Binaray Pty Ltd (ACN 119 724 211) as Trustee for the Allen Family Trust v RAMS Financial Group Pty Limited (ACN 105 207 538)

[2019] QSC 33

SUPREME COURT OF QUEENSLAND

CITATION:

Binaray Pty Ltd (ACN 119 724 211) as Trustee for the Allen Family Trust v RAMS Financial Group Pty Limited (ACN 105 207 538) [2019] QSC 33

PARTIES:

BINARAY PTY LTD (ACN 119 724 211) as Trustee for the Allen Family Trust

(plaintiff)

v

RAMS Financial Group Pty Limited (ACN 105 207 538)  (defendant)

FILE NO/S:

BS No 11484/13

DIVISION:

Trial Division

PROCEEDING:

Civil trial

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

22 February 2019

DELIVERED AT:

Brisbane

HEARING DATE:

26 April 2017 - 10 May 2017, with further submissions received on 17 and 24 November 2017.

JUDGE:

Brown J

ORDER:

I order that:

1.   The parties provide further submissions of no more than 10 pages within 21 days of today.

CATCHWORDS:

CONTRACT – GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS – BREACH OF CONTRACT – where defendant franchisor had various sales channels including brokers and franchisees – where plaintiff franchisee and defendant entered into a Franchise Agreement – whether on the proper construction of the Franchise Agreement the defendant was obliged to allocate and provide information about broker-originated customers to the plaintiff – whether that obligation extended to broker-originated customers with existing loans or who had discharged their loans - whether the defendant breached its contractual obligation to allocate and provide broker-originated customers to the plaintiff by not providing the plaintiff with a list of broker-originated customers in its allocated territory – whether access to a ‘Loan Viewer’ sufficient to discharge defendant’s obligation

DAMAGES – MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS FOR BREACH OF CONTRACT – REMOTENESS AND CAUSATION –LOSS OF PROFITS– where the plaintiff argued that as a result of the defendant’s breach it lost the opportunity to sell loans to those customers on the list of broker-originated customers and others – where there were a number of barriers and risks affecting the plaintiff being able to sell loans to broker-originated customers – where some broker-originated customers had drifted to the plaintiff – effect on value of commercial opportunity and valuation of loss – where disputed evidence as to strength of list of broker-originated customers as a lead – where dispute as to conversion rate to be adopted in valuing loss - whether the opportunity lost should include referrals and loans other than broker loans - whether plaintiff established on balance of probabilities that breach caused loss of a valuable commercial opportunity

LIMITATION OF ACTIONS – LIMITATION OF PARTICULAR ACTIONS – SIMPLE CONTRACTS, QUASI-CONTRACTS AND TORTS - where defendant contended part of action for breach of contract statute barred – where proceeding issued more than six years after alleged breach – whether continuing obligation

INTEREST – RECOVERABILITY OF INTEREST – IN GENERAL - whether undue delay by plaintiff – whether interest should not accrue until moneys were payable

Limitation of Actions Act 1974 (Qld) s 10(1)
Civil Proceedings Act 2011 (Qld) s 58

Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570, followed
Badenach & Anor v Calvert (2016) 257 CLR 440, followed
Baldwin v Icon Energy Ltd [2016] 1 Qd R 397, followed
Bobux Marketing Ltd v Raynor Marketing Ltd [2002] 1 NZLR 506, distinguished.
Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544, followed
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, followed.
GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1, followed
Interchase Corporation Ltd (in liq) v Grosvener Hill (Qld) Pty Ltd (No 3) [2003] 1 Qd R 26, applied
IW & CA Price Constructions Pty Ltd v Australian Building Insurance Services Pty Ltd & Ors [2017] QSC 39, followed
LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74, distinguished
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, followed
Principal Properties Pty Ltd v Brisbane Broncos Leagues Club Limited [2017] QCA 254, followed
Prosperity Advisers Pty Ltd v Secure Enterprises Pty Ltdt/as Strathearn Insurance Brokers Pty Ltd [2012] NSWCA 192, followed
Secured Income Real Estate (Australia ) Ltd v St Martins Investments Pty Ltd ( 1979) 144 CLR 596, followed
Sellars v Adelaide Petroleum NL & Ors (1994) 179 CLR 332, applied
Winky Pop Pty Ltd & Anor v Mobil Refinery Australia Pty Ltd & Anor [2016] VSCA 187, followed
WL Marshall v The Colonial Bank of Australasia (1904) 1 CLR 632 at 647, followed

COUNSEL:

A P J Collins, with S F Lamb, for the plaintiff
P Neskovcin QC, with N Andreatidis, for the defendant

SOLICITORS:

Bell Legal Group for the plaintiff
Allens Linklaters for the defendant

Introduction

1. RAMS[1] is a well-known brand name associated with a number of financial products and services which are particularly directed to the home loan market. It entered into a written Franchise Agreement with Binaray Pty Ltd (ACN 119 724 211) as Trustee for the Allen Family Trust (“Binaray”) on 25 July 2006. At the time the Franchise Agreement was entered into RAMS products were sold through:

   (a)RAMS home loan centres operated by franchisees (“the Franchise Network”);

   (b)Brokers, who had to be mortgage brokers accredited by RAMS (“the Broker Channel”);

   (c)Direct application via telephone or the internet (“RAMS Direct”).

   [1]     RAMS was known as RAMS Home Loans Pty Ltd between June 2003-December 2003, RAMS Franchising Pty Ltd between December 2003-March 2008, and RAMS Financial Group Pty Ltd from March 2008.

2. Mr and Mrs Allen were both directors of Binaray and worked in the business. Under the Franchise Agreement, Binary’s Allocated Territory was referred to originally as RAMS Home Loans Brisbane Inner-South, encompassing a number of areas referenced by their postcodes.

3. Binaray had non-exclusive rights to market and sell RAMS products in its allocated territory. RAMS could also market its products through accredited mortgage brokers and market and sell products directly in the allocated territory. The present dispute is whether Binaray should have been provided customer information by RAMS in relation to customers within its allocated territory who had obtained RAMS products through a mortgage broker, so it could market and sell RAMS products to those customers. The customers of mortgage brokers are referred to as broker originated customers (“BOCs”). Whether such an obligation existed or not depends on the proper construction of the Franchise Agreement, which was constituted by a number of documents.

4. If the Court finds RAMS was obliged under the Franchise Agreement to provide customer information as to BOCs to Binaray, there is a factual dispute as to whether the Franchise Agreement has been breached. Binaray contends it was not provided with such access, whereas RAMS contends there was a means of accessing BOCs through its database which included information about BOCs.

5. Assuming that there was a breach of the Franchise Agreement by RAMS, Binaray claims it has suffered loss and damage as a result of the loss of the opportunity to sell additional loans to BOCs.  RAMS contends that no such loss has been suffered because the opportunity lost was not a valuable opportunity.  Even if there was a valuable opportunity, RAMS contends that the amount of such loss is a much reduced amount from that claimed by Binaray.

6. Binaray commenced these proceedings claiming damages for breach of contract on 29 November 2013. RAMS claims that if it breached the agreement, such a breach would have occurred on or shortly after the date the Franchise Agreement was entered into in July 2006 and that the action became statute barred by operation of s 10(1) of the Limitations of Actions Act 1974 (Qld) in late July 2013. Binaray, however, contends the breach upon which it relies is a continuing breach and its action is not statute barred.

7. RAMS contends that even if Binaray is successful in this proceeding, it has delayed in commencing and in prosecuting the proceeding such that its conduct should disentitle it to claiming interest over the entire period from the date when the cause of action arose.

8. At my request, the parties prepared a list of issues. They could not agree on the articulation of all of the issues between them. The key issues which this Court must determine are:

   (a)Whether on the proper construction of the Franchise Agreement, RAMS was obliged to allocate BOCs to Binaray and provide access to or the use of that customer information;

   (b)If the obligation in (a) exists, did that obligation extend to a BOC with an existing loan with RAMS or a BOC who had discharged its loan;

   (c)If there was a contractual obligation to allocate and provide BOC information, did RAMS breach the Franchise Agreement;

   (d)Assuming a breach of the Franchise Agreement is established, did Binaray suffer loss or damage through the loss of an opportunity to contact BOCs and earn a financial return through the sale of additional loans;

   (e)What, if any, is the extent of any loss suffered;

   (f)Are the proceedings statute barred or, alternatively, is Binaray precluded from claiming damages for loss incurred more than six years before the commencement of the proceeding; and

   (g)If successful, whether Binaray is entitled to interest and, if so, for what period.

9. It is appropriate to summarise some key chronological events. The summary is not meant to encapsulate all of the relevant factual events, which will be considered in more detail by reference to each of the issues outlined.

   Summary of key chronological events

10. Between 1996 and 3 January 2008, the operations of the RAMS home loans business were conducted by a number of entities but were principally conducted by RHG Home Loans Pty Ltd (“RHG”).[2]

    [2]     Statement of Agreed Facts, [4].

11. In July 2006, the parties entered into the Franchise Agreement.

12. Binaray was aware of its potential claim against RAMS in relation to BOCs from at least 15 April 2008 when a notice of dispute was first issued.[3]

    [3]     M Allen T3-63/1-11, but the particulars to paragraph 13 in the Further Amended Statement of Claim refer to requests for the list in September to October 2006.

13. On or about 4 January 2008, Westpac Banking Corporation (“WBC”) acquired shares in the defendant and the right to conduct the RAMS business in the future.  Under that agreement:

    “WBC made the acquisition of the Defendant and the RAMS Business on the basis that:

    (a)the franchisees, including the Plaintiff, were paid a sum of money that represented a negotiated present day value of the trailing commissions they were to be paid on the value of their loan books as at 4 January 2008;

    (b)the customer information relating to all RAMS home loans and other products taken out by customers prior to 4 January 2008 (the RHG Customer Database) was not part of the sale to WBC; and

    (c)RHG retained control and ownership of the RHG Customer Database.”[4]

    [4]     Statement of Agreed Facts, [8].

14. After January 2008, RAMS had very limited access to the pre-2008 database as a result of being bought by Westpac. That affected the ability to calculate the size of the pre-2008 BOC database, which had to be estimated by the experts engaged on behalf of the parties.  However, from January 2008, the RAMS database accumulated all customer information whether that customer originated through the franchise, a broker or RAMS Direct channels.[5]

    [5]     Statement of Agreement Facts, [21].

