Burger King Corporation v Hungry Jack's Pty Ltd

[2001] NSWCA 187

Reported Decision: 69 NSWLR 558

New South Wales

Court of Appeal

CITATION:	Burger King Corporation v Hungry Jack's Pty Limited [2001] NSWCA 187
FILE NUMBER(S):	CA 40924/99; 40325/00
HEARING DATE(S):	20 November 2000 21 November 2000 22 November 2000 23 November 2000 24 November 2000 27 November 2000 28 November 2000 29 November 2000 30 November 2000 1 December 2000 4 December 2000
JUDGMENT DATE:	21 June 2001
PARTIES :	Burger King Corporation Hungry Jack's Pty Limited
JUDGMENT OF:	Sheller JA at 1; Beazley JA at 1; Stein JA at 1

LOWER COURT JURISDICTION :	Supreme Court
LOWER COURT FILE NUMBER(S) :	50258/96
LOWER COURT JUDICIAL OFFICER :	Rolfe J

COUNSEL:	Appellant: A Archibald QC SG Finch SC MR Ellicott Respondent: TF Bathurst QC NC Hutley SC TD Castle
SOLICITORS:	Appellant: Allen Allen & Hemsley Respondent: Mallesons Stephen Jacques
CATCHWORDS:	CONSTRUCTION AND INTERPRETATION OF CONTRACTS - Essential Terms - Whether Time Stipulation an Essential Term - Surrounding Circumstances - Reference to Earlier Contracts Between Parties - IMPLIED TERMS - Implied Terms of Good Faith and Reasonableness - Implication of New Terms at Law - BREACH OF CONTRACT - Validity of Notices of Termination - Whether Breach Capable of Cure - MISTAKE - ACCESSORY LIABILITY - Liability for 3rd Party’s Breach of Fiduciary Duty - FIDUCIARY DUTY - Fiduciary Duty Where No Concluded Arrangements Between Parties - STAY OF ORDERS - Failure to Obtain Stay of Non Monetary Orders - Inability to Obtain Reversal of Non Monetary Orders When Orders Complied With - APPEAL - New Issues Raised on Appeal - DAMAGES - Basis of Assessment - Date of Assessment - Assessment of Lost Opportunity - Allowance for Vicissitudes - Interference with Award of Trial Judge - Equitable Compensation
LEGISLATION CITED:	Contracts Review Act 1980 (NSW) Conveyancing Act 1919 (NSW) Credit Act 1984 Hire Purchase Agreement Acts 1941, 1960 Industrial Arbitration Act 1940 Law of Property Act 1925 (UK) The Money-Lenders and Infants Loan Act 1905 Sale of Goods Act 1923 (NSW) Supreme Court Rules 1973 (NSW) Pt 51, r26 Trade Marks Act 1995 (Cth) Trade Practices Act 1974 (Cth)
CASES CITED:	Abalos v Australian Postal Commission (1990) 171 CLR 167 Alcatel Australia Limited v Scarcella & Ors (1998) 44 NSWLR 349 ASC v AS Nominees Ltd (1995) 133 ALR 1 Asia Television Ltd v Yau’s Entertainment Pty Ltd (2000) 48 IPR 283 Australian Broadcasting Commission v Australian Performing Right Association Limited (1973) 129 CLR 99 Batson v De Carvalho (1948) 48 SR (NSW) 417 Beach Petroleum NL v Kennedy & Ors (1999) 48 NSWLR 1 Brickenden v London Loan & Savings Co [1934] 3 DLR 465 [PC] Bunge Corporation v Tradax SA [1981] 1 WLR 711 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd (1987) 10 NSWLR 468 Chaplin v Hicks [1911] 2 KB 786 Commissioner for Railways (NSW) v Cavanough (1935) 53 CLR 220 Commonwealth v Amann Aviation Pty Limited (1991) 174 CLR 64 Commonwealth v McCormack (1984) 155 CLR 273 Commonwealth Bank of Australia v Smith (1991) 102 ALR 453 Coulton v Holcombe (1986) 162 CLR 1 Daniels v Anderson (1995) 37 NSWLR 438 Devries v Australian National Railways Commission (1993) 177 CLR 472 DTR Nominees Pty Limited v Mona Homes Pty Limited (1978) 138 CLR 421 Egerton and Others v Esplanade Hotels, London Ltd and Another [1947] 2 All ER 88 Far Horizons Pty Ltd v McDonalds Australia Ltd [2000] VSC 310 Fightvision Pty Limited v Onisforou (1999) 47 NSWLR 473 Fink v Fink (1946) 74 CLR 127 Forestview Nominees Pty Ltd v Perpetual Trustee WA Ltd (1998) 193 CLR 154 Garry Rogers Motors Aust Pty Limited v Subaru (Aust) Pty Ltd [1999] ATPR 41-703 Godfrey Constructions Pty Limited v Kanagra Park Pty Limited (1972) 128 CLR 529 Hoffmann v Fineberg and Others [1949] 1 Ch 245 Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151 Hughes Bros Pty Limited v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney & Anor (1993) 31 NSWLR 91 Johnson v Perez (1988) 166 CLR 351 Jones v Dunkel (1959) 101 CLR 298 Kham & Nates Shoes No 2 Inc v First Bank of Whiting (1990) 988 F 2d 1351 L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 London & Overseas Freighters Ltd v Timber Shipping Co SA [1972] AC 1 Louis Dreyfus & Co v Parnaso cia. Naviera SA [1959] 1 QB 498 Malec v J C Hutton Pty Limited (1990) 169 CLR 638 McKay v Dick (1881) 6 AC 251 McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 Metropolitan Life Insurance Co v RJR Nabisco Inc (1989) 716 F Supp 1504 Mottram Consultants Ltd v Bernard Sunley & Sons Ltd [1975] 2 Lloyd’s Rep. 197 Moran v McMahon (1985) 3 NSWLR 700 National Australia Bank v Bond Brewing Holdings Ltd [1991] 1 VR 386 Nocton v Lord Ashburton [1914] AC 932 Norris v Blake [No 2] (1997) 41 NSWLR 49 Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 Pierce Bell Sales Pty Limited v Frazer (1973) 130 CLR 575 Poseidon Ltd & Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 Postle v Sengstock [1994] 2 Qd R 290 Production Spray Painting & Panel Beating Pty Ltd and ors v Newnham and ors [No 2] (1991) 27 NSWLR 659 Punjab National Bank v de Boinville [1992] 1 WLR 1138 Renard Constructions (ME) Pty Limited v Minister for Public Works (1992) 26 NSWLR 234 Rio Algon Corporation v Jimco Ltd (1980) Utah, 618 P 2d 497 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 Rugby School (Governors) v Tannahill [1935] 1KB 87 Saxby Bridge Mortgages Pty Ltd v Saxby Bridge Pty Ltd [2000] NSWSC 433 Service Station Association Limited v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84 Shepherd v Felt & Textiles of Australia Pty Ltd (1931) 45 CLR 359 Shevill v Builders Licensing Board (1982) 149 CLR 620 South Sydney Council v Royal Botanic Gardens [1999] NSWCA 478 South Sydney District Rugby League Football Club v News Ltd (2000) 177 ALR 611 State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) (1999) 73 ALJR 306 Suttor v Gundowda Pty Limited (1950) 81 CLR 418 Taylor v Johnson (1983) 151 CLR 422 Tramways Advertising Pty Limited v Luna Park (NSW) (1938) SR (NSW) 632 Tricontinental Corporation Ltd v HJFI Ltd (1990) 21 NSWLR 689 Tutt v Doyle (1997) 42 NSWLR 10 United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481 Water Board v Moustakas (1988) 180 CLR 491 Warman International Limited v Dwyer (1995) 182 CLR 544 Zegluga Polska SA v TR Shipping Ltd [1996] 1 Lloyds Law Rep’s 337
DECISION:	Appeal allowed in part; Cross-appeal allowed in part

THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40924/99
CA 40325/00
EQ 50258/96

SHELLER JA
BEAZLEY JA
STEIN JA

Thursday, 21 June 2001


BURGER KING CORPORATION v HUNGRY JACK’S PTY LIMITED


The appellant was the franchisor of the second largest fast food chain in the world. The respondent was the largest franchisee in Australia and for many years had been the sole franchisee. The respondent used its own name Hungry Jack’s for its franchised stores rather than the Burger King brand name. The franchise agreements were for a term of 15 years (although the term of the later franchise agreements was 20 years) with provision for one renewal of the same term.

In 1990, after several years of disputes the parties entered into four agreements, the Settlement Agreement, the Development Agreement, the Service Agreement and the Registered User’s Agreement, which, together with the individual franchise agreements in respect of each of the respondent’s Hungry Jack’s stores, governed the contractual relationship of the parties, including the respondent’s development rights in Australia.

Under the Development Agreement the respondent had an unrestricted, non-exclusive right to develop throughout Australia and was required to develop a total of at least four restaurants per year in Western Australia, South Australia and Queensland. Its development rights in those states were protected from competition by a non-encroachment clause. The term of the Development Agreement was five years with provision for three renewals for the same term. There was a provision for termination for breach, and a provision that a 30 day notice was required to be given in respect of any breach capable of cure.

From at least 1993, the appellant determined to take a more active role in the Australian market, including buying out the respondent or making it the minority party in some form of joint venture arrangement. It also had discussions with other parties with the same intent, namely, of reducing the respondent’s role in the Australian market.

During 1994, the parties entered into discussions with the Shell Oil Company Australia about the feasibility of establishing outlets in Shell service stations under the brand name Hungry Jack’s . Initially, a test site agreement was proposed to assess the viability of a long term venture. Two test sites were in fact opened. The initial discussions were conducted on the basis that, if the test sites were successful, the parties would enter into a long term tripartite venture. However, during the course of these discussions, the appellant commenced to deal with Shell separately. Months after having decided to proceed with Shell without the respondent, the appellant informed the respondent of the position. During that intervening period, the respondent had spent time and considerable moneys in advancing the proposed tripartite venture.

There were also continuing disputes between the parties and these developed and intensified from at least 1993 onwards. From the end of March 1995, Jim Montgomery, the respondent’s National Development Manager, began communicating directly with the appellant, providing information, advice and recommendations in breach of his fiduciary duty to the respondent. The appellant utilised Montgomery’s assistance for its benefit to the detriment of the respondent up until after the proceedings were commenced.

In 1995, the appellant took three significant steps which seriously impeded the respondent’s ability to develop: it advised that it would not approve any further recruitment of third party franchisees; and it withdrew both financial and operational approval.

From 1992 through to 1996, a number of franchise agreements expired or were due to expire. Stores in this category were called “successor stores” . The appellant did not offer new franchise agreements for a further term in accordance with the original franchise agreement, but required the respondent to enter into a series of agreements extending the term of the original franchise agreement until the respondent agreed to and completed works which the appellant demanded were necessary to bring the restaurants up to its standard. The extension agreements were not authorised by the terms of the franchise agreements. There were significant disputes between the parties about the scope of work being required by the appellant. Montgomery, the person responsible within HJPL for successor stores, had provided information and offered advice to the appellant in relation to these issues. From 1 January 1996, the appellant varied the form of extension agreement so as to provide that there would be no further extensions except at its discretion. It also began to threaten closure of the stores unless the works were carried out and completed within increasingly shorter time frames.

On 18 November 1996, the appellant served two Notices of Termination of the Development Agreement (the Shorter Notice and the Longer Notice). The Shorter Notice alleged a failure to develop the required number of stores as specified in cl 2.1 of the Development Agreement. The Longer Notice alleged a series of breaches of the trademark and advertising provisions of the Development Agreement and Registered Users Agreement.

On 26 November 1996, the respondent commenced proceedings against both the appellant and Shell. The claim against Shell was subsequently settled.

On 8 September 1997, the appellant served a further Notice of Termination (the 1997 Notice) alleging that the respondent had continued to operate the successor stores notwithstanding that the term of the franchise agreements had expired. It also alleged further trademark and advertising breaches.

His Honour held the Notices of Termination were invalid and that the appellant had breached its implied obligations of good faith and reasonableness in the Development Agreement. He held that the Extension Agreements should be set aside as having been entered into under a mistake. His Honour also held these agreements had been entered into in circumstances where the appellant was knowingly involved in a breach of duty by Montgomery in relation to successor stores, and further, were obtained in breach of cl IX of the franchise agreements and of the appellant’s implied obligations of good faith and reasonableness.

The trial judge awarded the respondent damages under four heads:

(i) $43,522,200 for delay in opening company owned restaurants (the parties subsequently agreed that the calculation was erroneous and the true figure was $38,369,250.);

(ii) $23,955,00 for loss of the opportunity to introduce third party franchisees;

(iii) $1,515,428 for equitable compensation for the loss of service royalties from restaurants opened at seven Shell service stations;

(iv) $1,852,800 for “cannibalisation” claims resulting from BKC’s authorising Shell to open three restaurants in breach of the Development Agreement.

His Honour set aside the Extension Agreements and ordered the appellant to offer to the respondent new 15 year terms for the successor stores.

The appellant sought, and by consent was granted, a stay of the trial judge’s damages award. It did not seek a stay of the order that it offer new agreements for the successor stores. Except for one store, Murray Street, new agreements for terms of 15 years were entered into in respect of the successor stores on 10 February 2000. A new agreement was entered into in respect of Murray Street on 21 August 2000.

