Industrial Court of New South Wales CITATION: Master Education Services Pty Ltd v Ferfolia [2009] NSWIRComm 132 Master Education Services Pty Ltd (First Appellant) Robert Athol Ollis (Second Appellant) PARTIES: Suzanne Gai Ollis (Third Appellant) Vicki Anne Ferfolia (Respondent) FILE NUMBER(S): IRC 352 of 2009 CORAM: Boland J President; Walton J Vice-President; Staff J APPEAL - leave to appeal - unfair contract - franchise - tuition to school students - appeal by franchisor from first instance decision granting relief to franchisee - principles to be applied in considering whether leave should be granted - consideration of leave submissions - leave to appeal refused - costs. CATCHWORDS: UNFAIR CONTRACT - leave to appeal - appeal - unfair contract - franchise - tuition to school students - appeal by franchisor from first instance decision granting relief to franchisee - principles to be applied in considering whether leave should be granted - consideration of leave submissions - leave to appeal refused - costs. LEGISLATION CITED: Industrial Relations Act 1996 Aktiebolaget Hässle v Alphapharm Pty Ltd [2002] HCA 59; (2002) 212 CLR 411 Australian Coal and Shale Employees' Federation v The Commonwealth [1953] HCA 25; (1953) 94 CLR 621 Biogen Inc v Medeva Plc (1997) RPC 1 Box Valley Pty Ltd v Price [2000] NSWIRComm 117; (2000) 97 IR 484 Eagle Boys Dial-A-Pizza Australia Pty Ltd v Clifford [2003] NSWIRComm 101; (2003) 125 IR 35 Fox v Percy [2003] HCA 22; 214 CLR 118 Hosemans v Commissioner of Police (No 4) [2005] NSWIRComm 409; (2005) 150 IR 263 House v The King [1936] HCA 40; (1936) 55 CLR 499 CASES CITED: Knowles v Anglican Property Trust (No 2) (1999) 95 IR 380 Perrott v Xcellenet Australia Limited (1998) 84 IR 255 Port Macquarie Golf Club Limited v Stead (1996) 64 IR 53 Robert Ferfolia and anor v Master Education Services Pty Ltd. Application under s 106 of the Industrial Relations Act 1996 [2009] NSWIRComm 25 Robert Mario Ferfolia and anor v Master Education Services Pty Ltd & ors [2009] NSWIRComm 17 Subway Development of NSW/ACT Pty Limited v Matthew Costin [2007] NSWIRComm 95; (2007) 162 IR 197 Truelove v Sydney Water Corporation Limited [2005] NSWIRComm 191; (2005) 146 IR 253 Westfield Holdings v Adams [2001] NSWIRComm 293; (2001) 114 IR 241 Westpath Services Pty Ltd v Joseph [2007] NSWIRComm 211; (2007) 166 IR 135 HEARING DATES: 9 July 2009 DATE OF JUDGMENT: 10 August 2009 Mr V V Bedrossian of counsel (First, Second & Third Appellants) Meehans Solicitor Corporation LEGAL REPRESENTATIVES: Mr S J Burchett of counsel (Respondent) Mason Lawyers JUDGMENT: - 1 - INDUSTRIAL COURT OF NEW SOUTH WALES FULL BENCH CORAM: BOLAND J, President WALTON J, Vice-President STAFF J Monday 10 August 2009 Matter No IRC 352 of 2009 MASTER EDUCATION SERVICES PTY LIMITED v VICKI ANNE FERFOLIA Application by Master Education Services Pty Limited and Ors for leave to appeal and appeal against a judgment and orders of Justice Haylen given on 24 February 2009 and 4 March 2009 in Matter No IRC 4847 of 2004 JUDGMENT OF THE COURT [2009] NSWIRComm 132 1 Vicki Anne Ferfolia ('the respondent') and her husband Robert Ferfolia entered into a franchise agreement in 1999 with Master Education Services Pty Limited ('the first appellant'), a company owned by Robert Ollis ('the second appellant') and his wife Suzanne Ollis ('the third appellant'), whereby the Ferfolias would provide tuition to school students. The business failed and in August 2004 the Ferfolias commenced proceedings against the appellants under s 106 of the Industrial Relations Act 1996 ('the Act') seeking compensation for what they alleged was an unfair contract. 2 In Robert Mario Ferfolia and anor v Master Education Services Pty Ltd & ors [2009] NSWIRComm 17 (24 February 2009), Haylen J determined that the relevant contract was unfair and subsequently (Robert Ferfolia and anor v Master Education Services Pty Ltd. Application under s 106 of the Industrial Relations Act 1996 [2009] NSWIRComm 25) made the following orders: The Court 1 Declares pursuant to s 106(1) of the Industrial Relations Act 1996: (a) the franchise agreement between the applicants and the first respondent dated 15 June 1999 to be void ab initio , except to the extent that returns were made by the applicants in the operation of their franchised business; (b) (if ever agreed, as asserted by the respondents) no interest is payable on the loans made by the first and second respondent to the applicants of $15,000 (partly repaid) and $45,000 (wholly repaid) related or collateral to the franchise agreement. 2 Orders pursuant to s 106(5) Industrial Relations Act 1996 that the respondents pay to the second applicant the sum of $74,299 calculated as follows: (a) repayment or compensation for payment of the sum of $57,500 paid by the applicants to the first respondent as an initial franchise fee on 15 June 1999; (b) repayment or compensation for payment of the total of $21,600 paid by the applicants to the first respondent as monthly franchise fees from 15 September 1999 to 19 September 2002; (c) compensation for payment of the amount of $1,999 paid by the applicants to the first respondent for English notes; (d) less the sum of $6,800 discharging the unpaid balance of the loan made by the first respondent to the applicants. 3 Orders pursuant to s 372 Industrial Relations Act 1996 that the respondents pay the second applicant interest (at the rates prescribed for interest on judgments under s 101 Uniform Civil Procedure Act 2005) on the amount payable pursuant to Order 2 hereof as follows: (a) on the sum of $57,500,00, less the loan balance of $6,800 being $50,700, from 15 June 1999, such interest being calculated at $47,183.01 as at 3 March 2009; (b) on the sum of $21,600.00 from 15 March 2001, being a mid point between the start and end of monthly franchise fee payments, such interest being calculated at $16,281.61 as at 3 March 2009; and (c) on the sum of $1,999 from 20 April 2000, such interest being calculated at $1,697.68 as at 3 March 2009. 4 Orders that the first applicant's name be removed as a party to the proceedings. 5 Orders that the respondents pay the second applicant the amount of her own costs incurred and the amount of her costs incurred jointly with the first applicant of and incidental to the proceedings of the party/party basis to 26 August 2005 and on the indemnity basis from 26 August 2005 (or such other date as the Court deems fit). 3 It will be noted that one of the orders was that the first applicant's name be removed as a party to the proceedings. Mr Ferfolia passed away after the proceedings were instituted in January 2007. 4 The appellants now seek leave to appeal and, if leave is granted, to appeal against the decision and orders of Haylen J. FACTUAL BACKGROUND 5 The facts are fully set out in the primary judge's decision of 24 February 2009. In order to provide a context to our decision, however, it is necessary to briefly describe what occurred. 6 Mrs Ferfolia was a teacher of English by profession. Mr Ferfolia was an Honours Graduate in Science and had worked for a variety of companies as a development chemist, senior chemist, quality control manager and quality assurance manager. He had no teaching background. The Ferfolias lived in Bathurst. In early 1999, the Ferfolias were giving consideration to entering a franchise agreement to provide tuition to school students. Mrs Ferfolia came into contact with Mr Ollis and discussions followed in February and March 1999 about the prospect of the Ferfolias taking up one of the first appellant's franchises. 7 There was no franchise available in the Bathurst area and so the Ferfolias visited the Lake Macquarie area of New South Wales in early March 1999. They obtained information from the local Council and other bodies and had spoken to Mr Noble, the Newcastle franchisee of Master Education Services. Their research and Mrs Ferfolia's own exploration of the area confirmed to them that Warners Bay was the appropriate place to set up the franchise and the manager of Economic Development at the local Council had confirmed this location. 8 On 22 March 1999, Mrs Ferfolia wrote to Mr Ollis asking whether the area could be reserved as they would like to proceed with a learning centre. In the letter Mrs Ferfolia also spoke about their financial situation indicating that taking up the franchise was a big step for them and would mean her husband sacrificing well paid employment. 9 Haylen J found that among the conversations that occurred between Mrs Ferfolia and Mr Ollis before a formal interview that took place on 11 April 1999, there was a conversation in which Mrs Ferfolia asked Mr Ollis if the franchise definitely provided a full-time income for two people. Mr Ollis replied that the first appellant's most successful centres were the ones where both people had given up other jobs to work in the centre full-time and that he had several of those centres and they all had over 400 students. 10 The formal interview was a critical event. On 11 April 1999, the Ferfolias met with Mr Ollis and Mr Stephen Brennan, the first appellant's development manager, in the formal interview. At the interview the Ferfolias were shown a cash flow document with 'profit forecasts' that were said to be approximate growth figures based on previous franchises and were said to be 'not predictions'. The Ferfolias were advised that the price of the franchise was $57,500. Haylen J found that it was said to the Ferfolias that they really should be charged $110,000 because the price had gone up, but that they could still have it for $57,500 providing they signed up that day. Mrs Ferfolia expressed concern about whether they were able to afford that sum. There was further discussion about the Ferfolia's finances and their capacity to borrow. They were provided with a loan of $15,000 by the appellants to assist them to take up the franchise and as well took out a bank loan for $94,000 (which included money to get the business up and running as well as to pay the franchise price). The Ferfolias agreed to purchase the franchise at Lake Macquarie for $57,500. Mr Ollis asked for a non-refundable deposit of $1,000 to hold the territory for up to 12 months and he was given a cheque for that amount to secure the territory. 