (the St Marys franchise) was not achieving the cash flow projections that had been made by Tony Tartak. (e) Mr Hudson did not tell the applicant about the St Marys franchise until after the applicant had made financial and other commitments to commencing the franchise business. (g)(sic) Mr Hudson made no enquiries about the applicant's capacity to run the franchise business but relied on the training and monitoring of the franchisor. (f) Mr Hudson relied on Mr Tartak's assessment of the applicant's capacity to make loan repayments rather than establishing the capacity independently. (g) Mr Hudson in the presence of Mr Tartak stated that the loan would be able to be paid off easily, when he knew or ought to have known that this was not the case and that the applicant was relying on the expertise of the bank to finance loans. (i)(sic) Mr Hudson knew or ought to have known that the applicant had already been refused a loan from his own bank in respect to the franchise operation. (j) Mr Hudson did not ensure that the applicant obtained professional and independent advise (sic) about the mortgage and the hire purchase agreement. Further Mr Hudson himself provided inadequate explanation as to the risks involved in committing to the mortgage and the hire purchase agreement. (k) Mr Hudson relied entirely upon the security provided by the applicant for the mortgage and hire purchase agreement instead of making a proper assessment of the applicant's capacity to meet the load repayments from the franchise operation. (l) The Advance Bank Ltd did not disclose to the applicant that the bank had a pecuniary interest in the expansion of the Cake It Away franchise business including an interest in the First and Second Respondents entering into franchise agreements with new secured franchisees. 27. The Hire Purchase Agreement with Advance Leasing Ltd is unfair in that: (a) The schedule indicates that the equipment was new whereas some or all of the equipment was second hand when purchased. (b) Advance Leasing Ltd knew or ought to have known that the value of the goods was substantially lower than the purchase price; and (c) Advance Leasing Ltd, as arranged through Advance Bank Ltd, relied solely on Cake It Away (Franchising) for the value of the equipment. 28. At all material times Mark Hudson held himself out as having the authority to act for and on behalf of Advance Bank Ltd and Advance Leasing Ltd. 29. The second respondent did not provide proper training to prepare the applicant, or his staff to conduct the franchise business. For example: (a) Bookkeeping for the franchise - The applicant's obligations in relation to keeping records for the franchise business were demonstrated in a session lasting about one hour. He was not given a manual. He was given only a one page document which was a copy of a month's transactions which he was to follow. He was not given any necessary practical exercises to learn. (b) Cake Decorating - The applicant was not shown how to decorate cakes. He had no experience and had to rely upon his staff member Marivic Herico who had minimal experience herself. (c) Baking - The applicant was shown briefly what to do and then left to do it himself. He was not taken through the baking process step by step nor was he shown how to operate all the machinery. (d) Health and Customer Relations - Two afternoons were spent training the applicant about very basic health and customer relations. He was also given time to serve customers in the Merrylands shop. (e) Ordering stock - The applicant was advised how to contact Cake It Away nominated suppliers. He was given a list of approved suppliers by Paul Jonak, manager of the Merrylands Cake It Away store. 30. After he opened the franchise business it became clear to the applicant that the second respondent had not provided new equipment for the fit out of the shop as required by the franchise agreement. The applicant relies on paragraphs 58 to 61 of his affidavit. 31. During the period in which the applicant conducted the franchise business sales only exceeded $5,000 per week on two occasions. (a) the first week's sales totalled $7,994.44; (b) the second week's totalled $5,075.63; (c) thereafter sales did not rise above $5,000 per week again. There was a steady decrease in sales; (d) gross sales for the period 1 September 1997 to 13th April 1998 (when the applicant closed the franchised business) totalled $89,203.65 an average of $2,787 per week for the thirty week period. 32. Despite his best endeavours the applicant was unable to increase sales from the franchise business so that by 14 April 1998 he was losing substantial amounts from the conduct of the franchise business. 33. The franchise business was open for trade seven days a week from 9am to 7pm. The applicant worked in the franchise business an average 70 hours per week from the time that it opened on 4 September 1997 to the time that it ceased operations on 13th April 1998. He performed the following tasks: (a) managing the business; (b) opening and closing the shop; (c) supervising and assisting staff; (d) serving customers; (e) cleaning the shop; (f) administrative paperwork; and (g) wholesaling client canvassing. 34. By 13th April 1998 the applicant could no longer afford to fund the losses being made by the franchise business. He was forced to close it. He is now working as a Community Worker. During his conduct of the franchise he injected further funds into the business. 35. The applicant had made the following additional payments in relation to the franchise business. (1) to the Advance Bank Ltd total payments of: (a) $7,781.55 in relation to the housing loan; (b) $18,915.00 in relation to the equipment lease. (2) to the second respondent in relation to the franchise agreement: (a) $35,000 for the franchise fee. (b) $172,000 for the fit out cost. (c) $5,000 for the opening promotion. (d) $5,347.36 for the opening items required for the set up. (e) $6,983.11 for the ongoing franchise fee. (f) $1,563.80 for the advertising fees. (g) $10,433.31 for rent. 36. The applicant currently has the following substantial liabilities which he incurred in relation to the franchise and the conduct of the franchise business:- (a) he owes the Advance Bank Ltd about $190,000 plus interest. (b) he owes his brother John Sullivan about $52,000 plus interest. To provide living expenses the applicant has drawn about $8,000 from his life insurance policy with AMP Society and his State Bank Mastercard." 5 In addition to the orders sought by the applicant, which I have previously summarised, he also sought the payment of moneys which would have the effect of compensating him for losses suffered including in particular the refund of moneys paid by him to the Cake It Away group and the payment of sufficient moneys to indemnify him against any liability with respect to his borrowings from the Bank. Furthermore, he claimed compensation for "physical and emotional distress" which he said he suffered as a result of the unfair contract and arrangement "including the consequent personal difficulties and psychological damage that this caused him." 6 It is now necessary to review the evidence given in the proceedings with reference to the grounds relied upon by the applicant. EVENTS LEADING UP TO THE FRANCHISE AGREEMENT 7 In his principal affidavit sworn in these proceedings the applicant outlined his prior experience. He had worked for the Commonwealth Bank whilst studying part-time for a Bachelor of Arts degree in Behavioural Sciences between 1971 and 1977. Thereafter, for three years he studied for the degree of Bachelor of Theology and diploma of Ministry whilst attending the Baptist Theological College and whilst working as a youth pastor at the Earlwood Baptist Church. In 1989 he studied for his diploma of Education at Sydney University and subsequently taught for five years. In 1996 and 1997 he drove taxis part-time. In other documentation the applicant said that he held a Master of Arts degree in History. 