Century 21 Australia P/L v Jlink P/L & Smith - [2015] SADC 58

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
CENTURY 21 AUSTRALIA P/L v JLINK P/L & SMITH
[2015] SADC 58
Judgment of Her Honour Judge McIntyre
20 April 2015
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - PENALTIES AND LIQUIDATED DAMAGES
The plaintiff is a real estate franchisor. The first defendant entered into a franchise agreement with the plaintiff. The second defendant, who is the sole director and shareholder of the first defendant, guaranteed the first defendant’s performance of the franchise agreement. The plaintiff’s claim is against the first defendant in contract and the second defendant pursuant to the guarantee. The claim arises from the early termination of the franchise agreement. The defendants resist the claim saying that the plaintiff agreed to the termination of the agreement and to waive all rights and obligations under the terms of the agreement. In the alternative the defendants raise a number of defences as to the enforceability of certain clauses of the agreement and contend that the plaintiff failed to mitigate its loss. The defendants cross claim under the Competition & Consumer Act 2010 for misleading and deceptive conduct.
Held:
1. The plaintiff did not agree to the early termination of the contract or to waive its rights under the agreement
2. The plaintiff did not engage in misleading or deceptive conduct
3. The plaintiff was entitled to terminate the contract for breach and did so in or about November 2011.
4. Clause 19A of the agreement is not a penalty clause and the parties are bound by it.
5. The plaintiff did not fail to mitigate its loss.
6. The plaintiff is entitled to judgment in this matter in the sum of $164,433.15 plus interest and the cross claim is dismissed.
7. Clause 21 of the agreement does not entitle the plaintiff to recover its costs on an indemnity basis. Costs are to be assessed on the usual principles.
Competition and Consumer Act 2010 , referred to.
Bampton v Viterra Ltd [2014] SADC 170; O'Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359; Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656; Andrews v ANZ Banking Group Ltd (2012) 247 CLR 205; Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79; Micarone v Perpetual Trustees Australia Ltd (No 2) [1999] SASC 533; Re Adelphi Hotel (Brighton) Ltd [1953] 1 WLR 955; Essential Beauty Franchising (WA) Pty Ltd & Ors v Pilton Holdings Pty Ltd & Ors (2014) 120 SASR 433; TC Industrial Plant Pty Ltd v Robert's Queensland Pty Ltd (1963) 180 CLR 130; Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452, considered.

CENTURY 21 AUSTRALIA P/L v JLINK P/L & SMITH
[2015] SADC 58

The plaintiff is a real estate franchisor with around 268 offices across Australia and New Zealand. The second defendant is a real estate agent and the sole director and shareholder of the first defendant. This dispute arises out of the early termination of a franchise agreement between the plaintiff and the first defendant following a meeting between the plaintiff’s national franchise manager and the second defendant in October 2011.
The plaintiff’s claim is against the first defendant in contract and the second defendant pursuant to a guarantee. The defendants admit each of the elements of the plaintiff’s claim both under the contract and the guarantee subject to some special defences. The defendants cross claim under the Competition & Consumer Act 2010 for misleading and deceptive conduct.
For the reasons that follow I find that the plaintiff is entitled to judgment in this matter in the sum of $164,433.15 plus interest and I dismiss the cross claim.
Issues
The issues in this matter are:
1.What was said at the October meeting and what are the consequences?
2.Is clause 19A enforceable?
3.Did the plaintiff fail to mitigate its loss?
4.What is the effect of clause 21 on the question of legal costs?
Witnesses
Two witnesses were called by the plaintiff; Wayne Johnson the National franchise manager for Century 21 at the relevant time and Mr Paul Mylott, the General Manager of Century 21. Both Mr Johnson and Mr Mylott gave clear and compelling evidence that was congruent with the contemporaneous records.
