Bodycorp Repairers Pty Ltd v Australian Associated Motor Insurers Ltd
[2015] VSCA 73
•28 April 2015
SUPREME COURT OF VICTORIA
COURT OF APPEAL
| S APCI 2013 0141 | |
| BODYCORP REPAIRERS PTY LTD | Appellant |
| v | |
| AUSTRALIAN ASSOCIATED MOTOR INSURERS LTD and BARRY MARTIN | Respondents |
---
JUDGES: | WARREN CJ, BEACH JA and GINNANE AJA | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 22 April 2015 | |
DATE OF JUDGMENT: | 28 April 2015 | |
MEDIUM NEUTRAL CITATION: | [2015] VSCA 73 | |
JUDGMENT APPEALED FROM: | [2013] VSC 472 (Elliott J) | |
---
CONTRACT – Restraint of trade – Effect of restraint on third parties – Contract admitted to effect a restraint of trade – Whether restraint of trade unreasonable – Trial judge held restraint of trade to be unreasonable – No error in trial judge’s analysis or conclusion.
TORT – Inducing breach of contract – Franchise agreements – Trial judge concluded that there was no conduct that induced or caused a franchisee to breach its contract – No error in trial judge’s analysis or conclusion – Appeal dismissed.
---
| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr J G Levine | Templeton Fox Rothschild |
| For the Respondents | Mr P G Cawthorn QC with Mr P G Crennan | Moray & Agnew |
WARREN CJ
BEACH JA
GINNANE AJA:
Introduction
Australian Associated Motor Insurers Ltd (‘AAMI’) is a motor vehicle insurer. In the mid-1990s, Bodycorp Repairers Pty Ltd (‘Bodycorp’) established a franchise business which involved Bodycorp entering into franchise agreements with smash repairers. From 14 July 1997, Barry Martin (‘Martin’) was a supply and development manager with AAMI. Martin’s duties included liaising with smash repairers and managing the relationships between AAMI and relevant repairers.
In November 1997, AAMI entered into an agreement with Bodycorp. That agreement was said to provide that, if at any time before 29 June 2000, a Bodycorp franchisee who was an AAMI recommended repairer ceased to be a Bodycorp franchisee, AAMI would take various steps, the effect of which would be that the former Bodycorp franchisee could no longer conduct its business as a recommended repairer of AAMI for six months. This agreement was later embodied in a document dated 29 June 1998 (the ‘AAMI agreement’).
Clause 1.3 of the AAMI Agreement provided:
1.3AAMI agrees that if any of the AAMI Recommended Repairers listed in Schedule 1 cease to be a Bodycorp franchisee the (sic) (‘former Bodycorp franchise’) at any time within the two year period following the execution of this agreement then:
(a)AAMI will promptly give written notice terminating the AAMI Recommended Repairer Agreement with the former Bodycorp franchisee;
(b)AAMI will take reasonable steps to ensure that AAMI Recommended Repairer signs are not displayed by the former Bodycorp franchisee within 21 days of the giving of notice under clause 1.3(a);
(c)AAMI will in the ordinary course not request the former Bodycorp franchisee to prepare a quote for the repair of a damaged car for a period of six months from the giving of notice pursuant to clause 1.3(a);
(d)AAMI will not re-appoint the former Bodycorp franchisee as an AAMI Recommended Repairer for a period of six months from the giving of notice pursuant to clause 1.3(a); and
(e)AAMI may in its absolute discretion re-appoint the former Bodycorp franchisee as an AAMI Recommended Repairer six months after the giving of notice pursuant to clause 1.3(a).
The recommended repairers listed in schedule 1 of the AAMI agreement were those located at Mornington, Berwick, Laverton, Coburg, Preston, Heidelberg, South Melbourne, Moorabbin and Sunshine. Clause 1.2 of the AAMI agreement was in similar terms to cl 1.3, but operated in relation only to the Bodycorp franchisee at Melton. At trial, Bodycorp accepted the proposition that cls 1.2 and 1.3 imposed restraints of trade.
The proceeding below involved a claim by Bodycorp against AAMI for breach of the AAMI agreement, and claims by Bodycorp against both AAMI and Martin for inducing certain franchisees to breach their franchise agreements with Bodycorp. Specifically, Bodycorp alleged that despite the termination of certain franchise agreements, in breach of the AAMI agreement, AAMI:
(a)failed to give notice, or revoked notices previously given, terminating recommended repairer agreements between AAMI and such former Bodycorp franchisees;
(b)did not require such former franchisees to remove AAMI recommended repairer signs; and
(c)continued to recognise such former franchisees as AAMI recommended repairers, and continued to request such former franchisees to prepare quotes for the repair of damaged vehicles.
