Supreme Court New South Wales Medium Neutral Citation: Carazi Pty Ltd v Blow Dry Bar Franchising Pty Limited (in liq) & Anor (No. 2) [2015] NSWSC 108 Hearing dates: 2 and 3 February 2015 Date of orders: 03 February 2015 Decision date: 03 February 2015 Jurisdiction: Equity Division Before: White J Decision: Refer to paras [67] and [68] of judgment. Catchwords: CONTRACT – vitiating factors – fraudulent misrepresentation – rescission – where plaintiff was induced to enter a contract with the first defendant by reason of fraudulent misrepresentations made by the first defendant and its sole director, the second defendant – held that the plaintiff validly rescinded the contract TRADE PRACTICES – claim by plaintiff for damages in respect of pre-contractual misleading or deceptive conduct contrary to s 18 of the Australian Consumer Law – plaintiff entered franchising agreement with first defendant – representations made by first defendant and its sole director, the second defendant, as to the suitability of a franchise location selected by the first defendant for the plaintiff, the profitability and management of the franchise to be conducted by the plaintiff, and the profitability of other franchises - representations as to future matters under s 4 of the Australian Consumer Law – no "evidence is adduced to the contrary" under s 4(2) of the Australian Consumer Law – held that each representation was misleading or deceptive – held that the second defendant was knowingly involved in contraventions by the first defendant DAMAGES – general principles – consideration of the 'once and for all' rule – plaintiff entered lease with third party in reliance on the defendants' fraudulent misrepresentations – plaintiff claimed, among other heads of loss, the value of the future rent payments to be made under the lease – unclear whether the lessor would grant consent to the assignment of the lease from the plaintiff to another company – whether Court can award damages and grant leave to the plaintiff to apply for further damages in the event that the lessor does not consent to the assignment of the lease – held that the Court could so order, applying the High Court's decision in Polkinghorne v Holland – ordered that the damages awarded be without prejudice to the plaintiff's right to recover any further sum as damages in respect of the plaintiff's continuing obligations under the lease Cases Cited: Carazi Pty Ltd v Blow Dry Bar Franchising Pty Ltd [2015] NSWSC 28 Gould v Vaggelas (1984) 157 CLR 215 Pennant Hills Restaurants Pty Limited v Barrell Insurances Pty Limited (1981) 145 CLR 625 Polkinghorne v Holland (1934) 51 CLR 143 Rabelais Pty Ltd v Cameron (1995) 95 ATC 4,552 Turner v TR Nominees Pty Ltd (1995) 31 ATR 578 Sydney Refractive Surgery Centre Pty Ltd v Beaumont [2004] NSWSC 164 Deeny v Gooda Walker Ltd (in liq) [1995] 1 WLR 1206 Walton Construction Pty Limited v Illawarra Hotel Company Pty Limited [2011] NSWSC 1188; (2012) 28 BCL 202 Category: Principal judgment Parties: Carazi Pty Ltd (Plaintiff) Blow Dry Bar Franchising Pty Limited (in liq) (1st Defendant) Nathan Cuneen (a bankrupt) (2nd Defendant) Representation: Counsel: G Sirtes SC with D Moujalli (Plaintiff) Solicitors: File Number(s): 2013/337427 Judgment 1. HIS HONOUR: On or about 26 October 2012 the plaintiff, Carazi Pty Ltd ("Carazi") entered into a franchise agreement with the first defendant, then called Blow Dry Bar Franchising Pty Limited ("BDB"). The Franchise Agreement related to the operation of a hairdressing salon in Castle Hill. On 13 September 2012 Carazi had entered into a lease of the Castle Hill shop from which the hairdressing business was to be carried on. The business has been unsuccessful. It has never made a profit. Carazi seeks, amongst other relief, damages from BDB and from the second defendant, Mr Nathan Cuneen. 2. Mr Cuneen was the sole director of BDB. Carazi alleges that it was induced to enter into the lease and the franchise agreement by misrepresentations made to it by BDB through Mr Cuneen and an agent of BDB, a Mr Simon Morton, and also by misrepresentations made directly by Mr Cuneen. It claims, amongst other things, that the defendants engaged in trade or commerce in conduct that was misleading or deceptive, or was likely to mislead or deceive, in contravention of s 18 of the Australian Consumer Law. It also alleges that Mr Cuneen is liable as an accessory for breaches of the Australian Consumer Law by BDB. 3. In addition to its claims for misrepresentation and misleading or deceptive conduct Carazi makes allegations concerning a breach of the Franchising Code and alleges that the defendants engaged in unconscionable conduct. For reasons which follow it will be unnecessary to deal with those alternative or additional claims. 