The second defendant Ms Joanne Smith and her former employee Ms Alecia Stolz gave evidence. Ms Smith was formerly known as Ms Lemmer and is, from time to time, referred to in transcript as Joanne or Jo Lemmer. To avoid confusion, I refer to her as Ms Smith or the second defendant throughout these reasons.
Ms Smith appears to harbour great dissatisfaction with Century 21. This has, I find, coloured her perception of events. She was a somewhat discursive and excitable witness. Making every allowance for the fact that she clearly found the process of giving evidence about these matters distressing, I consider that her evidence overall lacked cogency and consistency.
Ms Stolz gave clear evidence but for the reasons that follow it is my view that much of her evidence was coloured by her relationship with Ms Smith and her limited understanding of the commercial matters at the heart of this dispute.
In general terms I was more persuaded by the evidence of Mr Mylott and Mr Johnson and accept their evidence in preference to that of Ms Smith and Ms Stolz where it conflicts.
Background
Century 21 is an American franchise originally brought to Australia in 1989. In 1995 Charles Tarbey purchased the full rights to operate Century 21 in Australasia, Australia and New Guinea. Century 21 has around 268 franchisee offices across Australia and New Zealand. In Australia there are approximately 250 individual franchisee operations across five States.
Mr Tarbey, the owner, has the ultimate right of acceptance in respect of new franchise agreements and renewals; Mr Mylott is his second in charge as the General Manager and Mr Johnson was, at all relevant times, the third in line as the national franchise manager. Mr Johnson worked at a similar level to the national franchise co-ordinator who was, at the relevant time, Dianne Rankine.
Mr Mylott gave evidence that was not challenged about the manner in which Century 21 manages its compliance obligations under the relevant legislation and in particular the Franchising Code of Conduct (the Code). The plaintiff’s procedures utilise checklists and documentation prepared under the supervision of the national franchise co-ordinator whose role is to ensure that all documents are completed in the correct manner. All franchise matters are then referred to Mr Mylott for further checking. He then forwards all new agreements and renewals to Mr Tarbey for approval and signature.
The second defendant, Ms Smith, and her then business partner Mr Jason Irwin were the sole directors and shareholders of JJ Real Estate Pty Ltd. JJ Real Estate Pty Ltd commenced as franchisee of the plaintiff in 1999. The franchise business operated under the name ‘Century 21 Hills & Valley’ from premises in Blackwood in the Adelaide Hills. The franchise ran very successfully and profitably. The Century 21 Hills & Valley franchise and Ms Smith won a number of awards from the plaintiff in recognition of this.
The franchise agreement was for a five-year period with an option for renewal. JJ Real Estate Pty Ltd renewed the franchise agreement for another five years in 2004; and the second defendant and Mr Irwin continued to conduct the franchise business from Blackwood.
The second franchise agreement was due to expire on 20 September 2009. The plaintiff sent renewal documentation to Ms Smith and Mr Irwin by letter dated 8 December 2008.[1] Mr Irwin did not however wish to continue in business with the second defendant. The second defendant sought to continue the franchise business on her own account and incorporated the first defendant for that purpose. The second defendant apparently experienced some difficulties in reaching an agreement with Mr Irwin as to the dissolution of their business relationship. This delayed the signing of a new franchise agreement with the plaintiff. The second defendant continued to operate under the business name ‘Century 21 Hills & Valley’ out of the Blackwood premises without a franchise agreement but with the consent of the plaintiff. The first defendant and the plaintiff entered into a franchise agreement in substantially the same terms as previous agreements in mid to late 2010 (‘the franchise agreement’).[2] The date of the agreement is controversial.