The appellant appealed against all findings as to liability save that it conceded that Montgomery’s conduct amounted to a breach of fiduciary duty.

The appellant also appealed against each award of damages on a large number of grounds, which can be loosely categorised as challenging:

· findings as to how the respondent’s business would have developed had it not been for the conduct of the appellant, and how it would now develop given this conduct;

· the finding that sales at certain of the respondent’s restaurants were adversely affected by the opening of the appellant’s restaurants in Shell service stations;

· the finding that there was no overlap between the “cannibalisation” claim and the loss of service royalty claim;

· the rate of discount for contingencies and vicissitudes used;

· the rates for incremental overheads used;

· the rate of discount used to give the present value of the sum awarded;

aspects of the method of calculation.

The respondent cross appealed in relation to:

· the 16.5 per cent rate of discount used to give the present value of the sum awarded in relation to the third head of damages.

HELD (per Sheller, Beazley, Stein JJA)

As to Liability

(i) (a) The respondent was not in breach of cl 2.1 of the Development Agreement at the time of the Notice of Termination dated 18 November 1996;

(b) Accordingly, that Notice was not a valid Notice of Termination under cl 15.1 of the Development Agreement;

(ii) Clause 2.1 of the Development Agreement was not an essential term so that the appellant had no independent right to terminate for breach at law: Tramways Advertising Pty Limited v Luna Park (NSW) (1938) SR (NSW) 632; DTR Nominees Pty Limited v Mona Homes Pty Limited (1978) 138 CLR 421 applied;

(iii) (a) The development agreement was subject to implied terms of co-operation, good faith and reasonableness: Renard Constructions (ME) Pty Limited v Minister for Public Works (1992) 26 NSWLR 234; Hughes Bros Pty Limited v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney & Anor (1993) 31 NSWLR 91; Alcatel Australia Limited v Scarcella & Ors (1998) 44 NSWLR 349 considered;

(b) The appellant had breached those terms by imposing the third party freeze and by withdrawing financial and operational approval;

(iv) The appellant’s conduct in imposing the third party freeze and withdrawing financial and operational approval was, in any event, a breach of the express terms of the Development Agreement;

(v) In circumstances where the parties had entered into new franchise agreements in respect of successor stores pursuant to the trial judge’s orders, the appellant could not, on the appeal, seek to set aside those orders as restitution was not possible: Production Spray Painting & Panel Beating Pty Limited and Ors v Newnham and Ors [No 21] (1991) 27 NSWLR 659; Zegluga Polska SA v TR Shipping Ltd [1996] 1 Lloyds Law Rep’s 337 considered;

(vi) The respondent had entered into the various extension agreements under a mistake of fact and they should be set aside: Taylor v Johnson (1983) 151 CLR 422; Tutt v Doyle (1997) 42 NSWLR 10 applied;

(vii) The appellant was accessorially liable for the breach of fiduciary duty by the respondent’s National Development Manager, who was causative of the respondent having entered into the extension agreements: Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378; Brickenden v London Loan & Savings Co [1934] 3 DLR 465; Commonwealth Bank of Australia v Smith (1991) 102 ALR 453 applied;

(viii) The Longer Notice of Termination and the Notice of Termination of 8 September 1997 were invalid.

(ix) The appellant owed a fiduciary duty to the respondent in respect of its dealings in relation to the Shell venture and had breached that duty by encouraging Shell to proceed without the respondent’s involvement, by taking the benefit of royalties from these restaurants and by withholding advice from the respondent that it was negotiating with Shell to proceed without the respondent’s involvement: United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 applied.

As to Damages

(i) The amount awarded under the first head of damages should, as agreed between the parties, be amended to $38,369,250.

(ii) In relation to most of the grounds of appeal, the trial judge’s findings were open to him and should not be disturbed.

(iii) Many of the grounds of appeal could not be pressed by the appellant since they contained matters which had not been presented in cross examination of key witnesses, or raised at trial: Suttor v Gundowda Pty Limited (1950) 81 CLR 418; Coulton v Holcombe (1986) 162 CLR 1; Water Board v Moutsakas (1988) 180 CLR 491; University of New South Wales v Metwally (No 2) (1985) 59 ALJR 481 applied;

(iv) The challenge to the calculation of the second and third heads of damages succeeded. Although the trial judge accepted that the rate of incremental overheads was 7 per cent of franchise revenue, he mistakenly failed to calculate damages under these heads in accordance with this finding. The award under the second and third heads should be recalculated accordingly.

(v) The trial judge erred in failing to recognise that there was an overlap between the award of damages under the third and fourth heads of damage.

(vi) The trial judge erred in finding that the respondent suffered any damage due to “cannibalisation” beyond that already compensated for under the third head of damages, since the respondent failed to prove any such damage.

(vii) The total damages award should be reduced by the amount awarded under the fourth head of damages.

On the Cross-Appeal

(i) Allowed - the discount rate used in relation to the third head of damages should, consistently with that used in relation to the first two heads of damages, have been 9 per cent rather than 16 per cent. The award under the third head should be adjusted accordingly.

ORDERS

(i) Appeal allowed in part;

(ii) Cross-appeal allowed in part;

(iii) Set aside Rolfe J’s damages verdict and substitute therefor an award of damages in favour of the respondent in a sum to be calculated in accordance with the reasons for judgment and in particular para 761.

(iv) Parties to bring in short minutes of order (except in relation to costs) to give effect to the judgment within fourteen (14) days from today;

(v) Costs reserved;

(vi) Appeal 40325/00 (the Murray Street appeal) is dismissed with costs reserved;

(vii) Appellant to file and serve its written submissions of not more than five (5) pages in relation to costs fourteen days from today;

(viii) Respondent to file and serve its written submissions of not more than five (5) pages in relation to costs seven (7) days thereafter;

(ix) Parties to approach the Registrar within 3 days of all submissions being filed for appointment of a date for hearing of the question of costs. 42

THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40924/99

CA 40325/00
EQ 50258/96

SHELLER JA
BEAZLEY JA
STEIN JA

Thursday, 21 June 2001


BURGER KING CORPORATION v HUNGRY JACK’S PTY LIMITED

JUDGMENT


THE COURT

INTRODUCTION AND OVERVIEW

1    This is an appeal by Burger King Corporation (BKC) from a decision of Rolfe J, in which his Honour awarded damages in the sum of $70,845,428 to Hungry Jack’s Pty Limited (HJPL) for BKC’s wrongful termination of a 1990 agreement granting HJPL a non-exclusive right to develop and to be franchised to operate Burger King Restaurants in Australia, which it did under the brand name “Hungry Jack’s”.

2    Before dealing with the issues on the appeal a brief introduction to the corporate entities, the principal personalities and the background relationship between the parties is required.