4. Shortly before the hearing BDB entered into a creditors' voluntary liquidation and a trustee in bankruptcy was appointed to the estate of Mr Cuneen. 5. I have concluded that the proceeding against Mr Cuneen was not in respect of a provable debt and the proceeding against him was not stayed under s 58(3) of the Bankruptcy Act 1966 (Cth). I gave leave to Carazi under s 500(2) of the Corporations Act 2001 (Cth) to proceed against BDB on terms that any judgment obtained by the plaintiff against it not be enforced against its assets without further order of the Court (Carazi Pty Ltd v Blow Dry Bar Franchising Pty Ltd [2015] NSWSC 28). There was no appearance at the hearing for BDB or Mr Cuneen. 6. Mr John Giaimo is the managing director of Carazi and made all the relevant decisions for it. He resides in Cairns. Mr Giaimo was interested in investing in a franchise business through a corporate vehicle if the business could be managed from Cairns without his having to be involved on a full-time basis in its management. He registered his interest in relation to acquiring a franchise business with an organisation known as "Franchise Business". 7. On 27 March 2012 he received an email from Franchise Business that described a franchise opportunity for a franchise business for Blow Dry Bar. The email represented that no hairdressing experience was required and that "we [that is the franchisor] source, trial and train your staff to work in your cool Blow Dry Bar franchise". A Blow Dry Bar was described as an express salon service that was "one of the fastest moving franchise systems in the southern hemisphere". The email stated that the franchisee would not need to work in the store full-time. Mr Giaimo responded to this email indicating his interest. 8. On 4 April 2012 Mr Giaimo received an email from a Mr Simon Morton of a business known as "Franchise Selection". Franchise Selection was later described by BDB in its disclosure document as BDB's agent in relation to the introduction or recruitment of franchisees. 9. It is accepted on the pleadings, as I read them, that the representations made by Franchise Selection were made on behalf of BDB. In his email of 4 April 2012 Mr Morton stated, amongst other things, that: "we ... are looking for franchisees in [s]everal [W]estfield locations and also Manly, Parramatta, [S]urry [H]ills, Mosman, Wetherill [P]ark, Chatswood, Hurstville, Hornsby, Mosman, Wetherill [P]ark, Coogee, Castle [H]ill as well as a few more city locations - this is in addition to our expansion into QLD and VIC. Here are some of the main benefits of the business. 1. It is a very simple business to own and operate – A Blow Dry Bar salon can run completely under management, Blow Dry Bar recruits all your staff members, you receive a dedicated operations manager to provide ongoing support. To date, none of our Blow Dry Bar franchisees are actually hairdressers. 2. Operate in a niche that has high demand – Established in late 2008 Blow Dry Bar is currently one of Australia's fastest growing franchise systems and has grown to 11 salons with another 5 salons under construction as we speak. It has created a niche in the hairdressing industry and the high demand for its services has attracted a lot of publicity. … … 6. All our outlets are extremely profitable, require low investment and are usually cash flow positive within 1 month and have an average pay back period of 1 to 2 years to date per store". 1. In fact at that time at least one new franchisee, Jacla Industries Pty Ltd, that had commenced operating a BDB franchise in Richmond, Victoria in December 2011, was not operating profitability. In an email to Mr Cuneen, dated 22 April 2012, Ms Jennifer Higgins of Jacla Industries told Mr Cuneen that after 18 weeks of trading she was not breaking even. In another email sent on that same day, she told him that her break-even point was $7,000 per week. Mr Cuneen replied by saying that he would work with Ms Higgins to get her to $7,000 as quickly as possible. That franchise never traded profitability. 