[1] Exhibit P1, Tab 1
[2] Ex P1, Tab 18
The franchise agreement granted the first defendant the rights to operate a real estate agency connected with the plaintiff for a period of 5 years commencing on 1 April 2010 and expiring on 31 March 2015 under the name ‘Century 21 Hills & Valley’. At the same time the second defendant entered into a deed of guarantee and indemnity (‘the guarantee’) under which she inter alia guaranteed payment of all monies due and payable to the plaintiff by the first defendant under the terms of the franchise agreement.[3]
[3] Ex P1, Tab 18
The second defendant, Ms Smith, is an innovative and creative person. She had formed some new ideas related to the manner in which she conducted her business. In particular she wished to generate a greater Internet focus and to expand her business into providing services related to real estate services. In 2011 she entered into negotiations with the plaintiff to change the name of her business from ‘Century 21 Hills & Valley’ to something that she considered more suited to her new focus. There was a meeting in October 2011 between the plaintiff’s national franchise manager, Mr Johnson, and Ms Smith, to discuss this issue. The meeting is contentious and is at the centre of the present dispute between the parties.
The defendants’ position is that during the course of the meeting the parties reached a binding oral agreement to terminate the franchise agreement with immediate effect and that the plaintiff agreed to waive all of its rights under the terms of the franchise agreement.
The plaintiff’s case is that the second defendant indicated her wish to bring the franchise agreement to an early conclusion and that he invited her to put forward a written proposal to do so within the terms of the franchise agreement. She did not do so and, following some correspondence between the parties, the plaintiff issued a notice of termination for breach on 18 November 2011.[4] The plaintiff says that, as a result of the early termination, the franchise agreement requires the first defendant to promptly pay all monies owing to the plaintiff under the franchise agreement including lost future profits.
[4] Ex P1. Tab 40
It is agreed that clause 19A of the franchise agreement provides for calculation of lost profits in the event of early termination and that the calculation for this matter is $164,433.15. The defendants however say that this clause is not enforceable.
The plaintiff says that the first defendant is in breach of the franchise agreement and has failed to remedy the breach or pay the amount owing to the plaintiff. On or about 22 February 2012, the plaintiff demanded payment of the amount it contends is owed by the first defendant from the second defendant under the terms of the deed of guarantee and indemnity. The plaintiff says that the second defendant is in breach of the guarantee by failing to pay that amount.
Preliminary issues
The date upon which the franchise agreement was signed is controversial. The plaintiff says that the agreement was entered into on or about 11 June 2010. The defendant says that the franchise agreement was entered into on or about 17 August 2010.
The plaintiff tendered, by consent, a copy of a franchise agreement dated 11 June 2010.[5] There is no agreement tendered dated 17 August 2010.
[5] Ex P1 Tab 18
Mr Johnson gave evidence about the circumstances of the execution of the franchise agreement. Specifically, he said that the franchise document was prepared by March 2010 and that he dropped them into the defendants’ offices in late March 2010. He identified a document dated 27 April 2010 as an acknowledgement signed by the second defendant that she had received the franchise agreement and various documents required under the provisions of the Franchise Code.[6]
[6] Ex P2
Mr Johnson said that he experienced difficulties getting the franchise agreement signed and that he sent a number of emails to the defendants on that topic. He then identified his signature and that of Ms Smith on the tendered franchise agreement dated 11 June 2010. He said he was at Ms Smith’s residence in Blackwood when she signed the documents. He was the witness to her signature.[7]
[7] T40-43
Mr Johnson said that subsequent to the signing of the agreement Ms Smith again raised an issue that she had previously raised in relation to Mr Irwin. She was concerned that Mr Irwin might be granted a franchise at Aberfoyle Park and enter into competition with her. Mr Johnson said that he discussed the issue with Mr Mylott and that following this Century 21 indicated that it was prepared to provide written notice that they would not open a franchise location in Aberfoyle Park during the term of the franchise agreement.
