Burton Bakery Company Pty Ltd v Tran - [2015] SADC 47

DISTRICT COURT OF SOUTH AUSTRALIA
(District Court Administrative and Disciplinary Division: Minor Civil Review)
BURTON BAKERY COMPANY PTY LTD v TRAN AND ANOR
[2015] SADC 47
Judgment of His Honour Judge Tilmouth
26 March 2015
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES
Judgment given in small claims jurisdiction upheld on review.
(Avenue) WA Pty Ltd v Lazaline Pty Ltd [2007] WASC 173; Ewing International v Ausbulk Ltd (No 2) (2009) 267 LSJS 107; [2009] SASC 381; Jetcity Pty Ltd v Yenald Nominees Pty Ltd Unreported 9 April 1999, Supreme Court of Western Australia; Margush v Maddeford [2014] SADC 44, considered.

BURTON BAKERY COMPANY PTY LTD v TRAN AND ANOR
[2015] SADC 47
Background

By Business Sale Contract dated 7 March 2014, Burton Bakery Company Pty Ltd (Burton) agreed to sell to the Respondents, Duy and Kim Tran, a newsagency business in North Adelaide. The business included a Lotteries franchise. The purchase price was $70,000.
The date of taking possession and of settlement was nominated as falling between 27 April and 4 May 2014 and 28 of April and 5 May 2014 respectively. The operation of the business was subject to the approval of Tatts Lotteries SA Pty Ltd of the transfers of the lotteries licence and franchise. As it proved difficult to effect such approval, the parties agreed to a variation of the original agreement, by adding a special condition as follows:
FURTHER PAYMENT UPON LOTTERIES APPROVAL
1.   Notwithstanding the refusal of Tatts Lotteries SA Pty Ltd (“Tatts”) to transfer Lotteries Franchise associated with the Business, the Purchaser shall, from the date of settlement of this Contract, continue to negotiate with Tatts to obtain the required approval from Tatts for a transfer of the Lotteries Franchise to the Purchaser.
2.   Should the Purchaser obtain the approval of Tatts for a transfer of the Lotteries Franchise to the Purchaser within ninety (90) days of the date of settlement under this Contract, the Purchaser shall pay to the Vendor an additional amount of TWENTY THOUSAND DOLLARS ($20,000.00) as reimbursement of the reduction of the Purchase Price negotiated by the parties on account of the refusal of Tatts to transfer the Lotteries Franchise to the Purchaser.
3.   The Vendor acknowledges that should the Purchaser be unable to obtain the approval from Tatts for a transfer of the Lotteries Franchise to the Purchaser within ninety (90) days of the date of settlement, then no further payment will be made to the Vendor and thereafter neither party shall have any right, title or claim against the other in respect of any such further payment.
4.   The Purchaser shall exercise best endeavours to obtain the required approval from Tatts as required by this Special Condition.
In the fall of events detailed later the Trans failed to obtain the relevant approval for the Tattslotto licence within the 90 days referred to in this additional special condition. They did not pay the extra $20,000 agreed in the variation above the $50,000, on that contingency. A new Lotteries agency at the subject premises was not commenced until 17 September 2014, which falls some 45 days outside the 90 day period contemplated by the varied agreement. Burton sued in the Adelaide Magistrates Court in the minor civil jurisdiction claiming that sum, on the basis that the requisite approval for transfer was granted, and further claiming the Trans had not exercised their “best endeavours to obtain the required approval from Tatts as required by this Special Condition”.
The action came before a Magistrate, who on 11 December 2014 dismissed the claim for the payment to Burton of the $20,000. He also ordered Burton to pay $300 attendance fees. By an application dated 5 January 2015, review of this decision is sought, essentially on the same bases as agitated before the learned Magistrate. Although not expressed in the grounds of appeal as such, extensive submissions were made by Burton’s Managing Director, Mr Burton, as to the failure to take reasonable steps to secure the licence.
Approval from Tatts Lotteries SA
The Magistrate concluded that “a conditional approval is not an approval” and therefore did not satisfy the definition of transfer of the Lotteries Franchise as referred to in the special condition.
A letter of 7 July 2014 from SA Lotteries stated that the application for a new Lottery outlet “has been conditionally approved on condition of compliance with Tatts Lotteries SA’s current Retail Image Policy”, approvals to obtain to make fittings and alterations to the premises. That condition is reinforced by the following proviso expressed in the letter of 7 July:
Please note this approval is not granted for an indefinite period. In the event of any significant material changes occurring in the area prior to you commencing trade, Tatts Lotteries SA may conduct a further assessment of the application or alternatively require you to submit another application, which in either case may result in the original decision to approve the new site being reconsidered.