11 The Ferfolias signed the franchise agreement in June 1999. They also undertook some training in about mid-1999 relevant to the operation of the training. At the training session in May 1999, the Ferfolias were provided with a document described as the Master Coaching handbook. In August 1999, the Ferfolias commenced the franchise business. At least initially, the business seemed to go reasonably well. However, as his Honour outlined at [3]-[4] of his judgment: [3] By approximately mid-August 2003, the Ferfolias were disillusioned with the operation of the franchise and were experiencing continual financial difficulties. Proceedings had been commenced by Master Education Services to recover the unpaid portion of a $15,000 loan given to assist the applicants to take up the franchise as well as interest and they had been served with a notice of termination of the franchise. By mid-August 2003, the Ferfolias had written to solicitors acting for Master Education Services stating that various nominated breaches of the agreement had been accepted as a repudiation of the agreement. Thereafter, Mr and Mrs Ferfolia removed the Master Coaching signs from their premises and commenced to trade under the name "Top Tuition". [4] In December 2003, Master Education Services commenced proceedings in the Supreme Court seeking injunctions, an order for the payment of $17,800 and claiming damages. In these proceedings Master Education Services claimed that the Ferfolias were in breach of the terms of the franchise agreement which prevented them from conducting education services in the same area for a period of two years after ceasing to be Master Education Services franchisees. Interlocutory orders sought by Master Education Services were not granted. By August 2004, the Ferfolias had commenced proceedings in this Court seeking relief under s 106 of the Industrial Relations Act 1996. In these proceedings the Ferfolias seek the repayment of the franchise fees, monies expended to support the coaching business at Lake Macquarie, reimbursement of other costs, relief from money said to be owed under the franchise agreement and a number of variations to the agreement, particularly in relation to their ability to conduct another coaching business at the conclusion of the franchise agreement. 12 In seeking relief, the essential complaint by the Ferfolias was that the appellants made representations to them that were not adhered to or were dishonoured by the appellants. For example, the amended summons for relief set out the following alleged representations that were made to them (the full list is at [7]-[8] of the first instance judgment): (a) the First Respondent would supply the Applicants with and maintain exclusive, complete and up to date primary and high school level mathematics, English, reading and science coaching programmes and materials; (b) the English programs and material had been written by a highly qualified teacher, Mark Tischler, and would be made available to the Applicants; … (d) the First Respondent's teaching resources supplied to the Applicants were and would be constantly reviewed, rewritten and improved, keeping up with and being adapted to changes in curriculum, syllabus and educations standards; … (f) the First Respondent would provide an initial start-up training period for the Applicants of 2 weeks and ongoing training for the duration of the franchise; … (h) the First Respondent was very experienced and qualified in business management and would provide the Applicants with all necessary training in that regard; … m) as at March 1999, there were 33 franchises and all were successful and none had expressed a desire to sell or leave the business and that the Master Coaching franchise business was in a vital growing period with energetic directors of the franchisor at the helm and the franchise would grow rapidly; … (p) A franchise would grow to have 100 students within 12 months of commencement and would continue to grow quickly and a large proportion of franchises had well in excess of 200 students per week; (q) projections of income and expenditure supplied by the First Respondent could be relied on by the Applicants as indicative of the income and expenditure of their franchise; … (s) the First Respondent would implement a system of group advertising to advertise and market the services of the Master Coaching franchises; … 13 In their amended summons for relief the respondents identified those representations that were not adhered to or were dishonoured by the appellants. Those representations included, for example: (a) Mathematics resources were handwritten and many of them were dated some years previously and on the letterhead of Master Coaching Campbelltown. They contained errors and alterations and failed to cover all topics required by the New South Wales Board of Studies. For example, for years 11 and 12 extension 2 maths was not covered by the materials; for years 9 and 10, standard maths was not covered; there were no materials for primary study below year 5 and year 5 was only partly covered; there were no materials for remedial learning. The materials were not updated in keeping with changes in the school syllabus; (b) in the original materials supplied by the First Respondent there were no English materials. After repeated requests by the Applicants some materials were supplied but the First Respondent acknowledged that those materials that were supplied were "full of mistakes". No English materials were supplied for years 11 and 12. Such English material as was supplied for years 4 to 10 was entirely inadequate for the courses for those years. Such material as was supplied had not been written by Mark Tischler. The materials were never corrected or updated; … (f) the First Respondent supplied a total of 27 folders of coaching material across the 4 areas of study but mainly mathematics material. Over the time since their entry into the franchise the Applicants had produced over 200 resource folders of their own coaching material by researching, preparing and writing some of those themselves, and having some of them prepared by their employed tutors and teachers (for which the Applicants paid) and from material voluntarily contributed by staff and from resources that the Applicants purchased from other sources; (g) the First Respondent did not provide any business management training to the Applicants and they had to seek that training from other sources and train themselves. Such accounting material as the First Respondent supplied was never able to be used by the Applicants. It was out of date, incorrectly printed and impractical to use. The Applicants had to develop their own office forms and procedures; … (q) the First Respondent did not provide an advertising folder with editorials and advertising copy to cover the Applicants' requirements. Initially, the First Respondent provided no material of this nature at all but after requests made by the Applicants the First Respondent forwarded four photocopied pages of old newspaper articles. This material was not adequate, it was out of date and related mostly to Robert Ollis personally. It was of no use to the Applicants; r) the First Respondent did not provide ongoing and regular training and support programs; (s) the First Respondent did not implement any system of group advertising to advertise and market the services of franchisees. In later years, some franchisees initiated the formation of a marketing co-operative as a separate entity but substantial fees were required to be paid to participate in that initiative; (t) the First Respondent did not provide a 3 day compulsory conference annually. Conferences were organised by individual franchisees but not by the First Respondent; … (w) the First Respondent failed to protect or enhance the reputation or goodwill of the franchised coaching system; (x) by 2002, a large proportion of the original franchisees had ceased operating as franchisees of the First Respondent and about 70% of franchisees overall were so discontented as to refuse payment of franchise fees; (y) the projections of income and expenditure by the First Respondent proved to be substantially inaccurate and by 2002 the Applicants were in serious financial difficulties; … First instance findings 14 There were only two persons who gave oral evidence in the first instance proceedings, Mrs Ferfolia and Mr Ollis. It is to be remembered Mr Ferfolia passed away in January 2007. Mr Brennan, the first appellant's business development manager, was not called to give evidence. In this respect, Haylen J (at [46]) said that Mr Brennan: [W]as an important person in the respondents' business and participated in a number of discussions disputed by the respondents as to their content and any representations made to the Ferfolias. Mr Brennan's absence as a witness was not explained by the respondents. In all the circumstances, it may be assumed that he could not add to the substance of the respondents' case in relation to these matters. 15 Haylen J found that there were inadequacies in the evidence. In relation to the appellants' tuition program, his Honour noted there was no expert evidence analysing the program nor was there any analysis of the franchise territory to suggest that it was either not viable, or unlikely to be viable, for a coaching business that needed to support the Ferfolias and the financial commitment they had made in entering the business. Further, his Honour found: Although there were allegations of inadequacy in the course material there was no independent expert evidence analysing what was provided by the respondents and measuring it against the relevant curriculum, especially where there was a change in the curriculum. Essentially, the evidence for the applicant was that the materials were unsatisfactory while the respondents asserted that the materials were updated and adequate. 16 In relation to many of the assertions on both sides of the record regarding why the franchise business failed, Haylen J found those assertions were: [U]ltimately unsupported or supported by unreliable evidence. The conclusions to be drawn from these competing cases ultimately falls to a consideration of fair dealing in the offering of a franchise outlet. 17 Haylen J found that he preferred Mrs Ferfolia's version of conversations that occurred between herself and Mr Ollis concerning the franchise. His Honour said in this respect: [21] Mrs Ferfolia's evidence was clearly stated and provided numerous details. The evidence before the Court demonstrates her to be, not surprisingly, an articulate person with some business experience who had, on a number of occasions, committed to writing the events and conversations concerning the franchise as they unfolded. Having also observed her demeanour in the witness box, the Court prefers her version of these conversations to the much more general and imprecise recollection of Mr Ollis. Mr Ollis did not attempt to set out what was dealt with in these conversations over a three-week period in circumstances where he was selling franchises and the applicants were considering their position about taking up a franchise. In these circumstances, it is unlikely that Mr Ollis was playing down the attractions of a franchise. A number of the alleged representations were similar to statements found in the respondents' written materials, including the handbook. In addition, Mr Ollis often relied on the respondents' usual practice or his expectation of what that practice would be. These "practices" were not shown to be reliable. These general observations by the Court have also been relied upon in deciding which version of a number of other contested conversations or events should be accepted by the Court. 