2. On 11 April 2012 Mr Morton sent Mr Giaimo documents that included a PowerPoint presentation that had been prepared by Mr Cuneen. The PowerPoint presentation contained representations as to some of the advantages of investing in a BDB franchise. The represented advantages included: "Low investment = Huge Profits No need to work full time in your franchise No Hairdressing experience required Join a thriving business model and leader in it's [sic] industry" 1. It also stated that the support offered to a franchisee included: "Finding a site (Its [sic] all about location, location, location) Source your staff, trial, train and implement on your behalf Negotiate fit out contributions from land lords [sic] Design of the salon Manage the construction program Equip each salon to the highest standard Business and staff training" 1. The information provided also stated: "There is no need for you to spend time and money developing products and services for your business, research and development of new products and services also occurs on an ongoing basis, a franchise system also offers greater buying power. [sic]" 1. It was stated that the total investment required for a salon was $100,000 to $150,000. 2. On 14 May 2012 Mr Giaimo attended a meeting with Mr Cuneen and Mr Morton in Brisbane. Amongst other things that were discussed Mr Cuneen responded to Mr Giaimo's enquiry, where Mr Giaimo asked, "Are all the stores profitable?". Mr Cuneen responded by saying, "The other salons are all doing well". Mr Giaimo was also told that if he became a franchisee he would have the support of the franchisor's corporate structure and that there would be fully trained staff provided for the store from manager all the way down to apprentices. 3. On 15 May 2012, Mr Morton sent Mr Giaimo an email to which was attached various documents, including profit and loss statements for BDB businesses conducted at five locations in Sydney and Melbourne. The email stated that it contained all the information Mr Giaimo should need to analyse the business to ensure it stacked up. The profit and loss statements provided were for what were evidently company run stores, that is, not franchised operations. Figures were provided for periods July to November 2011 in respect of four stores and from July 2010 to June 2011 for the store at North Sydney. All of the profit and loss statements showed that the stores were operating profitably. 4. On 22 May 2012, Mr Morton provided Mr Giaimo with information on monthly turnover for 12 stores, including some franchise stores. The figures provided also included additional sales figures for North Sydney, including for a period that covered nine months from August 2011 to April 2012. 5. In that period the sales information provided in respect to the North Sydney store showed monthly revenue of between $51,100 and $71,500. A Mr Tabbouche took over the operation of the North Sydney store as a franchisee from October 2012. He found it to be generally unprofitable. He obtained sales data for periods prior to his taking over as franchisee. The sales data he obtained included sales data for each week from 1 August 2011, in other words, for a period that covered part of the information provided to Mr Giaimo. The figures that Mr Tabbouche obtained show that the sales data provided to Mr Giaimo in respect of the North Sydney store were significantly inflated. The figures were overstated for the nine months from August 2011 to April 2012 by about $140,000, or about $15,000 per month. 6. On 4 June 2012, Mr Giaimo travelled to Sydney. Prior to this he had sent in an application to be accepted as a franchisee. On 4 June, Mr Morton told Mr Giaimo that his application had been successful. Later on that day he met Mr Cuneen at a BDB salon in the MLC Centre. During this meeting Mr Giaimo asked Mr Cuneen, "Are the salons profitable?". Mr Cuneen replied in words to the effect, "Yes. Things are going very well. They are all doing well." Quite apart from the affirmative "Yes", in the context of the question this was an assurance of profitability that reinforced the previous representations made in the information provided by Mr Morton and the previous representation to the same effect made by Mr Cuneen on 14 May 2012. 7. Mr Giaimo, as I have said, resided in Cairns. He was initially told that he had been accepted as a BDB franchisee for Broadway, but was later told that that site was not available. Mr Giaimo had no knowledge of the Sydney retail market for hairdressing salons. BDB held out that it could find a suitable site. On 25 July 2012, Mr Cuneen sent an email to Mr Giaimo saying that: "hopefully by Friday we will have something more concrete for you, [I'm] just mindful of finding you a great site rather than rush into anything. Once we are close to securing you a site our brand manager Rebecca will map out a local area marketing plan for you based on your location." 