Mr Johnson said they effected that by taking the original preliminary approval letter and putting in an additional clause dealing with the agreement about Aberfoyle Park. They did not amend the franchise agreement that had been signed. Somewhat confusingly there are three documents in evidence which appear to be preliminary approval letters. Two are dated 3 March 2010 and entitled ‘Preliminary Approval Letter’.[8] The first of these appears to be the initial letter advising that the first defendant’s application to be affiliated with Century 21 had received preliminary approval subject to signing the franchise agreement. That letter does not mention Aberfoyle Park. The second letter bearing the same date is in the same terms but includes a further paragraph 18 that reads:
18.The franchisor agrees not to approve another franchise location in the suburb of Aberfoyle Park for the term of this agreement subject to the franchisee providing a written outline of the plan for growth over the short to medium term by no later than 31 July 2010. In the event that such a plan is not delivered to the franchisor, this right will revert to a simple ‘first right of refusal’.
[8] Ex P1 Tab 9
That document is counter-signed by the second defendant and dated 16 August 2010.
The other letter entitled ‘Preliminary Approval Letter’ is dated 24 June 2010.[9] It is in precisely the same terms as the other approval letter with the additional clause relating to the topic of Aberfoyle Park. This is not signed by the defendant. I note an email from Mr Johnson to the second defendant dated 8 July 2010 seeking to arrange a meeting to get a letter signed. The subject of this email is ”Amended Approval Letter discussing Aberfoyle Park”.[10]
[9] Ex P1 Tab 19
[10] Ex P1 Tab 20
Ms Smith gave evidence that she signed the ‘paperwork’ on 17 August 2010. She was not very clear about what that paperwork entailed but appeared to be suggesting that it was the franchise agreement because she said that Mr Johnson had been pressing her to sign and was concerned that she might be ‘snapped up’ by a rival company.[11] In the course of giving this evidence, she was taken to a document apparently signed by her on 11 June 2010 entitled ‘Franchise Agreement Acknowledgement by Franchisee’.[12] Ms Smith did not comment upon the date only the content of the document. She gave no explanation for the date of 11 June 2010 on the franchise agreement tendered. She did not give evidence of having signed two franchise agreements. She appeared to agree that the issue of the Aberfoyle Park office was resolved by letter although the timing of this from her perspective is unclear. She was taken to the letters dated 3 March 2010 and 24 June 2010 but was not asked to explain when she received them nor did she explain how she came to sign the letter dated 3 March 2010 and insert the date 16 August 2010.
[11] T183
[12] Ex P1, p222
Neither Mr Johnson nor Ms Smith gave evidence about whether the written outline required for the Aberfoyle Park clause was provided. However I note Mr Johnson’s email dated 17 August 2010 which refers to a discussion and a requirement for ‘Brief outline of the Aberfoyle Park plan’.[13]
[13] Ex P1, tab 21
I prefer the evidence of Mr Johnson. I find that the franchise agreement was signed by Ms Smith and witnessed by Mr Johnson on or about 11 June 2010. Doing the best I can with the documents and the evidence about the Aberfoyle Park issue I find that plaintiff offered the defendant a variation of the franchise agreement to deal with the Aberfoyle Park issue following the execution of the franchise agreement. I further find that the second defendant accepted that variation by signing the offer on or about 16 August 2010.
At the commencement of the trial the defendants indicated that they did not press paragraphs 4.4, 4.5, 14.2, 14.3, 21 to 29 inclusive of the second defence and cross-claim. The defendants also withdrew the claim for relief in paragraphs 1, 7 and 8 of part 2 of the second defence and cross claim. In summary those paragraphs deal with an alleged breach of the franchise code. Specifically it was said that the franchise agreement was not signed in accordance with section 10 of the code in that the first defendant was not provided with a copy of the code, disclosure statement or franchise agreement in the form that it was to be executed 14 days, or at all, prior to the signing of the franchise agreement.