18 His Honour also found that the representations made by the appellants regarding the nature of the business and its likely success were not merely exaggerations or a 'gilding of the lily': they were significant and substantial representations as to the success of the business and went as far as assuring franchisees of success in that business if they followed the unique methods of the franchisor. 19 Following a very detailed analysis of a large amount of contested evidence the trial judge's main findings relating to the substantive issues to be determined in the proceedings at first instance were as follows: (a) that Mr Ollis did not provide the cash flow document as a template in which the respondents should insert their own figures but presented it as a reasonable guide of what to expect in the operation of the franchise and that even higher student attendances could be attained. The handwritten note on the document that the figures were 'not predictions' was, at best, a clumsy effort to protect Mr Ollis from the representations he was clearly making; (b) there was no basis upon which the appellants could make and justify any representation as to the number of students that might attend the coaching college to be operated by the respondents in Warners Bay; (c) Mr Ollis had to be aware that the Ferfolias were both seeking a living from the operation of the coaching college: Mrs Ferfolia's conversations and letters clearly set out these matters; (d) some attempt was made by the appellants in cross examination to demonstrate that Mrs Ferfolia was getting on in years, suffered fragile health and that it was known that Mr Ferfolia had very severe health problems and was likely to be retrenched from his position. Those propositions as the reasons for the failure of the Ferfolia's business were not established on the evidence. Indeed, Mr Ollis had written to the Ferfolias (including March 2001) praising their efforts and presentation and telling them that their college embodied all that a Master Coaching College should offer. On the other hand, there was no challenge to the respondents' evidence that they exhausted their financial and physical resources in trying to make a success of the Warners Bay college. Over the years of its operation, their financial assets were liquidated in order to advertise and promote the college, pay their way in its operation and support their own living costs. Mrs Ferfolia's letters to Mr Ollis indicating the extent of their slide into dire economic straits were not directly challenged as to their accuracy. In order to survive and keep the Warners Bay college operating, piece-by-piece they demonstrated that their assets were cashed in, including their shares, investment properties, superannuation and accumulated entitlements from their previous employment; (e) it was established that the respondents were pressured into entering the franchise agreement in circumstances where they were attracted by the proposition but were expressing concerns, especially in light of the loan arrangements which had been made available to them by lending authorities, about the cost of the franchise and the relocation costs involved. Contrary to Mr Ollis' evidence and the terms of the first appellant's documents, the interview conducted in April 1999 was not an exhaustive assessment of the respondents as superior teachers (Mr Ferfolia not being a teacher at all) but rather an exercise in persuading the respondents to take up the franchise at the now bargain price of $57,500 because the price had risen to $110,000 - it was only because they had been expressing interest for some time that the existing price was available to them but only if they committed on the day of the interview. It is true that the franchise agreement was not signed on that day but Mr Ollis took a non-refundable $1,000 cheque from the respondents. In his own evidence he was confused as to the purpose of that money. In the Ferfolias' case it appears that the $1,000 was at least designed to lock them into the arrangement and to discourage, on calmer reflection after the interview, any second thoughts the respondents may have had about their level of financial commitment. Ultimately, Mr Ollis accepted that he recalled very little of the conversations that took place on 11 April; (f) in the Master Coaching handbook the appellants represented that, even though the cost of advertising was to be borne in the local area by the franchisees, all that they would need for their business would be provided to them and by inference, that material was responsible for the successful marketing of the first appellant and a significant means by which it had become such a success in the industry. The evidence shows that very little support, in fact, was given to the Ferfolias; (g) apart from the 'Art of Tuition' provided by Mr Ollis, training was largely provided by other franchisees who also sold their material for coaching English and Mathematics. If the intention was that the franchisee should pay for updated material then, as a matter of fairness, it should have been spelt out in both the booklet and the franchise agreement so that prospective franchisees could make a proper assessment of what they were purchasing and what additional costs they may incur in operating the franchise; (h) the Ferfolias did not receive marketing assistance that they did not pay for. This was contrary to the various representations made regarding advertising and promoting the business; (i) the evidence did not establish a basis for finding that the Ferfolias, either innocently or deliberately, misled the appellants as to their financial status nor was there any evidentiary basis analysing how the so-called total picture of their assets would have led the appellants to reject the respondents as franchisees; (j) there was no substance in the appellants' submission that the respondents failed to prove that they produced another 200 folders of tuition material as a result of the inadequacy of the material provided by the appellants. It mattered little whether the number '200' was an estimate or an approximation and there was no attempt to quantify what constituted a "folder", but the Court accepted that the respondents did produce extensive material from their own resources in order to continue the franchise business; (k) the appellants pointed to the fact that the franchise did ultimately enrol significant numbers of students, reaching 100 students in the first 12 months and ultimately obtaining at least 153 students. However, the issue raised by the Ferfolias was not limited to reaching, at a single point in time, a magic figure of 100 or 200 students or an even higher figure but it was reaching these figures and maintaining the students so that the franchise was profitable; (l) the Ferfolias were diligent in their business and in constant contact with the appellants about their failure to produce the number of students required to make the type of living that had been held out to them. Indeed, Mr Ollis had praised their efforts and operation of the franchise. He had also told Mrs Ferfolia that the business was 'no risk at all' when she enquired whether it was capable of sustaining the two of them in circumstances where Mr Ferfolia would leave his $72,000 per annum position in Bathurst; (m) in relation to issues of credit the appellants relied on documents, including affidavits and statements made by Mr Ferfolia for other purposes in other jurisdictions, and also relied on some correspondence from Mrs Ferfolia. None of these matters established an overall basis to call into question the evidence of Mrs Ferfolia and the findings of unfairness already made. In part, this evidence showed that the Ferfolias were realistic about what to expect from a franchise and the hard work needed to make it a financial success: the appellants, however, argued that they rushed into the business, were not suitable and wanted the appellants to pay for their failure. These conclusions were not available on the evidence; (n) The 'bona fides' of the appellants were said to be established by the fact that they loaned the Ferfolias money in order to secure the franchise. By lending them the money, Mr Ollis secured interest on his investment and secured a franchise purchase price as well as ongoing franchise fees while keeping alive the Bathurst prospect. Having favourably assessed the Ferfolias at an early stage, it was in his interests and the interests of the appellants generally to bring them into the business. The loans provided by Mr Ollis do not have the force argued for by the appellants in their case; (o) the appellants relied on the fact that the Ferfolias, especially Mrs Ferfolia, carefully checked the franchise agreement, made notes about its contents and suggested changes and specifically acknowledged that she entered the agreement without relying on the representations made by the appellants. Despite their background, one of the major attractions for the Ferfolias of entering this franchise were the variety of representations made about the success of the system, the number of students it would attract and the fact that the business could be operated with the ongoing assistance of the franchisor who would supply the necessary materials and give advice as to the running of the business and the financial aspects of the business. These were very persuasive representations and the appellants are not able to escape the consequences of those representations; (p) part of the attack on Mrs Ferfolia's credit was the submission that Mrs Ferfolia knew that her husband had been retrenched and had not resigned from his job in order to take up the appellants' franchise. This particular aspect of the appellants' case was said to be supported by statements made by Mr Ferfolia for the purposes of other matters and proceedings. There was no evidence that Mrs Ferolia knew of these other statements made by Mr Ferfolia or that she believed them to be correct - her evidence was that she maintained that he had left his employment to take up the franchise. The appellants appeared to have made the assumption that she knew and agreed with Mr Ferfolia's description of how his employment was terminated and thus brought her credit under suspicion. The Court was unable to come to that conclusion on the material available but even if established, such a conclusion would not have operated to reverse the general findings of unfairness; (q) as to the materials that were actually supplied, there is no expert evidence as to whether it was adequate, appropriate or even superior for the coaching task. In those circumstances it is quite impossible to make the judgment that the materials were not professionally