Workplace Safety Australia v Simple OHS Solutions Pty Ltd

1. [1]

   BATHURST CJ: Occupational health and safety is an increasingly important and complex issue in the conduct of business activities in this country. Both the appellant, Workplace Safety Australia Pty Limited (WSA), and the first respondent, Simple OHS Solutions Pty Limited (Simple), provided services to assist business proprietors to carry out their obligations in this area. So far as relevant, WSA provided online subscription packages designed to assist businesses to meet their obligations under the occupational health and safety legislation of various States. Simple provided on-site occupational health and safety consulting services.

2. [2]

   On 19 September 2011, WSA and Simple entered into a series of agreements concerning the provision of occupational health and safety services. Of these, the most relevant was a Distribution Agreement whereby Simple agreed to act as distributor of WSA’s subscription packages on the terms contained therein (the Distribution Agreement).

3. [3]

   The Distribution Agreement obliged Simple to pay WSA two fees, a Distributorship Fee and a Customer List Fee. A number of instalments were listed under the heading of these two fees, including an amount of $281,584, described as a customer database fee, of which $150,000 was payable “on completion of initial training” and the balance payable by instalments of $32,896, payable “each quarter after the date of completion of initial training”.

4. [4]

   The Distribution Agreement also imposed an obligation on Simple to subscribe 15 new customers to subscription packages per month. Clause 5.4 of the Distribution Agreement provided that if this minimum customer requirement was not met for each six month period during the term of the agreement, WSA had the right to immediately terminate the agreement.

5. [5]

   The second respondent, Ms Sue Louise Bottrell (Ms Bottrell), guaranteed Simple’s obligations under the Distribution Agreement.

6. [6]

   The arrangement contemplated by the Distribution Agreement was unsuccessful. WSA purported to terminate the agreement on 26 March 2012 on the grounds of failure to meet the minimum customer requirement in cl 5.4 and non-payment of a quarterly instalment of $32,896, due on 23 March 2012. Simple contended that WSA was not entitled to terminate as first, WSA was estopped from relying on cl 5.4 to terminate the agreement and second, in respect of the payment of the quarterly fee, time was not of the essence.

7. [7]

   Simple also contended that the Distribution Agreement was a franchise agreement within the meaning of the Franchising Code of Conduct (the Code), prescribed as a mandatory industry code for the purpose of s 51AE of the Competition and Consumer Act 2010 (Cth) (the Act). Simple asserted that WSA had not complied with either the pre-contractual disclosure requirements in cl 6 of the Code or the pre-termination requirements contained in cl 21 and had thus contravened s 51AD of the Act. WSA denied that the agreement was a franchise agreement.

8. [8]

   The primary judge, Rein J, determined the issues raised in favour of Simple. He found that WSA was estopped from relying on cl 5.4 of the Distribution Agreement and that time was not of the essence in respect of the payment of the quarterly instalment. He also found that the Distribution Agreement was a franchise agreement, with the result that WSA was not entitled to terminate without complying with cl 21 of the Code. Further, he held that Simple would not have entered into the agreement had it been aware that the agreement was a franchise agreement.

9. [9]

   The primary judge awarded Simple damages of $208,178.34, which he stated was accepted as the quantum of loss suffered by Simple as a result of entering into the agreement or as a result of WSA’s termination of the agreement.

The agreements between the parties

1. [10]

   The principal question debated on the appeal was whether the Distribution Agreement was a franchise agreement. In considering this issue, as well as the entitlement of WSA to terminate the agreement, it is necessary to have regard to a number of its provisions.

2. [11]

   Clause 1.1 contains a number of definitions which are of relevance to the proceedings:

3. [12]

   Clause 1.2 of the Distribution Agreement is an interpretation clause. Relevantly, it provides that “a recital, schedule or annexure forms part of this Agreement”. Clause 1.3 provides that headings are for convenience of reference only and do not affect interpretations.

4. [13]

   Clause 2 contains the principal obligations imposed on each party under the agreement. It provides as follows:

5. [14]

   It was not in contest that the instalments referred to in cl 2.2(a)(iv) and (v) were payments which made up the amount of $281,584, referred to in cl 2.2(a)(iii), and not separate additional payments.

6. [15]

   Clause 3.3 dealt with customers introduced by WSA (described as the “Supplier”) to Simple (described as the “Distributor”). It provided as follows:

7. [16]

   Clause 4 imposed obligations on WSA to provide support to Simple and imposed restrictions on the power of Simple to refer persons to WSA for support.

8. [17]

   Clause 5 set out detailed obligations imposed on Simple and various prohibitions on the manner the packages were to be distributed and marketed. It was in the following terms:

9. [18]

   Clause 8 prohibited Simple from making any warranty or representation on behalf of WSA. In that context, cl 8.3 provided as follows:

10. [19]

    Clause 17 dealt with training and the right of WSA to supply a manual which Simple was required to use in its operations. It was in the following terms:

11. [20]

    Clause 21 dealt with records, inspections and auditing. It provided as follows:

12. [21]

    Clause 23.3 provided for circumstances in which WSA was entitled to immediately terminate the agreement with written notice. It was in the following terms:

13. [22]

    Item 8 of Sch 1 of the agreement described the subscription packages which customers would receive.

14. [23]

    On the same day as the Distribution Agreement was entered into, the same parties entered into an agreement described as a Service Agreement. That agreement was independent of the Distribution Agreement, although it was referred to in Sch 2 of the latter agreement. By the Service Agreement, WSA granted Simple the exclusive right to provide occupation health and safety risk assessments, audit and an onsite training services to clients who purchased or renewed subscription packages from WSA during the term of the agreement.

15. [24]

    In addition, on the same day, WSA and Simple entered into two further agreements. By the first agreement, Simple agreed to provide consulting services to WSA to assist it with risk evaluation and risk management training. By the second agreement, WSA appointed Simple as a commissioned sales agent to sell what were described as Audit Tool products produced by WSA. It is unnecessary to set out the terms of either agreement.

16. [25]

    The primary judge, in reaching his conclusion, also placed reliance on a training manual with which Simple was required to comply by virtue of cl 17.3 of the Distribution Agreement. The Training Manual (the Manual) supplied to Simple pursuant to this clause was tendered in evidence. There was a dispute between the parties as to whether the Manual was available at the time the contract was signed. Ms Kim Schekeloff (Ms Schekeloff), the Director of WSA responsible for the negotiations, asserted that it was. Ms Bottrell, who conducted the negotiations on behalf of Simple, denied that Simple received it prior to the execution of the agreement. The primary judge made no finding on this issue.

17. [26]

    The Manual contained detailed provisions on trials of the product, orders and procedures for payment. In relation to trials, it required potential customers to complete a trial order form, a particular form notifying WSA of the trial, and a form notifying customers of the trial details. It also set out procedures for extending trials.

18. [27]

    The Manual also included detailed procedures for orders and payments. It prescribed the order form to be used, the form of invoice and the email to be sent to the client, to which the invoice was to be attached. It also contained an information sheet relating to the business subscription package. Different forms provided for new subscriptions and for the renewal of subscriptions.

The legislative background

1. [28]

   Part IVB of the Act provides for the making of the industry codes.

2. [29]

   Section 51AE of the Act provides that regulations made pursuant to the Act may prescribe an industry code and declare it to be mandatory or voluntary. Section 51ACB provides that a corporation must not, in trade or commerce, contravene an applicable industry code.

3. [30]

   The Code was prescribed as a mandatory code by the Trade Practices (Industry Codes – Franchising) Regulations 1998 (Cth). The Code imposes an obligation on franchisors to provide franchisees with a disclosure document prior to entering into a franchise agreement. The purpose of this document is described in cl 6A of the Code as being to give a prospective franchisee information to help it make a reasonably informed decision about the franchise. By cl 11, a franchisor must not enter into or renew a franchise agreement unless the franchisor has received a written statement from the prospective franchisee that it has read and understood the disclosure document and the Code. Further, before entering into a franchise agreement, the franchisor must have received signed statements from an independent legal or business adviser or an independent accountant that the prospective franchisee has been given advice about the franchise agreement. Alternatively, the franchisor must have received a statement from the prospective franchisee that it has been given that kind of advice or that it has been told that that kind of advice should be sought but has decided not to seek it. Clause 13 provides for a cooling off period during which the franchisee may terminate the agreement.

4. [31]

   Clause 21 of the Code prohibits a franchisor terminating the franchise agreement for breach unless reasonable notice is given to the franchisee. The notice must state that the franchisor intends to terminate and must indicate what is required to be done by the franchisee to remedy the breach. The clause also requires the franchisor to give the franchisee a reasonable time to remedy the breach.