So far as the tort of inducing breach of contract claims were concerned, Bodycorp alleged against AAMI and Martin that Martin had various conversations with representatives of Bodycorp franchisees at Moorabbin, Melton, Sunbury, Spotswood, Heidelberg and Mornington, in which Martin said words to the effect that:
(a)it would be in the best interests of the franchisee to terminate its franchise agreement with Bodycorp;
(b)if the franchisee terminated its franchise agreement with Bodycorp, the franchisee would not lose their AAMI recommended repairer sign and would not have their AAMI recommended repairer agreement terminated; and
(c)if the franchisee terminated its franchise agreement with Bodycorp, the franchisee would no longer have to pay a franchise fee (eight per cent) to Bodycorp.
In defence of Bodycorp’s claims, AAMI:
(a)contended that the only franchisees the subject of the proceeding who were the subject of the AAMI agreement were Mornington, Berwick, Heidelberg, Melton and Moorabbin;
(b)denied that it had breached the AAMI agreement (save that it admitted that it had revoked notices of termination given to Moorabbin and Melton);
(c)contended that the AAMI agreement was void and unenforceable as an unreasonable restraint of trade; and
(d)denied that Bodycorp had suffered loss and damage.
The trial judge dismissed Bodycorp’s claims against AAMI and Martin.[1] The judge found that AAMI breached the AAMI agreement in respect to the Mornington, Berwick, Heidelberg, Moorabbin and Melton franchisees. However, the judge found that the relevant clauses of the AAMI agreement were unenforceable because they imposed unreasonable restraints of trade.
[1]Bodycorp Repairers Pty Ltd v Maisano (No 8) [2013] VSC 472 (‘Reasons’).
As to the inducing breach of contract claims, the judge accepted evidence that Martin did have conversations with various franchisees in which Martin said words to the effect of those alleged by Bodycorp. However, the judge dismissed the inducing breach of contract claims because the judge was not satisfied that Bodycorp had established any intention on the part of Martin to cause a franchisee to breach a lawfully binding agreement.
As a result of the rejection of Bodycorp’s claims, the judge did not go on to assess the damages claimed by Bodycorp. However, in giving judgment, the judge made some brief observations about the losses claimed by Bodycorp.[2]
[2]Reasons [375]–[381].
Bodycorp appeals against the judge’s dismissal of its claims against AAMI and Martin. Bodycorp’s notice of appeal contains three grounds. The grounds of appeal (without the particulars subjoined to them) are in the following terms:
1.The judge erred by concluding that clauses 1.2 and 1.3 of the AAMI agreement was unenforceable as an unreasonable restraint of trade.
2.The judge erred in concluding that the tort of inducement to breach contractual relations was not established against AAMI and Martin.
3.The judge erred by failing to conclude that the breach of the AAMI agreement by AAMI, and the inducement by AAMI and Martin, sounded in damages.
By a notice of contention, AAMI and Martin seek to support the judge’s dismissal of the claims for inducing breaches of contract, by contending that on the whole of the evidence the judge should not have been satisfied that Martin had the conversations alleged with the relevant franchisees about their franchise agreements with Bodycorp.
Background facts
In the early to mid-1990s, AAMI introduced a two quote system requiring two independent quotes for each repairer of an insured vehicle. At the same time, AAMI developed a system by which it identified and accredited certain motor vehicle repairers as recommended repairers, and entered into recommended repairer agreements with them. It was a usual term of a recommended repairer agreement that AAMI would ensure that its customers obtained at least one quotation from a recommended repairer.
In the mid-1990s, Bodycorp established the franchise business we have already referred to. Some of Bodycorp’s franchisees were AAMI recommended repairers, and some were not. Bodycorp entered into franchise agreements with its franchisees for three year terms. Each franchisee paid a fee of eight per cent of their turnover to Bodycorp.
The AAMI recommended repairer agreements entitled AAMI or the recommended repairer concerned to terminate the AAMI recommended repairer agreement upon giving two weeks’ notice.
In the period during which cls 1.2 and 1.3 of the AAMI agreement were operative:
(a)Bodycorp’s franchisees at Melton, Moorabbin and Berwick ceased to be Bodycorp franchisees;
(b)AAMI gave notice to Bodycorp franchisees at Melton and Moorabbin terminating their status as AAMI recommended repairers, but later withdrew the notices;
(c)AAMI reinstated the recommended repairer status of a smash repairer at Berwick after that smash repairer ceased to be a Bodycorp franchisee;
(d)AAMI did not take steps to ensure that AAMI recommended repairer signs were not displayed by repairers who had ceased to be Bodycorp franchisees; and
(e)none of the relevant recommended repairers lost their recommended repairer status after ceasing to be a Bodycorp franchisee.
Mimma Lantieri of the Airport West and Heidelberg Bodycorp franchises gave evidence that at some time after 1998 and through to the early-2000s, Martin made statements to her to the following effect:
(a) Are you happy with the eight per cent?
(b)Do you need to pay the eight per cent to Bodycorp?
(c)You don’t really need to be in Bodycorp.