15. On 15 April 2008, Binaray issued a notice of dispute to RAMS, which included the contention that Binaray should have access to BOC information.[6]

    [6]     Exhibit 22.

16. Under the Franchise Agreement, a franchisee was entitled to be paid upfront commissions and trail commissions in respect of a loan.  From 22 September 2009, Binaray was obliged to repay 100 percent of the upfront commission received if the loan was discharged within the first 12 months, and 50 percent of the upfront commission received if the loan was discharged in the 12 to 18 month period.[7]

    [7]     Statement of Agreed Facts, [20].

17. On or about August 2011, Binaray exercised an option to extend and extended the Franchise Agreement for a further five year term from 25 July 2011.[8]

    [8]     Statement of Agreed Facts, [18].

18. Proceedings against RAMS were filed by Binaray on 29 November 2013.

19. The Franchise Agreement between RAMS and Binaray expired on 24 July 2016.[9]

    What were the relevant obligations under the Franchise Agreement?

    [9]     Statement of Agreed Facts, [19].

    Issues

20. As to the dispute regarding the rights and obligations under the Franchise Agreement, the question is whether on the proper construction of the Franchise Agreement, RAMS was required to:[10]

    (a)allocate to Binaray customers of RAMS who were BOCs generated through RAMS accredited brokers;

    (b)provide Binaray with access to or the use of customer information of and relating to the BOCs;

    (c)on the proper construction of the Franchise Agreement does the term Customer as defined in clause 33 of the Franchise Agreement apply only to a BOC with an existing relationship with a broker and loan with RAMS or does it extend to a BOC who has discharged their RAMS loan.[11]

    [10]    The plaintiff defined the issue by adding the words after (b) “for the purpose of the plaintiff providing customer service and database marketing”, which was the wording used in clause 17.1.7 of the Operations Manual.

    [11]    The plaintiff identified an additional issue “Does the term customer as referred to in the Franchise Agreement include customers who originally took out a RAMS loan through a mortgage broker (the initial RAMS loan) but who had discharged the initial RAMS loan?”

    The Franchise Agreement

21. The Franchise Agreement between Binaray and RAMS with respect to the franchise consisted of three documents:

    (a)The franchise agreement;

    (b)The Operations Manual; and

    (c)The Disclosure Document.

22. The Disclosure Document was not the subject of any submissions by Binaray or RAMS, except insofar as both parties submitted that the document was irrelevant to the matters which this Court has to determine.  As such, it will not be the subject of any further discussion.

23. The obligations contained in the Franchise Agreement varied from time to time.  Exhibit MFI-A provided by the plaintiff outlines the relevant changes in the clauses in the Operations Manual over the relevant period.  I will consider the franchise agreement which was the version of the agreement entered into by the parties in 2006 and the Operations Manual, which is the version as at 17 July 2006.[12]  To the extent that any amendments over time need to be considered and are material to this decision,  I will address them in the course of these reasons. 

    [12]    Document 2 of the Agreed Bundle of Documents “A”. 

24. The Operations Manual forms part of the Franchise Agreement as if it were fully set out in the agreement.[13]  According to clauses 14.3 and 14.8 of the franchise agreement:

    “14.3You acknowledge and agree that the Operations Manual contains the rules you must follow in running your Business including rules about marketing, customer service, hours of opening, security and other rules.

    ….

    14.8 You acknowledge and agree that we may vary the Operations Manual from time to time and you acknowledge that we anticipate that this will happen at reasonably frequent intervals.”[14]

    [13]    Clause 14.1, tab 3 of the Agreed Bundle of Documents “A”, volume 1.

    [14]    Clause 14.9 provides for RAMS to give reasonable notice of such changes.

25. The franchise agreement provides that if there is any discrepancy between the franchise agreement and the Operations Manual, the documents must be “…interpreted and applied in the following order: First the special conditions, second the Operations Manual, and last this Agreement”.[15]  No special conditions are relevant in the present case.

    [15]    “About this Agreement”, tab 3, volume 1, Agreed Bundle of Documents “A”.

26. Binaray relies principally upon clauses 4.1, 4.17, 4.26(c), 4.28, 7.2, 7.17, 7.19 and 13 of the franchise agreement, clauses 8.3, 13 and 17 of the Operations Manual and the terms it contends were implied.[16] RAMS contends that the construction contended for by Binaray is not supported by the clauses relied upon by Binaray, particularly when the clauses relied upon are construed in the context of other provisions in the franchise agreement.[17]  

    [16]    Further Amended Statement of Claim, [8].

    [17]    Further Amended Defence, [8].

27. Pursuant to clause 4.1 of the franchise agreement,[18] Binaray was granted the non-exclusive right to operate their Business in the Allocated Territory provided it was done in accordance with the franchise agreement and the Operations Manual.   

    [18]    Volume 1, Agreed Bundle of Documents “A”, tab 3.

28. Under the franchise agreement, a number of obligations were imposed upon RAMS as the franchisor.  This included an obligation under clause 4.17 to provide “a technology platform including a mortgage processing system, a system capable of tracking Franchisees’ loan applications processing, a commission system to calculate Commissions and … to provide access to existing Customer information”.

29. The first paragraph of “About this Agreement” in the franchise agreement provides that, “Words that are printed in italics in this Agreement have specific meanings.  These meanings are explained in clause 33 of this Agreement”. 

30. Clause 33 provides:

    “Customer means any person who has or potentially will acquire an Approved Product from us whether through you or otherwise, including any customer who is part of our existing portfolio of customers.

    Customer Information means any information whatsoever relating to the Customer or the Customer’s affairs.”

31. Customers are referred to a franchisee in various ways.  One way is through the Call Centres.  Clause 5.4 of the franchise agreement provides that where RAMS refers “a Lead to you [a franchisee] from the Call Centre and you make a sale from that Lead, the Customer becomes part of your Customer Database”.

32. “Leads” are defined in clause 33 to mean “a referral of a potential Customer of Approved Products”.

33. Clause 7 deals with marketing and customer ownership.

34. Clause 7.1 provides as follows in terms of ownership of a customer:

    “We will provide you with a Local Area Marketing Kit to assist you with your Local Area Marketing activities.”

35. Clause 7.2 provides:

    “You must conduct Local Area Marketing activities in your Allocated Territory to generate sufficient business to meet the Performance Standards.”

36. Clauses 7.4 to 7.6 provide that:

    “7.4You must comply with the Operations Manual in relation to your Local Area Marketing activities. 

    7.5You will be responsible for your Local Area Marketing and you accept all liability for any action, claim, damages and costs arising out of your Local Area Marketing. We are not liable in any way whatsoever for your Local Area Marketing even if we are aware of it.

    7.6We accept responsibility for the RAMS Material  and the marketing templates provided in the Local Area Marketing Kit provided that you use them strictly in accordance with the Operations Manual  and any other guidelines issued by us from time to time in relation to use of the RAMS Material.”

37. Clause 7.11(d) and (f) are directed to marketing in a franchisee’s Allocated Territory.  They provide:

    “7.11Despite clause 4.1, we can carry out the following activities in any Territory (including your Allocated Territory), or appoint a representative to carry them out on our behalf:

    …

    (d)Market, develop and advertise our Business and make sales of Approved Products directly to Customers via the internet whether those Customers are within or outside your Allocated Territory.

    …

    (f)Permit others (such as mortgage brokers or originators) to sell Approved Products through their distribution networks.”

1. Clause 7.14, 7.17 and 7.18 provide as follows:

   “7.14You agree that we own the Customer and the Customer Relationship at all times. We give you the right to Manage the Customer Relationship on our behalf for the Term to carry on your Business provided you are not in breach of this Agreement, particularly clause 17.

   …

   7.17We agree to provide you with Customer Information in report format from time to time as provided for in the Operations Manual.

   7.18You agree that all Customer Information collected by you is collected on our behalf and you agree to keep proper and adequate records of Customer Information collected by you that is not recorded on the RAMS computer systems and to provide us with copies of that Customer Information if we request it.”

2. Clause 7.19 refers to “Managing the Customer Relationship”. “Manage the Customer Relationship” is a defined term and means:

   “…to undertake any activity required to ensure that the Customer receives assistance, information and best practice customer service in relation to the Customer’s requirements for Approved Products.”

3. Clause 7.20 and clause 7.21 provide as follows:

   “7.20Despite this clause 7, you acknowledge and agree that the Customer can request to be allocated to any Territory for the purposes of Managing the Customer Relationship and that we will comply with any such request.

   7.21No matter where the Customer is allocated for the purpose of Managing the Customer Relationship, the Trailer Income will be given to the Franchisee who sold the Approved Product or, in the case of a Franchise Direct loan to the Franchisee who operates in the Territory in which the Customer resides or in case of joint Customers as advised by Customer.”

4. Clause 11.1.1 of the Operations Manual as amended on 1 July 2008 provides that:

   “RAMS Marketing may:

   ·         Proactively market to customers whose loans were originated by a broker or other third party only for the purpose of selling additional RAMS products and non-home loan products such as the RAMS credit card.

   A Franchisee may:

   ·         Communicate initially with broker-introduced customers using only the communication tools provided by RAMS Marketing and when approved by the Head of Broker Sales and the Head of Franchising.”

5. Clause 13 of the franchise agreement is addressed to “Commissions and Borrowing against Future Trailer Income and Churning”.

6. Clauses 13.1 and 13.4 provide that:

   “13.1We agree to pay you Commission on the sale of all Approved Products in accordance with the Operations Manual and clause 21 of this Agreement.

   13.2You acknowledge and agree that we may change the Commission payable on the Approved Products from time to time by giving you written notice.  We agree to act reasonably when determining Commission. We cannot change the Commission to apply retrospectively.

   13.3You acknowledge that some of the Approved Products are supplied by third parties and that we might not have control over payment of commissions on products supplied by those third parties. 

   13.4The Operations Manual sets out the Commissions and the conditions relating to the Commissions.”