5. [32]

   The legislative purpose behind the implementation of industry codes and the purpose of the Code itself was summarised by the High Court in Master Education Services Pty Ltd v Ketchell [1] in the following terms:

6. [33]

   Of critical importance in the present case is the definition of “franchise agreement”. Relevantly, cl 4(1) of the Code contains the following definition:

7. [34]

   It was not in issue that the requirements of cl 4(1)(a),(c) and (d) of the definition were satisfied. The issue between the parties was whether the Distribution Agreement fulfilled the requirements of cl 4(1)(b).

The reasoning of the primary judge

1. [35]

   The primary judge noted at the outset of his judgment that although Simple disputed the right of WSA to terminate the agreement, it did not contend that the agreement remained on foot. Rather, it claimed that it had suffered loss in the sum of $208,177.79, as a result of having entered into the agreement or it being wrongly terminated. He recorded that WSA agreed that that amount represented the quantum of the loss suffered by Simple as a result of entering into the agreement or from its wrongful termination. In its submissions on appeal, WSA submitted that this did not correctly state the concession that was made.

2. [36]

   The primary judge referred to the factors which were said to be indicative of a system or marketing plan in Rafferty v Madgwicks. [2] He also referred to the matters that that Court stated were indicative of whether any such plan was determined, controlled or suggested by the franchisor. [3] He correctly acknowledged, however, that it was necessary to consider the agreement as a whole rather than “simply ticking off a scorecard”. [4]

3. [37]

   His Honour rejected WSA’s submission that Simple was not supplying or distributing subscription packages but only offering them for sale.

4. [38]

   The primary judge referred to nine clauses in the Distribution Agreement which he regarded as being of particular importance in assessing whether there was a system or marketing plan which was substantially determined, controlled or suggested by the franchisor. These clauses were: first, the requirement in cl 5.1(a) that Simple submit, within 30 days, a business plan setting out how it intended to run and operate the business; second, the requirement in cl 5.1(n) that Simple process and administer all sales in accordance with the process advised by WSA; third, the requirement in cl 5.1(p) to sell at the recommended retail price; fourth, the restrictions in cl 5.2(f) and cl 11.1 on selling competing products; fifth, the requirement in cl 5.3 that Simple obtain WSA’s approval for marketing and promotional activities; sixth, the minimum customer requirement contained in cl 5.4; seventh, the obligation in cl 8.3 to use, without modification, all standard forms and documents supplied by WSA in respect of marketing and selling subscription packages; eighth, the requirements concerning training in cl 17.1; and ninth, the provisions relating to the Manual in cl 17.3.

5. [39]

   In considering WSA’s control over the marketing and selling of the packages, the primary judge pointed to the prescriptive nature of the Manual and to the fact that cl 17.3 of the Distribution Agreement permitted WSA to include in the Manual matters relating to marketing and selling the subscription packages or products. He also pointed to other indicia of control such as WSA’s ability to require Simple to maintain records and to audit Simple’s records or files.

6. [40]

   The primary judge recognised that a number of the indicia referred to in Rafferty were absent, namely: the absence of any obligation in respect of advertising and promotion campaigns; the absence of any requirement to have staff vetted; the absence of any requirement to report profit and turnover; the absence of any requirement for signage; the fact that there was no imposition of management structure; the fact that there was no bonus structure; the fact that Simple was permitted to use its own name; and the fact that there was no specification of the type of plant or equipment which Simple was required to use.

7. [41]

   The primary judge concluded that the absence of any requirement for signage or specification of the type of plant was explicable having regard to the nature of the business governed by the agreement. While he accepted that Simple was not required to conduct marketing and promotional campaigns, he concluded that such a requirement could be imposed through its inclusion in the Manual under cl 17.3.

8. [42]

   In relation to Simple’s entitlement to use its own name, the primary judge pointed to the fact that the Manual required Simple’s name to be used in much smaller print than the WSA’s name and logo.

9. [43]

   The primary judge accepted that it was a relevant factor that Simple had an existing occupational health and safety business and that the Distribution Agreement was only one of a suite of agreements entered into between WSA and Simple at that time. However, he concluded that the fact that WSA had no control over other parts of Simple’s business was not relevant if the Distribution Agreement in fact fell within the definition of a franchise agreement.

10. [44]

    In these circumstances, the primary judge found that Simple was required to market the subscription packages under a system or marketing plan that was substantially determined, suggested or controlled by WSA. The primary judge thus concluded that the Distribution Agreement was a franchise agreement.

11. [45]

    The primary judge held that WSA was not entitled to rely on cl 2.2(c) to terminate the agreement as that clause did not make the time for payment of the quarterly fee of the essence of the contract. The primary judge accepted that it was open to read cl 2.2(c) together with cl 2.2(a), (b), (d) and (e) as making time of the essence in respect of the payments. However, he found that the clause was ambiguous and that it was necessary to construe the ambiguity against WSA.

12. [46]

    The primary judge also concluded that WSA was estopped from relying on cl 5.4 to terminate the agreement. He found that Ms Schekeloff made two representations to Ms Bottrell. The first representation, made prior to the execution of the agreement, was in the following terms:

13. [47]

    These factual findings were not challenged on appeal.

14. [48]

    The primary judge rejected the proposition that the representations were not of sufficient clarity to ground an estoppel. He concluded that although WSA made it clear by February 2012 that it would enforce the minimum customer requirement, WSA was estopped from terminating due to non-compliance with this requirement over the six month period “if it was estopped from relying on even the first month of the first six month period”. [5] He also rejected the proposition that the representations only meant that WSA would not insist on 15 new customers in the first month, not that it would not require 90 new customers over the first six month period. He stated that he regarded the representations as being “that for an initial period (unspecified but probably intended to be no more than a few months) WSA would not treat the period for minimum customer requirement as having commenced”. [6]

The appeal

1. [49]

   It is unnecessary to set out the grounds of appeal. WSA contended that the primary judge erred in holding that the Distribution Agreement was a franchise agreement, in holding that time was not of the essence in respect of the payment of the quarterly fees, in holding that WSA was estopped from terminating in reliance on cl 5.4 and in granting the relief sought by Simple.

Was the Distribution Agreement a franchise agreement

1. [50]

   WSA placed considerable reliance on the context surrounding the parties’ entry into the agreement. It pointed out that Simple had provided occupational health and safety consulting services since 2004 and that Ms Bottrell, a qualified solicitor, was a very experienced occupational health and safety practitioner. It also pointed out that the distribution agreement was not the only agreement entered into by the parties at that time.

2. [51]

   WSA submitted that this factual context was important because it showed that the distributorship arrangements with WSA only formed part of Simple’s overall business and that Simple retained its own separate corporate identity and brand. It submitted that this fact was central to consideration of the proper application of the Code and was a matter which distinguished this case from the Federal Court authorities cited by the primary judge. It also submitted that the primary judge had erred by relying on the fact that WSA had only made one referral to Simple under the Service Agreement to discount the significance of the Service Agreement.

3. [52]

   WSA also submitted that the primary judge erred in finding that the “sizeable business investment” made by Simple pointed to a “significant operation”. It stated that this was an inference that was not based on evidence. It pointed to the fact that Simple’s business plan indicated that its consulting and training business was far more significant than its distribution business.

4. [53]

   WSA submitted that the distribution agreement, which involved selling access to different packages of information, was not an agreement to supply or distribute goods and services within Australia. It identified the issue of construction as whether the right to sell a subscription that provides access to content supplied by another is a right to carry on the business of offering, supplying or distributing goods and services of the type that the Code intended to capture.

5. [54]

   Senior counsel for WSA submitted that Simple was selling access to information hosted on the WSA website. He submitted that this information was ultimately provided by WSA providing Simple with the user name and password to get access to the content and Simple then providing this to the end user. He submitted that in this context, Simple was not involved in supplying the content of the information.

6. [55]

   WSA pointed out that the primary judge did not identify the actual system or marketing plan under which Simple worked. It submitted that the Distribution Agreement did not refer to any system or marketing plan. It submitted that, generally speaking, a franchise business was usually a clone or replica of the business franchised by the franchisor, which was not the situation in the present case.