Whilst these claims are not pressed, this allegation is of considerable importance to the plaintiff because of the nature of its business. I find that there was no breach of the code as asserted. The fact that these documents were supplied to the defendants is evident from the evidence of Mr Johnson and the materials tendered in evidence.[14]
[14] Ex P2
Key Terms of the Agreement
The franchise agreement granted the first defendant the right to operate a Real Estate Agency connected with the plaintiff for a period of 5 years commencing 1 April 2010 and expiring on 31 March 2015.[15] The first defendant’s trading name was ‘Century 21 Hills and Valley’.[16] It was agreed that the first defendant would use no other name in connection with operations conducted at or from the approved location. The agreement further provides that the Century 21 logo is to be used exclusively for the purpose of promoting and operating the first defendant’s real estate office and for other business activities that have been authorised previously in writing by the plaintiff.
[15] Clause 2 and Schedule – Ex P1 tab 18
[16] Clause 4(A)
The approved location of the franchise office was at 186 Main Road, Blackwood, S.A. 5051. The parties agreed that the defendants could not operate the business from any other location or additional locations without prior written approval of the plaintiff. Of particular relevance to this matter is Clause 5D which provides:
During the term of this Agreement Century 21 Regional shall not grant another franchise Century 21 office at a location which is within a 400 metre radius of franchisees approved location. The provisions of this paragraph 5D shall not apply in the event franchisee is executing this agreement pursuant to a renewal (or extension of an existing franchise Agreement) and an existing Century 21 franchisee is located within 400 metres of franchisee’s approved location. The provisions of this paragraph 5D shall not apply to Century 21’s Regional’s right to remarket, pursuant to paragraph 3A(i) in the event franchisee fails to give the required notice of intent to renew this Agreement. Franchisee acknowledges that the franchise granted by this Agreement covers only the approved location described in this paragraph 5 and does not in any way convey or imply any area, market, territorial rights or protected area proprietary to franchisee.

Mr Mylott and Mr Johnson gave evidence explaining that Century 21 franchises were not territorial; that is a Century 21 franchisee did not have exclusive rights to a particular area and was not restricted to a particular area by reason of the approved location. Having considered the terms of the franchise agreement I accept this evidence. Indeed this evidence was not challenged albeit the defendants say that as a matter of practicality the plaintiff’s franchisees generally operate in the geographical areas adjacent to their offices. I accept this proposition as did Mr Johnson and Mr Mylott.
Clause 8 of the franchise agreement required the franchisee to pay a service fee of 6% of the gross revenue and during the term of the agreement as defined in that clause. The service fee is payable to Century 21 immediately upon receipt of the revenue. Clause 8C and paragraph H of the schedule provided for a minimum service fee. Clause 9 of the Agreement provided for payment of an amount into a national advertising fund by the franchisee.
Clause 17 of the Agreement deals with the issue of termination and provides:
This Agreement may not be terminated except as provided in this Agreement. Termination of this Agreement shall not relieve the franchisee of any unfulfilled obligations created hereunder unless agreed to in writing by Century 21 Regional.
Clause 17 then sets out the various bases upon which the franchise agreement may be terminated including upon mutual written consent and for breach of the agreement.
Clause 19A deals with the calculation of lost future profits if there is an early termination of the franchise agreement. That clause provides inter alia:
The parties acknowledge and agree that it would be impracticable or extremely difficult to calculate the actual amount of lost future profits payable by the franchisee, and that the following method of calculation represents a fair and reasonable estimate of foreseeable lost future profits; lost future profits shall be calculated by determining the average monthly service free payment and the average monthly MAF contribution payable by the franchisee to franchisor from the commencement date of this Agreement through the date of early termination and multiplying these average months by the actual number of months (and any fraction thereof) remaining between the date of early termination and expiration date. The present value of the total of these amounts calculated at a discount rate of 8% shall constitute franchisors lost future profits.
The parties have agreed that the clause 19A calculation in this matter yields an amount of $164,433.15.[17]
[17] MFI-P3
None of the terms of the franchise agreement or the guarantee are disputed by the defendants. The defence is that the terms of the agreement were waived by the plaintiff. In the alternative it is said that the plaintiff has engaged in misleading or deceptive conduct such that it is estopped from resiling from the representation that the terms of the agreement were waived by the plaintiff. In the further alternative it is said that clause 19A is unenforceable. The factual matters giving rise to the asserted waiver and estoppel occurred in a meeting between Mr Johnson and the second defendant in October 2011.
