Session Title Bill Morgan Partner, Turner Freeman Lawyers

Snap-on Tools JM & PM Holdings Pty Ltd v. Snap-on Tools (Australia) Pty Ltd [2015] NSWCA 347 This is a case like so many in which the franchisee claimed that the representations contributed to their decision to enter into the Franchise Agreement. This case considers the issue of causation which, as it is a case about alleged misleading representations, means the issue of the franchisee’s reliance on the alleged representations. The case considers the effect of an entire agreement clause on the issue of reliance.

Purpose of Entire Agreement Clause An entire agreement clause is an example of an express integration clause, the purpose of which is to make the document to which the clause relates an exhaustive statement of the bargain. The Construction of Commercial Contracts (2013, Hart Publishing) at [10-21].

The Facts Franchise agreement entered into on 29 October 2009. Exclusive right to sell Snap-on branded tools in a specific area. Franchisee company had two directors at that time. Breach based on arrears and termination of franchise agreement by franchisee. Franchisor sue for recovery of a debt and franchisee cross-claimed for alleged misleading conduct based on a spreadsheet provided to a director in late 2008. A further copy was provided in August 2009.

The Facts Trial judge found aspects of the spreadsheet were misleading but the franchisee did not rely on the document. The Court of Appeal (Lemming JA) observed that the Spreadsheet contained serious errors. Some of the errors were discernible on the face of the spreadsheet others were assumptions based on knowledge only known to the franchisor.

Issue of Causation Issue of Causation The issue of appeal was whether the spreadsheets caused the loss or, more precisely, whether the franchisee relied on the information in the spreadsheets.

Factors relevant to reliance A director of the franchisee provided the spreadsheet to an accountant and received advice prior to entering the franchise agreement. The accountant was not called to give evidence in the proceeding. The other (former) director as not called to give evidence.

Entire Agreement clause There are no representations, inducements, promises, agreements, arrangements or undertakings, oral or written, between the parties hereto other than those set out herein and in the exhibit hereto.

Other Relevant Clauses Clause 38 – acknowledgment that no representations were made about certain financial matters, business success or performance and no representations other than what was in disclosure document. Clause 39 – Franchisee did not sign franchise agreement in reliance on any representation or statement of the franchisor except as set out in the franchise agreement.

Effect of these Clauses The Court observed that if those clauses stood alone, they would not necessarily be decisive.

Other Factors The director who gave evidence admitted that he gave the spreadsheet to and discussed it with his accountant. He gave evidence that accountant’s advice on the spreadsheet was important to him. The accountant was not called to give evidence for which here was no explanation. He gave evidence that he understood clauses 38 and 39 and was prepared to give these acknowledgements.

Credibility The court referred to the following passage from the decision in Keen Mar Corporation Pty Ltd v Labrador Park Shopping Centre Pty Ltd (1989) ATPR 46-048. “The fact that a claimant states, in an agreement into which he claims to have been induced to enter by misleading conduct, that he was not so induced may bear upon the question whether he should be believed in asserting that the misleading conduct was an inducement”

Decision The Court held that the Trial judge had made no error in finding that the evidence of the director was unreliable and that the franchisee had not relied on the errors in the spreadsheet in deciding to enter the franchise agreement.

Limits of Entire Agreement Clause That does not mean that in every case where there is an entire agreement clause, or where there are statements acknowledging the absence of any pre-contractual representation, the franchisee will inevitably fail; that is not the law.

Limits of Entire Agreement Clause Neither the inclusion of an entire agreement clause in an agreement nor the inclusion of a provision expressly denying reliance upon pre contractual representations will necessarily prevent the provision of misleading information before a contract was made constituting a contravention of the prohibition against misleading or deceptive conduct by which loss or damage was sustained. Campbell v Backoffice Investments Pty Ltd [2009] HCA 25

Risk of Entire Agreement Clause The ACCC Report Unfair Contract Terms Industry Review Outcomes (March 2013) which followed industry reviews of standard form contracts identified as one of several types of term that was of particular concern those terms, such as entire agreement clauses, that prevent a consumer relying on representations made by a business or its agents. The ACCC’s Unfair Contract Terms A Guide for Businesses and Legal Practitioners (March 2016) gives as an example of a term a court may consider unfair a term that seeks to disclaim responsibility or liability for representations.

Conclusion Entire agreement clauses help franchisors on the issue of reliance. They are not a guarantee of a successful defence to a claim of misleading conduct. It depends always on the evidence at trial, and whether the franchisee makes admissions helpful to the franchisor and fails to call relevant witnesses. From the point of view of franchisees entire agreement clauses are often standard boilerplate terms about which they may give little attention. A desirable practice is to have a prior representation agreement that allows the franchisee to list representations it asserts were made and which were important.