7. [56]

   WSA submitted that, as a matter of ordinary English, the expression “system or marketing plan” signifies a co-ordinated method or procedure, or scheme whereby goods or services are sold. It referred to a decision of the United States Court of Appeal for the Second Circuit, dealing with similar words in the Connecticut Finance Act, which warned against a literal interpretation that would produce absurd results. That court stated that “it seems wrong to suggest that a distribution relationship involving only a minute percentage of business creates a franchise under Connecticut law”. [7]

8. [57]

   WSA referred to the indicia of a franchise agreement, which were referred to by Bennett J in Capital Networks Pty Ltd v .au.Domain Administration Limited [8] and Tracey J in Australian Competition and Consumer Commission v Kyloe Pty Ltd, [9] and ultimately approved by the Full Court of the Federal Court in Rafferty. [10] These indicia were considered by the primary judge in the present case. WSA submitted that the primary judge was correct in concluding that those indicia were not to be approached like ticking off a scorecard. However, WSA submitted that the primary judge overlooked the fact that many of the clauses in the Distribution Agreement which he referred to as indicia are typically found in agreements that are not franchise agreements, so the weight to be accorded to such indicia ought to be discounted.

9. [58]

   WSA described the agreement as a commercial arrangement which granted Simple a licence to use the WSA trademark for the purpose of marketing and selling subscription packages, creating a commonality of image around the goods and services supplied by WSA to the end user. It noted that the operation of the business was largely left to Ms Bottrell. It stated that these provisions of the agreement bore the hallmarks of a distributorship or licencing arrangement.

10. [59]

    WSA noted that the primary judge applied what was said by the Full Court in Rafferty, that it was “enough that the agreement creates rights and obligations that would enable the franchisor substantially to determine, control or suggest that the business be conducted under a system or marketing plan”. [11] At the hearing, senior counsel for WSA did not dispute that that statement was correct. However, WSA submitted that the statement begs the question of what was the system or plan? In that context, senior counsel for WSA submitted that even if the agreement provided that the franchisor could direct the franchisee to act in accordance with its directions, the difficulty was that absent an identified system or marketing plan, the putative franchisee could not be said to be operating under it.

11. [60]

    WSA submitted that the conclusion of the primary judge that the Distribution Agreement gave WSA the power and right to control all aspects of the marketing and selling of the packages and products by Simple was erroneous in two respects. First, on its proper construction, the agreement did not control all aspects of the sale of subscription packages. WSA submitted that under cl 5.3, all proposed marketing and promotional material that required WSA’s consent was to be determined by Simple, while cl 8.3 did not direct WSA on the means it could go about achieving sales. Second, any right to control the marketing or selling of the packages had to be under a system or marketing plan, thus, such a plan had to exist. WSA submitted that the primary judge conflated the system or marketing plan with the element of control.

12. [61]

    Senior counsel for WSA referred in particular to cl 5.3(b) of the Distribution Agreement as showing that no plan had been mandated. He submitted that in considering the obligations on the distributor, it was apparent that there was a critical absence of any obligation to implement and adhere to any franchise system or plan. He submitted that cl 5.3 as a whole made it clear that no system or plan was mandated and it was up to Simple to determine how it would engage in marketing and promotional activities. It submitted that cl 17.3 could not be directed to a system or marketing plan under which the distribution business was to be carried out.

13. [62]

    WSA submitted that the Manual was not an operations manual of the type that typically forms the essential part of a franchise. It submitted that it was not a system or marketing plan as it did not regulate how Simple was to present itself to prospective customers at the front end of the transaction. It submitted that the Manual only provided for administrative procedures in relation to sales. It stated that Simple was not obliged to accept any co-ordinated advertising or promotional activity.

14. [63]

    WSA submitted that the absence of the following criteria referred to in Rafferty was a significant indicator that the agreement was not a franchise agreement:

15. [64]

    Further, WSA submitted that the primary judge erred in finding that the Manual could be used to impose an advertising and promotional campaign on Simple.

16. [65]

    Senior counsel for WSA submitted that for an agreement to be a franchise agreement, the system or marketing plan must dominate the business. He submitted that that did not occur in the present case.

17. [66]

    Senior counsel for WSA submitted that the right to inspect books and records did not speak of a franchise agreement as the agreement did not prescribe any centralised management system between the putative franchisor and franchisee.

18. [67]

    Senior counsel for WSA submitted that the other agreements entered into on the same date as the Distribution Agreement showed that the distributorship would only form part of Simple’s business and reinforced, what he described as, Simple’s autonomy. He submitted that it was powerful piece of evidence against the Distribution Agreement being a franchise agreement that Simple’s business was not dominated by a system or marketing plan, as required by the Code.

19. [68]

    Senior counsel for WSA submitted that cl 17.3 was limited to giving directions in respect to the marketing and selling of products and did not include any reference to a system or marketing plan under which the business was to be conducted.

20. [69]

    Senior counsel for WSA also submitted that cl 17.3 was subject to overarching obligations of good faith and, if both parties were acting reasonably and in good faith, it could not be used to impose a new type of business model on Simple. In that context, he stated that the Manual had been provided prior to the entry into the Distribution Agreement and, in these circumstances, any significant departure from it would be unreasonable.

21. [70]

    In its submissions, Simple stated that cl 4.1(b) of the Code has three elements. First, a person (the franchisor) grants another (the franchisee) the right to carry on the business of offering, supplying or distributing goods or services in Australia, second, the business is to be carried out under a system or marketing plan and, third, the plan is substantially determined, controlled or suggested by the franchisor.

22. [71]

    Simple submitted that the purpose of the Code was the protection of franchisees and thus, it should not be read narrowly or qualified in the manner suggested by WSA.

23. [72]

    Simple submitted that there was no textual support in the Code for WSA’s submission that the whole business operation of the putative franchisee should be considered by the Court in determining whether the agreement is a franchise agreement. It referred particularly to the express limitation in cl 5(3)(b) of the Code, which was not relied on by WSA, that the Code does not apply to a franchise if the turnover of the franchised business would form less than 20% of the franchisee’s sales.

24. [73]

    Simple submitted that it was incorrect to read cl 4(1)(b) of the Code as requiring “offering and supplying” or “offering and distributing”. It submitted that the term ‘offering’ includes offering for supply or distribution by a third party. It referred to the definition of “supply” in s 4 of the Act, submitting that it was not unusual for the supply to be divorced from the sale in a franchise.

25. [74]

    Simple submitted that the primary judge correctly found that the Manual imposed on Simple a system of how to market and sell the subscription packages (“a type of scripting”). [12] It submitted that the primary judge was correct in identifying “system or marketing plan” as a composite expression, directed not only to the marketing of goods and services, but also to the existence of an internal business system in relation to that marketing or selling. It submitted that it was a mischaracterisation to describe what was imposed by the Distribution Agreement and Manual as an administrative process. It submitted that the Distribution Agreement and Manual imposed a co-ordinated method or procedure whereby goods and services were sold.

26. [75]

    Simple described the system or marketing plan in the following terms. First, Simple made the initial contact with the prospective client by telephone to arrange a trial of WSA’s web site. It noted that cl 17.1 of the Distribution Agreement required WSA to provide training on this form of direct market selling. Second, follow-up communications took place between Simple and the prospective client, which had to be drafted on the templates prescribed in the Manual. Third, Simple engaged in communications with existing clients to encourage them to renew their subscriptions, the format of which was also strictly controlled by the Manual.

27. [76]

    Simple stated that the Manual imposed a form of scripting in respect to the selling of the packages, including prescribing the system for setting up a trial, the requisite notification of the client of the trial process. It pointed out that the business template to be used for this purpose included an information sheet which was clearly a marketing document. It referred to the follow-up letter required to be sent after the trial, which it submitted was also a marketing document. It also submitted that the Manual imposed a prescriptive system in respect of selling, which involved record keeping and reporting systems determined by WSA.

28. [77]

    Senior counsel for Simple submitted that the actual terms of the Manual were irrelevant. However, he submitted that even if that was incorrect, it was important that the products were marketed by the distributor first telephoning the potential customer and then having a trial, both of which were specifically provided for in the Manual. He pointed out that the Manual required maintenance of a spreadsheet showing the status of trials. This was to be sent each week to WSA. He also pointed out that Simple was required to maintain and update a client list.

29. [78]

    Senior counsel for Simple also submitted, referring to cl 5.3(b) of the Distribution Agreement, that it was incorrect that WSA had no control over Simple’s website.

Consideration

1. [79]

   The question of whether the Distribution Agreement is a franchise agreement depends upon whether the requirements in cl 4(1)(b) of the definition of a franchise agreement in the Code are met. There is no issue that cll 4(1)(a), (c) and (d) are satisfied.

2. [80]

   Clause 4(1)(b) of the definition contains three elements. The first is that it is an agreement containing a grant by the “franchisor” to the “franchisee” of the right to carry on the business of offering, supplying or distributing goods or services in Australia.