adequate. There does not seem to be any contest that there were gaps in the material, problems with the English material and that franchisees were developing their own material. (r) there was a lack of acceptable evidence regarding the alleged failure of the materials supplied by the appellants to comply with the relevant curricula at the time. There were, however, other aspects of the evidence that supported a finding that the materials supplied by the appellants were inadequate; and (s) the contract comprised of the franchise agreement was unfair in the misrepresentations made prior to entering the contract, the representations that continued to be made during the course of the operation of the franchise and the contract itself was unfair in the ways outlined and how it operated in practice. GROUNDS OF APPEAL 20 There were 13 grounds of appeal, although these were broken down into numerous sub-grounds that we do not propose to repeat here. The main grounds were as follows, namely, that his Honour erred in: (i) finding that the coaching materials supplied by the Appellants were 'inadequate'; (ii) finding that the franchise agreement was unfair, by placing reliance for that finding of unfairness (and reliance in formulating the orders as ultimately made) upon matters other than the allegations of pre-contractual representations, because the trial judge had himself found that those other contentions by the respondent were incapable of finding support in the evidence; (iii) finding the appellants had made representations during the operation of the franchise to the Respondent and Robert Ferfolia as to the number of students that would be attained by the franchise; (iv) finding that the appellants applied pressure, presumably illegitimate pressure, on the respondent to enter into the franchise agreement; (v) placing significant reliance upon the issue of pre-contractual representations regarding student numbers in arriving at the conclusion that the franchise agreement was unfair; (vi) reversing the onus of proof; (vii) attributing credibility to the respondent's evidence; (viii) admitting the 'franchise survey' document into evidence over the appellants' objection; (ix) making the overall finding of unfairness and in the overall exercise of discretion; and (x) other miscellaneous respects. LEAVE TO APPEAL 21 The appellants identified a number of bases upon which it was submitted leave should be granted. The principal bases were that: (a) a significant part of the judgment was the finding that the entirety of the appellants' coaching materials were inadequate. That finding constituted a substantial miscarriage of justice because, amongst other reasons, there was no independent or expert evidence to indicate the materials were inadequate, a fact acknowledged by the trial judge; (b) the trial judge impermissibly reversed the onus of proof in relation to allegations of pre-contractual representations; (c) the trial judge failed to apply the 'clean hands' principle; (d) the trial judge permitted the respondent's case regarding pre-contractual representations as to numbers of students to succeed on factual assertions that had not been pleaded; (e) a critical issue raised by the appeal related to the proper treatment by a trial judge of direct challenges to the credibility of the evidence of one of two or more joint applicants and whether such challenges (if successful) must necessarily, because the applicants give substantively the same evidence, result in a discrediting of the other applicant's case. In this case, Robert Ferfolia passed away prior to the hearing. During the hearing, prior inconsistent statements made by him were tendered. There was no objection to the tender of those documents, nor did the respondent give any evidence in reply to such material. The trial judge concluded that prior inconsistent statements made by Robert Ferfolia did not impact upon the claim for relief of the respondent, because it had not been shown that the respondent knew that Robert Ferfolia had made such prior inconsistent statements. One of the issues warranting leave is whether that is a relevant consideration at all or, if it is, whether it arises in circumstances where the respondent did not put forward any evidence that challenged the truthfulness of the prior inconsistent statements; (f) the above issue has wider implications in the jurisdiction, because it is not uncommon for parties to bring joint applications for relief. The appellants contended an attack upon the credibility of one applicant must have an impact upon the credibility of the other applicant's case where both cases are put forward on the same factual bases; (g) further, even if the respondent's knowledge of Robert Ferfolia's prior inconsistent statements was relevant (which is disputed), the trial judge imposed upon the appellants the onus of proving that knowledge, whereas the burden actually fell upon the respondent to establish the grounds for arguing a diminution in the weight to be given to the evidence of the prior inconsistent statement, including (if relevant) whether the respondent knew of such statements having been made; (h) given that those proved (and undisputed) prior inconsistent statements related to evidentiary matters at the very heart of the respondent's claim for relief (such as their financial and physical ability to conduct the business successfully, their understanding of the risks associated with operating the franchise, and their understanding that large profits had not been promised and that revenue would take a substantial period of time to build up), this is a fundamentally important issue for consideration upon the appeal; and (i) the respondent contended that the business had been in a poor financial position. The only evidence of any specificity regarding the financial position of the respondent's business was given by the exhibiting to the respondent's affidavit of an incomplete set of financial documents. Notwithstanding this, she acknowledged during cross-examination that she had no relevant understanding of the accounts of the business, how they were compiled, or even, in effect, whether they were accurate or not. Further, the respondent gave no evidence of the financial position of the business conducted by she and Robert Ferfolia under the name "Top Tuition" from early 2003 (some 6 to 8 months prior to terminating the franchise) through to early 2007. There would be significant benefit for the Full Bench to give consideration to the extent of the evidentiary obligations that fall upon an applicant for relief where that application is put forward on the basis of a lack of profitability from a business venture, including what inferences ought to have been drawn against the respondent where Robert Ferfolia, who had been involved in the preparation of the business' accounts and who was available to (and did) give evidence on affidavit in the proceedings, failed to give any evidence about those financial statements. Principles regarding leave to appeal 22 Section 188(1) of the Act provides that an appeal may be made only with the leave of the Full Bench. Section 188(2) provides that: The Full Bench is to grant leave to appeal if, in its opinion, the matter is of such importance that, in the public interest, leave should be granted. 23 Section 188(3) allows the Full Bench to deal with an application for leave to appeal separately and without conducting a hearing into the merits of the appeal. 24 Leave is not a mere formality. It will not lightly or automatically be granted by the Full Bench; a proper case must be made out: Perrott v Xcellenet Australia Limited (1998) 84 IR 255 at 265-266. In that respect it will be relevant to consider whether the appeal raises substantial issues of principle or law or has wider implications for the jurisprudence of the Commission including whether the decision has widespread practical application: Knowles v Anglican Property Trust (No 2) (1999) 95 IR 380 at 382; Eagle Boys Dial-A-Pizza Australia Pty Ltd v Clifford [2003] NSWIRComm 101; 125 IR 35 at [23]; Truelove v Sydney Water Corporation Limited [2005] NSWIRComm 191; 146 IR 253 at [45]. 25 The Full Bench in Hosemans v Commissioner of Police (No 4) [2005] NSWIRComm 409; 150 IR 263 (at [5]) referred to the foregoing principles thus: [5] The law and practice governing leave to appeal is well settled and does not require restatement: see Knowles v Anglican Church Property Trust (No 2) (1999) 95 IR 380. However, two principles warrant particular mention: first, leave will not be lightly or automatically granted (see King v State Bank of New South Wales (No 2) (2002) 126 IR 407 at [52]-[55] and Knowles at 381-382) and, subject to the requirements of s 188 (2) of the Act, will not, generally, be granted unless the appellant demonstrates that the appeal "raises substantial issues of principle or law or has wider implications for the jurisprudence of this Commission, including whether the decision has widespread practical application" (see Knowles at 382) or raises issues going to the proper administration of justice. Second, leave will rarely be granted where an appeal primarily seeks to challenge findings of fact which are otherwise reasonably open on the evidence: Box Valley Pty Ltd v Price (2000) 97 IR 484; Austin v NF Importers Pty Ltd (2005) 146 IR 113 at [5]. 26 Importantly, significant weight must be given to the decision of the trial judge when approaching findings of fact or the exercise of a discretion. Port Macquarie Golf Club Limited v Stead (1996) 64 IR 53 at 59; Westfield Holdings v Adams [2001] NSWIRComm 293; 114 IR 241 at [73]; Truelove at [45]. 27 In Aktiebolaget Hässle v Alphapharm Pty Ltd [2002] HCA 59; 212 CLR 411 at [97] Kirby J observed that it will not always possible for judges, when arriving at a factual conclusion: … [t]o express all of the considerations that lead them to the evaluative and partly intuitive conclusion required in the particular case. Any exposition of judicial reasons explaining such factual findings is 'inherently an incomplete statement of the impression which was made upon [the judge] by the primary evidence'. ( Biogen Inc v Medeva Plc (1997) RPC 1 at 45 per Lord Hoffmann). 28 In Biogen Lord Hoffmann said at [45]: The need for appellate caution in reversing the judge's evaluation of the facts is based upon much more solid grounds than professional courtesy. It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance … of which time and language do not permit exact expression, but which may play an important part in the judge's overall evaluation. 