New South Wales Supreme Court CITATION : Ketchell v Master Education Services Pty Limited [2005] NSWSC 399 HEARING DATE(S) : 26 April 2005 JUDGMENT DATE : 29 April 2005 JURISDICTION : Common Law Division JUDGMENT OF : Master Malpass at 1 DECISION : Extension of time granted; judgment and orders made in respect of interest and costs set aside; the matter of the defence of non-compliance with clause 11(1) is remitted to the Local Court for determination in accordance with law; save for the issue of that defence, the plaintiff is to pay the costs of the summons; the defendant is to pay the costs of that issue; if so entitled, the defendant is to have a certificate under the Suitors' Fund Act 1951 in relation thereto; the plaintiff is to pay the costs of the unsuccessful application for adjournment before the Registrar; the exhibits may be returned. CATCHWORDS : Franchise agreement - misrepresentation and breaches of contractual obligations - non-compliance with clause 11(1) of the Code - leave and extension of time. Trade Practices Act 1974, s51 LEGISLATION CITED : Trade Practices (Industry Codes - Franchising) Regulations 1998, clause 11(1) CASES CITED : The Cheesecake Shop Pty Limited v A & A Shar Enterprises (2004) NSWSC 625 Jean Florence Ketchell (Plaintiff) PARTIES : Master Education Services Pty Limited (Defendant) FILE NUMBER(S) : SC 10462/05 Mr S Burchett (Plaintiff) COUNSEL : Mr V Bedrossian (Defendant) McPhee Kelshaw (Plaintiff) SOLICITORS : Meehans (Defendant) LOWER COURT JURISDICTION : Local Court LOWER COURT FILE NUMBER(S) : 170/2003 LOWER COURT JUDICIAL OFFICER : Hodgson LCM - 7 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION Master Malpass 29 April 2005 10462 of 2005 Jean Florence Ketchell v Master Education Services Pty Limited JUDGMENT 1 Master: The parties entered into a franchise agreement concerning educational coaching services. A draft franchise agreement and disclosure document was sent to the plaintiff on 30 October 1998. On 1 February 1999, the plaintiff commenced trading as Master Coaching Mudgee. The agreement was not executed by the plaintiff until 11 February 2000. It was backdated to 1 February 1999. Certain fees were paid by the plaintiff as franchisee. Certain fees were not paid by her (for the period 1 June 1999 to 1 December 2002). 2 In the Local Court, the defendant (franchisor) brought proceedings to recover the unpaid fees (in the sum of $26,043.89). 3 The proceedings were defended by the plaintiff. She also relied on a cross-claim. The cross-claim sought restitution in respect of the fees that had been paid and brought a claim for damages (by reason of unconscionable conduct and breach of contract). 4 A three day hearing took place before Hodgson LCM. The Magistrate delivered his judgment on 8 December 2004. 5 The result reached by him is as follows:- I find for the plaintiff cross defendant against the defendant cross claimant. I enter judgment for the plaintiff in the sum of $26,043.89. I order interest at the prescribed rate to date from 15 August 2003 to be calculated by the Registrar. I order the costs to be agreed or taxed. 6 On 10 February 2005, the plaintiff filed a summons in this Court. She seeks to bring an appeal against the decision of the Magistrate. 7 An appeal lies where there is error in point of law. Leave may be granted in cases where there are mixed questions of fact and law. The plaintiff bears the onus of satisfying the Court that there is error which justifies the disturbing of the decision of the Magistrate. 8 The appeal has been brought out of time. There is an application for an extension of time. By consent, the course was taken of concurrently hearing both the application and the appeal. 9 The summons identifies numerous grounds of appeal. For present purposes, it is unnecessary to either set them all out or deal with them individually. 10 Before proceeding further, I should mention that the claim for restitution was abandoned before the Magistrate. This course was said to be taken because of the decision of Windeyer J in The Cheesecake Shop Pty Limited v A & A Shar Enterprises (2004) NSWSC 625. 11 There were a number of aspects to the case run by the plaintiff before the Magistrate. I shall briefly mention what seems to have been regarded as significant. The primary matter was said to be an alleged failure by the defendant to comply with obligations under the franchising code of conduct. This is a mandatory code prescribed under the Trade Practices Act 1974 (the Act). A breach of the code is made a breach of s51AE of the Act. It was alleged that there were deficiencies in the disclosure document provided by the defendant. It was alleged that there had been misrepresentation, inter alia, as to the nature of the franchise. One statement made in the disclosure document was as follows:- Generally, a well-run franchise attracts 100 students per week before the end of the first year of operation. It was further alleged that there were oral representations to similar effect and otherwise. It was also alleged that the defendant had failed to comply with warranties and obligations under the franchise agreement. 12 In his judgment, the Magistrate briefly identified four areas that were in issue. Generally speaking, they contemplated the following:- 1. Whether irregularities in the disclosure document constituted unconscionable conduct; 2. Whether non-compliance with clause 11 of the franchising code of conduct prevented recovery of the moneys claimed by the defendant; 3. Whether there had been what was described as breach of alleged representations and warranties; 4. Whether loss had been suffered by the plaintiff. 13 Many criticisms have been made as to either what said or what was not said by the Magistrate in his judgment. It is unnecessary to go into the detail of what has been submitted in relation to these various matters. 14 There were some obvious errors. Matters could have been better expressed. The presentation may have been more careful. The expression of reasoning process may have been more expansive. But, ultimately, these matters were of no real significance. 15 The Magistrate found in favour of the defendant on the first area. He did not accept that the irregularities were "major". He found on balance that the defendant was not engaged in misleading or deceptive conduct amounting to unconscionable conduct. 