3. [81]

   The second element is that the right to carry on the business must be a right to carry it on under a “system or marketing plan”.

4. [82]

   The third element is that the system or marketing plan must be substantially determined, controlled or suggested by the franchisor.

5. [83]

   The matters relevant in considering whether the second and third elements exist will often overlap, but it is important to remember that they are separate requirements. Thus, it would not be sufficient if the alleged franchisor was only able to control certain aspects of the supply or distribution of the goods or services. Rather, it is necessary that the power of the franchisor extends to substantially determining, controlling or suggesting the system or marketing plan under which the business is carried on.

6. [84]

   As is apparent from its submissions, WSA contended that none of the elements were made out. It is convenient to deal with each of the elements separately.

7. [85]

   “Services” is relevantly defined in s 4 of the Act as follows:

8. [86]

   Clause 2.1(a) of the Distribution Agreement conferred on Simple the exclusive right to market and sell subscription packages in the Territory. The subscription packages, which are described in Item 8 to Sch 1 of the agreement, comprise, amongst other things, educational material relating to occupational health and safety and access to WSA’s legal advisers and research department. As such, the packages fall within the general definition of services in the Act.

9. [87]

   The Distribution Agreement not only gave Simple the right to sell the packages, but imposed upon it, in cl 5.1(c), an obligation to use its best endeavours to obtain subscriptions. It is plain that this involved offering the subscriptions for sale. The fact that WSA continued to own the intellectual property of the packages and that the packages were accessed through WSA’s website does not alter the position.

10. [88]

    WSA submitted that Simple did not supply the packages. However, it is unnecessary to consider whether or not the agreement empowered Simple to provide, grant or confer the services, as the agreement created the right to carry on the business of offering the services.

11. [89]

    In these circumstances, the Distribution Agreement satisfies the first element of the definition of a franchise agreement in cl 4(1)(c).

12. [90]

    I have set out above, at [32], the summary by the High Court in Ketchell of the legislative purpose of the Code. As one of the principal purposes of the Code is to protect franchisees, the Court should reject any interpretation of its provisions which would allow this statutory purpose to be circumvented. [13]

13. [91]

    Notwithstanding, it remains necessary to determine whether the right granted was the right to carry on a business under a system or marketing plan. In my opinion, the word system, in that context, refers to a method of operation under which a business is to be conducted. In Rafferty, the compendious expression “system or marketing plan” was described by the Full Federal Court as signifying “a co-ordinated method or procedure, or scheme whereby goods or services are sold.” [14]

14. [92]

    In Rafferty, the Full Court also stated that “it is not necessary for the details of a system or marketing plan be set out in the franchise agreement. It is enough that the agreement creates rights and obligations that would enable the franchisor substantially to determine, control or suggest that the business be conducted under a system or marketing plan.” [15] I respectfully agree that a system or marketing plan does not have to be spelt out in a franchise agreement. The contrary proposition would allow the statutory purpose of the Code to be readily circumvented.

15. [93]

    However, it may not be sufficient, in order to satisfy the purpose of the section, that the agreement enables the franchisor to determine, control or suggest whether the business will be conducted under a system or marketing plan. Clause 4(1)(b) of the Code contemplates that the business will be carried out under a system or marketing plan. It is at least necessary that the agreement provides for that to occur, even if the terms of the plan are not settled or prescribed in the agreement.

16. [94]

    In my opinion, the Distribution Agreement did provide for the business to be carried out under a system or marketing plan. Clause 5.1(a) required Simple to submit to WSA a detailed business plan setting out how it intended to fund and operate its business in the Territory that was the subject of the agreement. Although Simple’s business could extend to activities over and above the sale of subscription packages, the business plan would need to incorporate the method of operation of the latter activity.

17. [95]

    The business plan would need to set out how Simple would market the products. In my view, the use of the words “operate the Distributor business” in cl 5.1(a) of the Distribution Agreement indicates that the plan that was contemplated would extend beyond mere funding. Indeed, operating a business includes consideration of how it is intended that products be sold or marketed.

18. [96]

    The Distribution Agreement does not specifically provide for WSA to approve of the business plan, or for Simple’s business to be conducted in accordance with it. However, it can be inferred that it was the parties’ intention that the business would be carried out in accordance with the plan, subject to the other requirements in the agreement and the obligation imposed on Simple by cl 5.1(h) to comply with all reasonable directions of WSA.

19. [97]

    There are other provisions of the agreement which demonstrate that the business was to be carried out under a system or marketing plan. Clause 5.1(n) requires Simple to process and administer all sales of subscription packages in accordance with the process advised by WSA. This clause envisages the existence of prescribed system of processing and administering sales. Although the provision may not extend to the marketing of the product, it does envisage that the administration of sales will be carried out under a plan, further supporting the conclusion that the business was to be carried out under a system or marketing plan.

20. [98]

    Clause 8.3 deals directly with marketing and selling packages and products, requiring standard forms to be used, including product information sheets created and issued by WSA. This clause also tends to suggest that the business was to be carried out under a system or marketing plan.

21. [99]

    Finally, cl 17.3 empowers WSA to provide a manual in respect of marketing and selling the packages, which was to include, but not be limited to, prescribing standard forms and documents. This again tends to suggest that the parties intended for the business to operate under a system or marketing plan.

22. [100]

    In this context, I have not taken into account the actual Manual which was tendered in the proceedings. The Manual does not form part of the Distribution Agreement and it is contested whether it was made available to Simple prior to entry into the agreement. What is important is WSA’s power to provide the Manual to Simple and the matters which could be included in it.

23. [101]

    Although it may be that each of the matters to which I have referred, taken individually, would not lead to the conclusion that the business was to operate under a system or marketing plan, the cumulative effect is that the parties intended the business to be carried out under such a plan. This conclusion is based on the business plan referred to in cl 5.3(a), subject to the directions given by WSA, and to the other powers conferred on WSA by cll 5.1(n), 8.3 and 17.3.

24. [102]

    Contrary to WSA’s submission, I do not think that it is relevant that the business plan was required to be prepared by Simple. The relevant question in respect to this element of the definition is whether the business was to be carried out under a system or marketing plan. In answering this question, it is immaterial who prepared the plan. That is relevant of course to the third element of whether the plan was substantially determined, controlled or suggested by the franchisor.

25. [103]

    I also do not think that the absence of some of the indicia in Rafferty, to which I have referred at [63] above, leads to the conclusion sought by WSA that the business was not being carried out under a system or marketing plan. I reject WSA’s submission on this point for four reasons. First, the indicia, while helpful in identifying such a plan, are not essential to its existence. Second, the submission ignores the fact that two of the indicia, the absence of sales or display equipment and specification as to the type of plant and equipment to be used in the business, are irrelevant to the selling of subscription packages in the manner contemplated by the agreement. Third, it ignores the fact that cl 17.1 of the agreement provides for training. Fourth, and most importantly, cl 8.3 contemplates the use of prescribed forms and product information sheets in the marketing and selling of products, as does cl 17.3. There is still a question remaining as to whether the absence of the indicia referred to leads to the conclusion that the system or marketing plan was not substantially controlled by WSA, but it does not lead to the conclusion that there was no such plan.

26. [104]

    In this context, the agreement provided for the business to be carried on under a system or marketing plan.

27. [105]

    In determining whether the third element is satisfied, it is convenient to focus on the question of control. In its submissions, WSA emphasised that the obligation to prepare a business plan was imposed on Simple and Simple had the power to determine how to promote and market the business.

28. [106]

    In the present case, the meaning of the word “control” must be determined by reference to the object and purpose of the legislation. That, as I have explained above, is the protection of a particular class of person; franchisees. To give effect to that purpose, the word “control” should be taken to mean the power to direct or restrain the content of the business plan on any substantial issue. [16] The question is to be determined by practical and commercial considerations. [17]

29. [107]

    In the present case, although Simple was required to produce the business plan, WSA had the power, in a practical sense, to control its content by virtue of its power to give directions with which Simple was required to comply under cl 5.1(h) and the obligations imposed on Simple in cl 5.1(n), cl 8.3 and cl 17.3, to which I have previously referred. In addition, Simple was obliged, under cl 5.3, to obtain WSA’s consent to engage in any marketing, promotional activities or communications.

30. [108]

    It is correct that the Distribution Agreement itself did not impose a business plan but rather left it to Simple to provide one. Further, cl 5.3(a) did not impose a marketing method on Simple, but envisaged Simple devising its own marketing and promotional activities, subject to the approval of WSA. However, WSA’s power to give directions in cl 5.1(h) and the absolute discretion conferred on WSA to refuse to consent to promotional activities, leads to the conclusion that WSA had substantial control over the manner in which Simple was to carry on the business. In respect of marketing or promotional activities, WSA was empowered by cl 5.3(a) to refuse to consent to Simple’s proposals and by cll 8.3 and 17.3 to require that its standard forms be used in the marketing and selling of such material.