8 The applicant said he was introduced to Tony Tartak of the Cake It Away organisation in March 1996 by Greg Sodon of Franchise Developments Pty Ltd. During the course of a conversation Mr Tartak is alleged to have told him that a shop conducted at Croydon Park was selling over $13,000 of product a week and that other shops had takings of $6,000 and $7,000 a week. Mr Tartak denied having that conversation with the applicant. He said that he informed the applicant that established Cake It Away stores averaged about $6,000 a week in takings across the group with some doing more and some doing less. He said that Croydon Park started off with takings of about $4,000 a week and some weeks does more than $8,000. He also said that he told the applicant "why don't you talk to the store owners yourself and ask them?" 9 The applicant completed a franchise application form on 1 February 1996. He disclosed that he had assets totalling $374,500 and liabilities of $180,000. Included in the assets was a unit at Canley Vale valued at $125,000 free of encumbrances and a property at Collaroy Plateau of which he was the half owner valued at $430,000 and subject to a mortgage of $360,000. He also stated that he intended to finance the investment through the sale of his townhouse at Canley Vale together with a bank or other loan. 10 The applicant said that he did nor proceed with the franchise application at that stage because he could not afford to pay the franchise fee. However by the end of 1996 his financial circumstances had improved and he telephoned Tony Tartak in February 1997. Mr Tartak is alleged to have told him that the Cake It Away shops were "going well. There is a lot of profit to be made in these shops." Mr Tartak denies having made any such representation and says that the conversation was limited to a discussion of the applicant's then financial situation. In any event the applicant completed a franchise application form. He completed a statement of financial position as at 4 April 1997 which disclosed cash assets of $45,000, a home valued at $125,000 and other assets, with all assets totalling $240,000 and no liabilities. 11 During the course of discussions between the applicant and Mr Tony Tartak at that stage Mr Tartak advised the applicant that there was some doubt as to whether he had sufficient assets to justify the acquisition of a franchise. This led to a consideration of whether the applicant's half brother John Sullivan should become a co-purchaser with the applicant of a franchise. There was a meeting at the head office of the Cake It Away group at Merrylands on 28 February 1997 attended inter alia by Mr Tony Tartak, the applicant and Mr John Sullivan and his business partner Mr Stephen Bullock. The applicant alleged that Tony Tartak said at that meeting that all Cake It Away shops started trading at an average of $5,000 turnover per week and built up after a year or two towards $8,000. He is alleged to have said that shops at Baulkham Hills, Blacktown and Moorebank were trading in the "high 6s and 7s". The evidence of John Sullivan was that Mr Tony Tartak said that there were eleven stores in the group and that sales varied from store to store, some doing $5,000 and others $8,000 a week. He is alleged to have said that the worst performing store was turning over $5,000 a week. Evidence as to what was said by Tony Tartak was given to similar effect by Mr Bullock. Mr Tony Tartak asserts that he said at the meeting that the company-owned stores were turning over between $5,000 and $8,000 per week but that the franchised operations were returning figures above and below "that figure". 12 There was admitted into evidence an extract from a Cake It Away booklet which set out certain "facts and figures" concerning the Cake It Away franchise operation. That material was said to have been made available to the applicant and Messrs Sullivan and Bullock at that meeting. It showed, in connection with the store operations of the Cake It Away group, annual turnover ranging from $250,000 to $500,000. Profit margins said to be based on existing outlets were 25% to 30% of sales after all outgoing expenses and before interest and tax, but inclusive of one franchisee's wage. Indeed, during the course of the meeting Messrs Sullivan and Bullock questioned certain figures shown to them by Mr Tartak said to be representative of the trading position at Cake It Away stores as to the amount shown for wages. Mr Tartak indicated that wages were calculated on the basis of the employment of junior and casual employees and the store being operated on a full time basis by the manager/franchisee. 13 Mr King was given a franchise disclosure document at that meeting which he said he took away and read carefully. 14 That document set out the obligations of the franchisor. These included product and operational advice, provision of initial and ongoing training, marketing and advertising advice on services and products and the provision of one supervisory person to work with the franchisee for ten days on commencement of the franchised operation. The document also set out estimates of the total capital investment required exclusive of borrowing costs or the costs of any leasing arrangement. A total of $228,100 was shown as being the estimated capital investment. This was made up of a franchise fee of $35,000, leasehold improvements, equipment, and fittings totalling $172,000, allowance for opening promotion cost of $5,000 and initial working capital of $16,100. 15 A section of the disclosure document set out annual franchisee income projections. It was stated that those assumptions should be "supplied to the potential franchisee's independent financial advisor." It was stressed that the assumptions would vary "depending upon many factors such as the outlet size, location, mix of sales, strict operational control and the work performed by the Franchisee, amongst other matters." It was stated that there was no representation or warranty by the franchisor that the assumptions would necessarily apply in respect of the operations of individual franchisees. The document also said: "The assumptions are given to enable your independent financial advisers the ability to test the soundness of the information and to determine on your behalf, the projected results for your particular franchise. In assessing the potential of any franchise, Franchisees should allow for a period of development before optimum trading levels are achieved. Depending upon location and the input provided by the Franchisee, it may take up to two years to establish a Franchise. THE FRANCHSOR STRONGLY RECOMMENDS THAT YOU RELY UPON INDEPENDENT PROFESSIONAL ADVICE, AND MAKE UP YOUR OWN MIND." 16 The income projections were said to be based on "existing outlets". There were four levels each pertaining to a different weekly turnover. Level 1 was at $5,000 per week, Level 2 at $6,000 and so on. At Level 1 total annual sales were said to be $260,000, cost of goods sold was said to be 30% at $78,000 showing a gross profit of $182,000. There was an allowance for certain operating expenses which were exclusive of interest and depreciation. An amount of $44,512 was shown for wages. The total operating expenses amounted to $122,942 leaving net earnings before interest or tax of $59,058 which was said to be inclusive of one franchisee's wage. Similar figures were shown with respect to each of the other three levels. The following was stated at the foot of the page containing the projections: "These figures indicate the gross profit margins and revenue expenses at stated turnover levels which have been experienced by the franchisor and licensor in its own operations. There is no guarantee that you will achieve the same results, nor is it intended that you should rely on them as a guarantee. This is not a forecast or indication of potential." 17 The disclosure document also contained a list of the existing franchisor owned Cake It Away outlet at Merrylands and a list of each of the franchised outlets including details of the address, contact name, telephone number and the year in which each operation commenced in business. 18 Initially the applicant had intended to acquire the franchise with his half brother Mr Sullivan as a partner. An application form was completed on this basis. Shortly after receiving it Mr Tony Tartak expressed concern to the applicant about representations made at the meeting by Mr Sullivan and Mr Bullock concerning their financial affairs. In any event the applicant and Mr Sullivan were unable to raise finance. 19 The applicant wished to proceed and Mr Tony Tartak advised him that it might be possible to proceed alone without his half brother. He offered to approach the Cake It Away group's bankers, Advance Bank to see whether that bank could assist him in obtaining finance. 20 At that stage the applicant had said he read the August 1996 disclosure document and was impressed by a number of matters referred to in it including references to the easy recipes, well developed operational systems, the fact that no prior cooking or pastry chef experience was required, there would be an initial period of intensive training, the information about the experience of the outlets was realistic, that the cost of goods sold was between 28 percent and 34 percent of gross sales, and that there were projected start up gross sales of $5,000 per week resulting in net earnings of about $59,000 per annum. 