As to the first question, the Magistrate was plainly correct in determining that conditional approval did not equate with approval. The clause itself containing the special condition is constructed in such a way as to fix as a condition precedent to be first satisfied, before triggering the obligation to pay the additional $20,000. An approval which did not secure the licence was therefore, ineffective in the hands of the Trans, who may then have found themselves liable to pay the $20,000 and yet ultimately be left without the licence. The consensus on both sides seems to be that this business was not viable without the Tatts Licence and that it might have gross earnings of somewhere up to $1,200 per week in commissions, so that it was an important, if not central aspect of the special condition itself.
The same conclusion is equally consistent with general legal principle by which the preferable construction of comparable conditions is that the parties do not intend a conditional approval obliges them to complete a contract until the approval becomes unconditional: Strati v JAG Investments Pty Ltd;[1] (Avenue) WA Pty Ltd v Plazaline Pty Ltd;[2] Ewing International v Ausbulk Ltd (No 2).[3] That apart of the decision under review must therefore be dismissed.
[1] [1980] 1 BPR 9600, 9605
[2] [2007] WASC 173, [33]-[34].
[3] (2009) 267 LSJS 107, [2009] SASC 381, [362].
Best endeavours to obtain approval
The second aspect of the review relates to the obligation to use best endeavours to secure the requisite approval. This is rather more an exhausting, and to some extent, a sorry tale. After examining a volume of correspondence placed before him essentially by way of email, his Honour concluded that there was “nothing to suggest (the Trans) did not exercise their best endeavours to obtain the required approval from Tatts”.[4]
[4] At [15].
In an email to the Trans of 20 February 2014, the Retail Franchise Coordinator of Tatts Lotteries forwarded, an application form, a business plan template, a cashflow example and franchise information kit for their information. The necessary documentation fee was to cost $330 and the application was subject to an establishment fee of 1.1 per cent of the previous owner’s turnover, at $5,500 including GST. This raw figure suggests the franchise was reasonably lucrative.
Soon thereafter the Trans’ daughter, a solicitor practising in Sydney, became involved on their behalf, essentially by means of a power of attorney, rather than under a legal retainer. By 31 March 2014 it was pointed out by Tatts Lotteries that its requirements were that all partners of the partnership were required to fill out the application and attend an interview. Further correspondence on that issue was exchanged in early April 2014. By 24 April, Tatts Lotteries acknowledged receipt of an application which was “under review”, but that an assessment of the application could take up to six weeks. It was recommended to the Tran’s in the email that they “not take over the business until outcome is determined”.
On 1 May, Mr Burton informed the Trans their application had been declined, so late that afternoon, their daughter emailed the Retail Franchise Coordinator of SA Lotteries:
I am unsure if you are aware of the effect of not letting us know why the application has been declined.
She pointed out that settlement was delayed by a week to “accommodate Tatts Lotteries processes”, that they were left in a state of uncertainty as to whether they could purchase the business, and that the delay was affecting the goodwill of the business.
A letter dated 1 May 2014, advised that the “application ... has been rejected”, however it was sent later as it had yet to be signed. It pointed out that a number of criteria had to be met in order to secure approval, and referred to several selection criteria, as to which Tatts Lotteries SA “has not been satisfied in its reasonable opinion that the selection criteria has been met”. Unfortunately the letter did not nominate which of the criteria were not met. The letter once again repeated the advice not to purchase the business because they “could end up buying a business without Lotteries”. Their daughter responded:
..[that the] advice not to purchase the business prior to approval doesn’t really work as we would not have been able to submit an application without an executed contract of sale.
Another long letter of complaint from the Trans’ daughter of 2 May followed. She sought “further detail on exactly why their application has been rejected”. The letter also pointed out that they had already “run two other agencies and would be delighted to take on this third with great staff who can sell the Tattslotto product”. She anticipated they had the capacity to ‘turn the business around’ by selling “desirable stock lines that fill customer needs and excellent customer service”.
A fresh application form and other documents were forwarded again on 5 May 2014. An acknowledging email advised that if the application was successful, they would be required to “successfully complete Tatts Lotteries SA franchise program prior to settlement”. This required classroom training over two weeks. It also pointed out that prior to opening “you will also need to have completed the shop fit”.
In another email of 5 May, the daughter repeated her request for Tatts Lotteries to provide “further detail on why my parents application was rejected” and indicated they were considering setting up an entire new entity to make a fresh application. She requested an urgent response. She pointed out that settlement was due that day, suggesting that “without lotteries’ approval, we will terminate the Agreement with Burton ... [and] ... we will treat it as a brand new application”. A few minutes later another email was sent questioning why their application “did not meet the criteria”. It is these events which no doubt triggered the execution of the variation to the original agreement as detailed earlier.