3    A detailed review of the facts is contained in a schedule to the judgment (the Schedule of Facts) and is hereby incorporated in the judgment. The Schedule of Facts also includes such analysis and comment on the facts as was considered appropriate. However, the analysis of the facts as relevant to the issues on the appeal is contained herein.

The Parties

4    BKC conducts, worldwide, a franchised fast food system. It is currently the second largest of such fast food chains in the world, after McDonalds. It has nearly 9,000 restaurants worldwide which it conducts primarily through a uniform franchise system. It also operates a small proportion of restaurants itself.

5    BKC entered the Australian market in the early 1970’s, after being approached to do so by Jack Cowin, the principal of HJPL. HJPL is a company within the Competitive Foods Group of companies, which operates a number of fast food restaurant outlets, including Kentucky Fried Chicken and Domino’s Pizza. It also operates five food manufacturing plants which sell both to the domestic and export market. The interests in the group are owned as to 55.5% by companies controlled by the chairman of the group, Jack Cowin, and the balance by overseas companies.

6    HJPL’s first formal franchise agreement with BKC was entered into on 1 June 1973, although by that time there were already 14 restaurants operating under the name Hungry Jack’s using the BKC system and trademarks. The franchise agreement permitted the continued operation of the system under the Hungry Jack’s banner. A franchise agreement was required for each store opened by HJPL.

7    Shell Oil Company (Shell) was initially a party to the proceedings, but proceedings between it and HJPL settled. However, Shell has remained a relevant entity in the proceedings because it is alleged by HJPL that, as a result of dealings between Shell and BKC to set up Burger King outlets in Shell service stations to the exclusion of HJPL, BKC breached its fiduciary duty to HJPL. This remains an issue on the appeal to the extent that BKC contends that no fiduciary duty was owed in the circumstances. It concedes that if there was such a duty it was in breach.

Principal Personalities: BKC

8    At the time when the issues between the parties first arose, Jim Adamson was the Chief Executive Officer of BKC. By mid 1995 he had been replaced by Candido Rodriguez. However, the CEO played little part in the conduct and transactions relevant to these proceedings. The major participants were various vice-presidents and executives in BKC’s administrative and legal departments.

9    David Fitzjohn (Fitzjohn) was a Senior Vice President. Between August 1993 and April 1994 he was the interim Managing Director, Asia-Pacific division. From 1994 onwards he was Senior Vice President, World Wide Development, retaining responsibilities for Australia.

10    Ray Miolla (Miolla) was Regional Vice President and Assistant General Counsel of BKC. From 1995 until September 1997, he was chief legal counsel for BKC’s franchising activities worldwide (excluding Europe). Miolla was an experienced legal practitioner. He was a member of the International Franchise Association and the American Bar Association’s franchise section. Prior to joining BKC he had been a partner in a major US law firm in Boston. He was familiar with the obligations of confidence owed by employees to employers. In particular, he understood that a wrongful disclosure of information by an employee could amount to a breach of legal obligation owed by that employee to an employer.

11    “Colt” Hothorn (Hothorn) was Vice President and General Manager, Development International and, from 1994, onwards was responsible for development in Europe, the Middle East, Africa and Asia-Pacific including Australia.

12    Roy Blauer (Blauer) was Senior Vice President of Operations for the USA and Vice President responsible for operations in Australia. He held those positions from February 1994 until 1996.

13    Marc Gough (Gough) was Director of Marketing for Australia and the Asia-Pacific region from March 1995 onwards.

14    Will Gooden (Gooden) was the Finance Director during the entire period relevant to the proceedings.

15    Stephanie Driscoll (Driscoll) was a member of BKC’s finance department between April 1993 and December 1996. She was a member of BKC’s franchisee financial analysis group and reported directly to Gooden.

16    Tony Power (Power) was BKC’s Development Manager in Australia from July 1994.

17    Terry Horowitz (Horowitz) was Franchise Manager, Australia and New Zealand from May 1994 until January 1997. He was based in Australia.

Principal Personalities: HJPL

18    John James “Jack” Cowin (Cowin) was the Chairman and Managing Director of Competitive Foods Australia Pty Limited (Competitive Foods) and HJPL from 1969.

19    Jim Montgomery (Montgomery) was the National Development Manager of HJPL.

20    Stephen McCarthy (McCarthy) was the Franchise Recruitment and Development Manager for New South Wales and the Australian Capital Territory from 1992.

21    John Mazzone (Mazzone) was HJPL’s Development Manager in Victoria and also assisted Montgomery on national development matters.

22    Malcolm Green (Green) was the Operations Manager for HJPL from July 1994. Prior to that he had been the Western Australian state manager.

23    John Butler (Butler) was a Director of and Company Secretary for HJPL.

24    Warren Honkey (Honkey) was HJPL’s Franchise Operations Manager.

25    James Wilson (Wilson) was HJPL’s National Marketing Manager.

Overview of Contractual Arrangements Between the Parties

26    On 1 June 1986, after a period of disputation, BKC and HJPL entered into an agreement (the 1986 Agreement), whereby HJPL was granted a non-exclusive right to develop and to be franchised to operate Burger King Restaurants in Western Australia, South Australia and Queensland. The other states and territories of Australia were not included in the grant: Article I. The Agreement provided for three stages of development within specified time frames. Strict adherence to the development schedule was made of the essence of the agreement.

27    However, further disputes arose between the parties giving rise to a new development agreement (the 1989 Agreement) stated to be “effective as of 4 August 1989”. This agreement differed in one significant respect from its predecessor, in that, under Article I, HJPL was granted the exclusive right to develop and to be franchised to operate Burger King restaurants throughout “all of the states and territories comprising the entire country of Australia”.

28    The development schedule in the 1989 Agreement also provided for staged development but on a more intense scale than required by the 1986 Agreement. Strict adherence to the development schedule at each stage was required and was stated to be of “the essence of [the] Agreement”.

29    The 1989 Agreement did not effectively resolve the parties’ then difficulties and in late 1990 four agreements (the 1990 Agreements) were entered into in total settlement of the dispute. The agreements, each made 13 November 1990, were:

(i) The Settlement Agreement

(ii) The Service Agreement

(iii) The Registered User Agreement, and

(iv) The Development Agreement.

These proceedings principally arose out of BKC’s purported termination of the Development Agreement.

Overview of Events Leading to Termination

30    The Development Agreement conferred upon HJPL the non-exclusive right to develop and to be franchised to operate Burger King restaurants in Australia. Under that Agreement HJPL was required, either by itself or through a third party franchisee, to develop and open for business a minimum of four new Burger King restaurants per year in Western Australia, South Australia and Queensland: cl 2.1. The Development Agreement also provided for non-exclusive development rights in the other Australian states and territories.