Nick Ciancio of the Glenroy Bodycorp franchise gave evidence that, in 1998, Martin said to him that Ciancio would not lose his sign (being the recommended repairer sign) if he decided to leave Bodycorp, and that Ciancio would save the eight per cent fee being paid by the Glenroy franchise to Bodycorp.
Carlo Corso of the High Point Bodycorp franchise gave evidence that, in about June 1998, Martin said to him that if Corso were to leave Bodycorp, his ‘stats’ (that is his success in quoting for repairs) ‘would go up’.
Roy Mellor of the Preston franchise gave evidence that, in 1998, he asked Martin what would happen if Mellor ever left Bodycorp or if Bodycorp went bankrupt or just ceased business. Mellor said that Martin told him that in those circumstances, the Preston franchise would maintain its status as a recommended repairer. The judge accepted this evidence, and the evidence of Ms Lantieri, Mr Ciancio and Mr Corso.
A preliminary matter
At the commencement of the hearing of this appeal, and under the rubric of ground 1, counsel for the appellant sought to make a complaint that, in dealing with the issue of the reasonableness of the restraint of trade admitted by the appellant, the judge erred in confining himself to the written agreement made on 29 June 1998. When it was pointed out to counsel for the appellant that no such complaint was made in the notice of appeal or in the appellant’s written outline of submissions, counsel for the appellant sought leave to amend the notice of appeal to make this complaint.
While there was some debate before us about the precise terms of the amendment sought by the appellant, in the end (and after the matter had been stood down to enable the appellant to formulate its additional ground with as much precision as possible), the appellant sought leave to add a ground as follows:
The judge erred in construing the agreement made on 29 June 1998 to determine whether an unreasonable restraint of trade had been imposed.
In amplification of the terms of this proposed ground, counsel for the appellant said that the judge should have determined the issue of the reasonableness of the restraint of trade by reference to the November 1997 agreement. When pressed, the appellant’s counsel recast his proposed new ground in the following terms:
The judge erred in failing to consider the November 1997 agreement in determining whether an unreasonable restraint of trade had been imposed.
After hearing argument, we refused the appellant leave to make the amendment sought and said we would give our reasons in this judgment.
The application to amend the grounds of appeal was not the first such application that the appellant has made in this proceeding. An application to amend the grounds of appeal was dealt with by this Court[3] on 13 April last.[4] In the application for leave to amend the grounds of appeal on 13 April, the appellant sought leave to add 14 new grounds of appeal. The proposed new ground of appeal formulated on the hearing of the appeal before us appears, in substance, to seek to make the same complaint as the appellant sought to make in one (or perhaps two) of its proposed additional 14 grounds on 13 April.[5] Notwithstanding the appellant’s lack of success on 13 April in respect of all 14 of its then proposed new grounds of appeal, the appellant made its application to add the proposed new ground of appeal at the commencement of the hearing before us, without giving the respondents any notice. Further, no explanation was given for the course taken by the appellant. Nor was any explanation given for the appellant’s failure to seek leave to amend to add this new proposed ground at any of the previous directions and application hearings in this appeal.
[3]Constituted by Beach JA.
[4]Bodycorp Repairers Pty Ltd v AAMI [2015] VSCA 59.
[5]Additional proposed ground 9 (and perhaps also additional proposed ground 10).
Those matters alone might ordinarily be regarded as sufficient to justify the refusal of the appellant’s application. However, the matter only gets worse. When one examines the transcript of the trial below, it is plain that the argument that the appellant now wishes to put was not one put to the trial judge. It was one that was only first articulated to this Court. Having regard to the way in which the trial was conducted, we formed the view that the appellant should not be now permitted to put this new argument. No doubt if the appellant’s trial counsel had thought there was anything in the point they would have put it to the trial judge, who could then have dealt with it. For these reasons we rejected the appellant’s application to add the proposed new ground of appeal referred to above.
Ground 1: unreasonable restraint of trade
As the judge noted, the key issue so far as Bodycorp’s claim for breach of the AAMI agreement was concerned was whether or not the obligations imposed on AAMI pursuant to cls 1.2 and 1.3 of the AAMI agreement were enforceable, or whether they were unreasonable restraints of trade.
In considering whether or not the restraints were reasonable, the judge considered the effect of the restraints on the businesses of Bodycorp franchisees. In doing so, the judge acted in conformity with relevant High Court authority.[6] There was no dispute about this at trial. Further, the judge noted that it was common ground between the parties that to be a recommended repairer was ‘extremely valuable to the Bodycorp franchisees’.[7] That said, the appellant submitted in this Court that the reasonableness of the restraint imposed by the AAMI agreement had to be considered by reference to the fact that the agreement had been entered into between two commercial venturers. While so much may be accepted for present purposes, the fact remains that, as was conceded at trial, the effect of the restraint extended beyond the parties to the AAMI agreement.
[6]See Buckley v Tutty (1971) 125 CLR 353.
[7]Reasons, [135].