29 In respect of decisions involving a discretionary judgment, there is a strong presumption in favour of the correctness of the decision and that it ought be affirmed, unless 'clearly wrong': Australian Coal and Shale Employees' Federation v The Commonwealth [1953] HCA 25; (1953) 94 CLR 621 at 627 per Kitto J. See also House v The King [1936] HCA 40; 55 CLR 499 at 504-505 per Dixon, Evatt and McTiernan JJ. To overcome credit findings, the appellants must point to 'incontrovertible facts or uncontested testimony' demonstrating error or that the findings were 'glaringly improbable or contrary to compelling inferences': Fox v Percy [2003] HCA 22; 214 CLR 118 at [26]-[29]. Finding re inadequate materials 30 Having regard to these principles, we turn to consider the propositions put forward by the appellants as to why leave to appeal should be granted. The first proposition was that his Honour's finding, that the entirety of the appellants' coaching materials were inadequate, constituted a substantial miscarriage of justice. The appellants contended there were four reasons this was so, they being that his Honour's finding was reached: (a) in the absence of any independent or expert evidence… and, in particular, expressly inconsistently with what was stated at [170], namely: As to the materials that were actually supplied, there is no expert evidence as to whether it was adequate, appropriate or even superior for the coaching task. In those circumstances it is quite impossible to make the judgement that the materials were not professionally adequate. (b) without any of the coaching materials themselves being in evidence (except for the 72 pages only of materials that comprised Exhibit AA…); (c) without an identification as to what the "other aspects of the evidence"… were that supported such a conclusion; and (d) contrary to the case put by the Respondent, who conceded that the Appellants' mathematics materials were of "some significant merit". We deal with each of these propositions below. Absence of expert evidence and inconsistent reasoning 31 As to the first reason, the appellants challenge what was a finding of fact by the trial judge. If a finding of fact was otherwise reasonably open on the evidence it is unlikely to attract leave. The relevant parts of his Honour's judgment are at [12], [91], [170] and [189]. [12] Although there were allegations of inadequacy in the course material there was no independent expert evidence analysing what was provided by the respondents and measuring it against the relevant curriculum, especially where there was a change in the curriculum. Essentially, the evidence for the applicant was that the materials were unsatisfactory while the respondents asserted that the materials were updated and adequate. … [91] The difficulty with this aspect of the applicants' claim is that it relates to professional coaching materials and methods and as the evidence stands, there is simply an assertion that they were inadequate and a denial that they were inadequate…. … [170] As to the materials that were actually supplied, there is no expert evidence as to whether it was adequate, appropriate or even superior for the coaching task. In those circumstances it is quite impossible to make the judgement that the materials were not professionally adequate. There does not seem to be any contest that there were gaps in the material, problems with the English material and that franchisees were developing their own material. This was well known to the respondents and appears in the evidence in a number of places, including in Mr Ollis' evidence. The franchise agreement strongly suggests that it was his obligation as the franchisor to provide and upgrade these materials yet admittedly, in relation to the inadequate English materials, he only subsidised the cost of replacement material rather than providing it. The Ferfolias had informed him of the steps they had taken to improve their resource material and were planning to develop other materials but there was no suggestion in the evidence that anybody, on behalf of the respondents, was checking those materials to ensure that it came up to the high standard to be associated with the unique Master Coaching system. … [189] The Court accepts the respondents' submissions that there was a lack of acceptable evidence regarding the alleged failure of the materials supplied by the respondents to comply with the relevant curricula at the time. As earlier indicated there are, however, other aspects of the evidence that support a finding that the materials supplied by the respondents were inadequate. 32 On the face of it there is an inconsistency in his Honour's reasons for decision. On the one hand, his Honour found that 'it is quite impossible to make the judgement that the materials were not professionally adequate' and on the other hand for instance, that the English materials were 'inadequate'. Further, whilst his Honour found there was a 'lack of acceptable evidence regarding the alleged failure of the materials supplied by the respondents to comply with the relevant curricula at the time', the trial judge stated there were other aspects of the evidence that supported a finding that 'the materials supplied by the respondents were inadequate.' His Honour did not explain what was the failure to comply 'with the relevant curricula at the time' or what the 'other aspects of the evidence' were that supported a finding that the materials were inadequate. 33 Notwithstanding the lack of clarity in this aspect of his Honour's reasoning, it is abundantly clear that his Honour was of the opinion that the provision of material by the appellants was inadequate, especially in relation to English materials being kept up-to-date. The franchise agreement spoke of the franchisor supplying educational services and the fact that the franchisor carried out educational coaching in Mathematics, English and Reading, 'including the preparation of materials and procedures necessary to facilitate the use of its specially developed technique'. Schedule 2 to the agreement spoke of the obligation of the franchisor to provide copies of all mathematical and English assignments and tests 'now being used by Master Coaching together with answers and marking scales for assignments'. English was undoubtedly a mainstay of the franchisor's tuition program and, of course Mrs Ferfolia was an English teacher. Mr Ollis conceded there was an obligation on him to keep materials up to date. 34 Notwithstanding the franchisor's obligation to provide up-to-date English materials, at [170] his Honour found: The franchise agreement strongly suggests that it was his obligation as the franchisor to provide and upgrade these materials yet admittedly, in relation to the inadequate English materials, he only subsidised the cost of replacement material rather than providing it. And at [171]: There is little doubt that, at the time the Ferfolias commenced their franchise, the English materials were thought to be so out-of-date or inappropriate that Mr Ollis accepted that nobody was using them. Further, at [171]: After the franchisees' survey, it is of some significance that a major issue was the quality and the need for an improvement in the material provided, especially in English and in some mathematics material. This was the core business of Master Coaching. If these materials were not up-to-date and capable of promoting the superior image of Master Coaching or were inadequate in any other way or not supplied by the franchisee, then a central plank of the franchise contract was fundamentally flawed. That state of affairs also fundamentally undermined the representations made by the respondents about the stress-free, up and running nature of the business where franchisees would be simply called upon to apply the expert programmes prepared by the franchisor. 35 These observations no doubt followed from what his Honour stated at [59], [91], [117] and [133]: [59] Towards the end of the training period at the support office, Mr Ollis gave the applicants their coaching materials in two boxes but Mrs Ferfolia complained that the documents were almost exclusively related to mathematics and stated that she could not see any folders relating to English. Mr Ollis told her that he had paid the Parramatta franchisee to write some English material "a fair while ago" but the material was outdated and there were a number of errors in it. He was arranging for it to be rewritten and brought up-to-date. Mrs Ferfolia said they needed to have some English materials and Mr Ollis replied that they could have it if they wanted it and then gave her seven folders of English material for Years 4 to 10 and they were placed in a box. In affidavit evidence, Mr Ollis denied the truth of that conversation and reiterated what he had earlier said namely that, in approximately May 1999, the first respondent had available to it a complete set of English materials but at the time the materials were in the process of being edited. At that stage, Mr Ollis had generally decided not to provide such materials to franchisees not because they were not any good, but other franchisees had chosen not to use them preferring to use their own English materials. Nevertheless, the applicants asked for the English materials and he provided it to them. Mr Ollis' proposition is an odd one namely that although, in accordance with the contract, he was providing worthwhile English documents, no franchisee was using them and so he was not providing it anymore. It is more likely that, as suggested in Mrs Ferfolia's evidence, the materials were not being used because they were out-of-date and that the franchisees were in a position of having to create their own teaching materials. Mrs Ferfolia's evidence on this matter is accepted. … [91] … As noted earlier in the judgment, there was no independent expert evidence called as to the adequacy of the material but it is uncontroversial that updating was required and additional fees were incurred by purchasing notes from other franchise holders or attending their courses. To an extent, the requirement for this to take place rather supports the impression gleaned from the 1999/2000 survey that the wheels had fallen off the franchisor, perhaps due to the number of franchises and their location, such that there was a general disquiet about the professionalism of the operation and the quality of its product. Under the terms of the franchise agreement it is difficult to understand why the Ferfolias had to pay an additional $2,000 to the Parramatta franchise for updated English materials, even if half the total cost was borne by the respondents. It appeared to be the obligation of the First Respondent to provide updated English and Mathematics materials. Mr Ollis accepted in his evidence their obligation to update the materials. The money expended by the Ferfolias is otherwise not identified and it is not known if any or how much was spent on Science and other subjects which were not part of the franchise arrangement. … [117] What had initially been supplied was the only English material they had ever received and other franchisees had told them that it was unusable. The Ferfolias had tried to use it but it