21 The applicant said in evidence that he contacted all of the franchisees operating in the Sydney area. They confirmed information which had been given to him by the franchisor. 22 In about May 1997 the applicant told Mr Tony Tartak that he had contacted the other franchisees especially the St Marys operation and that they were satisfied with "the way things are going. St Marys is really happy. They tell me it's an excellent business." He then asked Mr Tartak whether what he had been told by the franchisees had been true and Mr Tartak is alleged to have said that this was so. However Mr Tartak told the applicant in the course of the same conversation that the St Marys shop was turning over about $4,500 per week at present and was the worst performing shop. Nevertheless the franchisee was considering acquiring a second shop with a better location. 23 The applicant said that after his discussions with Mr Tony Tartak and after examining the documentation he "felt confident" about acquiring a franchise. It was crucial in his mind that the shop would achieve a turnover of between $4,500 and $5,000 per week because he saw that as being his financial break-even point. 24 As a result of an approach made by Mr Tony Tartak the applicant attended at the Merrylands office of the Cake It Away group in May 1997 and met there with Mr Tony Tartak and a representative of Advance Bank. At all times the applicant has been adamant that the bank representative was a Mr Mark Hudson. Mr Hudson gave evidence in the proceedings and said that he was not present at that meeting and first met the applicant in September 1997 in connection with the signing of the Bank's financial documentation. Mr Tony Tartak said in evidence that Mr Hudson was not at that meeting and that the Bank representative was a Mr Sal Maresca. Mr Maresca gave evidence in the proceedings and stated that he was present at a meeting held at the Merrylands office of the Cake It Away group in May 1997 attended by Mr Tony Tartak and the applicant. 25 I accept the evidence of Messrs Hudson, Tony Tartak and Maresca with respect to the identity of the persons present at that meeting. The applicant must clearly be mistaken. The applicant maintained both by way of evidence in chief and under cross-examination that Mr Hudson was present and that Mr Maresca was not present. He refused to concede that his recollection might be mistaken. He was adamant that his recollection was correct and that the other three witnesses who gave evidence were incorrect. This was so even after the applicant saw and cross-examined both Mr Hudson and Mr Maresca. The documentation prepared by the Bank and the respective roles played within the Advance Bank organisation by Messrs Hudson and Maresca all point to their version of what occurred as being more accurate than that of the applicant. This is the most obvious example of a number of areas where the applicant's evidence differed from other witnesses in the proceedings which lead me to believe that the applicant's evidence particularly with respect to areas which are vital to the determination of these proceedings should be examined with great care. 26 At the meeting in May 1997 the applicant advised Mr Maresca (incorrectly said by him to be Mr Hudson) that he required total financing of $200,000 to pay for the franchise fee and other expenses and to pay for fixtures and fittings of $150,000. The applicant told Mr Maresca that he had $45,000 in cash assets and he could provide security being a unit worth $125,000. Mr Maresca told the applicant that the Bank would consider providing a facility of $100,000 secured by first mortgage over the unit and $100,000 by way of commercial hire purchase agreement with respect to the equipment. 27 The applicant forwarded to Mr Maresca cash flow projections prepared in February and May 1997. The projections dated 15 May 1997 showed sales based on turnover of $5,000 per week and expenses in line with the projections contained in the franchise disclosure document. I am satisfied that the applicant prepared these projections based on information conveyed to him through the Cake It Away organisation and in particular as a result of discussions that he had with Mr Tony Tartak. 28 The finance application made by the applicant was processed by the Bank and, on the basis of evidence given in the proceedings I am satisfied that the Bank applied its usual lending criteria to the application, which was eventually approved. In evidence it was stressed on behalf of the Bank that the approval was based upon the fact that the applicant had cash assets of $45,000 and on the basis that he owned a unit at Canley Vale free of encumbrances, and had no other liabilities. 29 An internal Bank memorandum generated in connection with the application entitled "Module P" contained the following background: "Applicant has been referred to us by Tony Tartak, franchisor of Cake It Away Pty Ltd (for background details of this connection refer master file enclosed). Since commencement of our association with Cake It Away we have financed five of the ten outlets currently in operation, Baulkham Hills, Moorebank, Blacktown and Croydon Park and soon to be opened Belconnen, ACT with all stores generating projected results and profitability. In addition we recently provided increased FDA assistance, taking exposure to $1.9M to franchisor company to expand their Merrylands head office and to purchase properties. As per the company's plans to continue expansion into specific areas we have now been requested to provide funding for an outlet at Canley Heights. …." 30 The information which the applicant gave to the Bank in connection with his application for finance and which, coincidentally, he also supplied to the Cake It Away group assumed some significance in connection with the proceedings. Included was a statement of financial position originally prepared in connection with the application made to the Cake It Away group for the franchise but which was also given to the Bank. It showed cash assets of $45,000, a home valued at $125,000, no other real estate, insurance policies and superannuation valued at $10,000 each, cars and personal effects valued at $25,000 each making total assets of $240,000. The statement showed no liabilities. 31 In evidence in the proceedings the applicant conceded that of the $45,000 cash assets, $35,000 had been borrowed from his half brother Mr Sullivan and that probably a further $10,000 had also been borrowed from Mr Sullivan. He also conceded that he had failed to disclose his half ownership in the Collaroy Plateau property and his borrowings from the State Bank in connection with the mortgage over the Collaroy Plateau property. The applicant endeavoured to rationalise the information disclosed on this document in a number of ways. In connection with the cash asset he said in evidence that it having been loaned to him by Mr Sullivan he then regarded it at his. When asked to explain why no liability had been shown for the same amount, he said that he may have entered into some arrangement with his half brother to sell his half interest in the Collaroy Plateau property to him to discharge any indebtedness and therefore did not consider himself indebted to Mr Sullivan. He attempted to explain the failure to disclose the Collaroy Plateau property as an asset and, more importantly, the borrowings from the State Bank by way of mortgage over that asset on the basis that he had entered into some loose arrangement to sell his half interest in the property to Mr Sullivan who then, presumably, would have taken over the totality of the liability to the State Bank. Mr Sullivan in his evidence confirmed the loan made to the applicant but stated that he had no discussions with the applicant concerning the transfer of any interest in the Collaroy Plateau property. 