At trial, Bodycorp accepted that cls 1.2 and 1.3 imposed restraints of trade. Bodycorp also accepted that it had the onus of establishing that the restraint of trade sought to be imposed was reasonable.[8] Additionally, in its written outline of submissions,[9] the appellant accepts the correctness of the judge’s analysis of the relevant legal principles concerning the issue of restraint of trade.
[8]Ibid [140]. See further, J D Heydon, The Restraint of Trade Doctrine (LexisNexis Butterworths, 3rd ed, 2008) 33-38.
[9]Dated 3 March 2014.
The judge concluded that the restraint of trade sought to be imposed was unreasonable. He did so for five reasons, which he said both individually and collectively demonstrated the unreasonableness of the restraint. The judge identified his five reasons as follows:
First, it seeks to severely harm[10] any Bodycorp franchisee who ceased to be a franchisee of Bodycorp, even if this were done lawfully at the end of a franchise agreement. In this regard, counsel for Bodycorp submitted that the use of the word ‘cease’ in cl 1.3 of the AAMI Agreement should not be read down, but should be given its natural and ordinary meaning. He submitted that, even if a Bodycorp franchisee ceased to be a franchisee lawfully (eg the term of the franchise agreement came to an end), it would be the subject of the restraint. This construction of the clause was the only construction contended for by Bodycorp.
In circumstances where such a franchisee has received nothing in return for the restraint being imposed,[11] this would clearly be unreasonable in relation to it. This position is fortified by the fact that each Bodycorp franchisee successfully negotiated with Bodycorp not to be the subject of a restraint.
Secondly, Bodycorp sought to create a restraint of trade at a time when its franchisees were already starting to leave Bodycorp. Complaints were made to Bodycorp by some of its franchisees from 1997 onwards. In particular, a number of franchisees were unhappy about paying a fee of 8% of their turnover to Bodycorp. Indeed, in closing submissions counsel for Bodycorp submitted that the catalyst for the AAMI Agreement, and the restraints of trade agreed upon, was the fact that the Abbotsford franchisee wanted to leave the Bodycorp group. Therefore, Bodycorp was seeking to interfere with the freedom of trade enjoyed by the Bodycorp franchisees at the very point in time when that freedom was either in the process of being exercised, or its exercise was imminent (ie at the expiry of the respective franchise agreements).
Thirdly, the restraint prevents the Bodycorp franchisee from obtaining Recommended Repairer status in circumstances where it would be capable of obtaining that status independently of Bodycorp, either before or after the franchise agreement. Although some franchisees obtained such status while being a franchisee, and most likely with the assistance of Bodycorp, it would be unreasonable then to necessarily tie the ongoing maintenance of that status to remaining a franchisee of Bodycorp.
Nothing in the individual franchise agreements gives rise to this position. And yet counsel for Bodycorp boldly submitted that the court ought to uphold that the only way a franchisee would have been able to keep its Recommended Repairer sign would be to renew the franchise agreement with Bodycorp. He submitted that was a reasonable position because the franchisees in question had obtained their Recommended Repairer status after becoming franchisees. In my view, this circumstance does not make it reasonable for Bodycorp to maintain that, unless a repairer continues to be a franchisee, Bodycorp is entitled to deprive a repairer of the substantial part of its business.[12] Such a position places Bodycorp in an extraordinarily strong bargaining position. It was not the basis upon which the Recommended Repair status was obtained.
Fourthly, the restraint goes well beyond what was reasonable for the protection of Bodycorp’s interests in seeking to have a franchisee with Recommended Repairer status in a particular area. There appears to be no good reason why Bodycorp could not seek to establish a competing business in the area which, if of a satisfactory standard and satisfactory to AAMI, could not obtain Recommended Repairer status in due course (whether at the expense of the former franchisee or otherwise). The evidence shows that AAMI reviewed its Recommended Repairers from time to time. The fact that the restraint made it easier for Bodycorp to achieve this desired outcome does not make it reasonable.
Fifthly, it was highly likely that Bodycorp was seeking to achieve an outcome by the restraint of trade which was futile or had minimal prospects of success. As at 29 June 1998 the relationship between Bodycorp and AAMI was less than harmonious. For Bodycorp to achieve its desired outcome, it required AAMI give Recommended Repairer status to a new franchisee in the relevant area within the 6 month period after cessation. Whether this would occur was entirely within the sole discretion of AAMI.[13] Given the state of the relationship, it was improbable that AAMI would ever agree to such an arrangement. This position is compounded by the fact that before the AAMI Agreement was entered into, AAMI stated in substance it would not be appointing any new Recommended Repairers for the foreseeable future. If it be relevant, this position was maintained by AAMI throughout 1998 and 1999.[14]
[10]One former Bodycorp franchisee described his recommended repairer status as his livelihood and as being very significant … . He also said it gave him a very strong reason to stay as a franchisee … . Another former franchisee said the status could be very important and to cease to be a recommended repairer could seriously affect a business and a person’s livelihood … .
[11]In closing submissions [at trial], counsel for Bodycorp accepted the franchisees received no benefit in return for the restraints of trade being imposed.