31    Clause 4.1 of the Development Agreement required HJPL to obtain individual franchises for each restaurant developed under the Agreement. This involved complying with a number of procedures including entering into a further agreement, known as a Preliminary Agreement, which provided for conditional franchise approval in respect of nominated sites and to have certain approvals, namely operational, financial and legal approval at the time of application for a franchise agreement for a newly developed restaurant.

32    Notwithstanding that the 1990 Agreements were intended to be in settlement of the disputes then affecting the parties, it soon emerged that BKC was seriously reviewing its role in the Australian market with an eye to increasing its own direct participation. Its deliberations during this period included a consideration of buying out HJPL, either directly or through a third party, or entering into a joint venture, in which it would maintain overall control. As it was not part of HJPL’s corporate plan at that time to sell, it was obvious that tensions between the two were likely to develop.

33    From late 1991 until 1993 there were a series of disputes between the parties in respect of a wide range of issues including signage, trademarks, operational issues, new stores and third party franchisees. These culminated in BKC serving a Notice of Dispute upon HJPL on 19 November 1992 and a Notice of Default on 3 February 1993. These notices were the subject of continuing negotiation throughout 1993 and were either not pursued or were resolved.

34    1993 saw another phase of development in the relationship between BKC and HJPL. Commencing in about the middle of the year, there were discussions between BKC and Shell as to the feasibility of using Shell service station sites as Burger King outlets. The details of this development will be discussed later in these reasons. HJPL was advised of this development in February 1994. From March, HJPL was included in what became a tripartite test arrangement between BKC, Shell and HJPL.

35    In June 1994, BKC established a new corporate entity in Australia, Burger King Australia Limited. Blauer and Horowitz were appointed its directors. Power was appointed Development Manager. For the first time, BKC had operational staff in Australia. However, the principal decisions were still made by BKC in Miami.

36    In September 1994, the Shell proposal took a new turn when BKC and Shell commenced discussions to pursue a bipartite relationship which excluded HJPL. HJPL was not advised of this development until May 1995, by which time Shell had clearly decided to pursue its own relationship with BKC. These circumstances gave rise to the breach of fiduciary duty claim by HJPL.

37    In about March 1995, BKC replaced the Preliminary Agreement with a new Target Reservation Agreement (TRA). This introduced two significant changes. First, it levied a “non-refundable deposit” of US$10,000 for each new restaurant to be opened. Secondly, it overrode HJPL’s preferential rights under cl 7.1 of the Development Agreement.

38    In 1995, three further significant matters occurred in the BKC/HJPL relationship. BKC imposed a freeze on HJPL recruiting third party franchisees. It also withdrew financial and operational approval from HJPL. The effect of these actions was to impede HJPL’s development of new outlets. The impact of this was critical as HJPL was required under the Development Agreement to develop a minimum of four stores in Western Australia, South Australia and Queensland each year.

39    Another issue developed significantly in 1995. Commencing in 1992 the initial terms of a number of original franchise agreements expired. By 1995, the initial terms for restaurants at Fulham, Strathpine, Claremont, Ipswich, Springwood, Balga, Barrack Street Perth, Beak House, Brisbane, Bunbury and Bull Creek had expired. These stores were referred to as “successor stores” and an agreement for a further term pursuant to the franchise agreement was referred to as a “successor agreement”. However, BKC did not in the first instance offer HJPL successor agreements. Rather, it offered a series of Extension Agreements. The Extension Agreements were a means whereby BKC extended the initial term of the franchise agreements for a period to enable capital improvements to be carried out before BKC granted a successor agreement. By the second half of 1995, BKC began to threaten that it would not issue any more Extension Agreements if the necessary work was not completed, and in that circumstance the stores would have to be closed.

40    As from 1 January 1996, BKC changed the terms of the Extension Agreement, so as to provide that there would be no further extension, except in its discretion, and HJPL waived and released BKC from any claim that BKC had not provided a reasonable opportunity to comply with the requirements for obtaining a renewal of the franchise. A number of these new forms of agreement were entered into in 1996. HJPL contends, inter alia, that it entered into them under a mistake. This issue became known in the proceedings as the Successor Store issue.

41    By two separate notices, each dated 18 November 1996, BKC purported to terminate the Development Agreement for breach. The first notice (the Shorter Notice) particularised HJPL’s failure to develop new restaurants as required by cl 2.1 as the breach giving rise to the right to terminate. The second notice (the Longer Notice) alleged a number of breaches relating to a sunglass promotion campaign, advertising without approval and improper trademark use.

42    A third notice was given on 8 September 1997 (the 1997 Notice of Termination) after the commencement of proceedings against the possibility that the earlier notices were held to be invalid.

43    At the time the Shorter and Longer Notices were given, HJPL was operating 148 Hungry Jack’s restaurants and operating another two restaurants controlled by Shell on service station sites. Eighteen Hungry Jack’s restaurants were operated by third party franchisees and HJPL provided training and other services to those restaurants. Over the six year period from November 1990 until November 1996, HJPL had paid royalties to BKC exceeding $20 million.

44    HJPL challenges the validity of each notice of termination. It also alleges that, at the time of issue of the notices, BKC was itself in breach of the Development Agreement and, therefore, not entitled to give any Notice of Termination. The breaches alleged by HJPL arose out of the third party freeze and the alleged wrongful withdrawal of financial and operational approval.

45    HJPL was substantially successful in the proceedings and was awarded damages for delay in opening company-owned restaurants, for loss of opportunity to introduce third party franchisees, and for equitable compensation for the loss of service royalties for restaurants opened at seven Shell service stations and for the loss sustained by HJPL as a result of three Shell restaurants being opened in the near vicinity of existing Hungry Jack’s restaurants. This last head of damages was referred to in the proceedings as the “cannibalisation claim”. In addition to the challenges on liability, BKC challenges his Honour’s quantification of the damages.

46    Rolfe J also ordered that the Extension Agreements for Fulham, Springwood, Strathpine, Claremont, Ipswich, Balga and Barrack Street and a form of agreement, called a Successor Agreement, for Springwood, Strathpine, Claremont and Ipswich be set aside. He further ordered that BKC offer to HJPL a new franchise agreement for a further term of 15 years for those seven stores, as well as for the restaurants at Bunbury, Beak House Brisbane and Bull Creek. BKC offered the new franchise agreements and on 10 February 2000 new agreements were entered into in respect of all stores but Barrack Street. A distinct issue had arisen in respect of that store and there was a separate hearing in relation to it. HJPL relocated this store to Murray Street and the proceedings in respect of that store became known by that name. HJPL was successful in those proceedings and his Honour extended the time previously ordered to offer a new franchise agreement in respect of that store. That new franchise agreement was entered into on 21 August 2000.

47    HJPL contends that even if BKC is successful on the successor store issues it cannot now have the renewed franchise agreements set aside. Put shortly, it was said that those agreements, having been entered into pursuant to the Court’s orders, stand according to their terms and any challenge on this point is moot.