31. [109]

    I referred above, at [63] and [103], to the absence of criteria which was said in Raffertys to be indicative of a franchise agreement. The presence or absence of the indicia referred to in that case is relevant to determining whether a franchise agreement exists. However, as was correctly stated by the primary judge, the Court needs to consider the agreement as a whole to determine if it falls within cl 4(1)(b) of the Code. This is particularly the case where the business plan itself is not incorporated into the agreement.

32. [110]

    In Raffertys, the Full Court stated that a relevant factor in determining whether a system or marketing plan is substantially determined, controlled or directed by the franchisor may be “the extent to which the franchisee’s business involves the sale of the franchisor’s goods and services”. [18] In my opinion, the relevance of this factor is somewhat limited in circumstances where the Distribution Agreement relates to a discrete business activity to be carried on by the franchisor. The Code is concerned with the business the subject of the franchise agreement. So much is made clear by the definition in cl 4 and the differing disclosure requirements in cl 6 based on the turnover of the franchise business.

33. [111]

    In this case, although the franchise business did not comprise the totality of the business carried on by Simple, it was a discrete business in respect of which Simple had separate rights and obligations, including the obligation to prepare a business plan stating its proposed method of operating the franchise business.

34. [112]

    For similar reasons, I do not think that the fact that on the same day that other agreements dealing with related activities were entered into affects whether the agreement was a franchise agreement.

35. [113]

    I am prepared to accept, as WSA submitted, that WSA was required to exercise its powers and discretions, including those in cl 17.3 of the Distribution Agreement, reasonably and in good faith. [19] However, the fact that the power to control must be exercised reasonably and in good faith does not lead to the conclusion in this case that substantial control does not exist.

36. [114]

    In these circumstances, the power given to WSA in the agreement was sufficient to lead to the conclusion that WSA had substantial control over the business plan under which the business was conducted. The third element of cl 4(1)(b) of the Code has thus been made out.

37. [115]

    It follows that the primary judge was correct in concluding that the agreement was a franchise agreement. As a consequence, WSA was not entitled to terminate without complying with the provisions of cl 21 of the Code. It follows that WSA’s termination of the Distribution Agreement was wrongful and Simple was entitled to accept the wrongful repudiation of the agreement. I will deal with the consequences of this conclusion below under the heading of Relief.

Was WSA entitled to terminate the Distribution Agreement on the basis of Simple’s failure to pay the quarterly instalments

1. [116]

   WSA submitted that cl 2.2(c) of the Distribution Agreement made time of the essence in respect of the quarterly payment.

2. [117]

   WSA acknowledged that the Distributorship Fee and the Customer List Fee were separately defined in the schedule to the Distribution Agreement. However, it submitted that cl 2.2(c) dealt with payment of both fees. It noted that cl 2.2(a) provided for the payment of the Distributorship Fee “in the following instalments and at the following times” and then dealt with the time for payment of the instalments of both the distributorship and customer database fees. In that context, it submitted that the abbreviated reference to “Distributorship Fee” referred to both fees. It submitted that the contrary construction did not make commercial sense.

3. [118]

   WSA also submitted that as cl 2.2(c) referred to “fees” in the plural, this showed that the essential time stipulation related to all fees referred to in cl 2. It submitted that further support could be derived from the use of the words “the payments set out above”.

4. [119]

   WSA submitted that the primary judge erred in taking headings into account in finding that cl 2.2(c) was ambiguous, as this was impermissible under cl 1.3 of the Distribution Agreement. Senior counsel for WSA submitted that the primary judge erred in applying the contra-proferentem rule in resolving this supposed ambiguity.

5. [120]

   Simple, by contrast, referred to the opening words of cl 2.2(c), “the amount of the fee”, submitting that this could only refer to the amount of $95,000 payable pursuant to cl 2.2(a)(i) and (ii). It stated that the use of the plural, “fees”, subsequently was explicable because the Distributorship Fee comprised two payments, one of $10,000 the other of $85,000.

6. [121]

   Simple submitted that it was a more natural inference that the Distributorship Fee was the only fee in respect of which the time for payment was of the essence, as it was the upfront payment, while the Customer List Fee was payable in instalments.

7. [122]

   Simple also submitted that to the extent there was ambiguity, it should be resolved in its favour, as first, the clause was a termination clause and second, the contra-proferentem rule should be followed.

Consideration

1. [123]

   In my opinion, the primary judge was correct in concluding that cl 2.2(c) did not make time of the essence in respect of the quarterly instalments provided for in cl 2.2(a)(v).

2. [124]

   The Distributorship Fee is defined as the fee set out in Item 4 of the Schedule, namely, $95,000 (plus GST), while the Customer List Fee is stated to be $281,584 (GST inclusive).

3. [125]

   The differing GST treatment of these fees is emphasised in cl 2.2(d), which states that payment of GST in respect of the Distributorship Fee is the responsibility of Simple, and makes no reference to the Customer List Fee. Further, the Distributorship Fee, unlike the Customer List Fee, is expressly stated in cl 2.2(a)(i) and (ii) to be non-refundable.

4. [126]

   The Customer List Fee is the same fee as the fee described as the customer database fee in cl 2.2(iii). The combined effect of cl 2.2(iii), (iv) and (v) is that the fee has to be paid by an initial instalment of $150,000 and four quarterly instalments of $32,896.

5. [127]

   Although the provisions are not models of clarity, they do draw a distinction between the Distributorship Fee and the Customer List Fee in the manner in which I have referred above. Clause 2.2(c) only expressly makes the time of the payment of the Distributorship Fee of the essence.

6. [128]

   I do not think that the opening words of cl 2.2(a), “must pay the Supplier the Distributorship Licensing Fee in the following installments and at the following times”, affects the position. The Distributorship Fee is itself is payable by two instalments, provided for in cl 2.2(a)(i) and (ii). Similarly, it seems to me that the reference to “fees” and “payments” in cl 2.2(c) is explicable by the fact that the Distributorship Fee was payable in instalments.

7. [129]

   It follows that the time for the payment of the instalments of the Customer List Fee was not of the essence of the contract. In those circumstances, WSA was not entitled to terminate for the failure to pay the instalment due on 23 March 2012.

Was WSA entitled to terminate the Distribution Agreement on the basis of failure to comply with cl 5.4 of the Distribution Agreement

1. [130]

   It is not in dispute that Simple had not met the minimum customer requirement during the first six months of the Distribution Agreement. The only question is whether WSA was estopped from relying on cl 5.4 as a ground for termination of the agreement.

2. [131]

   WSA submitted that the estoppel finding of the primary judge assumed that the representation was directed to the whole six month period referred to in cl 5.4, rather than the monthly requirement of 15 new customers per month in Item 2 of Sch 1 to the Distribution Agreement. It submitted that the representation was clearly directed to the latter. WSA stated that cl 5.4 provided it with a right of termination if the requirement was not met over the six month period, not for each month of the six month period. In these circumstances, it submitted that it was erroneous to treat the first six month period as having been suspended.

3. [132]

   WSA also submitted that the primary judge did not make any finding on the question of reliance. Further, Ms Bottrell gave no evidence to the effect that that she relied on the representation or acted or abstained from acting in any particular way in reliance on it.

4. [133]

   WSA referred to the evidence of Ms Bottrell that she understood that WSA could terminate the agreement if the six month minimum customer requirement was not met and raised no concern about it. It referred to the finding by the primary judge that Ms Bottrell thought that the period of suspension was the first six to twelve months, but she agreed that she did not get that from Ms Schekeloff and did not seek to clarify the period with Ms Schekeloff.

5. [134]

   WSA also pointed out that the representation was not raised when Ms Schekeloff expressed disappointment at the level of sales, nor at the time Federal Court proceedings were threatened on the basis that the agreement was a franchise agreement.

6. [135]

   Simple submitted that the primary judge did not assume that the representation was directed to the period in cl 5.4. Rather, it submitted that the primary judge found that, as a question of fact, that that was, “in practical commercial terms”, the substance of the representation.

7. [136]

   Simple pointed out that the finding by the primary judge was that WSA would not insist on the requirement of 15 new customers per month being fulfilled initially. It described WSA’s submission that, in these circumstances, it had the right to terminate if 90 customers were not obtained in the initial six months, as having a “degree of unreality”.