1. In late July 2012 Mr Cuneen told Mr Giaimo that he had located a site in Castle Hill. In response to Mr Giaimo's question "Is it going to be a profitable location?". Mr Cuneen said, "It's a great new site and you will do well out there. Castle Hill is a good area to do business". On 7 August 2012 Mr Cuneen told Mr Giaimo that "You don't want to set up in a dead zone. The site I found is the way to go". On 9 August 2012 Mr Cuneen sent an email to Mr Giaimo that said, amongst other things, that "if all is executed correctly [I'm] positive you will have a flourishing business". 2. A Mr Delosa had commenced trading as a franchisee in LaTrobe Street, Melbourne in a site known as Melbourne Central on 19 June 2012. He never covered the operating costs of the business on an ongoing basis. On 7 September 2012 Mr Delosa sent an email to Mr Cuneen in response to a demand for royalty and marketing payments from the previous week. Mr Delosa said that since the Melbourne Central business had opened, the business had required funding of $65,000, although the budget that Mr Cuneen had prepared for him before opening showed a need for less than $10,000 of working capital. Mr Delosa said that he had a lot of work still to do to get to break-even point. He said that the majority of the start-up problems resulted from poor recruitment and training by the franchisor and poor systems such as operating manuals and the Point of Sale System. He said that support that had been provided had not delivered any meaningful improvement to the store's operations and marketing, and, more importantly, to the sales and bottom line earnings. 3. Another new franchise business had been started at a site at World Square in Sydney. It had been operating under franchise since 18 April 2012. That salon also never got to break-even point, that is to say, it was trading at a loss from the time the franchisee commenced its business. 4. On 31 October 2012 the franchisee, a Mr Pellarini, wrote to Mr Cuneen stating, "I can't see the salon getting to break even any time soon, if ever, so would like to sell it". I infer that this was not news to Mr Cuneen. The evidence shows that the point of sale system provided immediate information to BDB for each store. That is to say, Mr Cuneen knew of the levels of sales of each of the stores as they were made and he would have known of the level of the sales of the World Square franchise business. I think it is a fair inference that he would have known of the likely level of expense for each of the franchise businesses. His correspondence to other franchisees refers to BDB's plan to seek to reduce labour costs by 20 per cent, indicating he knew of the costs that the franchisees were incurring. 5. At no time prior to Carazi entering into its lease of the Castle Hill premises, that is, on 13 September 2012, or entering into the franchise agreement, did BDB correct the representations that all of the franchisees were operating profitably. 6. Mr Giaimo deposed that when he signed the lease he believed, on the basis of statements made to him by Mr Morton and Mr Cuneen, that the Castle Hill shop was a suitable location for Carazi to operate a BDB franchise business; that the other franchise businesses were being operated profitably; that the BDB franchise business could be operated profitably and would be cash flow positive within a short period of time; and that BDB would recruit and train staff for the franchise business and assist in its management. Had he not believed those matters or if he had been advised that they were not correct, he would not have signed the lease. There is no reason not to accept that evidence. 7. Mr Cuneen selected the designer and builder for the fit-out of the Castle Hill shop. Its opening was delayed from a planned opening on 12 October 2012. It opened for business on 22 October 2012. Mr Giaimo executed the franchise agreement on behalf of Carazi on about 26 October 2012. 8. No-one had been appointed to the role of manager at the store. It appears that only two staff members were provided: one assumed the role of manager on a part-time basis, and the other was a second year apprentice with very limited experience. Prior to the store opening, Mr Giaimo had not been contacted to arrange any franchisee training for him. No staff training was provided to BDB. The promise of support in these respects was not provided. 9. The business traded unprofitably. In the period of operation up to 30 June 2013 it had a trading loss of $256,797. Losses continued in the following financial year. 10. These proceedings were commenced on 8 November 2013. On 11 November 2013, Carazi rescinded the franchise agreement on the ground of the misrepresentations alleged in these proceedings. 