32 I infer from this evidence that the applicant is prepared to endeavour to rationalise his conduct and his circumstances in order to promote his own interests. This will become important when discussing the evidence concerning the history of the operation of the franchise by the applicant. There are two additional matters of significance which flow from the failure of the applicant to disclose his true financial situation to both the franchisor and to the Bank. Mr Tony Tartak gave evidence that the franchisor assessed the financial viability and overall suitability of applicants for the grant of a franchise. Mr Tartak said, and I accept, that if the applicant had disclosed that the $45,000 had been borrowed from his half brother and was not an asset, then the franchisor would not have granted a franchise to the applicant. In addition, Messrs Maresca and Hudson gave evidence that if the applicant had disclosed that the $45,000 shown as an asset was represented by borrowed funds and had further disclosed his exposure to the borrowing from the State Bank in connection with the Collaroy Plateau property, the Bank would not have approved the financial facility to enable the applicant to have acquired the franchise. 33 In early May 1997 the applicant was given the franchise agreement and other documentation. He signed it on 7 May 1997. The applicant acknowledged that the effect of the agreement had been explained to him by a solicitor. There is a Solicitor's Certificate contained within the document signed by Stephen Smart. Mr Smart certified that he had explained the document to the applicant who appeared to be fully aware of its legal effect and who had consciously and freely signed it. 34 In cross-examination the applicant conceded that Mr Smart had gone through the documentation with him "in great detail" and that he had been given a written advice about some of the matters contained within the franchise agreement. He also conceded that he had read the documents carefully. He had not taken the trouble of obtaining any detailed financial advice about the documentation but had consulted someone "informally". He was told that he should proceed with caution but he did not follow this advice nor obtain any other expert assistance in evaluating the franchise arrangement. He said in evidence that he "foolishly" believed the franchisor. Later in evidence he said that he did not obtain advice from an accountant because he "foolishly" trusted the Bank. 35 After completing the franchise agreement and paying the franchise fee of $35,000 together with stamp duty on the agreement, the applicant then undertook training in late June and in July 1997 at the Cake It Away owned shop at Merrylands. 36 During the course of negotiations leading up to the signing of the franchise agreement the applicant had had discussions with the Cake It Away organisation concerning a suitable location for a franchised shop. It was the applicant who suggested Canley Heights would be a suitable location. Mr Tony Tartak initially resisted this suggestion but changed his mind after the applicant presented him with information concerning the area including traffic movements, the number of school students and the fact that younger people were moving into the area. The applicant prepared a document dated 15 May 1997 in which he argued that Canley Heights was the appropriate area in which to situate the franchise operation. In evidence the applicant said that he did not have the expertise to select the area and relied on the expertise of the franchisor. Once Mr Tartak had accepted the applicant's suggestion that Canley Heights would be an appropriate area, two shops were located within the same street. Mr Tartak selected the shop which was further away from "the highway" but where parking was easier and the rental was less. In addition the shop selected had an area which was agreed to be suitable for a Cake It Away shop. 37 I conclude that the location of the eventual shop from which the franchise was operated by the applicant was selected conjointly and cooperatively by the applicant and Mr Tony Tartak. The shop was leased for a period of five years with a five year option by Cake It Away (Franchising) Pty Ltd. That company later entered into a sub-lease of the premises to the applicant as part of the franchise documentation. TRAINING 38 The applicant was provided with training by the franchisor at its Merrylands premises during late June and July 1997. He had indicated that he had selected Marivic Herico to be employed in his franchised store as a cake decorator and Ms Herico undertook training with the applicant. Documents tendered in the proceedings indicate that training commenced on 10 June 1997 and was completed on 25 July 1997. 39 The applicant and Ms Herico acknowledged that they had received training and instruction in a number of specific areas. In particular the applicant acknowledged having received instruction in front-of-house procedures, mixing and baking, decorating, customer service, cleaning procedures, stock rotation, opening procedures, cash handling, cash register operation, hygiene, complaint handling, administration, finance and closing procedures. He completed a number of "Session Evaluation" forms which, in general terms, indicated that he had a favourable assessment of the training received. 40 Ms Herico said that she had been introduced to the Cake It Away organisation in about March 1996 and as a result had worked for some time as an employee at its Merrylands shop. She had left because of the low level of wages being paid. She agreed to become employed by the applicant in connection with his franchise operation. 41 Ms Herico complained about the extent to which she received training in decorating mud cakes because she already knew how to undertake this work. There was no indication in Ms Herico's evidence that she regarded herself as untrained to perform work as a cake decorator. 42 In his evidence the applicant complained that the training he had received was very basic and that he was not properly trained to conduct the franchise business. These complaints were not evidenced by any documentation created during or within a short time after the training had been conducted. Mr Paul Jonak who was at the relevant time the respondents' Technical Manager and personally responsible for training the applicant said that, "The Cake It Away recipes were easy for a person of ordinary intelligence to carry out. Mr King impressed me as a person of above average intelligence but with certain peculiarities of mannerisms and I found him to be strange. I observed that he often did not appear to pay attention during baking classes." 43 Complaints were made to the applicant that Ms Herico was too slow. He dismissed these complaints as being unfounded. 44 The applicant approached Mr Michael Tartak for assistance in employing a baker. Mr Michael Tartak arranged for a Mr David Pearce who was a young man aged, apparently, in his "late teens" to be trained to become a baker. Mr Pearce undertook training, apparently in July 1997, as a baker. He impressed Mr Jonak as being "competent". 45 Evidence was also given about training by Mr Graham King the former Franchise Support Manager of the respondent franchisor. He was involved in training the applicant and his staff, whereas the training provided by Mr Jonak was confined to baking. Mr Graham King was not satisfied at the completion of the normal training period that the applicant or his staff were sufficiently able to operate a franchise business. Accordingly, he arranged for the applicant, Ms Herico and Mr Pearce to be given additional training. Mr Graham King assessed Mr Pearce as needing ongoing training and supervision from the franchisee. 46 The applicant complained about the inadequacy of the training given to Mr Pearce. 47 Mr Tony Tartak gave evidence that he was involved in an argument with the applicant concerning the proficiency Ms Herico had shown whilst training. Mr Tartak gave evidence that he said to the applicant "If you don't want to follow our systems and are not prepared to be trained according to them, then you are obviously not going to get very far in this business. If you want to go now, I am prepared to give you your money back and release you from your contract." The applicant is alleged to have replied that he was sorry and that he would work harder at it, rejecting any suggestion that he would terminate the franchise arrangement. The version of this conversation given by the applicant is a little different. He said that he responded to Mr Tartak's criticism of Ms Herico during the course of her training by saying that he would not release her and that "The problem is your training staff. They are inefficient in their training procedures and lack a systematic approach." The applicant said that Mr Tony Tartak responded by saying "If you do not like the way we do things you can leave now. It does not matter to me whether I make four million or four and a half million in this industry. You can leave but you will miss out on some very good profits that the shop will provide. If you stay however you will need to do things my way." 48 On either version, the applicant was given an opportunity to get out of the franchise but determined to continue. COMMENCEMENT OF OPERATIONS 49 During August 1997 the shop was fitted out by the franchisor. 