was embarrassing because of the number of spelling and grammatical errors, it was repetitious and lacking in some key areas of the syllabus. They complained that they had not been supplied with Years 11 and 12 English materials. The contract said material would be supplied and at the 2000 Penrith conference they paid $2,000 for four folders of English material prepared by Mr Duff and Mr Rutter and had paid hundreds of dollars to attend special training. There was some excellent material in those notes which they used at their centre but it was not relevant to Years 11 and 12. Mr Duff agreed that was so but it was also noted that the new Higher School Certificate syllabus had been introduced in 2001. In order to have material that was relevant to the School Certificate course, the Ferfolias said they had to purchase other English material for infants and primary students and Years 9 and 10. The English material was to be supplied rather than sponsored by the respondent. … [133] Towards the end of the training, Mr Ollis said to the Ferfolias that they might as well take the coaching materials with them now and indicated two open boxes containing a number of folders. After briefly looking through the folders, the Ferfolias noticed that they appeared to be almost exclusively related to mathematics and his wife said there did not appear to be any English folders. Mr Ollis said that he paid the franchisee at Parramatta to write some English material sometime ago but the material was outdated, their were a number of errors in it and he was arranging for it to be rewritten and brought up-to-date. Mrs Ferfolia said that they needed some English materials and Mr Ollis replied that they could have these folders. Mr Ollis denied the accuracy of that statement and said that in May 1999, the first respondent had available a complete set of English materials and at that stage the materials were in the process of being edited, but Mr Ollis had generally decided not to provide the material to the franchisees. The other franchisees had chosen not to use it, not because it was not any good, but they preferred to use their own English material. The applicants asked for the English materials and he provided it to them. Mr Ollis' evidence in this regard is somewhat contradictory, with the material being available but also being edited but no purpose for the editing being identified. The fact that none of the franchisees were using it rather suggests that it was, as described by the Ferfolias, full of errors and not up-to-date. Indeed, there was evidence that the Parramatta franchise supplied further English material which was 50 per cent paid for by Mr Ollis. 36 At [195] the trial judge noted that the Ferfolias had to pay for English notes because the appellants' materials were inadequate: [T]he Ferfolias paid $1,999 for English notes prepared by the Parramatta franchise where the respondents' notes were inadequate. The first respondent should have been obliged to keep these notes up-to-date…. 37 We also note that in January 2000 Mr Duff and Mr Rutter circulated a survey report to Master Coaching franchisees. In relation to issues concerning the support office and the improvements that franchisees were seeking, the report on the survey stated: A clear and concise message from the survey is in the area of support with the overwhelming issue being the production of improved materials, particularly in the area of materials for English and primary mathematics. 38 In order to arrive at the conclusion the English materials were inadequate, particularly because they were not kept up-to-date, it does not seem to us that the trial judge needed expert evidence in circumstances where his Honour accepted evidence that the materials were not being used because they were 'full of errors and not up-to-date' and that the franchisees were in a position of having to create their own teaching materials. There was, in our opinion, sufficient evidence for his Honour to have found that the English materials the appellants were bound to provide to the respondent were inadequate, forcing the respondent to either write her own materials or source them from other franchisees for which she had to pay. Coaching materials not in evidence 39 In the evidence was 72 pages of coaching material but all of it related to maths coaching; there was no English coaching material in evidence. Again, however, there was no impediment to the trial judge accepting the respondent's evidence that the English material was inadequate; it was not necessary for his Honour to see the material. In this respect we note his Honour's observation regarding Mr Ollis' proposition that although, in accordance with the contract, he was providing worthwhile English documents, no franchisee was using them and so he was not providing it anymore. His Honour described the proposition as 'odd'. We agree. As his Honour said, it is more likely that the materials were not being used because they were out-of-date and that the franchisees were in a position of having to create their own teaching materials. The survey report, which suggested production of improved materials, particularly in the area of materials for English and primary mathematics, tends to support the conclusion that the English materials at least were out of date. No identification of 'other aspects of the evidence' 40 We dealt with this issue earlier under the heading 'Absence of expert evidence and inconsistent reasoning'. It should be apparent from what we said that whilst his Honour did not identify 'other aspects of the evidence' at [189], there was other evidence upon which it was open to his Honour to conclude the English materials were inadequate, particularly because they were not up-to-date. Respondent conceded that the appellants' mathematics materials were of 'some significant merit' 41 It is apparent that the respondent's main complaint and the focus of his Honour's finding regarding inadequate, out-of-date materials related to the English materials and not maths. English was part of the 'core business' of the franchise and, as Haylen J observed: If these materials were not up-to-date and capable of promoting the superior image of Master Coaching or were inadequate in any other way or not supplied by the franchisee, then a central plank of the franchise contract was fundamentally flawed. Reversal of onus of proof of misrepresentation 42 The appellants noted that the trial judge had concluded that there was 'no basis upon which the respondents could make and justify any representation as to the number of students that might attend the coaching college to be operated' in the franchise territory assigned to the respondent and Robert Ferfolia. It was submitted no complaint about the territory was ever pleaded in the amended summons for relief. In any event, it was submitted, it was for the respondent to establish that any representation constituted unfairness and warranted relief. It was noted that the trial judge had acknowledged that there was no evidence suggesting that the franchise territory was not viable or unlikely to be viable for the purpose of supporting the business operated by the respondent and Robert Ferfolia. It was submitted that: The issue of public importance and wider application is as to where the burden of proof falls in respect of such allegations and what, for the purposes of s 106 claims, are the essential elements to be proved in relation to alleged misrepresentations . 43 At [154] Haylen J stated: [154] There appears to have been no analysis by the respondents of any area discussed with the Ferfolias as likely to be a reasonable franchise area. For example, an area comprising substantially retired people would be unlikely to be a successful site for such a coaching college but the respondents appear to have approached the question of the territory of a franchise as being no more than what was a physically desirable area for the franchisees to operate, indicating that the coaching franchise would be successful in any geographic area. Ultimately, there was simply no basis upon which the respondents could make and justify any representation as to the number of students that might attend the coaching college to be operated by the applicants in Warners Bay. These representations may well have been influenced by Mr Ollis' experience in his Campbelltown college but there was no evidentiary basis established for believing that type of success could be repeated in any territory and in particular, to a significant level in Warners Bay. 44 The trial judge was not suggesting the appellants had an onus to prove the territory was viable. All that his Honour found at [154] was that there was no basis upon which the appellants could make and justify any representation as to the number of students that might attend the coaching college to be operated by the Ferfolias in Warners Bay because the appellants had not done the necessary analysis to enable them to make such a representation. Clean hands principle 45 The appellants submitted that that a significant factor in assessing whether an allegation of 'unclean hands' is made out is whether or not there was an express requirement for the disclosure of information. In this regard it was submitted: (a) As part of the Respondent's case, she asserted that some "200 folders" of coaching materials were developed or obtained independently by the Respondent. (b) No part of the "200 folders" was ever produced by the Respondent. (c) The Appellants had obtained pre-trial orders requiring the delivery up of a copy of the Respondent's coaching materials said to have been developed by her, which the Appellants contended were really the Appellants' own materials. The Respondent did not comply with those orders. (d) The Appellants sought the drawing of adverse inferences against the Respondent. This was a particularly important aspect of the proceedings, particularly given that the Respondent acknowledged that she and Robert Ferfolia had continued, from 2003 to 2007 (some 3 to 4 years after cessation of their operation of the franchise business) to conduct essentially the same type of business from the same location. It was important for the Commission to know whether the Respondent had, in fact, continued to use the Appellants' materials in her business. (e) The issues warranting a grant of leave include whether the Respondent's conduct in not producing those materials itself constituted or otherwise proved 'unclean hands'. (f) Further, an issue of importance arises in relation to the drawing of adverse inferences from the failure to produce documents. (g) Materially also, there is an issue of importance in relation generally to the 'clean hands' principle arising from the Trial Judge's determination at [178], namely that a significant factor in assessing whether an allegation of 'unclean hands' is made out is whether or not there was an express requirement for the disclosure of information. It is an important issue whether the 'clean hands' principle can apply, as the Appellants would contend, because of an implied obligation to disclose information. 