[12]For completeness, [the judge noted] that Bodycorp submitted the restraints of trade should be imposed even if the franchisee had a sign before becoming a franchisee.
[13]AAMI Agreement, cls 2.4, 2.5(d).
[14]Reasons, [144]–[150] (footnotes in original).
While the appellant bore the onus of establishing that the restraint of trade imposed by cls 1.2 and 1.3 of the AAMI agreement were reasonable, the appellant’s attack under ground 1 appears to be limited to the judge’s positive conclusion that the clauses were unenforceable as an unreasonable restraint of trade. That said, the appellant identifies 10 errors which it contends were made by the judge when he concluded that the clauses were unenforceable as an unreasonable restraint of trade.
First, the appellant contends that the judge erred in treating the effect of the clauses upon third parties (Bodycorp franchisees) as determinative of whether or not the restraint was reasonable. Secondly, it is asserted that the judge erred by construing the clauses as an attempt by Bodycorp (who itself had failed to impose a restraint upon its franchisees) to have AAMI impose the restraint upon Bodycorp franchisees in the event they ceased to be franchisees. Thirdly, it is asserted that the judge erred in failing to consider that the AAMI agreement was drafted by AAMI’s lawyers on AAMI’s behalf in order to resolve a dispute between AAMI and Bodycorp. Fourthly, it is contended that the judge erred in failing to consider the limited entitlement of a repairer under a AAMI recommended repairer agreement, which was terminable at two weeks’ notice. Fifthly, it is asserted that the judge erred by placing undue weight on the fact that a AAMI recommended repairer sign was valuable to a repairer; alternatively, the judge erred by concluding that the restraint of trade imposed by AAMI ‘sought to severely harm a repairer who ceased to be a Bodycorp franchisee’. Sixthly, it is asserted that the judge erred by concluding that it would be unreasonable to tie the ongoing maintenance of AAMI recommended repairer status of a Bodycorp franchisee to that franchisee remaining a franchisee of Bodycorp, in circumstances where the franchisee had previously been assisted by Bodycorp in obtaining AAMI recommended repairer status. Seventhly, it was contended that the judge erred by concluding that the restraint imposed by cls 1.2 and 1.3 went beyond what was reasonable for the protection of Bodycorp’s interest. Eighthly, it was contended that the judge erred by concluding that the outcome sought to be achieved by Bodycorp through cls 1.2 and 1.3 was one which was futile or had minimal prospects of success.[15] Ninthly, it was contended that the judge erred in making what were said to be inconsistent findings that, on the one hand, Bodycorp could establish a competing business in a relevant area of a former franchisee and obtain AAMI recommended repairer status, and on the other hand, that AAMI would not appoint any new recommended repairers for the foreseeable future.[16] Tenthly, it was asserted that the judge erred by concluding that the restraints imposed by cls 1.2 and 1.3 were ‘for an illegitimate purpose’.
[15]Cf Reasons, [150] and [379].
[16]Ibid [149] and [150].
We reject these submissions. We are not persuaded that the approach taken by the judge involved any relevant error. Specifically, we are not persuaded that when one examines cls 1.2 and 1.3 of the AAMI agreement in their context, and in the circumstances in which they were entered into, that the judge was wrong to conclude that the admitted restraints of trade were unreasonable. Much less are we persuaded that, on the evidence, Bodycorp established that the restraints were reasonable.
While the judge did not accept that the effect of cls 1.2 and 1.3 would be an unreasonable restraint on AAMI’s business, and thus while the judge (as he was bound to do) examined the effect of the clauses on the business of Bodycorp franchisees, the judge did not approach his task with any preconception that the effect of the clauses on the Bodycorp franchisees would be determinative. That said, the judge’s reasons disclose that the effect of cls 1.2 and 1.3 on the Bodycorp franchisees was a matter of considerable significance in determining whether or not the admitted restraints of trade were reasonable or unreasonable. For our part, we see no error in the judge’s approach.
In oral submissions, counsel for the appellant developed an argument that, in considering the effect of the AAMI agreement on Bodycorp franchisees, the judge failed to (and should have) looked at the benefits those franchisees obtained from the agreement. Specifically, reference was made to cl 2.4 of the AAMI agreement. Clause 2.4 contained paragraphs which provided, amongst other things, that Bodycorp had no right, title or interest in AAMI recommended repairer signs. This clause was said to resolve a dispute between Bodycorp, Bodycorp franchisees and AAMI to the benefit of Bodycorp franchisees. Accordingly, it was submitted that the benefit Bodycorp franchisees obtained from the AAMI agreement was that Bodycorp itself could not seek to repossess AAMI recommended repairer signs from former Bodycorp franchisees. The appellant submitted that when considering the reasonableness of the restraint of trade produced by cls 1.2 and 1.3 of the AAMI agreement, this benefit to Bodycorp franchisees should be taken into account.