8. [137]

   Simple referred to the fact that the primary judge also found that Ms Schekeloff’s response to an inquiry by Ms Bottrell as to the retention rate of subscribed customers was intentionally disingenuous, as the prior distributor had failed to reach similar targets over many years. It submitted that in those circumstances, it was open to the primary judge to find that the substance of what was represented, both to Ms Schekeloff’s knowledge and Ms Bottrell’s understanding, was that the right to terminate would be suspended until notice was given to the contrary.

9. [138]

   Simple further submitted that there was evidence of reliance. It referred to Ms Bottrell’s evidence that she did not think that 20 new customers would be easily achieved in the initial term and her explanation that:

10. [139]

    Simple submitted that the detrimental reliance was the entry into the agreement. It submitted that the representation that the minimum customer requirement would not be enforced was made before the agreement was entered into. It noted that the evidence of Ms Bottrell was that she would not have entered into the agreement if she was told that the requirement would be enforced. However, senior counsel for Simple acknowledged that Ms Bottrell did not expressly state that she believed that she did not have to achieve the 90 customers in the first six months.

Consideration

1. [140]

   As was pointed out in Meagher, Gummow & Lehane’s Equity Doctrines & Remedies, any representation said to give rise to an estoppel must be clear and unequivocal. [20] However, a “representation can generally support a promissory estoppel if it was reasonable for the representee to interpret the representation in the manner for which the representee contends.” [21] In Hammond v J P Morgan Trust Australia Ltd, [22] Meagher JA pointed out that in considering “whether conduct is reasonably capable of giving rise to a particular representation or promise it is necessary to have regard to the context in which it occurred and to consider what it would have conveyed to a person in the position of the recipient”. [23]

2. [141]

   In considering the context, it must be remembered that the primary judge accepted the evidence of Ms Bottrell. Her evidence of the conversation in which the representation was made was in the following terms:

3. [142]

   Ms Bottrell said that if she had been told that WSA would insist on Simple achieving the monthly sales target from the commencement of the agreement, Simple would not have bought the distributorship.

4. [143]

   In her cross-examination, Ms Bottrell acknowledged that Ms Schekeloff did not put a time-frame on the period in which Simple would not be required to meet the minimum targets. Her evidence was to the following effect:

5. [144]

   It seems to me that although Ms Schekeloff did not specify a timeframe, a reasonable person in the position of Ms Bottrell was entitled to proceed on the expectation that, during the early period of the five year agreement, Simple would not be called upon to meet its sales targets and that any contractual rights arising from failing to meet these targets would not be enforced during that period. The finding by the primary judge that on 6 February 2012, WSA first made it clear that the minimum customer requirement would be enforced was not disputed.

6. [145]

   The letter of 6 February 2012, by which Simple was notified of this matter, simply referred to cl 5.4 and stated that “The content and meaning of this Clause is self evident and more than adequately demonstrates the breach.” While the letter stated that it was not WSA’s intention to allow the breach to continue, it did not state an intention to terminate at the expiry of the initial six month period of the agreement if 90 packages had not been sold.

7. [146]

   In circumstances where no notice was given that the sales targets would be enforced until 6 February 2012, some four and a half months after the agreement was entered into and at a time when only 15 packages had been sold, it seems to me that it was unconscionable for WSA to depart from the expectation it had induced by terminating the agreement for failure to sell 90 subscription packages in the first six months.

8. [147]

   In reaching this conclusion, I am conscious that the parties were commercially experienced and that Ms Bottrell, a solicitor, was well able to seek a variation of the contractual terms to protect the interests of Simple. As was said by Lord Walker in Cobbe v Yeoman’s Row Management Ltd, [24] in the context of an estoppel said to arise out of commercial negotiations, “hopes by themselves are not enough” to ground an estoppel.

9. [148]

   The primary judge accepted Ms Bottrell’s evidence, including her evidence that she would not have proceeded with the agreement had she known that the sales targets would be enforced in the early period. Having regard to this acceptance, I do not think Ms Bottrell merely proceeded on the ‘hope’ that the targets would not be enforced, as distinct from an expectation induced by the representation made by Ms Schekeloff.

10. [149]

    It follows that the primary judge was correct in concluding that WSA was estopped from terminating the agreement in reliance on cl 5.4.

Relief

1. [150]

   I have set out earlier in this judgment, at par [35], the concession that the primary judge said was made by WSA in regard to the quantum of Simple’s loss. Although there was some dispute as to the extent of the concession, senior counsel for WSA acknowledged that it was conceded, first, that Simple would not have entered into the agreement had there been compliance with the Code and, second, that as a result of entering into the agreement, Simple lost $208,177.39. However, Senior counsel submitted that the concession did not extend to admitting that Simple was entitled to that amount of damages if the agreement was found to be a franchise agreement, nor that that sum was the amount of damages resulting from wrongful termination.

2. [151]

   Although the primary judge did not expressly say so, it would appear that the damages he awarded were awarded under s 82 of the Act, consequent upon a contravention of s 51AD of the Act. There seems to be a dispute between the parties as to whether these damages were in fact awarded under s 82 or s 87 of the Act.

3. [152]

   WSA submitted that it was not established that Ms Schekeloff (and through her, WSA) knew that the agreement was a franchise agreement.

4. [153]

   WSA submitted that by entering into the agreement, it lost the opportunity to earn subscription revenue from customers directly. Further, it submitted that it paid out amounts totalling $121,137 to the previous distributor, Therapy Solutions (Vic) Pty Ltd (Therapy), pursuant to a deed of release entered into between it and Therapy on 19 September 2011. It submitted that Simple was aware of that payment.

5. [154]

   In that context, WSA submitted that a contravention of s 51AD does not render a franchise agreement illegal or unenforceable. It submitted that the consequence of a contravention of s 51AD is that there should be a “grant of the flexible relief provided for in Part VI” of the Act. It submitted that Simple sought to have the agreement set aside, as well as an order for the recovery of $208,178.39.

6. [155]

   WSA submitted that s 87 of the Act confers a wide discretionary power on the Court to make remedial orders in appropriate cases in order to achieve a fair result. It submitted that in that context, the primary judge should have taken into account, not only Simple’s loss, but that of WSA, particularly as the remedy sought was in the nature of rescission and restitution.

7. [156]

   WSA submitted that it was not apparent from the reasons of the primary judge whether he considered restitution in integrum to be substantially possible, submitting that “equity is concerned with what is practically just between the parties”. WSA submitted that it had detrimentally changed its position on the faith of the payments it received from Simple. It submitted that the primary judge was incorrect in concluding that as a result of termination, WSA recovered a valuable asset from Simple, namely, the customer list. It submitted that as licensor, at all times, it retained that list, Simple only being granted a licence to use it. It submitted that although it may have been open to WSA to grant another licence, the unchallenged evidence was that it would not do so. In these circumstances, it submitted that it was appropriate for Simple “to be given some restitution”, but that the primary judge should not have ordered WSA to repay the amount that it had already paid to Therapy.

8. [157]

   Senior counsel for WSA submitted that Simple sought relief under s 87 of the Act, in addition to damages under s 82. He submitted that the primary judge should have granted relief under s 87, taking account of the change of position to which I have referred earlier. In that context, senior counsel for WSA referred to the recitals to the deed between WSA and Therapy by which those parties agreed that WSA would find a new distributor for Victoria and Tasmania and which terminated the existing agreement between those companies. He also referred to cl 4 of that deed, which provided that upon settlement of a new distribution agreement, WSA would pay Therapy, from money received from the incoming distributor, certain amounts in consideration of the transfer to it of the customer list and other confidential information obtained during the period that Therapy acted as the distributor for WSA. It was not in dispute that the $121,137 paid to Therapy by WSA was paid pursuant to that provision.

9. [158]

   In that context, senior counsel for WSA, apparently relying on restitutionary principles, submitted that any award to Simple should take account of the payments. It submitted that these payments were paid under the mistake that the Distribution Agreement was not a franchise agreement, although senior counsel seemed to accept that WSA had not entered into the agreement with Therapy on the basis of that mistake.

10. [159]

    Senior counsel for WSA submitted that this submission was supported by what was said by the High Court in Ketchell at [38].

11. [160]

    Senior counsel for WSA submitted that irrespective of whether an order was made under s 87, WSA was entitled to have its change of position taken into account.

12. [161]

    Simple submitted that it was entitled to an award of damages under s 82, unqualified by s 87 and any discretionary considerations.

13. [162]

    Simple stated that when the agreement was terminated, it lost the money it paid and the use of the customer list. It submitted that it was the legal responsibility of WSA not to enter into an agreement without making the required disclosures under the Code and Simple was entitled to damages for the loss caused to it by that contravention.