50 The applicant took possession of the shop on Monday 1 September 1997 and commenced trading the following Thursday 4 September 1997. 51 On 2 September 1997 Mr Mark Hudson of the Advance Bank attended on the applicant at the shop, by appointment, to have some documents signed. The applicant alleges (and Mr Hudson denies) that Mr Hudson said to him "Here is a brave man". The applicant alleges that there followed a conversation between himself and Mr Hudson where Mr Hudson indicated that the St Marys operation was turning over less than $4,000 per week and was not "an excellent business". While discussing why the applicant did not talk to the Bank direct about the loan other than through Mr Tony Tartak Mr Hudson is alleged to have said to the applicant "I was told by Tony that you didn't want to talk to the Bank but wanted him to arrange things. I only gave the loan because Tony kept on to me about it. He did a good job keeping us apart. I thought you wanted to take the gamble." Mr Hudson is then alleged by the applicant to have said to him "It is not too late to change your mind." The applicant said that he responded "It's too late because I have committed myself to several people including my employees. All I can do for now is to hold my breath and hope for the best." Mr Hudson is then alleged to have said "You will be alright because Tony has told me that he will do everything to make sure that everything works out alright." The applicant said that as a result of this conversation he became concerned about the viability of the franchise business although the Canley Heights location was better than that of the St Marys store. 52 As I have said, Mr Hudson denies having this conversation. On the applicant's version, however, he was given an opportunity prior to signing the Bank documents to "change his mind". 53 The applicant commenced trading and during the first week turnover was almost $8,000. The second week's sales were $5,000 but thereafter sales did not exceed $5,000 per week and there was "a steady decrease" in sales. 54 In his evidence the applicant said that "by the time we hit October the sales figures were right down. October 1997 was really a very hot month and Graham King pointed out to me that other franchisees were also suffering the heat of the summer." At that stage the applicant was also complaining about Mr Pearce and the fact that he was incompetent and wasting product. As a result of complaints made by the applicant Mr Graham King spent the first week of October working at the applicant's shop in order to assist in evaluating problems the applicant was experiencing with turnover, profitability and quality control. It was Mr Graham King's assessment that not all of the problems involving baking were the fault of Mr Pearce. For example on one occasion the applicant had failed to order a supply of blueberries to be used for the production of blueberry teacakes. This resulted in lost production time and material. 55 After his attendance at the shop Mr Graham King prepared a four page close-typed assessment which he forwarded to the applicant. Mr Graham King identified "the single most apparent problem" as being deviation from the Cake It Away production system. Specific examples were given within the overall assessment. He said that there was also poor planning of each day's production some of which may have been due to inexperience but "much of it is due to deviation from the system." He felt also that Ms Herico was capable of greater speed in decorating cakes. Mr Graham King identified in all thirty "issues" which required rectification and improvement. Shortly afterwards Mr Graham King attended on the applicant and went through the contents of the assessment with him. 56 In mid-October 1997 Mr Graham King arranged for another baker to be supplied on a short term basis whilst Mr Pearce was off work ill. 57 The applicant conceded that he had been told by Mr Tony Tartak that trading patterns in general showed high turnover during the first week of operation, some drop in turnover after the first week, but then, after a few more weeks turnover improved. The applicant said that when the turnover figures continued to drop into the summer "It became quite clear to me that things are not quite right with my business and I was actually talking to the owner of a cheesecake shop as well …. Which was indicating to me that cheesecake shops were having a lot of troubles and franchisees are not making it, that led me to make further inquiries and when I became aware of those inquiries I became extremely disillusioned (with profitability) knowing my business wasn't going well…. " By the end of February the applicant said that he was convinced that he was going into bankruptcy and that there was no way the business could be saved because it was "a fundamental flawed operation". This evidence is consistent with a telephone conversation on 20 February 1998 between the applicant and Mr Mark Hudson about which Mr Hudson made a file note. The applicant told Mr Hudson that he was not trading well, that there were other shops that were not trading well, he was not happy with the equipment that was supplied because it was second-hand and reconditioned and that he was considering filing for bankruptcy. The applicant indicated to Mr Hudson that other franchisees were also unhappy. 58 The applicant conceded that as and from February 1998 he had virtually given up hope of the business succeeding. Certainly, there is no evidence that he endeavoured to take any steps in order to improve the situation. 59 There was evidence that from February 1998 the franchisor and a number of its personnel had attempted to assist the applicant in expanding his business by wholesaling cakes to a number of potential clients. Whilst the applicant contends that he made some effort to secure wholesaling business, he was dismissive of the efforts and assistance offered by the franchisor's personnel and was dismissive of wholesaling activities assisting him in building up the business. 60 Evidence of Carol Edmonds an Assistant Operations Manager employed by the franchisor from 9 March 1998 indicates that she endeavoured to assist the applicant and other franchisees in the operation of their businesses. She said she made a number of site visits to the applicant's shop between 19 March and 14 April 1998 and there was admitted into evidence notes which she had made concerning each of these meetings. 61 When Ms Edmonds attended at the applicant's shop on 20 March 1998 she noted that he had failed to stock the showcase with eight product lines, in breach of the franchisor's operating procedures. Mr Edmonds questioned the applicant about this noting that the showcase looked "pretty sparse". The applicant responded "This is what I want to do. If I don't want to make it I won't make it. Head office doesn't know anything. Tell them to stop questioning what I am doing. I am sick of head office spying on me." The notes made by Ms Edmonds indicate a number of alleged breaches of the franchisor's operating procedures including a failure to produce a number of required products, failure to prepare cakes according to the franchisor's procedures, a failure to wear the correct uniform, poor looking product and the like. A note made by Ms Edmonds concerning a discussion with the applicant on 3 April indicates that the applicant regarded himself as being too busy to undertake wholesaling and being resistant to offers of assistance from her. 62 The applicant complained about the continued incompetence of Mr Pearce as a baker and complained also that Ms Herico was slow in the work that she undertook. 63 In cross-examination the applicant conceded that ultimately it was his right to terminate the employment of Mr Pearce. He said that he did not do so because he was assured by personnel from the franchisor that ultimately Mr Pearce would be able to perform to an acceptable standard as a baker. 