We reject this submission. The AAMI agreement was an agreement between AAMI and Bodycorp. Bodycorp franchisees were not a party to it. We are unable to see how any benefit (or at least any significant benefit) was conferred on Bodycorp franchisees by cl 2.4 of the AAMI agreement — or indeed any other term of the AAMI agreement.
A difficulty for the appellant is that the judge found against it on the issue of the reasonableness of the restraint of trade because ‘both individually and collectively’ the matters he referred to in his five reasons, in his opinion, demonstrated that the restraint of trade was unreasonable.[17] Accordingly, it does not avail the appellant to point to some aspect of one of the judge’s five reasons for the purpose of demonstrating that some individual fact within it might, on one view, be debatable.
[17]Reasons, [151].
An example of one such complaint is the appellant’s complaint that the judge was wrong to reason from the fact of a pro forma franchise agreement, offered by Bodycorp to a potential franchisee, containing a restraint of trade clause in it, coupled with the fact that none of the executed versions of the franchise agreement between Bodycorp and its franchisees contained such a restraint, that franchisees who had entered into Bodycorp franchise agreements had expressly rejected that agreeing to become a Bodycorp franchisee included the imposition of a restraint of trade if that franchisee agreement ceased.[18] While the judge reasoned from these facts to a conclusion that cls 1.2 and 1.3 of the AAMI agreement had to be seen as an attempt by Bodycorp to have AAMI impose a restraint of trade that it had been unable to impose itself upon its own franchisees, whether the relevant franchise agreements which contained amendments, which were in evidence before the judge, were franchise agreements that had had struck from them a restraint of trade clause was not of great moment so far as the judge’s overall reasoning is concerned. The fact remains that there was evidence of Bodycorp preparing or proffering a franchise agreement which contained a restraint of trade clause in it. Plainly, Bodycorp was anxious to restrain the ability of former franchisees to compete with its franchisees. No doubt, the easiest mechanism for this involved a blanket agreement with AAMI rather than an individual negotiation about the terms of franchisee agreements with individual Bodycorp franchisees.
[18]Cf Reasons, [138].
Further, and in any event, having examined the pro forma Bodycorp franchise agreement and the executed franchise agreements tendered in evidence, we think there is no force in the appellant’s criticisms. The pro forma Bodycorp franchise agreement contains a detailed restraint of trade clause (cl 7). The relevant executed Bodycorp franchise agreements are in the same terms as the pro forma agreement, but they do not contain cl 7. Instead they contain:
7. Restrictive covenants
Clause deleted in its entirety.
While there are handwritten amendments in respect of the executed Bodycorp franchise agreements, the existence of these does not, in our view, detract from the judge’s statement that originally, Bodycorp sought to impose a restrictive covenant in its franchise agreements, which restrictive covenant was ultimately provided for in substance by cls 1.2 and 1.3 of the AAMI agreement.
Next, the appellant makes complaint about the judge’s failure ‘to give due consideration to the fact that the AAMI agreement was drafted by AAMI’s lawyers on its behalf in order to resolve a dispute between AAMI and Bodycorp’. However, a fair reading of the judge’s reasons discloses that the judge was entirely aware of the circumstances in which the AAMI agreement came to exist. We are unable to see how these particular circumstances relied upon by the appellant go any way to establishing the reasonableness of the restraints of trade admitted by the appellant.
Next, as to the complaint that the judge erred by failing to consider the limited entitlement of a repairer under a AAMI recommended repairer agreement, which was terminable on two weeks’ notice, when determining the reasonableness of the restraint of trade imposed by the AAMI agreement, this too must be rejected. It is plain from the judge’s very detailed reasons that his Honour was entirely aware of the terms of the AAMI recommended repairer agreements. The fact that a repairer might cease to be a AAMI recommended repairer on relatively short notice was, in our view, not of great moment when determining the reasonableness of the admitted restraints of trade.
Next, so far as the appellant’s complaint that the judge failed to properly consider the fact that Bodycorp might have assisted a particular franchisee in obtaining AAMI recommended repairer status is concerned, this too must be rejected. It is to be remembered that the Bodycorp franchise agreements provided for a significant income stream to be paid by franchisees to Bodycorp in respect of any such assistance that may have been provided.
With respect to the carefully expressed and detailed reasoning of the judge, we think that two features stand out in the present case which more than justified, on their own, the conclusion that the appellant had not established the reasonableness of the admitted restraints of trade in cls 1.2 and 1.3 of the AAMI agreement. First, as appears not to have been disputed below, AAMI recommended repairer status was a matter of great value to the relevant smash repairers. Secondly, there was, as the judge said, nothing to prevent Bodycorp, upon the termination of a Bodycorp franchise agreement, from seeking to enter into another franchise agreement with a smash repairer in the same area who could then apply for AAMI recommended repairer status. While the appellant submitted that a six month restraint period was moderate, and therefore reasonable, we agree with the judge’s conclusion that the restraint went beyond what was reasonable for the protection of Bodycorp’s interests.[19]
[19]Reasons, [149].