Introduction to Issues on Appeal

48    Some of the issues on the appeal have been referred to in passing. However, as a point of reference to these reasons, we identify below the issues in the case in the order we deal with them in the judgment.

The Issues

(i) the validity of the Shorter Notice of Termination; and in particular -

(a) whether, upon its proper construction, HJPL was in breach of the obligation to develop restaurants in accordance with cl 2.1 of the Development Agreement;
(b) whether, if HJPL was in breach, it was necessary for BKC, pursuant to cl 15.2 of the Development Agreement, to give a 30 day notice to cure any breach before a Notice of Termination could be given for breach of cl 2.1;


(ii) whether BKC had, in any event, as at the date of the Shorter Notice, a right to terminate at common law on the basis that cl 2.1 was a condition of the Development Agreement which required strict compliance with the development schedule;

(iii) whether there were implied terms of good faith and reasonableness in the Development Agreement;

(iv) whether, if there were implied terms of good faith and reasonableness, there was breach of those terms and of the implied term of co-operation (the implication of which was not disputed) because of the conduct of BKC in -

(a) imposing a third party freeze on HJPL by refusing to permit HJPL to recruit new third party franchisees;
(b) withholding financial disapproval (the financial disapproval issue);

(c) withholding operational approval (the operational disapproval issue);

(v) the validity of the Longer Notice of Termination, and in particular -

(a) whether, assuming there was a breach of cl 6.5 of the Development Agreement which required, in brief, that HJPL comply with all applicable statutory regulations and BKC’s advertising standards, and submit all advertising to BKC for prior approval, BKC was entitled to terminate under cl 15.1;
(b) if BKC was entitled to terminate under cl 15.1, whether it was first required to give a 30 day notice to cure under cl 15.2;
(c) whether there was, in fact, a breach of cl 6.5;


The particular factual matters in issue were a sunglasses promotion, trade mark breaches and advertising breaches;

(vi) the Successor Store issue, and in particular -

(a) whether his Honour’s order that BKC enter into franchise agreements for a further term of 15 years for Hungry Jack’s restaurants at Fulham, Springwood, Strathpine, Claremont, Ipswich, Balga, Barrack Street Perth, Bunbury, Beak House Brisbane and Bull Creek can now be challenged (‘the moot point issue’);
(b) whether HJPL was acting under a mistake when entering into the Extension Agreements and the agreements entered into in 1996 (called Successor Agreements but which were in fact conditional agreements prior to entry into a franchise agreement for the renewed term);
(c) whether the failure of BKC to advise HJPL of Montgomery’s actions gave rise to accessory liability;
(d) the construction of cl IX(A) of the franchise agreement;

(vii) the Murray Street appeal;

(viii) the validity of the 1997 Notice of Termination: this issue involves the consideration of alleged trade mark breaches as well as the questions which arise under the successor store issue;

(ix) the Shell issue, to which reference has already been made;

(x) damages, and in particular whether HJPL is entitled to -

(a) damages for delay in opening company owned restaurants;
(b) damages for loss of opportunity to introduce third party franchisees;
(c) equitable compensation for loss of service royalties;
(d) damages for the cannibalisation claims;
(e) the amount of such damages.


THE 1990 AGREEMENTS

The Settlement Agreement

49    The Settlement Agreement might be described as the umbrella agreement. It recited that there had been differences between the parties which they had agreed to resolve by entry into the 1990 Agreements. Schedule 3 catalogued the “Matters in Dispute”. The substantive provisions of the Settlement Agreement terminated certain of the existing agreements, in particular the 1986 Agreement. It specified which other agreements, including existing franchise agreements, remained on foot and approved the then existing unapproved restaurants and sites. It also provided that it was agreed that the 1989 Agreement was not to be binding on the parties.

The Development Agreement

50    The Development Agreement replaced the 1986 Agreement, making provision for the future development of Burger King restaurants in Australia by HJPL: Recital F. It both conferred a right to and imposed an obligation on HJPL to develop Burger King restaurants. It was intended that this would be done under the Hungry Jack’s banner. Thus by cl 1 HJPL was granted:

“… a non-exclusive right to develop and, subject to the full satisfaction of the terms and conditions of this Agreement, to be franchised to operate Burger King Restaurants in Australia.”

51    Clause 2 imposed the obligation on HJPL to develop Burger King restaurants:

“2. Development Schedule
2.1 HUNGRY JACK’S or any BKC franchisee introduced by HUNGRY JACK’S to BKC shall develop and open for business in Australia in accordance with the franchise and site approval procedures described in this Agreement a minimum of four (4) new Burger King Restaurants per annum commencing on 12 November 1990 in the area comprising Western Australia, South Australia and Queensland (‘the Development Schedule’).
2.2 If delay in meeting the Development Schedule is caused by acts of God, labor strikes, shortage of building supplies or other unforeseeable events beyond the reasonable control of HUNGRY JACK’S, then BKC after an independent examination of the underlying facts will not unreasonably withhold its consent to a reasonable extension of time to meet the Development Schedule.”

52    We will refer to the number of restaurants to be developed under cl 2.1 as the development schedule and the three states in which development was required under the clause as the development states.

53    A central issue in the proceedings is whether cl 2.1 was an essential term so as to give rise to a common law right of termination. The terms of cl 3, and 3.2 in particular, are relevant to this question.

54    Clause 3 provided for a five year term with provision for three terms of renewal as follows:

“3. TERM
3.1 The term of this Agreement shall be five (5) years commencing on 13 November 1990.
3.2 Upon expiration of that term, provided that HUNGRY JACK’S shall have opened 20 (20) Burger King Restaurants during the previous five (5) years (with a minimum of two (2) restaurants per annum) in the area comprising Western Australia, South Australia and Queensland in accordance with the franchise and site approval procedures described in this Agreement, HUNGRY JACK’S shall have the right to renew this Agreement upon the same terms for a further period of five (5) years, at the expiration of which, subject to the same proviso, HUNGRY JACK’S shall have the right to renew this Agreement upon the same terms for a further period of five (5) years, at the expiration of which, subject to the same proviso, HUNGRY JACK’S shall have the right to renew this Agreement upon the same terms for a further period of five (5) years.”