64 The applicant said that at some stage he sent Mr Pearce away on holidays "for a couple of weeks" and that Ms Herico went on holidays "for a couple of weeks". It appears that he may have undertaken some of their work whilst they were away although the evidence is not clear on this. In any event the applicant agreed that in general the bulk of his duties during the day involved stocking the display cabinet, emptying the display cabinet and being in attendance "to look after the other people there." He agreed that his tasks were "like baby sitting the shop", which he did for four to five hours a day. The applicant conceded also that there was nothing for him to do during those hours because one person was decorating and the other baking. 65 During the course of his cross-examination the applicant was asked: "I suggest further that had you fully applied yourself rather than to boss the other members of the staff around that you may well have cured many of the problems in the shop?" He answered "Perhaps if I was able to do better than the other franchisees, considerably better, then I would have been able to make a profit, but being human and being one who had never really been in the concerns of running a business before and needing to get adjusted to it, that that would have made it very difficult for me to get the business running." 66 There is evidence that the applicant consciously decided in early 1998 to cease stocking the showcase of the shop with a full range of product. His rationale for doing so was that there was no point in baking product which would ultimately not sell. The converse, as stated by Mr Tony Tartak in evidence, was that the shop would present poorly to prospective customers if a limited range of product only was displayed. 67 An example of the applicant's naivety in dealing with a problem is provided by the evidence of Ms Herico about the incompetence of Mr Pearce. She said that he wasted a lot of product by failing to follow procedures. She was, however, equally concerned with the attitude of the applicant towards Mr Pearce. She said that the applicant "would talk to David (Pearce) and actually I am getting very upset with David because I am seeing how much waste - sometimes he throw a lot of materials so when Greg (the applicant) comes Greg wouldn't be able to see - but he is continuously making a lot of mistakes and sometimes I got upset because Greg wouldn't react. Greg is very calm to David, but he's always saying 'he will learn' and, you know 'I will talk to Cake It Away what we can do about him." The applicant in his evidence was supportive of this position. When asked about the hiring and the firing of staff he responded that the franchisor had a responsibility to properly train the baker "and I wanted to give David an opportunity and every chance because he was a young man. I didn't want him to become unemployed, but the franchisor didn't seem to be supportive so far as trying to improve the situation." 68 During the course of cross-examination it was put to the applicant that he had already stopped giving the business his full effort by the beginning of 1998. He replied "That is true. Once I realised there were misrepresentations and there was no way my business would have succeeded where all the others had failed, certainly I would have given up the ghost ….. I would have given up the ghost at the end of February." No evidence was led in the proceedings in connection with the statement "where all the others had failed." I do not know what the applicant was referring to when he said this. 69 On 14 April 1998 the applicant determined to close his business. In effect he "walked out" on that day. SECOND-HAND EQUIPMENT AND MALFUNCTIONS 70 In about March 1998 the applicant complained that some of the equipment was second-hand. By letter dated 13 March 1998 Mr Michael Tartak agreed that some panels in the coolroom were second-hand and that he was not sure how this had happened. He indicated that the coolroom installer would rectify the situation either by replacing the second-hand panels or by paying $3,000 in compensation. Mr Tartak asked the applicant in the letter which alternative he wished to pursue. It seems that the applicant did not respond to this request. The applicant conceded that he had had an opportunity to inspect the plant and equipment installed in the shop prior to signing the Bank documents on 3 September 1997 and had not raised any issue about the state of repair. 71 Evidence was given about a malfunction in the coolroom and in the oven. It seems that the oven manufacturer attended and rectified the problem. 72 No suggestion has been made by the applicant that any problems with equipment or the fact that some of the equipment may have been second-hand contributed to the trading difficulties which he encountered. THE APPLICANT'S CLAIM FOR DISTRESS 73 There was tendered into evidence medical records of the applicant's treating family doctor, Dr Toh and reports obtained from Dr Tsang who was qualified by the applicant to give evidence in connection with his claim brought in these proceedings. Dr Tsang also gave evidence. In view of the decision which I have reached concerning the disposal of these proceedings I do not need to consider these matters further. OTHER STORE TURNOVER 74 The applicant based his claim in part on misrepresentations allegedly made by Mr Tony Tartak concerning the turnover of other stores within the Cake It Away group, including franchised stores. For this purpose a number of financial reports were admitted into evidence, although some were excluded because they were not in a form which created any confidence that they had been prepared on a proper and appropriate basis by a person competent or qualified to do so. 75 The profit and loss statement of the Moorebank store showed sales for the year ended 30 June 1998 at $345,048 and for the previous financial year at $350,674. A profit and loss statement prepared with respect to the Meadowbank store showed sales for the 1997 financial year of $136,269 and for the 1998 financial year $166,052. A profit and loss statement purportedly for the Kogarah store showed sales for the 1998 financial year of $233,680 and for the 1997 financial year $235,112. A file note produced by Advance Bank concerning the trading position of the Baulkham Hills store dated 14 March 1996 suggests average takings over a period of nine months of $6,700 per week. 76 Some of these takings are less than the $5,000 per week figure indicated by Mr Tony Tartak to the applicant as minimum takings encountered by any shop, save the St Marys shop. Others of these stores seem to have achieved takings which exceed the $5,000 figure. 77 The difficulty about this evidence is that it consists of the profit and loss statements compiled in a form usually utilised by accountants. There are no underlying figures or other evidence to support the material contained in the documents and they were admitted into evidence over the objection of the respondents who were given an opportunity of addressing the Court as to their ultimate relevance and weight. The other difficulty which arises in connection with this evidence is that Mr Tony Tartak said that he was not privy to all of the information pertaining to all of the shops because some proprietors declined to forward to the franchisor sales figures as required by the respective franchise agreements. On this basis there is no evidence that Mr Tony Tartak was aware of the specific trading position of any shop. On the other hand his inability to obtain this basic information from all of the shops may have required that he qualify the statements which he made to the applicant concerning the trading position of the shops. Overarching all of this are the disclaimers and warnings contained within the franchise documentation to which I have earlier referred. The applicant has chosen to disregard all of this material. ADVANCE BANK PROCEDURES 78 I have already outlined the grounds upon which the applicant asserts unfairness as against the eighth and ninth respondents. The eighth respondent is the successor to Advance Bank Ltd and the ninth respondent is, presumably, a subsidiary. 79 I have already concluded that in assessing the applicant's application for finance the eighth and ninth respondents adopted and applied their usual lending criteria and that the applications for the loans were processed in a regular and unexceptional manner. 80 As will be seen, the applicant also submitted that the eighth and ninth respondents acted unfairly in that they failed to monitor the overall situation with respect to the Cake It Away group and in particular the performance of shops within the group and that they failed to warn the applicant about adverse trading circumstance and to monitor the performance of his operation. 