We cannot leave ground 1 without pausing to observe that much of the appellant’s submissions on this ground bore little resemblance to the way it conducted its case at trial. Many of the submissions made to this Court were simply not made to the trial judge. The issue of reasonableness was given only the most cursory treatment by the appellant in final address. It occupied only one paragraph of a 90 paragraph outline of written submissions and less than a page of the transcript of the appellant’s final address.
Specifically, as to the appellant’s argument in this Court concerning the so-called benefit to Bodycorp franchisees provided by cl 2.4 of the AAMI agreement, nothing was said. Indeed, when the judge noted in argument that Bodycorp franchisees were not a party to the AAMI agreement, and then said that such franchisees derived ‘no benefit by reason of the restraint’, all that counsel for the appellant responded with was ‘No’. In the circumstances, one would hardly be critical of the judge for failing to expressly deal in his reasons with matters not put to him by the party now seeking to make complaint in this Court.
Ground 1 must be rejected.
Ground 2: inducing breach of contract
The judge commenced his analysis of the appellant’s claims for inducing breach of contract with a discussion of relevant principles. The judge set out relevant passages of the judgment of Dixon J in James v The Commonwealth[20] as follows:
[20](1939) 62 CLR 339 (‘James’).
In James v The Commonwealth Dixon J referred to a passage from Salmond, with approval. In part, the following was referred to:
There must be an inducement in the strict sense - that is to say, the intentional creation of some inducing cause or reason for the breach of contract; … To induce a breach of contract means to create a reason for breaking it; to advise a breach of contract is to point out the reasons which already exist. The former is certainly actionable; the latter has never been held to be so, and is probably innocent. (Original emphasis).
Having referred to Salmond, Dixon J continued:
All the acts of which the plaintiff complains as amounting to an interference with his business must be considered in combination for the purpose of determining whether they amount to a wrongful procurement of a breach or breaches of the obligation …
(Emphasis added).[21]
[21]Reasons, [186]–[187] (citations omitted).
The judge then set out the matters that Bodycorp had to establish in order to succeed on its inducing breach of contract claims:
In summary, for Bodycorp to be successful it must establish that:
(1) Legally binding contracts were on foot with each franchisee.
(2)Those contracts were interfered with by the defendant(s), by inducing the franchisees to breach the contracts.
(3)The inducement was knowing and intentional, in circumstances where the defendant(s) had sufficient knowledge of the contract(s) to know they were inducing a breach.
(4) The conduct caused Bodycorp to suffer damage.[22]
[22]Ibid [192].
In its written outline of submissions,[23] the appellant accepts the judge’s analysis of the relevant legal principles concerning the issue of inducing breach of contract.
[23]Dated 3 March 2014.
Having set out the relevant legal principles, the judge (after dealing with matters not presently relevant in this appeal) turned to the evidence in relation to the appellant’s claim against Martin and AAMI for inducing breach of contract. The judge set out the evidence in some detail.[24] It is not suggested by the appellant that the judge misstated any of this evidence.
[24]Reasons, [221]–[298].
Ultimately the judge was persuaded that Martin made the statements to which we have already referred. That is, the judge accepted that Martin made the statements attributed to him by each of the relevant franchisees[25] except in relation to the Tottenham franchise and the evidence of its franchisee, Mr Crea.[26]
[25]Reasons, [221]–[236] and [239]–[251].
[26]Reasons, [237]–[238].
However, the judge concluded:
On the basis that the representations were made by Martin to each of the former Bodycorp franchisees other than Crea, the next issue is whether or not those representations establish a case that AAMI or Martin have to answer. It is abundantly clear there is no case to answer.
Similar to the reasoning above in relation to Maisano, the representations the subject of the evidence do not equate, or even come close, to the substance of the AAMI Statement pleaded in the FASOC. The representations certainly question, to differing extents, whether it was in the interests of the franchisees to remain with Bodycorp. Some representations were coupled with the possibility of more work from AAMI once a franchisee left Bodycorp. However, it is a quantum leap to equate such representations with an intention on the part of AAMI or Martin to induce the franchisees to unlawfully breach a binding agreement with Bodycorp.
In closing submissions, I put to counsel for Bodycorp that there was nothing in the evidence of any of the Bodycorp franchisees to suggest that Martin said that they should terminate their franchise agreement with Bodycorp. That was accepted by counsel. However, it was submitted that it was implicit in the representations that were made that the franchisees would be better off if they were not Bodycorp franchisees. It was also said that it was implicit that Martin was suggesting they ought to terminate a lawfully binding agreement. It was said that this was because of the immense power that Martin had.
In my view, these submissions must be rejected. Consistent with my reasons in relation to Maisano, the evidence of the representations made by Martin are entirely consistent with Martin seeking to convey that the Bodycorp franchisees could continue to be Recommended Repairers once they had lawfully ceased to be franchisees of Bodycorp. This is particularly so in the context where many of the franchisees had agreements that were due to expire in the near future.