55    Clause 4 specified the procedures and conditions necessary for HJPL to be entitled to be franchised in respect of each restaurant developed under the Development Agreement. Its terms and their proper construction are at the core of the dispute between the parties. Clause 4 provided:

“4. DEVELOPMENT PROCEDURE
4.1 This Agreement does not constitute a franchise for the operation of a Burger King Restaurant but is intended by the parties to set forth the terms and conditions which, if fully satisfied, would entitle HUNGRY JACK’S to individual franchises for each restaurant to be developed under this Agreement. HUNGRY JACK’S must apply for and obtain franchise and site approval from BKC for each restaurant to be established pursuant to this Agreement through BKC’s standard franchise and site approval procedures, including, without limitation, submitting the then current Multiple Franchise Application, Management Committee Form, Capitalization Plan and Preliminary Agreement. As a condition to the granting of a Franchise Approval, HUNGRY JACK’S must have, in the sole discretion of BKC, operational, financial and legal approval at the time of application for a franchise. In this Agreement the terms operation, financial and legal mean:
(a) Operational
HUNGRY JACK’S conducts each of its Burger King Restaurants in accordance with the terms and conditions of this Agreement, the applicable Franchise Agreements, and the standards, specifications and procedures specified in the volumes comprising the Manual of Operating Data, as amended, including the maintenance of interior and exterior of the restaurants so as to reflect an acceptable Burger King image. HUNGRY JACK’S understands that changes in said standards, specifications and procedures may become necessary from time to time. HUNGRY JACK’S agrees to accept, as reasonable, said changes and HUNGRY JACK’S further agrees that it is within the sole discretion of BKC to make such changes.
(b) Financial
HUNGRY JACK’S has performed and is faithfully performing all terms and conditions under each individual Franchise Agreement issued, and is not in default of any money obligations owed by HUNGRY JACK’S to BKC. HUNGRY JACK’S acknowledges and agrees that it is vital to BKC’s interests that a franchisee be financially sound to avoid a business failure affecting the reputation and good name of the Burger King marks.
(c) Legal
HUNGRY JACK’S has promptly submitted to BKC all information and documents reasonably requested by BKC prior to and as a basis for the issuance and consummation of individual franchises, has taken additional action requested from time to time and is in compliance with all obligations under all agreements with BKC.
4.2 Failure to meet operational, financial or legal standards shall constitute grounds for refusing to grant or withdrawing a franchise approval and shall not extend, modify or reduce the development requirements of Clause 2.”

56    If and when franchise approval was obtained under cl 4, HJPL was then required to obtain site approval: cl 5. Site approval was a prerequisite to the grant of authorisation to construct a restaurant at a particular location.

57    Once site approval was obtained, HJPL was solely responsible for constructing the restaurant, which was to be “constructed, equipped and furnished with then current BKC approved plans and specifications”: cl 5.2(a).

58    Clause 6 contained a variety of provisions relating to fees and franchise agreements. Relevant to the issues on appeal are the terms of cl 6.5. It provided:

“6.5 HUNGRY JACK’S agrees to adhere to all applicable statutory regulations and to BKC’s advertising, sales promotion and public relations standards and all advertisements and other materials published circulated or exhibited shall first be approved by BKC. FRANCHISEE agrees to remove or discontinue immediately the use of any objectionable advertising material upon receipt of BKC’s notice; BKC or its authorized agent may at all reasonable times enter the premises to remove and destroy objectionable material without compensation to FRANCHISEE.”

59    Clause 7 made provision, first for HJPL to introduce third party franchisees to BKC to operate under the HJPL banner: cls 7.1 and 7.2; and secondly, for BKC to develop restaurants either directly or through third party franchisees: cl 7.3.

60    Any third party franchisee introduced under cl 7.1 was subject to the same approval procedures as applied to HJPL under cl 4.1, including having operational, financial and legal approval.

61    BKC’s right to develop or franchise restaurants in the development states was conditional upon HJPL’s prior approval provided HJPL was up to date with the development schedule: cl 7.3.

62    Clause 7.3 is also relevant to the question of whether cl 2.1 is an essential term of the agreement. It provided:

“7.3 Burger King may operate its own restaurants anywhere in Australia and may franchise third parties anywhere in Australia save that in the states of Western Australia, South Australia and Queensland if HUNGRY JACK’S is in compliance with the Development Schedule, the prior approval of HUNGRY JACK’S for the operation of any such restaurant must be obtained. Such approval may be withheld only if a Burger King Restaurant at that location would be likely substantially adversely to affect sales at another existing location or at a location for which an application for approval has been formally lodged with BKC. In the event of disagreement the question of likely substantial adverse effect shall be resolved in the same manner as under Clause 7.1.”

63    Clause 8 makes provision in respect of franchise fees for sites required to be developed by cl 2.1. In effect it gives HJPL a development incentive by providing, first, for the waiver of the franchise fee for each restaurant developed in accordance with the development schedule, and secondly, a further period of a year to make good the failure to comply with the development schedule. Its terms are relevant to the construction of cl 2.1 and the question of whether there was a breach of that clause so as to give rise to a right of termination. Its terms were:

“FRANCHISE FEES
8.1 Franchise fees payable by HUNGRY JACK’S in respect of restaurants operated by it shall be waived in any year commencing on 12 November so long as HUNGRY JACK’S adheres to the Development Schedule in that year. Any failure to adhere to the Development Schedule shall attract a liability to pay a franchise fee in respect of each restaurant required to be but not opened under the Development Schedule. Such franchise fees shall be paid at the end of the year following the failure, but not if such failure is made good by that time.

64    The franchise fee was a once only payment in respect of each restaurant.

65    Royalties were payable under each franchise agreement. Clause 9 of the Development Agreement provided for a reduction of the amount of royalty by half a percent in each of two situations:

(i) if HJPL provided services in accordance with the provisions of the Service Agreement to itself, to third party franchisees, BKC restaurants and franchisees introduced by BKC: cl 9.1(a);

(ii) for each HJPL restaurant which was “in compliance with BKC’s menu and brand image standards as specified in [the Development Agreement]” : cl 9.1(b).

66    Clause 9.3 provided:

“9.3 Nothing in this Clause 9 shall limit BKC’s rights in relation to any breach by HUNGRY JACK’S of its obligations under this or any other agreement.”

67    The standards referred to in 9.1(b) were specified in cl 10. In relation to menu, HJPL was required at all times to serve BKC’s base menu in its restaurants: cl 10.2. There was also provision for the sale of additional BKC products (cl 10.2); the ingredients to be used (cl 10.4); and the sale of non-BKC products (cl 10.5). Clause 10.6 provided for “Brand Image”. It required HJPL to comply with BKC’s written standards as to signage, menu board and the “use of the Burger King marks”.

68    Clause 11 dealt with trade marks and trade names. Clause 11.3, amongst other requirements, specified:

“11.3 … Use of the Burger King Logo shall also appear in all advertisements in form as approved by BKC. In all television advertisements, the Burger King Logo shall appear in the tag line or final frame of the commercials in a manner acceptable to BKC. Should HUNGRY JACK’S, having been notified by BKC that is in default under this provision, fail to remedy the default within three (3) weeks of such notification, BKC may, in addition to taking any other action that may be available to it, by its authorised representative take such steps as it considers necessary to remedy the default …”

69    Clause 11.4 required HJPL to enter into Registered User Agreements, in the form prescribed by BKC, authorising HJPL’s use of the Burger King marks. Pursuant to cl 11.5, HJPL was not permitted to use trademarks or trade names of BKC or any variation or abbreviation of marks or names without BKC’s prior authorisation.