81 There is no evidence of any general decline in trading circumstances other than the observations of Tony Tartak and the applicant about a reduction in trading through the summer period commencing in October 1997. The evidence from the Bank officers is that none of the franchise operations which they financed was in default. There was evidence that five franchisees commenced proceedings against the franchisor, including the applicant, but all of these claims, other than the applicant's, were settled. 82 It was the evidence of Mr Maresca that where there were total borrowings of greater than $500,000 it was the policy of Advance Bank Ltd to review the loan accounts on an annual basis. New or recently established loan accounts that were "approved on the basis of projected information provided by the customer as historical data is usually not available" were reviewed at the end of one year and the Bank assessed whether or not the business was performing satisfactorily. If there were no difficulties and the customer was complying with all obligations under the loan facility at the time of that annual review, no other review processes were put in place. The customer would therefore not come under further review unless the account came into arrears or, presumably, some other circumstances arose which warranted a review of the customer's banking arrangements. Accordingly, if the applicant had remained in business for one year, the circumstances and state of his account would have been reviewed by the Bank at that time. WAS THERE ANY UNFAIRNESS WITHIN S 106? 83 Before dealing with the specific allegations of unfairness I should make some general observations about the processes by which and the principles utilised for the determination of whether the requisite unfairness exists. A convenient starting point is contained within the joint judgment of Fisher CJ and Hungerford J in the Full Court of the Industrial Court of New South Wales in Baker v National Distribution Services Ltd (1993) 50 IR 254. At 271 their Honours said: "The test of unfairness within the meaning of s 88F of the Industrial Arbitration Act, and hence s 275 of the present Act, has received much attention by the Court and by the previous Industrial Commission over very many years, but, in our review of the cases, the approach stated by Sheldon J in Davies v General Transport Development Pty Ltd [1967] AR (NSW) 371 over 26 years ago has endured; his Honour commented (at 374) that unfairness of a contract or arrangement was to be determined according to "the common sense approach characteristic of the ordinary juryman ….It is a plain matter of morals not law." His Honour cautioned, however, (at 374,375) that the section's "massive power makes it imperative that it should be exercised with proper restraint … it should not permit itself to become a refuge for those who are merely disgruntled with a bargain entered into on even terms. … the discretion should be exercised to protect victims of wrong dealing not to prescribe anodynes." Those words by his Honour echoed what had been said earlier by Beattie J in Agius v Arrow Freightways Pty Ltd [1965] AR (NSW) 77 at 89 that it was a matter of deciding "in each particular case by the application of the tribunal's common sense and sense of justice whether a particular transaction is unfair, harsh and unconscionable". The nature of the unfairness attracted by s 88F was considered later by the Industrial Commission in Court Session (Perrignon and Dey JJ, Cahill J dissenting) in A & M Thompson Pty Ltd v Total Australia Limited [1980] 2 NSWLR 1 at 13 as follows: "It has been said that fairness is determined by the commonsense approach of a juryman and that it is a moral and not a legal issue ( Davies' case). Whether this be so or not, it does seem that in distinguishing between what is fair and what is not fair the Judge must apply standards which appear to him to provide a proper balance or division of advantage and disadvantage between the parties who have made the contract or arrangement. In doing so he would always have to bear 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." (at 271-2). 84 In determining whether there is an unfair contract for the purpose of proceedings brought under s 106 and especially taking into account subs (2), the Court is required to exercise a value judgment reflecting contemporary community values derived from the commonsense approach characteristic of the ordinary, reasonable, hypothetical "standard" member of the community. The value judgment must obviously take into account the totality of the circumstances of the relationship between the parties and the totality of the interests of each of the parties. 85 In determining whether there was ay relevant unfairness with respect to the franchise agreement I take into account the following matters: 1. The applicant stated that he would not have entered into the agreement had it not been his understanding that all stores had sales figures of at least $5,000 per week. 2. As against this, there is the evidence of Tony Tartak with respect to the manner in which the applicant misrepresented his assets when making application for the grant of a franchise. Mr Tartak said, and I accept, that he would not have agreed to the grant of a franchise by the franchisor if the applicant has disclosed his true financial position. 3. The applicant was given a list of franchisees and contacted all of those in the Sydney area. There is no evidence as to the precise information which the applicant sought from these franchisees, but he professed himself to be satisfied that the situation was as represented by Mr Tony Tartak and the franchisor in all respects material to him. 4. The applicant was advised to obtain independent financial advice but chose not to do so. 5. The documentation issued by the franchisor contained clear qualifications and warnings and the applicant chose to disregard them. The applicant was, to use his own words, "foolish" and, from the evidence given in the proceedings naive in terms of business relationships. He did not conduct himself in a business-like fashion and conceded that having no business experience was a disadvantage. 6. It was clear that the baker employed by the applicant was incompetent, yet he took no steps to terminate his services and replace the baker with someone more competent. In this, consistent with the evidence of Ms Herico, the applicant allowed personal concerns for Mr Pearce to intrude into any business-like decision to terminate his services. 7. The applicant acknowledged in evidence that he understood that the success of the franchise operation depended upon his own efforts and depended also on him following the franchisor's procedures. However there is ample evidence that the applicant did not follow the franchisor's procedures and that his own personal efforts were not deployed in a positive fashion in assisting the business. My understanding of the evidence including the documentation issued by the franchisor is that the intention was that the franchisee would principally be "hands on" in the operation of the business rather than relying on the labours of others, as occurred in this case. 8. The applicant commenced trading at the beginning of September 1997. By the beginning of October it was clear that the business was not being operated in a proper and appropriate manner, as evidenced by the comprehensive report of Graham King. There is no satisfactory explanation on the evidence as to why there was a fall off in sales other than the impact of a period of hot weather in October 1997. There is no analysis of the number and quantity of sales, the product purchased, and the reasons for what the applicant said was a steady decline in sales. There is no evidence that indicates that the particular location was inappropriate. In any event, the location was chosen as a result of the active involvement of the applicant. The applicant said that by the end of February he had given up and that he coasted thereafter until the business closed in April 1998. At most, the business traded for six months only. 9. There is no evidence that the applicant suffered any particular loss or that his trading position was affected in any relevant manner by any malfunctioning of the oven or other equipment or the fact that some of equipment may have been second-hand. In any event the applicant was offered compensation of $3,000 with respect to some second-hand panels. 