11. Carazi relies particularly on the following representations that have been categorised as a "Site Suitability Representation", a "Representation Concerning Other Franchisees Representation", a "Profitability Representation", and a "Management Representation". 12. The pleaded "Site Suitability Representation" is that Mr Cuneen and BDB made representations to the effect that the Castle Hill site would be a suitable site from which to operate successfully the BDB business. In fact, the representation was made in rather stronger terms than that. Mr Cuneen represented that it would be a great site. Be that as it may, it is clear that a representation at least in those terms was made. Carazi pleads that this was a representation as to a future matter and is taken to be misleading unless the representor had reasonable grounds for making it. The burden of adducing evidence to establish such reasonable grounds is on the defendants (Australian Consumer Law, s 4). 13. I think the Site Suitability Representation was a representation as to a future matter. Of course, no evidence has been adduced by the defendants, who did not appear, to show any reasonable grounds for the representation. But in any event, the evidence of Mr Giaimo establishes that there were not reasonable grounds for the making of the representation. Mr Giaimo's evidence is to the effect that the shop is located in an area that gives little cause to people to visit the shop. 14. The shop is located amongst a strip of shops, not in a shopping centre. There is no dedicated parking for it. A major retail attraction nearby is a shop known as Dan Murphy's. Mr Giaimo deposes that customers attending that store are typically male and not the target demographic for the salon which was aimed at women between the ages of 18 and 35. Customers attending Dan Murphy's typically do not walk onto the street frontage to see any of the speciality shops because the lifts from the car park take customers directly to the front of the Dan Murphy's store. The salon is 550 metres from what I infer is a shopping centre called Castle Towers. But this is too far for people to walk. That is to say, there is little passing trade. 15. Mr Giaimo deposes that most people tend to use their motor vehicles as the primary source of transport. Motor vehicle traffic is diverted to avoid traffic going through the main street of Castle Hill which means that most motor vehicles do not pass the front of the salon. There is no office space near the salon that would make it a convenient location for people working in nearby offices and no public transport near it. 16. Thus, irrespective of whether the representation should properly be treated as a representation as to a future matter, I am satisfied that the representation that the Castle Hill site would be suitable for the successful operation of the business had no reasonable basis and was misleading. 17. The representation was made in trade in commerce not only by BDB, but also by Mr Cuneen. I am also satisfied that Mr Cuneen would have known that there was not a reasonable basis for the representation. 18. Carazi also pleads that BDB and Mr Cuneen made representations to the effect that all other BDB businesses which were being operated by franchisees pursuant to a franchise agreement were being operated profitably. That representation was made in express terms in the email sent by Mr Morton in April 2012. It was also repeated by Mr Cuneen in his responses to questions asked by Mr Giaimo on 14 May and 4 June 2012. For the reasons given that representation was simply untrue and it was untrue to Mr Cuneen's knowledge. He was aware at all material times that at least one franchisee, namely the franchisee in Richmond, Victoria, was not breaking even. He was also aware prior to 13 September 2012 that the Melbourne Central shop was not operating profitably, even if he was not aware of that at the time he made the representations on 14 May and 4 June 2012. He was under a duty to correct the representation he had made upon becoming aware of its falsity, but did not do so. For the reasons I have given I am satisfied that he was also aware prior to 13 September 2012 that the World Square franchise was not operating profitably. 19. Moreover, the figures which had been provided to Mr Giaimo by Mr Morton, but which had been prepared by Mr Cuneen, in respect of the profitability of other stores included false information in respect of the sales figures for North Sydney. 20. I am satisfied that the representations concerning the profitability of the other franchisees were misleading and deceptive, and also simply false, and false to the knowledge of Mr Cuneen. 