As discussed in paragraphs 185 to 192 above, a plaintiff needs to establish an informed and clear intention that a defendant intended the inducement of a breach of contract. The evidence of the former Bodycorp franchisees does not remotely reflect conduct demonstrating such an intention on the part of Martin. The evidence does suggest that Martin would have been more than happy for the Bodycorp franchisees to leave Bodycorp. The evidence also suggests Martin was more than willing to point out that the franchisees would be better off if they were not with Bodycorp. But conveying such matters to the franchisees is clearly insufficient to establish a cause of action.[27]
[27]Reasons, [299]–[303] (footnote omitted).
We see no error in this approach. The judge’s analysis was performed in accordance with settled principle — about which there was no dispute at trial. The appellant bore the onus of establishing the intentional creation of some inducing cause or reason for a breach of contract by a Bodycorp franchisee.[28] This it failed to do. We agree with the judge that, when the evidence is viewed as a whole, Martin’s statements to the relevant franchisees did not support an affirmative finding that Martin (and by extension AAMI) induced any breach of contract between Bodycorp and any of Bodycorp’s franchisees.
[28]Cf James (1939) 62 CLR 339, 371.
In his oral submissions, counsel for the appellant placed particular reliance upon the statement Martin made to Mr Corso: ‘Leave Bodycorp and your stats will go up’. It was submitted that this statement was an inducement to breach the franchise agreement between Bodycorp and its Highpoint franchisee by Martin representing that if Mr Corso left Bodycorp, AAMI would give him more work. So much may be accepted for present purposes. Insofar as it was submitted that the judge overlooked this evidence, we reject that submission.
In his reasons for rejecting the appellant’s claims for inducing breach of contract against Martin and AAMI, the judge acknowledged that some of Martin’s representations were ‘coupled with the possibility of more work from AAMI once a franchisee left Bodycorp’.[29] However, as the judge also noted, ‘[I]t is a quantum leap to equate such representations with an intention on the part of AAMI or Martin to induce [the relevant franchisee] to unlawfully breach a binding agreement with Bodycorp’.[30] With respect, we agree.
[29]Reasons, [300].
[30]Ibid.
In its written outline of submissions,[31] the appellant contended that the judge erred in not giving proper or sufficient weight in drawing appropriate inferences in respect of ‘the contemporaneous documentary evidence’. Specific reliance was placed by the appellant upon file notes made by Martin on 8 September 1997, 12 September 1997 and 18 March 1998. Additionally, reliance was placed upon a pro forma letter sent by AAMI to Bodycorp franchisees in November 1998.
[31]Dated 3 March 2014.
In our view, the file notes relied upon by the appellant do not (either considered alone or together with the rest of the evidence) demonstrate that the judge erred when he dismissed the appellant’s inducing breach of contract claims. Nothing in the file notes calls into question the judge’s conclusions about the appellant’s claims against Martin and AAMI for inducing breaches of contract. No more needs to be said about the file notes.
As its terms disclose, the AAMI November 1998 pro forma letter was written about court proceedings that some Bodycorp franchisees had threatened to commence against AAMI and Bodycorp. The letter provided:
AAMI has no desire to become involved in the franchisor/franchisee relationship. That is a decision for each repairer to make and in which AAMI has no interest. Accordingly whether or not a repairer is a Bodycorp franchisee does not impact the repairer’s relationship with AAMI. To avoid confusion, this extends to … [a specific group of repairers referred to in earlier correspondence]. In other words if any repairer ceases to be a Bodycorp franchisee, AAMI will not terminate their recommended repairer status by reason of that fact alone.
We do wish to reiterate that the representations and statements about the relationship with AAMI were and are made expressly subject to AAMI’s rights under the Recommended Repairer Agreement. Further, your status as a AAMI recommended repairer, as always, depends on maintaining quality, price competitiveness, customer service and the other significant service issues important to AAMI. Other considerations relating to AAMI’s business requirements are also important.
We see nothing in the terms of the November 1998 pro forma letter (either on its own or in combination with the rest of the evidence) which throws light on the question of whether AAMI intended to create some inducing cause or reason for a Bodycorp franchisee to breach its franchise agreement with Bodycorp.[32] As we have said, in our view the judge was correct when he concluded that the evidence led at trial did not support an affirmative finding that Martin or AAMI induced any breach of contract between Bodycorp and any of Bodycorp’s franchisees.
[32]See James (1939) 62 CLR 339, 371.
In the light of these conclusions, it is not necessary to consider the respondents’ notice of contention. Ground 2 must be rejected.
Ground 3: failing to assess damages
Ground 3 is predicated on the appellant enjoying success on ground 1 or ground 2. The appellant having failed in respect of grounds 1 and 2, there was no basis upon which the trial judge was obliged to assess or award damages. Accordingly, ground 3 must also be rejected.
Conclusion
The appeal must be dismissed.
- - -
5
0