7. Clause 13.11 provides that it is a material breach of the franchise agreement to:

   “… re-finance an existing Customer loan with an Approved Product in circumstances where a variation to the customer’s existing loan would achieve substantially the same outcome for the Customer unless the franchisee has the prior consent of RAMS.” 

8. “Variation” is defined in Clause 33 to mean “a change to the loan amount, a change or addition to the loan security, a change to the loan features, transfer to different product type or any combination of these”.

9. Clause 13.12 provides that if a franchisee does re-finance an existing Customer in breach of clause 13.11, the franchisee will not receive any Trailer Income in respect of that Customer’s loan.  

10. Clause 3 of the Operations Manual, as amended 17 July 2006, relates to the RHLC Website and describes it as “a secure site that facilitates access to product, customer, marketing, supplier, training information and more that will assist Franchisees and Centre staff to operate and run the business of a RAMS Home Loans Centre”.  Clause 3.1 states that by accessing the RHLC Website, a franchisee has access to the latest information on matters including “Reports” and “Customer Service”.  Under the heading of “Reports” in clause 3.1, it states “Find out all of the information that you need to manage your sales, settlements, portfolio, customers and loan status.  Access these reports when you need them.  Reports are available on a daily, weekly or monthly basis”.  Further, under the heading of “Customer Service”, reference is made to “Access to Loan Viewer, a system that lets you view customer loan details and make requests for information, changes and more”.

11. Clause 8.3.1 of the Operations Manual provides that:

    “8.3.1Description

    The achievement of Performance Standards by Franchisees is central to the ongoing success of RAMS and all Franchisees.  Due to the limited number of allocated territories and thus Franchisees, the requirement for minimum achievement levels is essential.  Over the term of the agreement, a Franchisee should expect that RAMS will vary the Performance Standards to ensure that the entire business continues to grow and remain viable for all Franchisees.

    Performance Standards for each RAMS Home Loans Centre are required to:  

    §Ensure RAMS achieves growth and profit as required by RAMS Operating Plan 

    §Allow RAMS to plan resources to provide acceptable levels of operations support

    §Enable RAMS to measure the performance (both qualitative and quantitative) of each RAMS Home Loans Centre

    Two areas of the RAMS Home Loans Centre performance will be measured to meet these objectives.  Failure to meet these areas could result in serious consequences for the business. 

    §Sales Performance

    §Legal & Compliance

    Other areas of the business will be reviewed (as outlined in the Performance Standards – Leading Performance Indicators) with the expectation that Franchisees will meet compliance requirements however a failure to meet these Performance Standards will not lead to a breach in the Franchise Agreement.

    Each month, the Franchisee will prepare a Monthly Report tracking the performance of their Centre against the Performance Standards.  This report will be used as the basis for discussion with the Franchise Business Manager at the Monthly Franchisee Meeting.”

Subject	Reference Source	Summary
Performance Standards template	RHLC Website	Details the criteria for achieving Performance Standards.
Monthly Report template	RHLC Website	Sets out the format for submission of performance information to the Franchise Business Manager.

1. Performance standards include the achievement of a number of minimum settled RAMS home loans in the first 6 months of operation and being ranked in the top 80 percent of the total number of settled loans in specified quarters after 6 months of operation.

2. Clause 8.10 of the Operations Manual relates to Management Reporting Systems (“MIS”).  It makes reference to the MIS Reports available through the RHLC Website, which is said to provide information to help run the business and plan local marketing activities.  Clause 8.10.2 provides as follows:

   “8.10.2Policy

   8.10.2.1Compliance Requirement

   §RAMS MIS reports are confidential.

   §The Franchisee and all his or her employees must comply with the Privacy Law in respect of use, storage and destruction of customer information.  Refer to Privacy Training for detailed information. 

   8.10.2.2Business Rules

   §The MIS Reports can be accessed through the RHLC Website.

   §If there are any problems or questions relating to MIS Reports consult the MIS Reporting Training Guide.” 

Subject	Reference Source	Summary
Privacy Law	RHLC Website	A self paced training program required to be completed as part of compliance training.
MIS Training Guide	RHLC Website	Detailed information about reports, access and management of them.
Operational Behaviour Policy	Link in Ops Manual	Policy covering confidentiality and privacy of RAMS information.

1. Clause 8.10.3 of the Operations Manual sets out standards reports and suggested frequency of use and refers to “Customer Database Report”, “At least monthly” and “Generate on an ad hoc basis to support targeted customer loyalty or referral mailings”. 

2. Clause 13 sets out the Business Partner Charter.  Relevantly, clause 13.1 includes the following:

   “13.1.1RAMS Franchises

   Each RHLC franchisee is allocated a specific geographic territory.  This territory is their base from which to prospect for new customers.  They are also allocated all existing RAMS customers in their territory to provide service and assistance.  They may also communicate with customers who reside outside their territory only if the customer chooses or if there is an existing relationship with that customer. 

   A Franchisee will provide service and assistance to all RAMS customers in their territory regardless of how the customer originally came to RAMS. 

   A Franchisee may:

   §Proactively market to customers whose loans were originated by a broker or other third party only for the purpose of selling additional RAMS products and non-home loan products such as the RAMS credit card. 

   §Communicate initially with broker-introduced customers using only the communications tools provided by RAMS Marketing.

   A Franchisee may not:

   §Proactively market to customers whose loans were originated by a broker or other third party for the purpose of refinancing that loan. 

   §Actively dissuade a customer from contacting their broker in the future. 

   13.1.2RAMS Accredited Mortgage Brokers

   Brokers are required to become accredited before they can recommend a RAMS loan and they are expected to comply with the RAMS Customer Charter.

   A RAMS broker may not proactively market to customers for the purpose of refinancing that loan to another lender.

   RAMS brokers should recognise a customer’s right to choose.  A broker-originated customer may opt to deal subsequently with a RHLC or directly with RAMS. 

   13.1.3Direct Applications

   A customer may submit a loan application via a telephone contact centre operated or engaged by RAMS, the RAMS Internet site or a RAMS employed sales person.

   13.1.4Loan Refinancing

   RAMS does not advocate “churn” in any channel; that is to say, refinancing loans where there is no benefit to the customer to do so.

   13.1.5Commissions and Agreements

   Agreements are structured to discourage churn and to promote proactive customer relationship management.

   A Franchisee is paid commission by the way of trail only.  This trail is calculated as a percentage of the loan balance and is paid over time. 

   A broker is paid commission by the way of a one off up front payment and a trail that is paid over time.

   A Franchisee will only generate revenue from a broker-introduced customer by selling them a second loan or by pursuing referrals.  Payments are as per the Franchise Agreement. 

   All commissions are paid by RAMS and no commission costs are passed on to the customer. 

   Commission varies by channel as follows:

   13.1.6Variations

   Variations include conversions, increases, substitutions, term extensions and release of borrower.  For an originator to receive commission, the variation must include an increase.  Commission payable on increases is dependent on the increase value and is subject to the agreements.” 

Scenario	Introducer	Variation By	Initial Trail Owner	Trail Owner After Activity	Payee of Upfront Increase
1	Franchise	Broker	Franchise	Franchise	Broker
2	Franchise Direct*	Broker	Franchise @ Franchise Direct (if applicable)	Franchise @ Franchise Direct (if applicable)	Broker
3	HLM	Broker	N/A	Broker	Broker
4	Broker	Franchise	Broker	Broker	Flat Fee
5	Broker	Franchise Direct	Broker	Broker	Franchise @ Franchise Direct rates
6	Broker A	Broker B	Broker A	Broker B	Broker B

1. Clause 17 provides for customer sales and service.  Clause 17.1.7 is particularly relied upon by Binaray and provides as follows:

   “17.1.7Principles for allocation of customers to a Territory for Service and Marketing

   Customers will be allocated to a Territory for the purpose of customer service and database marketing as detailed in the table below.  Customers can elect to move from territory to territory at any time.  The allocation of customers for customer service and marketing does not affect commission payments.  

Sale of Loan	Customer Allocation
Loans written by a Franchisee.	The default is the customer is allocated to the Franchisee’s territory.
Loans written by a staff member of the Franchisee.	The default is the customer is allocated to the Franchisee’s territory.
Loans written by Franchise Direct.	The default is the customer is allocated to a territory based on the customer’s post settlement mailing address postcode.
Loans written by a Broker	The default is the customer is allocated to a territory based on the customer’s post settlement mailing address postcode.
Loan written by a Franchisee who sells their Franchise.	The customer database will be transferred to the new Franchise owner.
Loans written by Franchise Direct, broker or where a territory has not been allocated.	A customer who has been or will be allocated to an unallocated territory can be marketed to and serviced by RAMS or can be allocated to another territory as determined by RAMS.
Existing HLM becomes a Franchisee.	The ex HLM/new Franchisee will retain their existing customer database regardless of territory.
Existing HLM who works for a Franchisee.	The HLM does not retain their existing customer database.  These customers will be allocated to a new territory based on the customer’s post settlement mailing address postcode.

Currently, the UCS system for tracking movements of customers between territories is not available as a customer database function.  We are currently working towards delivering a technology solution, which will facilitate this activity.”

Relevant Legal Principles

1. The relevant principles to be applied in the construction of the Franchise Agreement were generally not controversial between the parties, save that Binaray sought to rely on subsequent conduct as bearing upon the meaning of clause 17.1.17 of the Operations Manual.

2. In Electricity Generation Corporation v Woodside Energy Ltd,[19] French CJ, Hayne, Crennan and Kiefel JJ (as the Chief Justice then was) stated in relation to the interpretation of commercial contracts:[20]

   Both Verve and the Sellers recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean.  That approach is not unfamiliar.  As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract.  Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”.  As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties … intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”. (footnotes omitted)

   [19] (2014) 251 CLR 640.

   [20] At [35].

3. This approach was endorsed in Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd,[21] by Kiefel, Bell and Gordon JJ (as the Chief Justice then was) at [16] and [17], where their Honours stated:

   [16]      It is well established that the terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract.  In a practical sense, this requires that the reasonable businessperson be placed in the position of the parties. It is from that perspective that the court considers the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it.