21. Carazi also pleads that Mr Cuneen and BDB represented to Carazi that the operation of a BDB business by Carazi would be extremely profitable; that it would be cash-flow positive within one month; and that it would earn the equivalent of any capital investment in the business within one to two years of commencing to operate the business. The email by Mr Cuneen to Mr Giaimo on 9 August 2012 stated that, "if all is executed correctly [I'm] positive you will have a flourishing business". 22. The business did not flourish. The defendants did not plead that the plaintiff failed to "execute correctly". That is to say, there is no allegation by the defendants, and there is no evidence, that the losses suffered by the plaintiff were due to any failure by the plaintiff properly to attempt to carry on the business. The profitability representation was as to a future matter and the burden of adducing evidence that there was a reasonable basis for it lies on the defendants. There is no evidence that suggests that there was a reasonable basis for the representations. 23. Finally, the plaintiff relies upon the representations to the effect that BDB would recruit and train all staff members required for the operation of the BDB business by Carazi and that Carazi would have the services of a dedicated operations manager for its business. Such representations were contained in the information sent by Mr Morton to Mr Giaimo on 4 April 2012 and were substantially repeated at the meeting in Brisbane on 14 May 2012. That was also a representation as to a future matter. 24. Again, the onus lies on the defendants to adduce evidence to show that there was a reasonable basis for it. No such evidence has been adduced. The represented management did not eventuate. 25. I am satisfied that Mr Cuneen was knowingly involved in the representations made by Mr Morton as to the profitability of BDB stores and franchises. He provided the figures to Mr Morton and I infer that he knew that the figures he provided to Mr Morton would be passed on to the plaintiff. 26. I consider that Mr Cuneen was knowingly involved in BDB's contravention of s 18 of the Australian Consumer Law. 27. The plaintiff has established that the defendants are liable for damages pursuant to s 236 of the Australia Consumer Law for the contravention of s 18 of the Australian Consumer Law. 28. Statutory relief is claimed under s 243 of the Australian Consumer Law for an order that the franchise agreement is void or voidable and for an order that all executed copies of the franchise agreement be delivered up and cancelled. It is not necessary to go so far. Carazi rather rescinded the franchise agreement on 11 November 2013. 29. The rescission was effective because Carazi was entitled to rescind the franchise agreement at common law for fraudulent misrepresentation. I will make a declaration accordingly. The substantial question is as to the measure of damages. 30. The plaintiff claims the following amounts as damages. It was required to pay a franchise fee of $35,000 and did so. It incurred a cost of $66,957 for the fit-out of the salon. This was the sum net of the landlord's contribution. It also spent a further amount of $8,231 on plant and equipment. It claims these capital items, which amount to $110,188, as part of its damages. I am satisfied that those amounts are recoverable. 31. Carazi operated the salon up to about September 2013. In August 2013, Mr Giaimo set up a new company called De-Beaux Cheveux Pty Ltd. He is the sole shareholder and director of that company. His purpose in setting up the new company was for it to take over the business at Castle Hill. Mr Giaimo wanted to sell the business but thought it was unrealistic for the business to be sold if any obligations under the lease were attached to it. He considered that by transferring the business to De-Beaux Cheveux without the lease obligations of Carazi which had been guaranteed by him, that this would improve the prospect of finding a buyer for the business. 32. Carazi incurred a trading loss up to 30 June 2013 of $256,797. It incurred a further trading loss in the following financial year of $89,289. That figure does not include the sum of $83,106 incurred for legal costs, which I infer were incurred in connection with these proceedings. 