46 In his reasons for decision the trial judge referred to the Full Bench decision in Westpath Services Pty Ltd v Joseph [2007] NSWIRComm 211; (2007) 166 IR 135, where the clean hands principle was considered. The Full Bench decided at [71] that: It is contrary to the statutory scheme relating to unfair contracts to subject them to the full force of the equity principle of "clean hands". As FAI Insurances v Pioneer Concrete Services makes clear, the principle operates within a narrow sphere and does not result in any wrongful conduct (especially if not connected to the relief claimed) becoming a bar to the granting of orders if unfairness is otherwise established. The statement of the Full Bench in Subway v Costin (made tentatively because it was not fully argued) is now to be regarded as an authoritative statement of the law in relation to s 106 applications. There is no warrant for the elevation of the clean hands principles as a substitute for the proper exercise of the discretion residing in the Court under s 106(5): while there may be factors which may disentitle an applicant to discretionary relief, these are factors which will arise in the circumstances of the particular case. 47 In Subway Development of NSW/ACT Pty Limited v Matthew Costin [2007] NSWIRComm 95; 162 IR 197 the Full Bench stated in relation to the clean hands principle: [4] Further, there must be real doubt about the application of the principle simpliciter in the exercise of the Court's discretion under s 106 in any event: cf Howitt v Retec Limited (No 2) (1995) 60 IR 93. There is no warrant for the erection of such a formula in substitution for the proper exercise of the discretion residing in the Court under s 106(5). There may be factors which may disentitle an applicant to discretionary relief, but these are factors which will arise in the circumstances of the particular case. We note in passing that the principle seems to have been in any event overstated in argument in this matter: see, for example, FAI Insurances Ltd v Pioneer Concrete Services Ltd (1987) 15 NSWLR 553 at 561. 48 At [180] Haylen J concluded: [180] Having regard to what was said by the Full Bench of the Court in Westpath , the inability to make franchise payments from September 2002 and the continuation of a tuition business under another name are not matters that should cause the Court to exercise its discretion not to grant relief to the applicants. The same may be said about the alleged gross exaggerations or intentional untruths said to run throughout the Ferfolias' evidence. The Court does not accept that there was any intentional untruth in that evidence. Nor is there any substance in the respondents' much repeated submission that the applicants failed to prove that they produced another 200 folders of tuition material as a result of the inadequacy of the material provided by the respondents. It matters little whether the number "200" was an estimate or an approximation and there was no attempt to quantify what constituted a "folder", but the Court accepts that the applicants did produce extensive material from their own resources in order to continue the franchise business. Ultimately, the application of the "clean hands" principle as understood following the judgment of the Full Bench of the Court in Westpath does not result in the Court's discretion being withheld from the applicants and the orders they seek in these proceedings. 49 It is evident from the decisions in Subway and Westpath that a failure to produce the folders in question is not an automatic bar to relief based on the clean hands principle. There must be misgivings about the respondent's failure to either produce the folders (although it does not seem that the appellants called for the folders in the course of the trial) or to provide an explanation as to why some or all of them could not be produced. And regardless of the clean hands principle it would have been open to the trial judge to have regard to that failure in the normal exercise of his functions under s 106. However, his Honour took the view that whether it was 200 or some other number of folders, the respondent and her husband did produce extensive material from their own resources in order to continue the franchise business. In our opinion, there was adequate evidence upon which his Honour could rely for that finding. It may have been that the folders also contained material produced by the appellants but that is not a basis upon which we should grant leave. Failure to confine case to pleaded allegations 50 The appellants submitted that the trial judge permitted the respondent's case regarding pre-contractual representations as to numbers of students to succeed on factual assertions that had not been pleaded. The factual assertions, however, were not identified by the appellants. 51 It was pleaded in the amended summons for relief that the appellants had made the following representation to the Ferfolias: (p) A franchise would grow to have 100 students within 12 months of commencement and would continue to grow quickly and a large proportion of franchises had well in excess of 200 students per week; 52 This assertion was presumably based on what was contained in a franchise information booklet provided to the Ferfolias: Generally, most schools will grow to 100 students within the first 12 months and they will continue to grow quickly to large numbers, eg a large proportion of our franchises are well in excess of 200 students per week. 53 In relation to this issue the trial judge observed: [78] In 2000, the Ferfolias completed a survey for week 2, term 1 showing they had 63 students. After lodging that survey, Mr Brennan from the respondent's support office rang and congratulated them on the numbers and Mrs Ferfolia told him that they only had 63 and they could not make a living out of that number of students. Mr Brennan replied that they would have 150 students by Easter and that he would guarantee that. Mr Ollis did not comment on this evidence in his affidavit and Mr Brennan did not give evidence. Mrs Ferfolia is to be accepted in relation to that conversation. [79] In 2000, the survey form for week 9, term 2 submitted to the respondent showed 100 students at the Ferfolias' franchise. Following the submission of that form, Mrs Ferfolia received a telephone call from Mrs Ollis congratulating her on their first 100 students. Subsequently, she received a further telephone call from Mr Ollis also congratulating them to which Mrs Ferfolia replied that they were more than half-way through the year and he and Mr Brennan had said that, by now, there would be 200 students. Mr Ollis replied that she was not to worry, that her numbers were "terrific" and that she would have 200 students by the end of the year. In his affidavit, Mr Ollis does not deny that telephone conversation but he denied that he promised the applicants they would have 200 students by the end of the year. In this matter no evidence has been called to challenge Mr Brennan's promise as to 150 students and, generally, having regard to the respondents' promotional material, Mrs Ferfolia's version of this conversation is to be accepted. … [81] At any one time, the highest number of students ever enjoyed by the franchise was 153 but that only lasted for a very short time. Mrs Ferfolia said that the franchise did not have anything like the 200 or more students they were led to believe would be generated by the business. Mr Ollis did not contest this statement. … [153] What ultimately seems to have convinced the Ferfolias of the viability and suitability of this franchise arrangement were the representations made as to the number of students likely to attend their college, the income to be derived from that level of attendance and the level of ongoing support to be provided by the franchisor, especially in managing the business side of the operation. As the evidence demonstrates, both before and during the operation of the franchise, there were numerous representations as to high student numbers. Mr Ollis had spoken, undoubtedly with some pride, of the 300 students he had maintained when he operated a college prior to entering into the franchise business and there were numerous other representations of 150 and 200 or more students likely to attend the college. 54 At [174] and [182] his Honour stated: The respondents' handbook spoke of franchisees obtaining a 100 students or more in the first 12 months with some franchisees obtaining 200 or more students. Those figures are consistent with statements made to Mrs Ferfolia by Mrs Ollis and Mr Brennan that were otherwise denied by Mr Ollis. In this regard it is of interest that, when Mr Ollis attended the Warners Bay College, he spoke of the size of the rooms and the need to have space for large classes and noted the Ferfolias had plans for extension of the premises. In these comments, Mr Ollis was confirming to the Ferfolias that the business would generate large numbers of students that needed to be accommodated and was indicating what plans needed to be made by the Ferfolias to meet this expected expansion in student numbers. They had already been told that the money was to be made through large student classes. … [182] The respondents point to the fact that the franchise did ultimately enrol significant numbers of students, reaching 100 students in the first 12 months and ultimately obtaining at least 153 students. However, the issue raised by the Ferfolias was not limited to reaching, at a single point in time, a magic figure of 100 or 200 students or an even higher figure but it was reaching these figures and maintaining the students so that the franchise was profitable…. 55 The appellants could have been under no misapprehension of the case pleaded against them in relation to student numbers. The proposition that the trial judge permitted the respondent's case regarding pre-contractual representations as to numbers of students to succeed on factual assertions that had not been pleaded, is not sustainable. Moreover, we are unable to find any complaint by the appellants at first instance that they were caught by surprise on this issue. Challenge to credibility by reference to statements of Mr Ferfolia 56 As to this matter, the appellants noted that during the hearing at first instance prior inconsistent statements made by Mr Ferfolia (including in affidavits) were tendered. There was no objection to the tender of those documents, nor did the respondent give any evidence in reply to such material. The trial judge concluded that such materials did not impact upon the claim for relief of the respondent because it had not been shown that the respondent knew that Robert Ferfolia had made such prior inconsistent statements. Counsel for the appellants submitted that one of the issues warranting leave was whether that was a relevant consideration at all or, if it was, whether it arose in circumstances where the respondent did not put forward any evidence that challenged the truthfulness of the prior inconsistent statements. 