   [17]      Clause 4 is to be construed by reference to the commercial purpose sought to be achieved by the terms of the lease. It follows, as was pointed out in the joint judgment in Electricity Generation Corporation v Woodside Energy Ltd, that the court is entitled to approach the task of construction of the clause on the basis that the parties intended to produce a commercial result, one which makes commercial sense. It goes without saying that this requires that the construction placed upon cl 4 be consistent with the commercial object of the agreement. (footnotes omitted)

   [21] (2017) 261 CLR 544.

4. In determining how a reasonable businessperson may interpret the words in question, the High Court in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd[22] stated as follows:

   [46]     The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.

   [47]     In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.

   [48]     Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

   [49]     However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.

   [50]     Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations.

   [51]     Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption “that the parties … intended to produce a commercial result”.  Put another way, a commercial contract should be construed so as to avoid it “making commercial nonsense or working commercial inconvenience.” (footnotes omitted)

   [22] (2015) 256 CLR 104 at [46] to [51] per French CJ, Nettle and Gordon JJ.

   Competing contentions as to construction

1. Binaray contends that on the proper construction of the Franchise Agreement:[23]

   (a)The defendant was obliged on an ongoing basis throughout the period of the Franchise Agreement:

   (i)       To allocate to the plaintiff customers of the defendant who were generated through RAMS accredited mortgage brokers (referred to in these reasons as BOCs); and

   (ii)      To provide the plaintiff with access to or the use of customer information (as referred to in clause 4.17 of the franchise agreement) of and relating to the BOCs, for the purpose of the plaintiff providing customer service and database marketing;

   (b)The identity of the BOCs to be allocated and the customer information to be provided were confined to those customers whose contracts had settled and whose post settlement mailing address postcode was within the plaintiff’s allocated territory (as particularised);

   (c)The obligations in (a) and (b) were subject to the provisions of clause 7.20 of the franchise agreement. 

   [23] Further Amended Statement of Claim, [8].

2. RAMS denies the construction contended for by Binaray. In support of its construction, it relies on the limitations in other clauses of the Franchise Agreement as well as the context and purpose of the Agreement. RAMS admits that there is an implied term in the agreement that the parties would exercise their rights and perform their obligations in good faith, but denies the terms sought to be implied in paragraphs 9(b) and (c) of the Further Amended Statement of Claim.  It contends, in any event, that such implied terms are subject to the express terms of the franchise agreement and the Operations Manual and that the parties are not required to go beyond their respective contractual obligations to ensure that the other party enjoys the benefit of the Franchise Agreement.[24]

   [24]    Further Amended Defence, [9].

3. A critical point of distinction between the parties in their construction of the Agreement arose out of the context and commercial purpose each attributed to the Franchise Agreement. Binaray contends that the Franchise Agreement was a relational contract, where the parties had an interdependent relationship in which both parties were intended to have the potential to profit from the relationship. RAMS does not dispute that the relationship with Binaray was a commercial one where both parties were to potentially profit, but contends that the Franchise Agreement was limited by the fact that the relationship was to operate in an environment where RAMS had three different channels through which it sold its products, which necessarily did not involve the franchisee having access to customer information of mortgage brokers who were competitors of the franchisee.

4. Adopting the well-established approach of the High Court and accepting that there is ambiguity at least in clause 17.1.7 of the Operations Manual, it is appropriate to look at the context and purpose of the Franchise Agreement to assist in determining what a reasonable businessperson would have understood the terms to mean. 

   Context and Purpose

5. The franchise agreement[25] contains a section, “Franchise Opportunity and Document Overview”.  While it is not intended to be part of the legal Agreement, it is said “to provide some background information to the overall offering being made by RAMS so that a person reading this Franchise Agreement can better understand why certain clauses are drafted in the manner that they are”.  Both parties would obviously have been aware of its content at the time of entry into the Agreement. The overview identified the following matters as existing at the time of the agreement, namely, that:

   (a)A franchisee is allocated a non-exclusive marketing territory in which to operate the franchise business;

   (b)There are others who may sell RAMS products in the franchisee’s territory; and

   (c)RAMS itself and brokers may sell in the allocated territory.

   [25]    (Volume 1, Agreed Bundle A, Tab 3) at RFG.100.203.0008.

6. The overview further states that:

   “Another example of where RAMS products may be sold in your area is through the broker network. While RAMS sees that there may be some potential conflict between the Franchise network and the broker channel, RAMS discloses that it actively promotes the broker channel as a means of further distributing its products in the relevant market while at the same time endeavouring to ensure that the rights of Franchisees are protected as much as possible.”

7. It is obvious that both parties are aware of the overview statements. RAMS submits that both parties were aware of the potential conflicts that existed between the different providers in an allocated territory. RAMS further submits that in that context, the clauses relied upon by Binaray should not be construed to extend the obligations of RAMS to providing information about customers in a territory where they had originated as a customer through a broker.

8. According to RAMS, the reasonable businessperson would recognise that the co-existence of the different sales channels and the non-exclusive nature of Binaray’s territory meant that:

   (a)The sale of RAMS products was an important aspect of the RAMS business;

   (b)The different sales channels would be competing to sell RAMS products; and

   (c)Each of the different sales channels was important to RAMS to achieve sales of RAMS products.[26] 

   [26]    Defendant’s Closing Submissions, [25].

9. The franchise network and the broker channel had been operating since 2003 or thereabouts,[27] well before entry into a Franchise Agreement by Binaray and RAMS.

   [27] Statement of Agreed Facts, [6] and [9].

10. RAMS submits that it makes no commercial sense for the Franchise Agreement to be construed to give Binaray the contractual right to information regarding customers who effectively belonged to the brokers, for the purpose of effectively cold-calling the customer with a view to marketing additional RAMS products to the customer. In that regard, RAMS relies upon a number of clauses including the Business Partner Charter in the Operations Manual, the limitations upon marketing, providing or re-financing loans and the circumstances in which commissions were payable. It contends that the Business Partner Charter and commission structure recognised that the customer relationship belonged to the broker. Further, it contends that RAMS actively discouraged franchisees and brokers from engaging in predatory behaviour regarding the opposite channel’s customers by prohibiting churning.

11. According to RAMS,  the reasonable businessperson would recognise that, read as a whole, the commercial purpose and objects of the contract were to:

    (a)Promote the sale of RAMS products through the different sales channels whilst ensuring the provision of service and assistance (i.e. post settlement service) to RAMS customers, regardless of whether the loan was originated by a broker, RAMS direct or a franchisee;

    (b)Recognise that a competition for business would inevitably arise between the broker channel and the franchise network;

    (c)Protect specific aspects of each of the brokers’ and franchisees’ various business “patches”; and

    (d)Maintain business harmony between RAMS on the one hand and each of the broker channel and the franchise network.[28]

    [28]    Defendant’s Closing Submissions, [33].

12. Binaray, however, states that the underlying premise of RAMS’ argument is incorrect, in relation to the notion of the brokers and franchisees having

    
    

    “business patches”.  It contends that error necessarily infects the whole of the construction argument contended for by RAMS.

13. Clause 7.14 provides that RAMS owns the Customer and Customer Relationship. Under the clause, RAMS gives Binaray as franchisee the right to Manage the Customer Relationship on RAMS’ behalf, in order to carry on Binaray’s Business, provided that they are not in breach of the Franchise Agreement, particularly clause 17. 

14. Clause 7.14 only deals with the franchisee’s customers.  Binaray submits that it is inconceivable that a broker would somehow “own” a customer when a franchisee does not.  I was not referred to any provision in the Franchise Agreement, nor was evidence put before me of an extrinsic fact, suggesting that brokers owned their customers.  The suggestion would, to a certain extent, have been counter to clause 13.1.2 of the Business Partner Charter which refers to RAMS brokers recognising a customer’s right to choose and that a customer may opt to deal subsequently with a franchisee. 

15. Binaray contends that clause 7.14 undermines one of the tenets of the defendant’s argument, namely that the BOCs are customers of the brokers.  It contends that it negates the submission by RAMS that the construction propounded by  RAMS makes “commercial sense”, whereas Binaray’s construction ignores commercial sense and would result in a franchisee being entitled to trawl, in an unfettered way, through the details of someone else’s customers.[29]

    [29]    Defendant’s Closing Submissions, [16]; Plaintiff’s Closing Submissions, [22].

16. The Business Partner Charter section of the Operations Manual refers to RAMS managing its successful working relationships with its associate business partners and refers to RAMS selling products through the different sales channels.  RAMS contends its construction is supported by the acknowledgment in the Business Partner Charter that franchisees were allocated a specific geographic territory, which was their base from which to prospect for new customers.  It contends that allocation had a further purpose.  RAMS also “allocated” all existing RAMS customers in their territory to provide “service and assistance”.  That service and assistance was to be provided to all RAMS customers in the allocated territory, including BOCs.  Franchisees were not remunerated for the service and assistance provided to BOCs, but were obliged to provide such service and assistance under the franchise agreement.[30]

    [30]    Defendant’s Closing Submissions, [26].

17. According to RAMS, Binaray was obliged to provide service to all RAMS customers regardless of how the customer was originated.  In this way, Binaray might have contact with BOCs and might obtain details from the BOC.  If and when a BOC contacted Binaray, it could then proactively market to that BOC for the purpose of selling additional RAMS products and non-home loan products. 

18. Binaray contends that such a strained construction cannot sensibly be derived from the Franchise Agreement.  Binaray further contends that clause 7.19 of the franchise agreement refers to a customer of either RAMS Direct or a broker being allocated to the franchisee operating within the Allocated Territory, not to a customer who approaches the franchisee. 

19. It is true that the clauses themselves do not confine the allocation of the BOCs to those who approach Binaray for service.  There was also no specific incentive in the franchise agreement for the franchisee to provide such a service in return for a fee.  RAMS, however, contends that the commission system requires different service to be delivered by a franchisee depending on the type of customer, which supports its construction of allocation. 

20. There were limitations on promotion to BOCs by franchisees set out in the Business Partner Charter.  In particular, a franchisee could proactively market to a BOC “only for the purpose of selling additional RAMS products and non-home loan products” (emphasis added).  The franchisee could not proactively market to a BOC[31] for the purpose of refinancing a loan, nor could they actively dissuade a BOC from contacting their broker in the future.  Contact was to be made by franchisees with BOCs only using the approved tools provided by RAMS marketing. 