70    Clause 12 was concerned with training and cl 13 with services available to the franchisee. Clause 14 was a dispute resolution clause.

71    Clause 15 provided for the right to terminate for default. It is one of the clauses which is critical to the determination of the issues between the parties, as BKC purported to terminate under its provisions on three separate occasions. It provided:

“DEFAULT
15.1 The occurrence of any of the following events shall constitute good cause for BKC, at its option and without prejudice to any other rights or remedies provided for hereunder or by law or equity, to terminate this Agreement.

(a) HUNGRY JACK’S fails to obtain site approval from BKC prior to the commencement of construction at a particular location.

(b) HUNGRY JACK’S fails at any time to meet and satisfy fully the operational, financial and legal requirements set forth in Clause 4, whether for the purpose of seeking franchise approval or in the day-to-day operation of a Burger King Restaurant.

(c) HUNGRY JACK’S assigns, encumbers, transfers or otherwise disposes of, or attempts to assign, transfer, encumber, or otherwise dispose of this Agreement in whole or in part, or of any Franchise Agreement other than in accordance with the provisions of the Agreement.

(d) HUNGRY JACK’S fails to comply with any of the other terms, provisions or conditions of this Agreement, any Franchise Agreement, or any other obligation owed to BKC.

(e) HUNGRY JACK’S seeks any type of relief under the provisions of a bankruptcy or insolvency law; or any person files a petition or application seeking to have HUNGRY JACK’S adjudicated a bankrupt and HUNGRY JACK’S does not take action to defend itself; or HUNGRY JACK’S admits in writing or upon oath the inability to pay debts as they mature; or a receiver (permanent or temporary) is appointed over any of HUNGRY JACK’S assets; or a final judgment is entered against HUNGRY JACK’S and is not paid or satisfied within thirty (30) days.

(f) HUNGRY JACK’S fails to obtain or renew any licences or permits necessary for the performance of HUNGRY JACK’S obligations under this Agreement or any Franchise Agreement.
(g) HUNGRY JACK’S opens a Burger King Restaurant without franchise approval, site approval, payment of any fees as required, or execution of all required agreements and documents.
15.2 In the case of any breach which is capable of being cured, BKC shall not terminate this Agreement unless and until HUNGRY JACK’S shall have failed to cure such breach within ten (10) days in the case of default of any obligation to pay money to BKC and within thirty (30) days in the case of any other breach after being notified by BKC of the nature of the default.”

72    Clause 16 provided:

“TERMINATION
16.1 Upon termination of this Agreement, whether resulting from default or expiration of the term of this Agreement, HUNGRY JACK’S shall have no further rights under this Agreement, but this shall not affect then existing Franchise Agreements.”

73    Clause 19 contained a severability provision. It provided that if construction of any clause rendered it “unlawful, void, voidable or unenforceable” then a construction which rendered it valid was to be adopted. It also contained a provision neutralising the contra proferentem rule, providing:

“The language of all provisions of this Agreement shall be construed according to its fair meaning and not strictly against BKC or [HJPL].”

74    The Development Agreement was governed by the laws of New South Wales: cl 25.

75    The other provisions of the Development Agreement are not presently relevant.

The Registered Users Agreement and the Service Agreement

76    Certain of the terms of the other 1990 Agreements are relevant to the issues on the appeal.

77    The Registered Users Agreement governed HJPL’s use of BKC’s trade marks. Clause 4 (a) required HJPL promptly:

“[to] comply with all reasonable directions regarding the manner of use of the Trade Marks issued from time to time by [BKC].”

78    Clause 4 of the Service Agreement governed the arrangements relating to staff training and education. Under this agreement HJPL was required to provide training for its own staff, for its third party franchisees and such other franchisees as BKC nominated from time to time.

79    The Service Agreement contains a convenient reference to the amount of the franchise fee which was payable as at the time the 1990 Agreements were entered into - namely $US25,000. There was no evidence of any change in that fee during the period relevant to the proceedings.

The Standard Franchise Agreement

80    A franchise agreement was required to be entered into for each store which was opened. BKC had a standard form of franchise agreement which was used worldwide. At the time HJPL entered into its early franchise agreements the standard from of the agreement was 15 years. Subsequently, BKC introduced a 20 year term.

383    Although there is already extensive reference to successor stores above, because the factual circumstances relating to that issue also occurred over a significant period, a schedule of successor stores is attached as Annexure F. In this regard, we note that there were in total ten successor stores. The 8 September 1997 Notice related to eight of those stores, including Murray Street. The trial judge set aside the Extension and Successor Agreements in respect of stores and ordered that BKC offer franchise agreements for a further term of 15 years in respect of the ten stores.

384    The proceedings were heard by Rolfe J over 66 days between 28 April 1999 and 21 September 1999. His Honour delivered judgment on 5 November 1999. As earlier indicated, there was a separate hearing in relation to the Murray Street Store which was not heard until 24 March 2000. Judgment in that matter was delivered on 30 March 2000.

385    The orders made by his Honour are Annexure G to these Facts.

386    His Honour made a separate order in the Murray Street proceedings which extended the date ordered in respect of that store as follows:

“The time within which the First Defendant is required to offer the Plaintiff the franchise agreement in relation to the restaurant at Murray Street, Perth … be extended for a further period ending 5.00pm 20 April 2000.”

387    On 30 November 1999 BKC sought a stay of execution of orders 1 and 2 (the money orders). On 14 December 1999 orders were made by consent on BKC’s application for a stay, staying execution of the money orders. No stay was ever sought in respect of order 4 concerning the successor restaurants.

388    On 17 January 2000, upon BKC’s application and by consent, Rolfe J extended the time for compliance with order 4 to 31 January 2000. Both prior to and after this, BKC required HJPL to provide information in respect of the successor restaurants as specified in cl IX of the franchise agreement and advised of its intention to inspect the restaurants.

389    The time for compliance with order 4 was extended a further time until 11 February 2000 and new franchise agreements for terms of 15 years for all the successor restaurants, excluding Murray Street, were entered into on 10 February 2000. BKC offered a new franchise agreement for Murray Street on 20 April 2000 subject to conditions including that HJPL agree to undertake certain renovations and other works.

390    On 14 June 2000, BKC entered into a long term lease of premises at Murray Street with an independent lessor and on 16 June it entered into a building contract for a restaurant on that site.

391    On 21 August 2000, BKC and HJPL entered into a new franchise agreement in respect of the Murray Street restaurant.

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