86 The applicant submitted that Mr Tony Tartak had misrepresented the turnover of shops within the Cake It Away group. Presumably the representation was alleged to have been made in 1996, both orally and within the disclosure document, and during the course of negotiations at the beginning of 1997. Such evidence as has been produced shows that as at June 1997 and June 1998 some stores did not have turnover on an annual basis of $5,000 per week. The reasons therefor were not introduced into evidence. Whilst prima facie Mr Tony Tartak may have misrepresented the situation in this way, it does not follow conclusively that a finding of unfairness should result. In determining the question of unfairness it is necessary to take into account the totality of the circumstances between the parties and it is impossible to ignore what occurred after the franchise agreement was entered into. Any representation of this kind may have led to a finding of unfairness if the applicant endeavoured to operate the business consistent with the franchisor's operating procedures and had genuinely persisted until it was apparent that the business might not be able to operate at the level represented by or on behalf of the franchisor. 87 I have referred to the substantive grounds upon which the applicant relied during the course of his conduct of the proceedings. There were a number of other grounds contained in the summons which I have extracted verbatim in paragraph 4 of these reasons for judgment. No or insufficient evidence was adduced during the course of the proceedings to sustain any finding of unfairness with respect to the grounds contained in paragraphs 12(a), (b), 14 or 16. 88 With respect to paragraph 17(b) the applicant said that he relied on the August 1996 disclosure document only. He led no evidence and gave no reasons why disclosure by Mr Tony Tartak that he was a discharged bankrupt in the August 1996 disclosure document would have impacted in any way on the operation of the franchise agreement or any conduct of the respondents said to be unfair. 89 In terms of paragraph 29, the applicant has not established that the training was inappropriate as alleged or that any of these matters either caused or contributed to the failure of the applicant's business. Again, the applicant led no evidence as to why the business failed. It is obvious that the takings did not achieve the levels that both the applicant and the respondents assumed would be achieved. The respondents have adduced evidence that there were a great number of deficiencies in the manner in which the applicant operated the business in terms of the first and second respondents' operating procedures. However there is no evidence of or analysis about the reasons why the takings did not achieve the anticipated levels. Logic dictates that there are a number of potential causes acting individually or in combination. They include the number of potential customers, accessibility to the particular shop, the nature and extent of any competition, the product range offered and the cost of goods, the appearance and presentation of the shop and its product, the appearance and behaviour of staff and the like. There was no evidence which would allow the Court to assess whether the applicant was unrealistic in his expectations that the shop would always trade at the anticipated level or whether trading would be subject to seasonal and other variations. Such evidence as was produced with respect to these issues was scanty. The applicant bears the onus of demonstrating requisite unfairness and of producing evidence to sustain any such finding. 90 In the same way the applicant has not adduced any evidence that would sustain any finding of loss by reason of the fact that not all of the equipment was new and some was second-hand. The applicant did not respond to the respondents' offer of compensation of $3,000 or to replace the faulty panels and there is certainly no evidence that the second-hand panels impacted on the applicant's trading operations. There is some evidence that the operations were affected by the failure of the oven, but this was not said to result from the fact that the oven was second-hand. Presumably, problems with equipment are encountered from time to time in any operation. There is no suggestion that the respondents did not react appropriately in having the oven repaired. Indeed, it is more likely than not that the responsibility for ensuring that the repairs were carried out promptly rested with the applicant. 91 In all the circumstances I am unable to characterise any conduct on the part of the franchisor or any of the provisions of the franchise agreement and related documentation as being unfair for the purposes of s 106 of the Act. 92 As against the eighth and ninth respondents the applicant alleged in effect that their support gave him the confidence to go on. There is no evidence that these respondents suppressed any information or advice which was available to them because of the relationship of Advance Bank Ltd with the Cake It Away group as its bankers nor is there any evidence of any unfair conduct on the part of the Bank or any of its officers who were involved with the application for and grant of finance facilities to the applicant. 93 The applicant asserted that he had a fiduciary relationship with Advance Bank Ltd and its subsidiary and that the Bank therefore had an obligation to advise him in connection with the franchise arrangement. I am unsure as to the exact nature of the advice which the applicant says should have been tendered to him by the Bank, but certainly there is no evidence that the Bank was aware that any of the franchisees were in financial difficulties. To the contrary the evidence is that the Bank regarded all of the franchisees whom it had funded as meeting their obligations under their financial arrangements. 94 Overarching all of this is the fact that Mr Tony Tartak indicated to the applicant after he commenced training that he could get out of the franchise arrangement, and Mr Hudson conveyed similar information to the applicant on 2 September 1997 before he signed the Bank papers. 95 Paragraphs 25, 26 and 27 of the grounds in the summons relate to allegations against the Bank. The fact that the applicant met a representative of the Bank on the premises of the first and second respondents could not, of itself or in combination with any other matters create any unfairness in the conduct of the Bank. The various sub-grounds contained within paragraph 26 do not either individually or collectively, or in association with any other grounds create any relevant unfairness. I do not find any of the grounds made out on the basis of the evidence. The same comments apply with respect to paragraph 27. 96 In all the circumstances I am unable to find that there was any unfairness on the part of the eighth or ninth respondents for the purposes of s 106 of the Act. In making this finding I refrain from making any finding as to whether there was in existence any contract as defined between the eighth and ninth respondents and the applicant for the purposes of s 106 of the Act. 97 The conclusion which I have reached makes it unnecessary to consider any loss or damage suffered by the applicant including his claim based on a psychiatric condition. Nor is it necessary that I consider the cross-claim brought by the eighth and ninth respondents against the first to seventh respondents. 98 During the course of submissions Mr Levitt, solicitor who appeared for the first to seventh respondents said that whilst his clients did not concede any unfairness for the purposes of s 106 of the Act they did feel some compassion for the applicant's circumstances. They regarded the applicant as a person who was too kind and compassionate to be engaged in a business activity. For these reasons Mr Levitt said that his clients would not seek any order for costs against the applicant if they were successful in the proceedings and said also that his clients would not seek to pursue proceedings brought in the District Court of New South Wales for the recovery of certain moneys from the applicant. Mr Fernon of Counsel who appeared for the eighth and ninth respondents asked that costs be reserved. ORDERS 99 I make the following orders: 1. The summons is dismissed as against all of the respondents. 2. The cross claim of the eighth and ninth respondents against the first to seventh respondents is dismissed. 3. The costs of the eighth and ninth respondents as against the applicant and as against the first to seventh respondents are reserved. 4. Liberty to apply with respect to costs. __________________________________________ DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.