    [31]    Or any customer who had originated through a third party.

21. There were also limitations referred to in the Business Partner Charter which applied to a broker.  It stated a broker could not proactively market to customers for the purpose of refinancing a loan to another lender.[32]  The Business Partner Charter also provided that RAMS brokers should recognise a customer’s right to choose and that a BOC may opt to deal subsequently with a franchisee or directly with RAMS.  No evidence was presented as to whether there was any agreement with RAMS brokers which contained similar terms.

    [32]    Whether it was binding is another matter.

22. Consistent with the limitations in dealing with customers, the Business Partner Charter noted that agreements are structured to discourage churn and to promote proactive customer relationship management. A franchisee was paid commission by way of trail, which was calculated as a percentage of the loan balance and paid over time in relation to loans settled by Franchise Direct.  Under clauses 17.2.1 and 17.2.2.2 of the Operations Manual, once the loan had settled, the franchisee was responsible for the ongoing management and retention of the customer.  RAMS contends the trail commission was paid in recognition of the immediate service obligations of the franchisee. 

23. A broker was paid commission by way of an upfront payment and a trail that was paid over time.  The franchisee’s options to earn income were limited.  A franchisee would only generate revenue from a BOC by selling them a second loan or by pursuing referrals.  In 2008, the Business Partner Charter was amended to provide that a franchisee was entitled to an upfront fee if they negotiated a variation of the original agreement. 

24. According to RAMS, the provisions governing the commission payable and the prohibition on churning were consistent with maintaining the working relationships between the different sales channels.

25. The prohibition on churning,[33] contained in clause 13.11 of the franchise agreement, was, according to RAMS, to enable RAMS to protect its own interests and maintain harmony between the broker channel and the franchise network, by requiring each channel to respect existing customer relationships.  Clauses 13.11 and13.12 provided a financial disincentive for churning and for a franchisee to be in breach of the agreement if they churned an existing loan, unless they had the prior consent of RAMS.  There was limited scope for a franchisee to earn income from a BOC as opposed to a customer who had written his or her loan through Franchise Direct.  According to RAMS, the franchisee did not need to access the BOCs’ details to carry out the obligations of ensuring best practice customer service to BOCs, except where they were approached by a client, in which case they could access the customer’s details using information provided by the customer.

    [33]    Refinancing an existing Customer loan with an Approved Product in circumstances where a Variation to the Customer’s existing loan would achieve substantially the same outcome for the Customer.

26. RAMS therefore contends that it makes no commercial sense for the contract to be construed to give Binaray the contractual right to information regarding customers who effectively belonged to the brokers for the purpose of Binaray effectively cold-calling the customer, when not invited to do so by that customer, with a view to marketing additional RAMS products to the customer.  However, the Franchise Agreement did provide for the eventuality that if Binaray had contact with BOCs, it might obtain details from the BOC that would enable Binaray to access information about the BOC and then proactively market to the BOC within the constraints of the Franchise Agreement.

27. Binaray contends that RAMS’ construction does not make commercial sense and the Franchise Agreement does not support such a strained construction, particularly when regard is had to clause 7.19. It contends that unlike a broking arrangement, a Franchise Agreement creates an interdependent, ongoing commercial relationship between a franchisee and a franchisor.  It refers to the case of Bobux Marketing Ltd v Raynor Marketing Ltd.[34]In that case, relational contracts were described by Thomas J as recognising the existence of a business relationship between the parties and the need to maintain that relationship.  According to his Honour, a relational contract is “one which involves not merely an exchange but a relationship between the contract parties”.[35]  His Honour further stated:[36]

    “Expectations of loyalty and interdependence mark the formation of the contract and become the basis for the rational economic planning of the parties. The norms of the ongoing relationship, of necessity, tend to supplement the express contractual obligations. Good faith is required to ensure that the requisite communication, cooperation and predictable performance occurs for the advantage of both parties. In short, the obligation seeks to hold the parties to the promise implicit in a continuing, relational commercial transaction.” (footnotes omitted)

    [34] [2002] 1 NZLR 506, particularly at [42]-[44] per Thomas J.

    [35] At [44].

    [36] At [44].

28. As part of its contention, Binaray relies upon the fact that there is a shared existing RAMS customer database and the fact that the Franchise Agreement is to allow franchisees to develop and build their own business while RAMS offers support with local area marketing, training, site setup, technology and business development.[37] 

    [37]    Exhibit 7, “Key Features of the RAMS ‘New Franchise Model’”.

29. Binaray particularly relies on the fact that the interdependency between the franchisor and franchisee was intended to be for the economic gain of both Binaray and RAMS.  Binaray contends that RAMS’ construction of the Franchise Agreement has little regard to the fundamental features of the Franchise Agreement and gives undue weight to the role of a broker and the market share which a broker may enjoy. 

30. Binaray contends that the interpretation of the Franchise Agreement should proceed on the basis that RAMS conducts a business by which it attempts to secure and service customers through the provision of financial products.  Franchisees, including Binaray, have a dual purpose in that they are not only servicing RAMS’ customers, but also actively growing their own base of customers from which to derive their own profits. The entire process is commission driven. Customers provide repeat business and refer other customers.  Those customers include BOCs.  Binaray contends that the fact that the franchisee may be in competition with any number of brokers is not a basis for restricting the entitlements of the franchisee.[38]

    [38]    Plaintiff’s Closing Submissions, [13].

    Proper construction of the terms

31. Relevant to the context of the Franchise Agreement is the fact that RAMS operated through three different sales channels, where there was potential for conflict between the franchise network and the broker channel. 

32. While the overview of the franchise agreement supports the fact that RAMS actively promoted the broker channel, it does not suggest that the broker channel was given primacy over the franchise network.  The fact that the broker channel may have been more successful is not a fact that was established as being known by both parties, such that it is an extrinsic fact relevant to the construction of the Franchise Agreement.

33. The commercial purpose of the Franchise Agreement is to facilitate the promotion of RAMS products and growth of the RAMS customer and loan base by franchisees, through the application of the RAMS business model.  However, the growth of the business of the franchise was not unconstrained. It had to recognise the existence of the broker channel and did not have primacy over the RAMS brokers who were recognised as competitors under the agreement.

34. Binaray has drawn upon the fact that the contract is a relational contract.  In particular they have referred to the decision of Bobux Marketing Ltd v Raynor Marketing Ltd.[39]  The judgment referred to by Binaray in Bobux Marketing is that of Thomas J, who was the dissenting judge.  In that case, his Honour had regard to the fact that a distributorship agreement for an indefinite period was a relational contract and concluded that the parties were subject to a duty of good faith.  The majority, however, consisting of Keith and Blanchard JJ, approached the question of whether there was a right to terminate without cause or on reasonable notice, using what Thomas J recognised was an orthodox approach to contractual construction.[40]  Keith and Blanchard JJ did not consider the question of good faith, having determined that there was no right to terminate without cause or on reasonable notice. 

    [39] [2002] 1 NZLR 506.

    [40]    At [2] per Thomas J and [80] per Keith and Blanchard JJ.

1. In the context of interpretation in the present case, Bobux Marketing is not of great assistance.  Characterising the agreement as a “relational contract” may well be apt in the case of a franchise agreement, insofar as the term is used to refer to a contract that involves not merely an exchange but also a relationship between the contracting parties.[41]  However, Finn J in GEC Marconi Systems did not suggest that special rules of construction applied to such contracts.  Nor do I consider Bobux Marketing is authority for applying special rules of construction to a franchise contract.  To the extent that the notion of a “relational contract” has been referred to, it is in the context of it supporting the implication of a duty of good faith more readily in a franchise contract.[42]  The nature of the relationship created by the agreement between parties and the purpose of the agreement are matters which are relevant to the interpretation.  However, defining a contract as “relational” does not import any special rules of construction that would otherwise not apply.

   [41]    GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1 at [224].

   [42]    See Leggatt J in Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EHWC 111 (QB) at [137]-[142], referred to by Lyons J in IW & CA Price Constructions Pty Ltd v Australian Building Insurance Services Pty Ltd & Ors [2017] QSC 39, which was overruled on appeal in relation to the question of goodwill only in [2017] QCA 313.

2. Relevant to the construction of the various documents constituting the Franchise Agreement is clause 14.11 of the franchise agreement, which provides that to the extent that there is inconsistency between the franchise agreement and the Operations Manual, the Operations Manual is to apply in preference to clauses contained in the franchise agreement. 

   Clause 7.19 and Clause 17.1.7

3. Binaray principally relies on clause 17.1.7 of the Operations Manual and 7.19 of the franchise agreement as obliging RAMS to provide it with details of BOCs in its allocated territory to which it could market.

4. The heading of clause 17.1.7 refers to “Principles for allocation of customers to a Territory for Service and Marketing”. Clause 17.1.7 also refers, inter alia, to customers being allocated to a territory “for the purpose of customer service and database marketing as detailed in the table below” (emphasis added).  That table provides that for loans written by a broker: “The default is the customer is allocated to a territory based on the customer’s post settlement mailing address postcode”. 

5. Binaray contends that there is a clear correlation between clause 7.19 of the franchise agreement and clause 17.1.7 of the Operations Manual, given that clause 7.19 applies to a Customer who has originated through RAMS Franchise Direct, a Call Centre, the RAMS Internet site or a RAMS accredited mortgage broker. That Customer “will be allocated to the Franchisee operating within the Allocated Territory within which the Customer resides for the purpose of “Managing the Customer Relationship”.  Binaray contends therefore that the phrase Managing the Customer Relationship in clause 7.19, on a sensible commercial interpretation, relates to the process of “servicing and marketing” referred to in clause 17.1.7. It further asserts that clause 7.19 states that there will be an allocation and it invokes the notion that all customers will be allocated to a franchisee, not just the isolated customers who happen to contact a franchisee to be “managed”.

6. Binaray contends that none of the provisions relied upon by RAMS, in relation to the Business Partner Charter section of the Operations Manual, the commissions payable, churning, and the meaning of “Customer”, “Customer Information” and “Managing the Customer Relationship” derogate from the interpretation contended for by Binaray.  In particular, it notes that the Franchise Agreement contains no express prohibition on the allocation of BOCs to franchisees for servicing and marketing. 