33. The operations of De-Beaux Cheveux were funded by loans from Carazi. In the period up to 30 June 2014, Carazi lent $144,420 to De-Beaux Cheveux and in the following financial period it lent a further $132,003. Carazi claims these loans as part of its damages in addition to the trading losses and losses on capital account that it suffered. It says that there is no realistic prospect of the loans being repaid. The reason for that is that the only asset of De-Beaux Cheveux is the business which it has carried on. 34. De-Beaux Cheveux has attempted to sell the business. It was placed on the market in September 2014 with an asking price of $66,000, but no purchaser was located for that price. A business broker has located a potential purchaser for the salon business for the sum of $32,000 plus GST. Heads of agreement have been entered into but no formal contract for purchase has yet been executed. 35. It appears that as part of the sale of the business it is proposed that the lease also be assigned. That assignment requires the landlord's consent. The lessor has not indicated either way whether it is satisfied that the purchaser has the financial resources and retailing skills equal to or better than Carazi as required under the lease. No consent to the assignment has yet been obtained. If the lease is assigned then subject to Carazi's having complied with its disclosure obligations to the lessor and to the assignee of the lease under s 41 of the Retail Leases Act 1994 (NSW) Carazi should be relieved of further responsibility for payments under the lease (Retail Leases Act, s 41A). At present it is not known whether it will be so relieved of its liabilities. The only asset that De-Beaux Cheveux might have from which the loan amounts of in excess of $276,000 could be repaid is the price of $32,000, on sale of the business if the sale proceeds. Mr Giaimo deposes that the broker's commission of $10,000 plus GST and legal fees expected to be $4,000 would be deducted from the sale price. 36. Moreover, De-Beaux Cheveux has some taxation and superannuation liabilities, the precise amount of which is not presently known. Mr Giaimo deposes that De-Beaux Cheveux's liabilities are likely to exceed the balance of the sale proceeds, and it would therefore have no ability to repay the loan owing to Carazi. There is no reason not to accept that evidence. 37. Carazi is entitled to recover as damages all losses that flow directly from its having been induced to enter into the lease and the franchise agreement. 38. As I have said earlier there is no allegation in the defence, and in any event there is no evidence that might indicate, that any of those losses have arisen "from some supervening cause such as the folly, error or misfortune of the purchaser himself" (Gould v Vaggelas (1984) 157 CLR 215 at 222 per Gibbs CJ). Carazi had no option but to continue to trade and in my view it is entitled to damages for what have been called the set up costs totalling $110,188, its trading losses, and its loans to De-Beaux Cheveux to provide the working capital for De-Beaux Cheveux's continuing to trade. The trading losses, including those loans, total $622,509; this figure includes interest. Thus it is entitled to damages of $732,697. It may also be entitled to further damages if it remains liable under its current obligations under the lease to pay rent and outgoings. It is not known whether it will remain so liable. 39. Initial rent of $95,000 per annum is payable under the lease, which increases by five per cent per year. Carazi sought damages representing its rental obligations for the remaining three years of the lease which totalled $314,461.87, without including outgoings. It submitted that that figure could be discounted using the December 2014 inflation rate of 1.7 per cent giving a discounted present value of $298,954.53. 40. The difficulty with that argument is that it provides no further discount for the possibility, which might be a very real possibility, that all of such liability will cease upon an assignment of the lease to the new purchaser. Even if the lease is not assigned, Carazi would have the benefit of a tenancy up to September 2017 of a shop which presumably could be put to profitable purposes. 41. The question then is whether damages can be awarded of $732,697 with liberty being reserved to Carazi to apply for additional damages with respect to its future lease obligations in respect of the Castle Hill premises. It has been said by the highest authority that damages at common law must be assessed on a once-and-for-all basis (Pennant Hills Restaurants Pty Limited v Barrell Insurances Pty Limited (1981) 145 CLR 625 at 643 and 661 per Stephen J). 42. However, there is authority which would support the making of an award for damages in respect of the two components of loss (set-up costs and trading losses incurred or funded by Carazi), whilst reserving liberty to the plaintiff to apply for additional damages if events prove that it has continued obligations under the lease. 