By 7 May 2014 the Tran’s daughter had forwarded another application by email as well as a hard copy by express post that evening. As soon as 9 May she began enquiring whether Tatts Lotteries had all the information required to process the application, whilst at the same time pointing out the urgency of the matter as the shopping centre involved “has been left without a Tatts Lotto retailer and my parents are obviously keen to be interviewed and have the application processed at Tatts Lotteries earliest convenience”. By 12 May, the Trans were advised their application for a change of ownership of the newsagency was referred to an Incident Management Team. It continued that upon re-examining the assessment and after “thorough consideration” it regretted “to advise that the decision not to grant you approval for a Lotteries outlet remains unchanged”.
By 13 May 2014, receipt of a third application to become a Tatts Lotteries SA agent was acknowledged. The acknowledgement advised of an interview set for 20 May 2014, to assess their suitability as an agent and asking them to bring a copy of their business plan to the interview. At all events this application was further rejected on 26 May 2014 in virtually identical terms to the letter of 1 May 2014, singularly failing once again to point out what the deficiency or problem was. This refusal led to an enquiry of 27 May seeking “some specific information as to why my parents application was rejected yet again”, and by 2 June 2014, requesting a review or appeal of this refusal.
Yet another application was submitted in the name of their daughter, and acknowledged by an email by Tatts Lotteries SA on 3 June 2014, the progress of which was subject of an enquiry on 12 June by her. An interview was arranged for 5 June 2014 to assess suitability as an agent and tentatively booking the required training (referred to earlier) for the last week of June and the first week of July 2014. Tatts again repeated the request for the copy of a business plan to be brought to the interview of 5 June. Further enquiries as to the progress of the application were made on 12 June and again on 16 June by their daughter, who pointed out that she had been interviewed two weeks earlier “but have yet to receive a communication as to the outcome”.
However, by 3 July 2014 their daughter was advised that a letter of “conditional approval” would be posted out that day. It advised the requisite training was scheduled for the last week of July and the first week of August 2014, which in fact was later undertaken. A formal letter of conditional approval was drawn up on 7 July, which contained the qualification quoted earlier.
It was in the background of these events that Burton complains the Trans did not employ their best endeavours to secure the transfer of Burton’s original licence. It was submitted that they failed to submit the appropriate business plan in due time. However it emerges from the above correspondence that a business plan was only required to be taken to the relevant interview. There was no suggestion that such business plans were not provided at those stages. In fact, the evidence was that on 7 May 2014 a first business plan was annexed to the email of that date and a second was attached to an email of the 30 May 2014. Copies of both were provided during the review, the existence of which were already known to Burton.
As noted above, the learned Magistrate read the communications with Tatts Lotteries and found there was “nothing to suggest any delay on her part in progressing the application”.[5] His Honour also noted that as the special condition provided $20,000 was to be paid on approval of the transfer of the licence, which had not taken place, so the obligation to pay the additional $20,000 had not been triggered. I agree with his tentative conclusion that this was “a further bar to the consideration provided for in the special conditions becoming available”.[6]
[5] At [7] and [11].
[6] At [13].
The above events reveal a sorry state of events. The difficulties and delays the Trans had in satisfying the Lotteries’ requirements were compounded by the refusal to identify precisely what the problems were. The correspondence clearly demonstrates their daughter was an articulate and persistent interlocutor on their behalf. She proved to be quite active in pursuing the applications, enquiring about progress, and anxious to meet any and all requirements once they were specified by Lotteries, so as to secure the licence.
There was nothing tardy in what was done. On the contrary, it appears the Trans, through their daughter, were very anxious about the applications and through her pursued their applications with some zeal.
There is moreover, another telling consideration. Although precise figures were not disclosed, the establishment fee based on a 1.1% commission for the Lotteries licence suggests that it was a valuable commodity. During the review, it was suggested by Ms Tran that the Lotteries licence was capable of bringing in commissions of $1,200 per week, so that over the period of the delay in question, they had lost more than $20,000. Mr Burton on behalf of Burton, the holder of the previous licence over seven years, did not refute these estimates. He freely volunteered that the business was not viable without the Lotteries licence. This fact alone demonstrates the Trans had every reason to pursue the licence transfer with some vigour, on account of the financial implications, which based on the above materials, there can be no doubt that they did. Clause 4 of the special conditions required the Trans to act honestly and reasonably, and that they did: Jetcity Pty Ltd v Yenald Nominees Pty Ltd;[7] Margush v Maddeford.[8]
[7] Unreported 9 April 1999, Supreme Court of Western Australia.
[8] [2014] SADC 44, [28].
Conclusions and orders
It must follow therefore that although Burton Bakery itself has not done anything with which one could find fault, the fact of the matter is that the special condition triggering the right to claim the $20,000 was not satisfied, whereas the obligation on the Trans to undertake their best endeavours to secure the transfer, was. The application for review is therefore dismissed. There will be no order with respect to costs at the review.