7. Binaray further contends that the Franchise Agreement necessarily contemplates that such an allocation will occur because of the specific designation in the Franchise Agreement as to what action franchisees may undertake in respect of BOCs.  Binaray contends that there is nothing to support RAMS’ submission that the isolated reference to “database marketing” in clause 17.1.7 is anomalous.  It contends that the heading of clause 17.1.7, together with the obligation to “allocate the BOCs to a franchisee” supports the construction that the concept of “database marketing” by reference to BOCs refers to the process of allocating in clause 7.19.  It contends, however, that whether clause 7.19 is construed such that its meaning is informed by clause 17.1.17, or clause 17.1.7 is taken alone, RAMS was nonetheless obliged to provide those BOCs within the allocated territory for the purpose of the franchisees providing database marketing.

8. The reference to “database marketing” was removed from clause 17.1.17 in 2011. By that stage, the broker channel had been shut down by RAMS. Binaray relies on that amendment to support its contention. Binaray contends that both parties would have been aware that the defendant, RAMS, closed the broker network in or about February 2010.[43]  RAMS contends that there is no evidence as to the basis of the amendment and therefore it is irrelevant. It also points out that the provision had been amended prior to the 2011 amendment which removed the reference to “database marketing” but after the Broker Channel had been shut down.

   [43]    Exhibit 39; Statement of Agreed Facts, [13].

9. Binaray contends that the removal of the words “and database marketing” in clause 17.1.7, after the date on which the broker network closed, supports its interpretation of clause 7.19 of the franchise agreement.  It rejects the proposition that the words “database marketing” should simply be disregarded as an anomaly, pointing out that the Operations Manual has priority.  It contends that it also supports the interpretation that whilst new BOCs were continually added to the customer database, there was to be an allocation of them for the purpose of service and marketing.  It contends that after the broker channel was closed, allocation would then only be for the purpose of customer service, given that there were no longer any newly added BOCs to whom to market.  Binaray contends that if the construction of clause 7.19 is accepted, then clause 4.17 would oblige RAMS to provide access to the customer information relating to the BOCs. 

10. RAMS contends that the reference to “database marketing” is an anomaly and is a vague and meaningless term in the context of the Franchise Agreement. Clause 17.1.7 is the only clause which makes that reference in the Franchise Agreement and it is an undefined term. It therefore is not, RAMS contends, a matter of conflict between the franchise agreement and the Operations Manual where the latter has priority. The franchise agreement is silent in this regard. The remainder of clause 17.1 deals with service. RAMS contends that having regard to clause 17.1 in its entirety, the isolated reference to “database marketing” should not be construed to confer an obligation to allocate BOCs to Binaray for the purpose of Binaray providing or undertaking database marketing.

11. RAMS contends that Binaray’s construction of clause 7.19 should be rejected because it is contrary to the plain language of the defined term “Managing the Customer Relationship”, which does not refer to marketing or sales. The clause was to ensure that customers receive assistance, information and best practice customer service.  RAMS contends that what was required to Manage the Customer Relationship would vary with each type of customer. For example, a RAMS Direct Customer who franchisees were obliged to immediately service[44] would require greater service than a BOC who had a number of different avenues to which to resort for service, including the broker. RAMS contends that the franchisee did not need unrestricted access to all information in order to ensure that the BOCs received “best practice customer service”. RAMS contends that the more restrictive interpretation for which it contends is the proper one, and is supported by the restrictions in the Business Partner Charter and the reality of the contact that franchisees had with BOCs. RAMS further contends that the obligation to allocate presupposes an existing loan and should not be construed as conferring an obligation to allocate previous BOCs who had discharged their loans.

    [44]    Clauses 17.2.1 and 17.2.2 provide the services that are to be provided and commission payable including providing that RAMS Home Loan Centres are required to provide customer service, retention and cross sale activity to customers generated by Franchise Direct.

12. Both Binaray and the RAMS recognise that there is a correlation between the subject matter of clause 7.19 of the franchise agreement and cl 17.1.7 of the Operations Manual.[45]  RAMS contends that they should be construed as having the same meaning.

    [45] Plaintiff’s Closing Submissions at [17]; Defendant’s Closing Submissions at [62].

13. By virtue of the terms of clause 17.1.7 of the Operations Manual, Binaray contends that a reference to “Managing Customer Relationships” in clause 7.19 is not confined to service but extends to marketing to those customers.  In particular, Binaray refers to “database marketing” and contends that the concept of database marketing by reference to BOCs can only be relevant to the interpretation of “allocating” in clause 7.19.[46]  The difficulty with Binaray’s construction is that it does not take proper account of the definition of “Manage the Customer Relationship”.

    [46] Plaintiff’s Closing Submissions at [20].

14. Binaray relies upon the fact that the words “and database marketing” were removed from the Operations Manual of 2011 and later versions.  The use of subsequent conduct in respect of the construction of a contract is limited.  The majority of the High Court in Agricultural and Rural Finance Pty Ltd v Gardiner[47] approved the rule in Whitworth[48] that it is not legitimate to use subsequent conduct as an aid in construction of a contract. There are exceptions; such conduct may be relevant where it constitutes evidence of a term as opposed to informing the meaning of a term, particularly where the agreement is partly written, partly oral. [49] In the present case, Binaray seeks to rely on the subsequent conduct, namely the removal of the reference to “database marketing”, as confirming that database marketing applied to BOCs. Insofar as it seeks to use subsequent conduct to construe the term prior to the amendment, that is not permissible.  However, even if that conclusion was incorrect, the link between the removal of the reference to “database marketing” and the closure of broker channel is a tenuous one, given the time which had passed before the amendment.

    [47] (2008) 238 CLR 570 at [35].

    [48]    James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 at 603 per Lord Reid.

    [49]    Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382 at [113] per Campbell JA.

15. Clause 17.1.7 sets out “Principles for allocation of customers to a Territory for Service and Marketing” and refers to customers being “allocated to a Territory for the purpose of customer service and database marketing as detailed in the table below”.  That table not only refers to loans written by a franchisee but also to loans written by Franchise Direct, as well as loans written by a broker. The clause itself does not address what is intended by “customer service” or “database marketing”.

16. By its terms, clause 17.1.7 does not of itself provide for a general obligation upon RAMS or a general right in Binaray to receive all information as to BOCs for the purpose of service and marketing. 

17. What is therefore intended by “customer service and database marketing” is to be construed by reference to the other rights and obligations in the Franchise Agreement which apply to those activities.

18. Clause 7.19 of the franchise agreement is directed to service of allocated customers, as is made apparent from the words “Managing the Customer Relationship”. That phrase is defined to mean “any activity required to ensure that the Customer receives assistance, information and best practice customer service in relation to the Customer’s requirements for Approved Products”.  While it is of broad meaning, it is not so broad as to extend to marketing per se, but rather is directed to providing for the meeting of an existing customer’s needs and ensuring service is provided in accordance with RAMS best practice.  That is supported by the distinction within clause 7 itself, the earlier sub-provisions of which are directed to marketing.

19. Clause 9 of the Operations Manual addresses marketing. It is directed to different types of marketing but does not address marketing to BOCs.

20. Clause 13 of the Operations Manual, the Business Partner Charter, provides the parameters for marketing to customers whose loans were originated by a broker or other third party, including how communication may initially occur with such broker-introduced customers. It also confirms that franchisees are allocated all existing RAMS customers in their Territory to provide service and assistance, consistent with clause 7.19.

21. The Business Partner Charter permits franchisees to proactively market to customers whose loans were originated by a broker or other third party only for the purpose of selling additional RAMS products and non-home loans products. It does not permit franchisees to proactively market to customers whose loans were originated by a broker or other third party for the purpose of refinancing that loan, or to actively dissuade a customer from contacting their broker in the future.  It imposed limitations in terms of commissions to discourage churning by any channel and originally provided for a franchisee to generate revenue from a BOC only by selling them a second loan or by pursing referrals. Until 2008, the amount the franchisee was paid for a variation of a loan originated by a broker was limited to a flat fee.

22. In my view, the reference to “database marketing” in clause 17.1.7 of the Operations Manual does recognise that franchisees can compete for the work of BOCs, within the limitations of the Business Partner Charter.  While the Business Partner Charter imposes clear restrictions upon a franchisee in relation to the marketing and sales of RAMS products to a BOC, it does provide for proactive marketing to BOCs to occur.  There is a recognition of the brokers having written the business of BOCs and their having some primacy over those customers through the restrictions imposed upon a franchisee.  However, the fact that franchisees may compete in the sale of additional loans of RAMS products to BOCs is acknowledged in the specific reference to brokers recognising that customers may opt out.  It is also consistent with the fact that franchisees, who unlike brokers were obliged to primarily promote RAMS loans and products, were to provide customer service to BOCs for which they were not separately paid, other than in the particular circumstances provided for in the Franchise Agreement.  Given that service role, contact with the BOCs was not akin to permitting franchisees to “cold call” BOCs.  The restriction on “churning” was to protect the customer from being subject to marketing without any benefit to them and protect RAMS in terms of its obligations to pay commissions. 

23. A reasonable businessperson would in my view recognise that, read as a whole, the commercial purpose and objects of the contract relevant to the provisions in question were to:

    (a)Allow the sale of RAMS products through the different sales channels, recognised by the fact that RAMS granted non-exclusive rights to a franchisee in their territory, including provisions allowing for RAMS to actively market in an allocated territory and permitting brokers to sell Approved Products in an allocated territory;

    (b)Protect customers and RAMS from churning which may occur as a result of the competition between the different channels, particularly the franchisees and the brokers, in an allocated territory;

    (c)Regulate the manner in which competition could occur between the franchisees and brokers to maintain business harmony, which is particularly reflected by provisions in the Business Partner Charter as to how BOCs could be initially contacted by franchisees and not permitting franchisees to actively dissuade customers from continuing to deal through their broker;

    (d)Promote the growth of the business of a franchisee by setting minimum sales targets and allowing access to potential customers, namely BOCs, in the limited circumstances provided in the Business Partner Charter; and

    (e)Ensure protection and promotion of the RAMS brand by providing that customers, regardless of where they had obtained their RAMS product, were provided with service and assistance post settlement, particularly by franchisees in circumstances where brokers did not have contractual obligations to ensure loyalty to RAMS products.