16 What he said was sparse in detail. He did not expressly refer inter alia to s51AC(3) of the Act and the circumstances enumerated therein. 17 Whilst it may be that his observations could have been better expressed, the substance of what was done was to reach a conclusion that the plaintiff had failed to prove her case on this issue. In so doing, the Magistrate reached a result which was reasonably open on the material before him. 18 On the second area, the Magistrate accepted that there had been non-compliance with clause 11 (in respect of the prescribed written statement). However, after considering the evidence, he found on balance that no damage had been shown to have been suffered as a result of the non-compliance. 19 Clause 11(1) of the Trade Practices (Industry Codes – Franchising) Regulations 1998 (the Regulations) is in the following terms:- 11. Advice before entering into franchise agreement (1) The franchisor must not: (a) enter into, renew or extend a franchise agreement; or (b) enter into an agreement to enter into, renew or extend a franchise agreement; or (c) receive non-refundable money under a franchise agreement or an agreement to enter into a franchise agreement; unless the franchisor has received from the franchisee or prospective franchisee a written statement that the franchisee or prospective franchisee has received, read and had a reasonable opportunity to understand the disclosure document and this code. 20 This area had been raised both as a defence and as part of a claim for loss and damage. 21 Whilst the Magistrate expressly dealt with the claim for loss and damage, he appears to have either overlooked the matter of the defence or not addressed the right question. 22 To the extent that he dealt with this area, the Magistrate reached a result that was reasonably open on the material before him. 23 The plaintiff had argued that the moneys claimed by the defendant was "non-refundable money" within the meaning of clause 11(1) of the Regulations and that the non-compliance with this provision disentitled it to recover that money. An observation that the Cheesecake case did not render the agreement unlawful did not address a real issue that he was asked to decide (which was the effect, if any, that non-compliance with the clause had on the recoverability of the moneys claimed by the defendant). 24 It seems to me that the failure to address and determine the defence argued by the plaintiff means that this issue has to be remitted back to the Local Court. 25 On the third area, the Magistrate had regard to the competing evidence given by the plaintiff and Mr Ollis on behalf of the defendant. He came to the view that he preferred the evidence of Mr Ollis to that of the plaintiff. He observed that the plaintiff had had a 12 months' trial run before she signed the agreement. He came to a conclusion on balance that despite some mistakes and shortcomings in what was supplied by the defendant, there was no substantive breach of representations or warrantees. 26 Again, whilst the observations may have been better expressed, the Magistrate in substance rejected the plaintiff's allegations of untrue representations and breach of warranty (and perhaps also found that what was alleged did not constitute a representation). It was a conclusion reached after a consideration of questions of credibility and reliability of witnesses who had given competing evidence. It was accepted as being a decision that cannot be the subject of an appeal in this Court. 27 What was said to be the fourth area was to an extent a re-visiting of the question of loss and damage that had received earlier consideration. The Magistrate found that the defendant had failed to establish the suffering of loss. 28 The Magistrate did look at the question of whether the business had been conducted properly and expressed the view that the plaintiff had made a significant profit. In coming to that view, he took into account an irrelevant consideration (a profit on the resale of the premises that had been used for the conduct of the business). It is an error of no significance. 29 Whilst the evidence may have disclosed a trading loss in the order of $1,000, over the whole period of trading, the business was making a small profit in later years. It seems to me that the substance of the Magistrate's findings was that no recoverable loss or damage flowed from either unconscionable conduct or breach of contract. I consider that his exercise of discretionary power cannot be disturbed. 30 In my view, save in relation to one matter earlier mentioned, the plaintiff has failed to demonstrate error in point of law that justifies the disturbing of the decision. Further, I consider that she has failed to demonstrate an entitlement to leave. 31 In my view, it has not been demonstrated that there has been error justifying a grant of leave. Even if a different view had been taken on these matters I still would not have been disposed to grant leave. 32 If leave was granted, the parties would be condemned to a further lengthy hearing on matters of no public significance, disputing a relatively modest sum. 33 Because of the view I have come to concerning the non-compliance defence to the defendant's claim, I consider that I should grant an extension of time and do so (despite the delay and the less than satisfactory explanation for that delay). 34 Save for that matter, the appeal is otherwise unsuccessful. I set aside the judgment and orders made in respect of interest and costs. The matter of the defence of non-compliance with clause 11(1) is remitted to the Local Court for determination in accordance with law. Save for the issue of the defence, the plaintiff is to pay the costs of the summons. The defendant is to pay the costs of that issue. If so entitled, it is to have a certificate under the Suitors' Fund Act 1951 in relation thereto. 35 The plaintiff made an unsuccessful application for an adjournment before the Registrar. The Registrar reserved the costs of that application. The defendant is entitled to the costs of that application and I order that the plaintiff pay those reserved costs. 36 The exhibits may be returned. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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