43. In Polkinghorne v Holland (1934) 51 CLR 143 the plaintiff entered into three transactions on the advice and with the encouragement of a solicitor. The principal issue in the case was whether the solicitor's partners were liable for the losses which the plaintiff suffered that were occasioned by the solicitor's fraud. In respect to two of those transactions the High Court held that the delinquent solicitor's partners were vicariously liable, as he was acting in the course of the business of the firm. One of those transactions involved a transfer to the plaintiff of 4,000 £1 shares in a company. The share certificate that was issued showed that the shares were fully paid, but in fact they were paid only to four shillings in the pound. 44. The orders of the High Court included the entry of judgment for the plaintiff against the defendants for two sums totalling £5,000 plus interest, those being sums of money outlaid by the plaintiff which were lost. The orders also included the following: "Order that the judgment entered in accordance with this order be without prejudice to the plaintiff's right to recover any further sum as damages in respect of any payment she might be required to pay as shareholder or contributory of United Trust Investment & Deposit Co Ltd in respect of the shares mentioned in Exhibit P11." 1. There have also been cases in which a successful plaintiff would be entitled to include as a component of damages any capital gains tax that would be payable on the award but where it is unknown and unascertainable as to whether or not the plaintiff would be assessed for capital gains tax and, if so, whether the plaintiff would be liable for capital gains tax. In Rabelais Pty Ltd v Cameron (1995) 95 ATC 4,552 at 4,553 Hodgson J said: "If and insofar as there is income tax or capital gains tax loss caused in this general way, it seems to me that it would be recoverable as an item of damages. It is apparent from what I have said, however, that it would not be possible for me to make any assessment of that loss. It is desirable that all aspects of damages be disposed of in one hearing, but because there is the possibility of substantial loss, I would be prepared in this case to reserve leave to the plaintiff to apply for additional damages referable to income tax or capital gains tax considerations." 1. In Turner v TR Nominees Pty Ltd (1995) 31 ATR 578 at 596 Santow J described this as "the prudent course". A like approach was taken by Studdert J in Sydney Refractive Surgery Centre Pty Ltd v Beaumont [2004] NSWSC 164 at [389] and [396]. (See also Deeny v Gooda Walker Ltd (in liq) [1995] 1 WLR 1206 at 1211-1216 per Phillips J; and Walton Construction Pty Limited v Illawarra Hotel Company Pty Limited [2011] NSWSC 1188; (2012) 28 BCL 202 at [92], [139] and [172] per McDougall J). I propose to follow that line of authority. It would not be possible to assess damages in respect of Carazi's continuing obligations under the lease and would be unjust to at least one party, if not all parties, if I were attempt to do so. 2. For these reasons, and subject to anything further counsel may have to say as to the precise form of the orders that should be made, I propose to make the following orders. 1. Declare that by letter dated 11 November 2013 from Thomsons Lawyers to the defendants the plaintiff validly rescinded the franchise agreement dated 26 October 2012 between the plaintiff as franchisee, Mr John Giaimo and Gina Giaimo as guarantors, and the first defendant as franchisor. 2. Give judgment for the plaintiff against both the first defendant and the second defendant in the amount of $732,697. 3. Order that the judgments to be entered against the first defendant and the second defendant in accordance with the preceding order be without prejudice to the plaintiff's right to recover any further sum as damages in respect of the plaintiff's continuing lease obligations relating to the premises known as Shop T5, 250-254 Old Northern Road, Castle Hill. 4. Order that the defendants pay the plaintiff's costs. 5. Order that the plaintiff's claims for relief in the statement of claim be otherwise dismissed. [Counsel addressed.] 1. I make those orders and make the following further order: 1. Grant liberty to the plaintiff to apply and reserve the proceeding for further consideration in respect of the plaintiff's right to seek to recover a further sum as damages, in respect of its continuing obligations under the lease, and in respect of its foreshadowed application for an indemnity costs order and for a gross sum costs order. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 04 March 2015