24. I do not accept RAMS’ contention that a reasonable businessperson would interpret the reference to “database marketing” as an anomaly. I consider that a reasonable businessperson would recognise the constraints of contact with BOCs and sales to them that apply to franchisees but recognise that, within those constraints, it makes commercial sense for the franchisee to be able to access the details of the BOCs which is provided for in clause 4.17, as potential customers of the franchisee in the future.  I do not consider “database marketing” provides for the franchisee to have a broader right of marketing than provided for specifically in clause 13 of the Business Partner Charter.  Such a limitation would not make commercial sense given that franchisees were obliged to provide service to BOCs for the purpose of Managing the Customer Relationship, for which they needed access to the details of that customer and the RAMS Approved Product which they had obtained. Given that RAMS maintains ownership of the customers under the Franchise Agreement, it would not make commercial sense in terms of maintaining business harmony if brokers were to enjoy additional protection over and above a franchisee, particularly where they were free to sell competitors’ products to the customer at a future point in time.

    Clause 4.17

25. Turning to the other clauses relied upon by Binaray, Binaray contends that if its construction of clause 7.19 is accepted, then clause 4.17 would oblige the provision of access by RAMS to the customer information relating to BOCs.

26. Clause 4.17 provides that RAMS is to provide a technology platform, including, inter alia, access to “existing Customer information”.  Only “Customer” is italicised, thus referring to the definition section of the Agreement.  The definition of “Customer” is broad in its terms.  It is not confined to customers generated by a franchisee as it refers to a Customer who has acquired or may acquire an Approved Product “whether through you or otherwise”.  RAMS quite correctly, in my view, accepts that the definition is broad enough to include a BOC in the context of that provision.

27. Binaray contends, however, that the reference to “existing Customer information” extends to customers who had a loan which was discharged, if it is still on the database.  It does not contend that it refers to all customers, but rather the commercial construction is that it refers to customers of any type who have taken out a loan and whose address is within Binaray’s allocated territory.[50]

    [50]    T1-40/35-37.

28. RAMS, however, contends that notwithstanding the breadth of the definition of Customer, the term does not always refer to all individuals falling within the definition, but is limited by the commercial purpose and context in which it appears. In particular, clause 4.17 does not refer to the more broadly defined “Customer Information”. RAMS contends that all clause 4.17 required was for RAMS to provide a system and means by which Binaray could access information. 

1. The proposition that natural drift would have ceased in 2010 is made on the basis that the broker channel would have closed at that point.  Binaray’s position would assume that Binaray would have contacted every BOC and as such, any BOC who became a customer of Binaray would in the hypothetical be the result of the contact by Binaray.  The restrictions in the Business Partner Charter remained, notwithstanding the closure of the broker channel, brokers would have continued in business.  Binaray’s own instructions indicate that there were those who naturally went to it without any contact being made.  Ms Letts could not explain why the closure of the broker channel would have ended the drift of BOCs.  RAMS also contends that the rate of drift would have been greater for the period from February 2010 to July 2016, given Mr Allen’s evidence as to the effect of the change in September 2013, when BOCs who called RAMS were directed to Binaray which was said to have resulted in a number of BOCs coming to Binaray.[414]  I consider that unlikely given Binaray would have been actively marketing in the hypothetical after the broker channel closed. In the hypothetical, one assumes, while Binaray has access to the BOCs on the database, RAMS directing BOCs to Binaray in September 2013 would still have occurred. As such, that again would reduce the amount of BOCs who could be the subject of the loss of opportunity.  Alternatively, that wold reduce any loss suffered by Binaray since BOCs were actively being directed to them. The submission by Binaray that it would not have been necessary for RAMS to direct BOCs to Binaray if Binaray had had access to the database assumes that those BOCs would have gone to Binaray, rather than RAMS, and is in any event beside the point. 

   [414] M Allen, T3-20/16-19.

2. While I consider that the figure of 1.61 BOCs as a rate of natural drift is likely to be understated, Mr Potter did not provide an alternative analysis.  However I will take into account that there would have still been natural drift and the risk it may be understated before 2010 in applying a discount to the overall figure.

   Interest payable on the RFCS loan

3. Binaray also claimed that as a result of the loss of opportunity it lost the opportunity to repay the interest of an RFCS loan earlier and so incurred greater interest.  Ms Letts was provided with instructions that should Binaray have received the additional funds, they would have been applied to pay off the RFCS loan.[415]  Mr Potter stated that the use of the RFCS loan appeared to be a refinancing decision made in respect of the franchise and did not consider that it was appropriate to include such costs in an assessment of the loss claimed to have been suffered by the franchise.[416]   That is supported by the evidence of Mr Allen. 

   [415] Exhibit 73, [94]. 

   [416] Exhibit 77, Issue No. 7.

4. Mr Allen was cross-examined in relation to the RFCS loan and agreed to a suggestion that if he had any interest in paying down the loan any sooner, he would have made different profit distributions to the ones that he had in fact made.[417]  RAMS contends that that is a concession on Mr Allen’s part that had he, in fact, had any interest in paying down his loan, he would have done that, but he failed to.  The income statements of the trust show that in the various years it made a profit and the profit was distributed rather than paying down the loan.  Thus, the evidence shows there was a capacity to pay the interest down at a faster rate, but it did not happen.  I am not persuaded that the evidence established that had Binaray received the additional income from the BOCs, it would have paid the interest down on the RFCS loan at a quicker rate.  I am not satisfied that  Binaray suffered any loss as a result of the breach by Binaray in this regard.

   [417] T3-62/33.

   Referrals

5. Ms Letts makes a calculation on the basis that in the counterfactual, Binaray would have received referrals from the BOCs, presenting a further lost opportunity.  In that regard, she was provided with an email from Mr Ramke of RAMS dated 1 December 2005 which referred to the fact that conversion of 100 phone calls to referrals from the existing broker customer database would lead to 12 settlements.[418]  That email was about conversion of leads and made provision for referrals.  It was provided by Mr Ramke to Mr Allen as “a suggested matrix for his consideration and possible inclusion”.  It is not evidence that referrals can account for one percent of the customer base. While the RAMS model clearly acknowledged that referrals from customers provided an additional basis upon which franchisees could expand their loan customer database, the frequency at which such referrals occurred has not been the subject of any factual evidence such as reference to clients of Binaray who referred further family or friends to Binaray.  While it was the subject of anecdotal evidence by Mrs Allen and Mr Allen, there was no evidence as to the number or frequency of referrals.  I am not satisfied that the evidence of Mr and Mrs Allen, nor Exhibit 57, provide any proper evidential basis upon which I can conclude that there was any real possibility, let alone a probability, that there would have been referrals from BOCs to Binaray, had Binaray successfully converted the BOCs, or determine the rate at which such referrals would have occurred. 

   [418] Exhibit 57. 

6. While counsel for Binaray referred me to the marketing material of RAMS[419] provided to its franchisees, which noted the value of referrals, that material does not form an evidential basis for estimating the possibility or probability of a referral rate in the present case.

   [419] T9-93 to T 9-94.

7. I do not consider that there is any evidential basis for me to determine the likelihood that the loss includes a loss of referrals.

   Average loan size

8. Ms Letts calculates the average loan size on the basis of the monthly commission statements for Binaray.  Mr Potter assumed an average of the loan values for additional loans obtained by BOCs.[420]  The average value of additional loans that were actually obtained by borrowers on the BOC database is the best proxy, in my view, for the hypothetical, where the loss claimed is a loss of opportunity to convert BOCs or to sell them an additional loan.  Additional loans are likely to vary in amount from an original loan given it is a further loan. Mr Potter assumed that the average loan value of $300,669 applied in respect of any additional loan written in respect to borrowers on the database in the period of July 2006 to December 2007 and that loans written after that period were at an average of $300,669.[421] 

   [420] Exhibit 77, Issue No. 5.

   [421] Exhibit 81, [2.35].

   Time Lag

9. While Mr Potter adopted the 18 month time lag used by Ms Letts, I note that he considered it was likely to overstate the loss by accelerating the time of loans. Ms Letts provided no proper basis for the timing. Given that Ms Letts agreed that she had not taken into account the difference between BOCs and previous BOCs and has assumed the conversion of those BOCs who existed at the time Binaray took over the franchise whereas on Binaray’s case it would take 18 months to build a relationship and convert the adoption of 18 months is unlikely. Mr Allen considered a period of 18-24 months would be appropriate. In my view, particularly given RAMS is targeting first home buyers and the self-employed it is appropriate to adopt the more conservative figure of 24 months. However, given the approach I have adopted it is not necessary to include this in calculations.

   Quantum

10. Doing the best I can based on the above analysis, I consider that the alternate Potter analysis at [1.5] of Exhibit 77 using the 304 BOCs for 2006 and 316 BOCs post 2008 and using the 25 percent conversion rate is the most appropriate starting basis to assess the loss.  I consider that the conversion rate that Binaray would be able to effect if the BOC pool was confined to those who took out additional loans would be no higher than 25 percent and would likely be less than that.  It therefore represents the maximum profit that could be achieved by Binaray before taking account of natural drift and other contingencies such as the “do not contact” issue.   

11. By reference to [1.5] I consider that the additional loan rate figure that is the most probable would only be slightly above that which is reflected by 13.92 percent to take account of the fact that there may have been further additional loans than occurred in fact. I would therefore adopt a figure which adds 25 percent of the difference between the two additional loan rates of $38,050, which would be a total of $225,871.  

12. However, that figure would require a considerable discount to be applied as I consider that it is only a small possibility that that could have been achieved by Binaray and that it is more probable that it would have been able to convert less than that, particularly given the small number of brokers in the allocated territory who were likely to have dissatisfied customers or stopped business.  A discount also needs to be applied to take account of the contingencies and natural drift.  I would then apply a 60 percent discount to reach a figure of $90,348.40. 

13. I will, however, hear the parties as to the above approach prior to finally determining the question of quantum, given it was not a matter that was canvassed in submissions. 

