Case: Australian Competition and Consumer Commission v Baxter Health Care [2007] HCA 38 ; (2007) 237 ALR 512
Outcome: applied
argued that I should follow the Court of Appeal's decision in Ketchell [2007] NSWCA 161 on the construction of Commonwealth legislation in accordance with the principles in Farah 230 CLR at 151-152 [135]. However, I am of opinion that the Court of Appeal's decision should not be followed for three reasons: First, that decision was on a different legislation, namely an earlier version of the Code that was not in force at the time when Hoy Mobile and Allphones entered into the franchise agreement. The subsequent decision of the High Court in Australian Competition and Consumer Commission v Baxter Health Care [2007] HCA 38 ; (2007) 237 ALR 512 demonstrates that the approach to construction adopted by the Court of Appeal was wrong (see below). (I note that special leave to appeal from the decision in Ketchell [2007] NSWCA 161 was granted by Gummow and Crennan JJ: Master Education Services Pty Ltd v Ketchell [2008] HCA Trans 89.) I am convinced that the decision of the Court of Appeal is plainly wrong. In Baxter Health Care 237 ALR at 527-528 [44]-[48], Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ noted that there was nothing unusual about legislation providing for a circumstance in which making or giving effect to a contract involves an offence by one party to the contract, but not by the other. In that case their Honours were also construing the operation of the Trade Practices Act . They said that the consequences of such illegality for the rights of the respective parties would not necessarily be the same and, they continued ( Baxter Health Care 237 ALR at 527 [44]): 'Furthermore, there is nothing unusual about the Act applying to one party to a transaction, or proposed transaction, but not to the other. Leaving aside the extended operation given by s 6 , ss 46 and 47 according to their terms apply to conduct by corporations, not sole traders or partnerships. In a transaction between a corporation and an individual, the provisions may apply to the corporation but not to the individual. Differential application of legislation to parties to a contract is commonplace, although working out the legal consequences may be complex.' Here the very prohibition in cl 11 of the Code is directed to the conduct of the franchisor. Clause 11 does not in its terms seek to affect adversely the position of the franchisee; rather its aim is to protect the franchisee. The Code did not prohibit a franchisee from entering into or enforcing a franchise agreement with a franchisor where cl 11 had not been observed. It would be an unusual result if beneficial legislation, intended to protect persons in the position of a franchisee, were to destroy the legal validity of a franchisee's bargain and then throw upon it the burden of having to apply to a court and take on the risk of litigation, in seeking to establish a franchise agreement against a defaulting franchisor, errant in its compliance with cl 11 of the Code. A franchisor would be entitled, as Allphones suggests here, to say that it was not bound by a franchise agreement because of its own default. That consequence tends to suggest that non-compliance with the Code was not intended to avoid the contract, but rather to give rise to rights under the Act to have the contract varied or made void so as to remedy the consequence of a non-compliance with the Code. Indeed, the language of cl 5(1) provides that the Code applies to a franchise agreement entered into on or after 1 October 1998. That suggests validity rather than invalidity of the franchise agreement even where some provision of the Code has not been complied with. Moreover, the purpose of the Code in cl 2(1) is said to be the regulation of 'the conduct of participants in franchising towards other participants in franchising'. The clause is silent as to any intention to destroy franchisees' rights in certain circumstances. A franchisee who does not obtain statements required by cl 11 and provide them to the franchisor may nevertheless be entitled to protection or relief. Protection of the interests and rights of a franchisee in such a case is not likely to ensue from the destruction of the very agreement that the franchisee has apparently sought to enter. As Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ said in Baxter Health Care 237 ALR at 527 [46] (citing Phoenix General Insurance Co of Greece SA v Halvanon Insurance Co Ltd [1988] QB 216 ; [1987] 2 All ER 152 at 175-176 per Kerr LJ), when a statute contains a unilateral prohibition on entry into a contract, it does not follow that the contract is void. They said: 'Whether or not the statute has this effect depends upon the mischief which the statute is designed to prevent ; its language, scope and purpose; the consequences for the innocent party ; and any other relevant consideration. Ultimately, the question is one of statutory construction. As was pointed out in SST Consulting Services ([Pty Ltd v Rieson (2006)] [2006] HCA 31 ; 225 CLR 516 at 527 [30] ), the Act is far from being silent on the question of the consequences of illegality, but, rather, contains elaborate provisions. That is not to say that the express provisions of the Act answer all questions that may arise, but they answer many of them, and set the context in which others are to be resolved.' (emphasis added) I am of opinion that the Code does not evince a legislative policy of striking down every franchise agreement entered into by a franchisor who fails to comply with any provision in cl 11. To the contrary, I am of opinion that the intention of the Code is to place an obligation on a franchisor by setting a norm of conduct with which it is to comply. Failure to comply with that norm of conduct gives the franchisee rights to rely upon that failure in order to seek the setting aside of the agreement, if that relief is appropriate, and also to seek relief because of the unconscionable conduct such non-compliance by the franchisor may evidence: see ss 51AC(3)(g) and (4)(g) of the Trade Practices Act . But I am satisfied that it cannot have been the purpose of the Code to make void a franchise agreement for any failure, especially one by the franchisor, to comply with cl 11, however trivial, without any consideration of the franchisee's position. The starting point for the enquiry as to the effect of the Code, as identified by the passage I have emphasised in Baxter Health Care 237 ALR at 527 [46], was not addressed by Mason P because he said there was no need to seek guidance from implications in the legislative framework. That enquiry includes the mischief which the statute is designed to prevent and the consequences for the innocent party. Here cl 6A of the Codes elucidates the purposes of the disclosure document. And cl 11(2) shows that a purpose of the requirement for the written statements is to provide the franchisee, at the very least, with the opportunity to be informed by appropriate independent advice, if he or she wishes to obtain it. Importantly, cl 11(2)(b)(ii) makes it plain that the franchisee can choose not to seek such advice. In such a case, the mere oversight to obtain a signed statement that the franchisee had been told that he or she could seek advice but had chosen not to, when he or she had told the franchisor of that decision, could not have been intended to avoid a franchise agreement. No protective purpose would be achieved by such pedantry and much commercial inconvenience could result. In my respectful opinion, although his Honour did not have the benefit of the reasoning in Baxter Health Care [2007] HCA 38 ; 237 ALR 512 , which was delivered subsequently to the reasons in Ketchell [2007] NSWCA 161 , the reasoning of Mason P is plainly wrong. In addition, Ketchell [2007] NSWCA 161 was decided on different legislation: see McNamara 221 CLR at 661 [40]; Walker Corporation 242 ALR at 391 [31]. I am of opinion that the non-compliance by Allphones with its obligations under cl 11 of the Code did not make the franchise agreement void. That non-compliance is a factor which, had Hoy Mobile wished to do so, could have been raised by it to seek relief under s 87 of the Act. It would defeat the evident purpose of the Code if Allphones were entitled to rely on its own breach of its obligation imposed under cl 11 to deny a franchisee with whom it had entered into a contract, the entitlement to enforce that contract against it or to seek a variation of it or relief from it under the Act. For these reasons I reject Allphones' argument that the franchise agreement is void.