14. [163]

    Simple distinguished the decision of this Court in Akron Securities Ltd v Iliffe [25] on the basis that, in that case, the misleading and deceptive conduct related to a discrete part of the agreement and the appellant still owed other contractual obligations to the respondents not affected by the conduct in respect of which it was necessary to invoke s 87. Simple submitted that that was not the situation in the present case.

15. [164]

    Simple submitted that the High Court, in I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd, [26] made it clear that s 82 confers a cause of action for contravention of the norms established by the Act and that where damages are available, they are the primary remedy.

16. [165]

    Simple submitted that the defence of change of position had no application in the present case. First, it submitted that no money was paid by WSA to Simple under a mistake, rather, WSA received money from Simple. Further, it submitted that the money paid to Therapy was for the right to the customer list, of which WSA had had the benefit since termination.

Consideration

1. [166]

   As I have indicated, WSA conceded that Simple would not have entered into the agreement had there been compliance with the Code and that, as a result, Simple lost $208,178.39. However, it was contended that Simple was not entitled to recover that amount.

2. [167]

   Section 82 of the Act entitles a person who suffers damage by the conduct of another person, that was done in contravention of Pt IV or Pt IVB of the Act, to recover the damage. In the present case, WSA contravened s 51AD of the Act by entering into the agreement without complying with the provisions of the Act. Prima facie, Simple is entitled to recover the loss suffered as a result of its entry into the agreement in circumstances where it was conceded that it would not have done so had there been compliance.

3. [168]

   WSA first relied on the fact that at the trial, relief was sought under s 87 as well as s 82 of the Act. It submitted that s 87 empowered the Court to take into account the loss suffered by WSA from entering into the agreement in circumstances where it was not aware that compliance with the Code was required. This submission cannot be accepted for two reasons. First, as was made clear in I & L Securities, once the applicant has established the loss caused by the contravening conduct, he or she is entitled to recover that loss and that right is not made subject, either expressly or by implication, to s 87. [27]

4. [169]

   Second, there was no need for Simple to rely upon s 87 in this case. The agreement had been wrongfully terminated by WSA and Simple had accepted the repudiation. No relief was required under s 87.

5. [170]

   Senior counsel for WSA also sought assistance from the reasoning in Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd. [28] However, the issue in that case was different in a critical respect from the present case. In that case, a purchaser owed money to the suppliers of goods. The purchaser persuaded a finance company to make payments to the suppliers, which were treated by the suppliers as reducing the purchaser's debts. The payments were made under a mistake of fact (induced by the principal of the purchaser). The finance company sought to recover the moneys paid to the suppliers as moneys had and received by them. The suppliers successfully defended the claim on the basis that they had changed their position as a result of receipt of the payments and it would be inequitable to require them to repay the moneys to the finance company. WSA sought to characterise the present case as one in which Simple was seeking to recover from it payments made on a mistaken assumption that the payments were due under the (ineffective) contract. WSA relied upon a payment made by it to Therapy as indicating a change of position on its part, and one of which Simple was aware. This analogy must fail because Simple was not seeking to recover a payment as money had and received, but was rather seeking to recover its loss by way of damages.

6. [171]

   WSA also sought to rely on what were described as restitutionary principles, stating that it was entitled to be credited with the amount it had paid Therapy in the mistaken belief that the agreement between them was valid and enforceable. Leaving aside the difficulty that non-compliance with the Code does not of itself render the agreement illegal or unenforceable, [29] there is no room for the operation of such principles in the present case. Even if money was paid to Therapy under a mistaken belief as to the nature of the Distribution Agreement, Simple received none of it and was not unjustly enriched as a result. By contrast, it suffered loss which would not have occurred had s 51AD been complied with.

7. [172]

   It follows that the appeal relating to relief fails.

Orders

1. [173]

   I would make the following orders:

   1. (1)

      Appeal dismissed;

   2. (2)

      Appellant to pay the respondents’ costs of the appeal.

2. [174]

   BASTEN JA: I agree that the appeal should be dismissed with costs, for the reasons given by Bathurst CJ.

3. [175]

   EMMETT JA: This appeal is concerned with a distribution agreement entered into on 19 September 2011 (the Distribution Agreement) between the appellant, Workplace Safety Australia Pty Ltd (WSA), the first respondent, Simple OHS Solutions Pty Ltd (Simple) and the second respondent, Ms Sue Bottrell (the Guarantor). WSA purported to terminate the Distribution Agreement by reason of alleged breaches on the part of Simple. Simple disputed the entitlement of WSA to terminate but accepted the termination as a repudiation.

4. [176]

   WSA then commenced proceedings against Simple and the Guarantor in the Equity Division, claiming monies said to be owing under the Distribution Agreement and claiming, as against Simple, damages for loss of further profits under the Distribution Agreement. Simple filed a cross-claim in which it claimed damages for wrongful repudiation of the Distribution Agreement. It also claimed damages under s 82 of the Competition and Consumer Act 2010 (Cth) (the Consumer Act) on the basis that, in entering into the Distribution Agreement, WSA had contravened s 51AD of the Consumer Act. Section 51AD provides that a corporation must not, in trade or commerce, contravene an applicable industry code. Simple asserted that, in entering into the Distribution Agreement, WSA contravened the Franchising Code of Conduct promulgated under the Trade Practices (Industry Codes – Franchising) Regulations 1998 (Cth) (the Code). That question turns on whether the Distribution Agreement is a franchise agreement within the meaning of cl 4 of the Code.

5. [177]

   A judge of the Equity Division (the primary judge) concluded that the Distribution Agreement was a franchise agreement. It was common ground that the requirements of the Code were contravened if that conclusion is correct. His Honour directed judgment for Simple and the Guarantor on the statement of claim filed by WSA. His Honour also directed judgment for Simple in the sum of $238,378.17 against WSA. His Honour ordered WSA to pay the costs of Simple and the Guarantor.

6. [178]

   By notice of appeal filed on 20 December 2013, WSA appealed from the orders made by the primary judge. Three questions are raised by the appeal. The first is whether his Honour erred in concluding that the Distribution Agreement is a franchise agreement within the meaning of the Code. The second question is whether, on the assumption that his Honour made no such error, his Honour erred in assessing the damages to which Simple is entitled under s 82 of the Consumer Act. The third question is whether, assuming that the Distribution Agreement was not a franchise agreement, his Honour erred in concluding that it had been wrongly terminated by WSA. His Honour concluded that neither bases relied upon by WSA justified the termination. WSA contends that his Honour erred in both respects.

7. [179]

   Under cl 4 of the Code, a franchise agreement is relevantly defined as an agreement that satisfies each of four pre-requisites. It is common ground that the Distribution Agreement satisfies three of the four pre-requisites. The dispute is as to whether it satisfies the fourth pre-requisite.

8. [180]

   The relevant pre-requisite has three elements. First, it must be shown that, in the Distribution Agreement, WSA granted to Simple the right to carry on the business of offering, supplying or distributing goods or services in Australia. Secondly, it must be shown that the carrying on of the business must be under a system or marketing plan. Thirdly, it must be shown that such system or marketing plan is substantially determined, controlled or suggested by WSA.

9. [181]

   I have had the advantage of reading in draft form the proposed reasons of the Chief Justice. The relevant terms of the Distribution Agreement are set out in the proposed reasons of the Chief Justice. The critical provisions, for the purposes of the application of the definition of “franchise agreement” in the Code, are cll 5.1, 5.2 and 5.3, which deal with Simple’s obligations; cl 8.3, which deals with the use by Simple of forms and documents issued by WSA; and cl 17, which deals with the provision by WSA to Simple of a manual in respect of marketing and selling the subject matter of the Distribution Agreement.

10. [182]

    The principal question is whether the terms of the Distribution Agreement have the effect that WSA granted to Simple the right to carry on the business of offering, supplying or distributing goods or services under a system or marketing plan that is substantially determined, controlled or suggested by WSA. WSA contends that, whether or not, in the Distribution Agreement, it granted Simple the right to carry on a relevant business, there is no system or marketing plan determined, controlled or suggested by WSA under which the right to carry on the business is granted.

11. [183]

    The Distribution Agreement granted to Simple the exclusive right to market and sell subscription packages in Victoria and Tasmania and a limited revocable non-exclusive licence to use WSA’s trademark in Victoria and Tasmania. In those circumstances, it is clear enough that the first element in the second prerequisite was satisfied. While the matter may not be completely without doubt, I agree, for the reasons proposed by the Chief Justice, that the parties intended that the business to be carried on by Simple would be carried on under a system or marketing plan. Accordingly, the second element of the relevant pre-requisite is satisfied. I also agree with the Chief Justice, for the reasons proposed by his Honour, that the power given to WSA under the Distribution Agreement was sufficient to lead to the conclusion that WSA had substantial control over the business plan under which the business was to be conducted. Accordingly, the third element was satisfied.