    Limitations defence

14. RAMS pleaded that the proceedings were commenced on 29 November 2013, which is out of time.  It contends that if RAMS breached the contract, the breach occurred on or shortly after the contract was entered into on 25 July 2006, the six year limitation period therefore expiring about late July 2013.  It contends that the breach was a “once and for all” breach and that the obligations were not the subject of a continuing covenant.  It contends although the contract does not expressly specify timeframes for RAMS to complete its obligations, the time for performing those obligations was “a reasonable time from the commencement of the agreement”.  Alternatively, it contends that even if the obligation was a continuing one such that a separate cause of action arises for each particular failure, any cause of action based on a breach of contract that occurred more than six years before the proceeding commenced (i.e. 28 November 2007) is statute barred. 

15. Binaray does not contest the fact that the RAMS has a defence based on the Limitations of Actions Act 1974 (Qld) for any breach prior to 29 November 2007, however it contends that the obligation to provide access to the whole of the database was a continuing one.  Therefore, it contends the limitations defence is of little consequence since as at 29 November 2007 there was a database which ought to have been allocated to Binaray and Binaray was denied that opportunity from 29 November 2007 onwards.  In that regard, it relies on Larking v The Great Western (Nepean) Gravel Ltd (in liq)[422] where Dixon J stated:

    “…if his covenant is to maintain a state or condition of affairs, as, for instance, maintaining a building in repair, keeping the insurance of a life on foot, or affording a particular kind of lateral or vertical support to a tenement, then a further breach arises in every successive moment of time during which the state or condition is not as promised, during which, to pursue the examples, the building is out of repair, the life uninsured, or the particular support unprovided.”

    [422] (1940) 64 CLR 221 at 236.

16. RAMS contends that given Binaray’s case is put on the basis that once a customer becomes a customer on the database, they start the marketing campaign and within 18 months there is conversion, it must necessarily follow that persons on the list up until 29 November 2007 cannot be included in Binaray’s claim because of the failure to bring proceedings at an earlier time.

17. Binaray contends that RAMS was subject to a continuing obligation to provide it with the full allocation of BOCs each time there was an additional BOC added to the database.

18. The nature of the obligation to provide access to the BOC database is one which was a continuing obligation to allocate that BOC to Binaray after the customer took out a loan through a BOC.  Thus, the whole action is not statute barred.  However, I do not accept the argument of Binaray that there was an obligation to provide the whole database on an ongoing basis such that all the names who were allocated before November 2007 were still obliged to be allocated after November 2007 on the database and therefore it makes no difference that any breach before November 2007 is statute barred. On its proper construction, I consider that the reference to “allocate” in clause 17.1.7 requires an allocation at the time of entry into a franchise agreement and then allocations of additional BOCs added to the database to be provided to the Franchisee. I do not consider that the RAMS business model affects this construction. I do not consider that there was continuing obligation to allocate the whole database throughout the life of the Franchise Agreement.[423]

    [423] CfHammond v Minister for Works (1992) 8 WAR 505 where there was a continuing duty to act.

19. In my view, for those BOCs who were on the database and should have been allocated before November 2007, the breach[424] occurred at the time when the BOC should have been allocated to Binaray.   Thus, existing BOCs should have been allocated to Binaray within a reasonable time after the franchise commenced.  Where a broker had entered into a loan agreement with a BOC after July 2006, the breach occurred within a reasonable time of the BOC’s loan settling when the BOC was within its territory.  Loss, of course, does not have to be incurred for the cause of action to accrue.  In this regard, the case seems to be most analogous to the failure to pay instalments of interest or rent.  In such a case, the claimant will succeed in respect of so much of the series of breaches or the continuing breach as occurred within the six years before the action was brought.[425]  Thus, for breaches that occurred by the failure to allocate BOCs who were placed on the database of RAMS between July 2006 and November 2007, the cause of action for breach of contract in relation to BOCs is statute barred.  Given as at September 2007 there were 449 BOCs on the database that would appear to be the most accurate number available of the BOCs who should have been allocated to Binaray by November 2007, however I will hear further submissions from the parties as to that.  The effect of this on the damages calculation is also a matter upon which further submissions are required by the parties.

    Interest

    [424] In the case of breach of contract, the cause of action is complete upon the breach occurring.

    [425] See Chitty on Contracts, 33^rd Ed, (2018) at [28 – 035]; G. E. Dal Pont, ‘Law of Limitation’, (2016) at [5.14].

    Binaray

20. RAMS contends that Binaray has delayed unreasonably in commencing the proceeding.  It originally made a complaint in relation to its conduct proceeding to trial, however, in oral submissions that was not pursued.  It contends that Binaray’s delay disentitles it from claiming interest over the entire period from the date when the cause of action arose.  Binaray was aware of its potential claim against RAMS in the period from 25 July 2006 until 15 April 2008 and did not inform RAMS or try to resolve the dispute with RAMS until it issued the notice of dispute.[426] RAMS further contends that Binaray delayed the issuing of the proceedings from 2011 until 22 May 2014, the date upon which it served RAMS with the claim, the statement of claim, the amended statement of claim and Ms Letts’ report of 29 July 2013 after the breakdown of settlement negotiations.  Mr Allen stated that the breakdown in settlement negotiations would have occurred post-2010 and could not be more specific.[427]  Further, RAMS contends that if the Court finds RAMS’ obligations were a “continuing covenant” such that a separate cause of action arose for each particular failure to provide a BOC’s information (i.e. the time at which a BOC loan was originated and its information was entered on to the RAMS system but not provided to Binaray), it would be inappropriate to apply interest at the time each relevant cause of action arose because neither Binaray’s case nor Ms Letts’ calculation of loss proceed on the basis that any commission or other revenue would have been earned at that time.  RAMS contends the Court should, in the exercise of its discretion, not award interest until Binaray would have allegedly earned commission from writing an additional loan to a BOC. 

    [426] M Allen, T3-63/1-11.

    [427] M Allen, T3-64/40-41.

21. Binaray contends it has not acted unreasonably in commencing the proceedings such that it should be disentitled from interest for the whole period.  Mrs Allen gave evidence that after the notice of dispute was issued, the plaintiff dealt with RAMS on a number of occasions in relation to the dispute, without success.[428]  Further, Mr and Mrs Allen advised RAMS between 5 November 2012 until 18 December 2012 that they were still collating all of the information so that they could fully evaluate their position and conclude the matter as soon as possible.[429]  Both parties referred to the principles dealt with by McPherson JA (with whom McMurdo P and Thomas JA agreed) in Interchase Corporation Ltd (in liq) v Grosvener Hill (Qld) Pty Ltd (No 3)[430]. The Court referred to s 47(1) of the Supreme Court Act 1995 (Qld).[431]  The Court noted that:[432]

    “The section confers a discretion which it is settled, is to be exercised judicially with a view to compensating the successful plaintiff for the injury or loss sustained…The purpose or function of an award of interest under the section is restitutionary.  It is not to punish the defendant but to compensate the plaintiff for being kept out of the money represented by the judgment sum in the period between the accrual of the cause of action and judgment”. 

    [428] T4-59/2-3. 

    [429] Exhibit 29. 

    [430] [2003] 1 Qd R 26 at 59-63.

    [431] See now s 58 Civil Proceedings Act 2011 (Qld).

    [432] At 52.

22. However, as was noted by McPherson JA, the Courts have recognised that in some circumstances, it would be “unfair to order a defendant to pay interest for the whole period between the accrual of the cause of action and the date of judgment”.[433]  An example given is “where the plaintiff has been guilty of unreasonable delay in prosecuting the claim”.[434] 

    [433] At 53.

    [434] At 53, referring to Serisier Investments Pty Ltd v English [1989] 1 Qd R 678, per Thomas J.

23. In the present case, the proceedings were not served until some eight years after the plaintiff had first considered that it was entitled to be receiving the names of the BOCs.  There were, however, discussions which took place between the parties in an attempt to resolve the matter.  McPherson JA in Interchase Corporation Ltd (in liq) v Grosvener Hill (Qld) Pty Ltd (No 3) by reference to Moffitt P in Bennett v Jones,[435]  stated “the power to award interest ought not to be used as an instrument of policy in the public interest to procure expeditious settlement or prosecution of claims, even if it might incidentally have that effect “where delay of one party causes or may cause detriment to the other…”.  I do not accept that interest should be excluded because the parties were in negotiation. 

    [435] (1977) 2 NSWLR 355 at 370.

24. In the present case, I consider that there has been an unreasonable delay by Binaray in issuing proceedings once it had engaged solicitors in 2011[436] until the claim was served on RAMS on 22 May 2014, even though the statement of claim had been filed on 29 November 2013.  Such a delay, in my view, is an unreasonable one. Further, given interest is restitutionary and on Binaray’s own case it would not have converted a BOC for 18-24 months interest should not accrue until commissions became payable.  I would therefore consider that interest should be payable for the period from 30 November 2007 until 2011 and from the time the proceedings were instituted and served in May 2014.  Given the actual date upon which solicitors were appointed is unknown but Mr Allen indicated a breakdown had occurred after 2010,  I consider this period from January 2011 to May 2014 should be excluded.  I will hear from the parties about the effect of part of the action being time barred.

    [436] T4-60/17-24.

    Conclusion

1. I am therefore satisfied that:

   (a)RAMS did have an obligation pursuant to clause 17.1.7 of the Operations Manual to allocate to Binaray customers of RAMS who were generated through RAMS accredited brokers;

   (b)RAMS did have an obligation to provide Binaray with access to or use of customer information of BOCs within the constraints of the Business Partner Charter;

   (c)RAMS was only obliged to provide information as to existing BOCs and not BOCs who had discharged their RAMS loan;

   (d)RAMS did breach their contract in not allocating the BOCs in the allocated territory to Binaray;

   (e)Binaray did suffer a loss of a commercial opportunity by reason of the breach;

   (f)Binaray is precluded from claiming damages for loss more than six years before the commencement of the proceeding; and

   (g)Binaray is entitled to interest, but not for the full period.

2. Prior to making final orders as to quantum, the effect of the limitations issue and interest, I will hear from the parties, given the reasons above.  I will also hear submissions as to costs.

   Orders          

3. I order that:

   (1)The parties provide further submissions of no more than 10 pages within 21 days of today.