57 At [188] the trial judge made the following findings regarding what the appellants submitted were Mr Ferfolia's prior inconsistent statements and their impact on Mrs Ferfolia's credibility: [188] Part of the concerted attack on Mrs Ferfolia's credit mentioned was the submission that Mrs Ferfolia knew that her husband had been retrenched and had not resigned from his job in order to take up the respondents' franchise. This particular aspect of the respondents' case is said to be supported by statements made by Mr Ferfolia for the purposes of other matters and proceedings. It is noted that Mrs Ferfolia asserted that she maintained that her husband resigned to take up the franchise. From this statement it is submitted that, in light of what was described as Mr Ferfolia's admissions in other documents, this position seriously undermined her creditability (sic). There is some confusion in the evidence about this matter and it may well have been clarified if Mr Ferfolia had lived and had been able to give evidence in the proceedings. There is no evidence that Mrs Ferfolia knew of these other statements made by Mr Ferfolia or that she believed them to be correct - her evidence was that she maintained that he had left his employment to take up the franchise. The respondents appear to have made the assumption that she knew and agreed with Mr Ferfolia's description of how his employment was terminated and thus brought her credit under suspicion. The Court is unable to come to that conclusion on the material available but even if established, such a conclusion would not operate to reverse the general findings of unfairness. 58 His Honour had before him, on the one hand, statements by Mr Ferfolia made in respect of other proceedings and/or for other purposes. In those statements Mr Ferfolia indicated that he had not resigned but rather his employment had been terminated. Mr Ferfolia's statements were untested by cross-examination of the author because by the time of the trial he had passed away. On the other hand, there was affidavit evidence of Mrs Ferfolia, about which she was cross-examined, to the effect that Mr Ferfolia had resigned his employment to take up the franchise. His Honour found there was no evidence that Mrs Ferfolia knew of the other statements made by Mr Ferfolia or that she believed them to be correct. There is no basis to find that his Honour should have preferred the untested statements of Mr Ferfolia over the evidence of Mrs Ferfolia or that he should have downgraded the weight he attached to her evidence to the extent that everything she had said in her evidence was to be regarded as suspect, which was, in effect, what the appellants were putting. But even if his Honour had found Mrs Ferfolia's credit had been adversely affected, he indicated, quite clearly, that it would not have operated to reverse the general findings of unfairness. Adequacy of Evidence of Financial Position 59 The respondent had contended that the business had been in a poor financial position. The appellants submitted the only evidence of any specificity regarding the financial position of the respondent's business was given by the exhibiting to the respondent's affidavit of an incomplete set of financial documents. Notwithstanding this, the appellants submitted Mrs Ferfolia acknowledged during cross-examination that she had no relevant understanding of the accounts of the business, how they were compiled, or even, in effect, whether they were accurate or not. It was further submitted the respondent gave no evidence of the financial position of the business conducted by the Ferfolias under the name "Top Tuition" from early 2003 (some 6 to 8 months prior to terminating the franchise) through to early 2007. It was submitted: There would be significant benefit for the Full Bench to give consideration to the extent of the evidentiary obligations that fall upon an applicant for relief where that application is put forward on the basis of a lack of profitability from a business venture, including what inferences ought to have been drawn against the Respondent where Robert Ferfolia, who had been involved in the preparation of the business' accounts and who was available to (and did) give evidence on affidavit in the proceedings, failed to give any evidence about those financial statements. 60 In the course of his decision the trial judge made a number of references to the money spent by the Ferfolias in trying to make a success of the franchise and the difficult financial circumstances they found themselves in: [105] From time-to-time, Mr Ollis had said to Mrs Ferfolia that he had to spend a lot of money on advertising. Between 1999 and June 2003, Mrs Ferfolia said that the failure of the respondents to provide advertising material and advertising copy resulted in the Ferfolias spending more than $70,000 on advertising Over $13,000 had been spent in the financial year ending June 2003 including nearly $6,500 paid to a business coach to assist with advertising and promotion. Mr Ollis made no response to these matters. … [114] Although they had worked hard to make the business a success, Mrs Ferfolia said they could not increase the number of students to the figures they had been told to expect by the respondents. In the 1999/2000 tax year the business operated at a loss of nearly $27,000; in the 2000/2001 tax year the loss was over $23,000; in the 2001/2002 tax year the loss was over $47,000; and, in the 2002/2003 tax year there was a profit of $360. Mrs Ferfolia said that, because they were not able to earn enough income from the business, they became entitled to Centrelink benefits and had been on those benefits since January 2000. The Ferfolias paid their continuing franchise fees until September 2002 and made payments totalling approximately $8,200 on the $15,000 loan. Mrs Ferfolia said they were simply not able to pay any more money because they had no money to pay. … [115] In February, April and May 2002 the Ferfolias had written to the respondents informing them of their financial difficulties and seeking assistance but they did not receive a response to those communications. In those letters the Ferfolias repeated some of the expenditure they were required to undertake and noted that they had 89 students and could not survive on that number, let alone make any money. They had already spent thousands of dollars, borrowed money and sold shares as well as drawing on their superannuation and said they were "very worried". In the May 2002 letter they talk about no enquiries from students, being in "dire straits" and feeling "very stressed and disappointed". They had been struggling to keep up payments on the business loan and their property at Batemans Bay and were again forced to try to sell the property. Mrs Ferfolia sold her last parcel of shares and said they had used all their assets on the business rather than the business paying for anything. … [156]… On the other hand, there was no challenge to the applicants' evidence that they exhausted their financial and physical resources in trying to make a success of the Warners Bay college. Over the years of its operation, their financial assets were liquidated in order to advertise and promote the college, pay their way in its operation and support their own living costs. Mrs Ferfolia's letters to Mr Ollis indicating the extent of their slide into dire economic straits were not directly challenged as to their accuracy. In order to survive and keep the Warners Bay college operating, piece-by-piece they demonstrated that their assets were cashed in, including their shares, investment properties, superannuation and accumulated entitlements from their previous employment. 61 At [190] Haylen J observed: On several earlier occasions it has been noted that the Ferfolias consistently made a loss except for the last year of operation under the respondents where a very small profit was returned. Curiously, the respondents' case appeared to be that the Ferfolias had fraudulently claimed losses when in fact they were making comfortable profits and it therefore followed that they fraudulently brought these proceedings apparently in an effort to obtain even further financial gain but this time at the expense of the respondents. It is difficult to reconcile this submission with the numerous pieces of correspondence and conversations passing between Mrs Ferfolia and the respondents, particularly with Mr Ollis, expressing their concern as to the state of the business and their inability to make an income, the further loans entered and disposal of assets and the inability to free themselves from debt. There is no acceptable basis established in the evidence to support these very serious allegations. 62 On the evidence that was available it was open to his Honour to arrive at the conclusion he did in respect of the financial position of the franchise and how it deteriorated between 1999 and 2003. Conclusions regarding leave to appeal 63 As he did in relation to submission on the appeal proper, counsel for the appellants provided extensive and detailed submissions on the question of leave. We have dealt with each of the submissions. Given the weight we are required to accord the decision of the trial judge, given that it has not been demonstrated that his Honour mistook the facts such that his findings were not reasonably open to him, and given that his findings relating to credit were not glaringly improbable or contrary to compelling inferences, we are unable to conclude that leave should be granted. 64 In that regard, it is appropriate that we restate what the Full Bench said in Box Valley Pty Ltd v Price [2000] NSWIRComm 117; 97 IR 484 at [4]: In any event, we think it should be emphasised, as clearly as we may, that appellate review is not available under this statute as of right, but requires the requisite degree of importance to attract leave to appeal. Mere contest as to findings of fact which might otherwise remain open on the evidence will generally, in the absence of other considerations, not attract leave. 65 Nor do we consider that the appeal raises any issue of law or principle (including the issues raised as to the compensation orders made by Haylen J) as would warrant the grant of leave to appeal. ORDERS 66 The Full Bench makes the following orders: (1) Leave to appeal is refused. (2) The appellants shall pay the respondent's costs of the appeal as agreed or assessed. ___________________________________ 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. 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