12. [184]

    Therefore, the primary judge did not err in concluding that the Distribution Agreement was a franchise agreement for relevant purposes. WSA was thus not entitled to terminate it without complying with the relevant provisions of the Code and the purported termination was wrongful, entitling Simple to accept the termination as a wrongful repudiation.

13. [185]

    WSA accepted that Simple would not have entered into the Distribution Agreement had there been compliance with the Code. It follows that, if Simple is shown to have suffered loss as a consequence of entering into the Distribution Agreement, it is entitled to recover that loss under s 82 of the Consumer Act on the basis that it has suffered damage by conduct of WSA that was done in contravention of relevant provisions of that Act.

14. [186]

    In those circumstances, it is not necessary to deal with contentions advanced on behalf of Simple based on representations alleged to have been made by or on behalf of WSA at the time when the Distribution Agreement was entered into. However, I propose to make some observations on those questions before dealing with the further question as to the relief to which Simple is entitled.

15. [187]

    If the Distribution Agreement were not a franchise agreement, the question would arise as to whether WSA repudiated it by purporting to terminate it in circumstances where it was not entitled to do so. WSA relied on two grounds of termination. The first was that Simple had failed to pay certain fees, the time for payment of which WSA said was of the essence. That ground involves a question as to the true construction of cl 2.2(c) of the Distribution Agreement. I agree with the conclusion of the Chief Justice that time was not of the essence so as to justify termination for non-payment.

16. [188]

    The second ground relied on by WSA was that Simple had failed to comply with the minimum customer requirement set out in a schedule to the Distribution Agreement. Clause 5.4 of the Distribution Agreement provided that Simple must meet the minimum customer requirement as set out in Item 2 of Schedule 1 to the Distribution Agreement. Item 2 specified 15 new customers per month to subscribe to a subscription package during the initial five-year term of the agreement. Clause 5.4 provided that, if Simple did not meet the minimum customer requirement for each six-month period during the agreement, WSA could elect, at its discretion, to terminate the Distribution Agreement immediately, by notice in writing to Simple. It is common ground that Simple did not satisfy the minimum customer requirement. However, the primary judge concluded that WSA was estopped from relying on that failure.

17. [189]

    There were two elements contained in cl 5.4. The first was the obligation imposed on Simple to obtain 15 new customers per month. The second was the right conferred on WSA to terminate if the minimum of 15 new customers per month was not achieved in any six-month period. That is to say, if in any six-month period fewer than 90 subscriptions were sold, WSA had the right to terminate the Distribution Agreement immediately.

18. [190]

    Ms Bottrell gave evidence of statements made to her by Ms Schekeloff, which the primary judge accepted. Relevantly, she said that Ms Schekeloff said the following:

19. [191]

    In cross-examination, when asked whether she took the view at the time when Ms Schekeloff made those statements that 20 new customers per month with respect to WSA’s subscriptions was something that was easily achievable, Ms Bottrell responded “not in the initial term”. She explained that by that she meant “in the first period of the operation of the new distributorship” and their business. When asked what she meant by “the first period”, she said, “let’s say the first six to twelve months”. When asked what she based “the first six to twelve months” on, she said it was because she had been given “reassurances” that it would take time to come up to speed with the processes and that they would be learning things. She said that it was “our expectation and our understanding”, which came from Ms Schekeloff saying “you will be getting used to this and you won’t be making new sales in the first term”.

20. [192]

    Ms Bottrell agreed that her understanding of “the initial period” being six to twelve months did not come from Ms Schekeloff, who Ms Bottrell agreed had not specified that timeframe or any timeframe. Ms Bottrell also agreed that the reference by Ms Schekeloff to there being no expectation to meet the minimum customer requirements initially was interpreted by her as a reference to a period of about six to twelve months without any reference to Ms Schekeloff at all. She also agreed that she did not, at any time, seek to define with Ms Schekeloff the relevant period. Instead, she agreed that the period of six to twelve months was something that she had defined herself.

21. [193]

    The language attributed to Ms Schekeloff is that Simple would not be required to make its targets “initially” and would not be expected to make the sales target “at first”. That language is imprecise.

22. [194]

    Simple says, in effect, that the statement by Ms Schekeloff must be understood as a statement that, notwithstanding the terms of cl 5.4 of the Distribution Agreement, WSA would not terminate the Distribution Agreement by reason only of the fact that Simple did not sell at least 90 subscriptions during the first six months of the term of the Distribution Agreement. Ms Schekeloff simply did not say that. She used the terms “initially” and “at first” when speaking of making the sales targets. The language used by Ms Schekeloff was that of expectation, and did not constitute an unequivocal representation that the contractual right conferred by cl 5.4 would not be exercised in respect of a failure to satisfy the minimum sales requirement over a particular six-month period.

23. [195]

    A representation may support a promissory estoppel if it is reasonable for the representee to interpret the representation in the manner for which the representee contends. Nevertheless, a representation must be clear and unequivocal before it will give rise to such an estoppel (J Heydon, M Leeming and P Turner, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (5th ed 2015, LexisNexis) at [17-265]). Further, in determining whether conduct is reasonably capable of giving rise to a particular representation, it is necessary to have regard to the context in which the conduct occurred and to consider what that conduct would have conveyed to a reasonable person in the position of the observer of that conduct (see, eg, Hammond v JP Morgan Trust Australia Ltd [2012] NSWCA 295; 16 BPR 30,901 at [53]).

24. [196]

    The fact that Ms Bottrell was a solicitor is relevant to the question of whether or not the statements made by Ms Schekeloff, which made no reference to the right conferred by cl 5.4, should be understood as being sufficient to have induced Ms Bottrell to cause Simple to enter into the Distribution Agreement. If it were necessary to decide the question, I would be disposed to conclude that there was no relevant representation made by WSA.

25. [197]

    In its second further amended cross-claim, Simple alleged that, on 10 August 2011, WSA represented that Simple would not be expected or required to meet the minimum customer requirements and targets in the Distribution Agreement for a reasonable time at the beginning of the term of the Distribution Agreement. Simple also alleged that on further occasions after 19 September 2011 (the date of entry into the Distribution Agreement), WSA represented that Simple would not be expected to meet its minimum customer requirements for a reasonable time at the beginning of the term of the Distribution Agreement.

26. [198]

    Simple then alleged that those representations were, or one of them was, misleading or deceptive because “WSA relied on the minimum customer requirements after [sic] the first six months of the term of the Distribution Agreement, which was the first opportunity that it could do so”, and, insofar as the representations were representations as to the future, they were made without reasonable grounds. That language is less than precise in identifying why the representation was misleading and it is unclear that the primary judge made a finding that any of the representations was made without reasonable grounds. For that reason, I would have been disposed to conclude that there was no misleading or deceptive conduct on the part of WSA.

27. [199]

    On the day on which the Distribution Agreement was signed, WSA entered into a deed of release with Therapy Solutions (Vic) Pty Ltd (Therapy Solutions). The deed of release recited that WSA and Therapy Solutions had entered into a distribution agreement in February 2007 under which Therapy Solutions had a right to transfer the “customer list database” to a third party for an agreed value and that the parties had agreed to terminate that distribution agreement once a new distributor had been found for Victoria and Tasmania. The deed of release also recited that agreement had been reached as to a price of $281,584 for the sale of the customer list to the new distributor. Clause 4.1 of the deed of release provided that, when the customer list fee was received from the new distributor, it would be applied as to $142,274 to Therapy Solutions. Simple was aware, when it entered into the Distribution Agreement with WSA, that the deed of release had been entered into. Following the payment of the installment of the customer list fee by Simple to WSA, payments were made to Therapy Solutions by WSA as contemplated by the deed of release.

28. [200]

    WSA contends that any damages to be paid by it to Simple under s 82 of the Consumer Act by reason of the contravention of the Code should take account of the payment made to Therapy Solutions. The object of s 82 in the circumstances would be to compensate Simple for the loss or damage suffered by conduct that contravened the Code. It is impossible to see a justification for such an allowance in the present circumstances. It may be possible that, if WSA were required to pay damages to Simple, it could have some basis for recovery from Therapy Solutions of the amount it has paid. That is a different question, which does not arise in these proceedings.

29. [201]

    I agree with the orders proposed by the Chief Justice.