Events leading to the October 2011 meeting
Mr Johnson gave evidence as outlined above about arranging for the second defendant to sign the franchise agreement and the subsequent variation to include the additional clause that Century 21 would not open another franchise at Aberfoyle Park. Once the documents were signed by the second defendant he forwarded them to the plaintiff’s head office for execution by Mr Tarbey[18] From the time the franchise agreement was signed, the franchise performed well with respect to the payment of fees under the agreement. Mr Johnson said that the second defendant was becoming increasingly involved in the Internet. Mr Johnson said she had three or four sites that she was building and from his perspective she was becoming somewhat obsessed with this part of her life. She also began working on the idea of a free makeover as a competitive advantage. The makeover entailed Ms Smith offering to restyle client properties with a view to increasing their value prior to placing them on the market. Mr Johnson described Ms Smith as very capable in that area.
[18] T43
Mr Johnson said that mid-way through 2011 Ms Smith started to ask him whether she could conduct her business in different ways in order to leverage her Internet sites with her real estate business. She was particularly interested in changing the name of her business. Mr Johnson said that Century 21 and specifically Charles Tarbey would approve change of franchise names from time to time. Mr Johnson said that a number of names were discussed but there was no agreement reached as to a change of name. Mr Johnson couldn’t recall what the various names were but he did remember that Ms Smith’s final request was ‘Century 21 Free Makeover’. Mr Johnson said that names such as ‘Century 21 Free Makeover’ didn’t sit very well with the plaintiff as a franchisor partly because it suggested that all Century 21 businesses would operate in the same way by providing a free makeover. Mr Johnson said he explained on each occasion why the plaintiff wouldn’t approve particular names. The second defendant appeared to understand the plaintiff’s position and said that she would continue to try working out what might be a suitable name. He said he also attempted to think of suitable names that might be agreeable. The emails tendered in exhibit P1[19] contain examples of discussions concerning the second defendant’s desire to change her business name and some suggestions made by Mr Johnson.
[19] Tab 25, 26 and 32
Mr Johnson said that the week before the meeting on Monday 10 October 2011 he was in Queensland on the Wednesday and Thursday and in Melbourne on the Friday. He received a phone call on the Wednesday from the second defendant about the trading name ‘Century 21 Free Makeover’. He told her that he didn’t think that was going to get off the ground because it was very generic and it was more a product advertising. He had a phone call from Aleica Stolz on the Thursday and another one from the second defendant. He said he had perhaps three or four phone calls over three days pressing the issue of a name change and asking for a meeting. He told them he wasn’t going to be in Adelaide until the weekend and that the earliest date that he could meet was Monday 10 October. He agreed that they should meet and discuss the ‘free makeover’ trading name and whether there might be some other alternatives that might be acceptable. His impression was that the second defendant was very determined upon this particular name. He was expecting to have some robust discussions about the topic of the name but was hopeful they would come to a resolution that would work for her and be satisfactory for Century 21 as a franchisor.
In cross-examination Mr Johnson was asked about Mr Irwin; he confirmed that Mr Irwin made a formal enquiry at the time of the second renewal about opening another location in Aberfoyle Park without the second defendant. Mr Johnson denied supporting Mr Irwin opening another office; he said that he told Mr Irwin that this could not be entertained whilst he was in a business relationship with the second defendant. He told Mr Irwin that he ought to seek independent legal advice. He denied that Century 21 made a formal decision in relation to Mr Irwin and Aberfoyle Park at that time. He recalled the second defendant accusing him of clandestine meetings with Mr Irwin but he had no recollection of matters that were put to him about the 2004 Awards dinner.
Mr Johnson agreed that the second defendant had fallen out with the new state manager Michael Coxon. He was also aware that she had complained about Mr Tarbey the head of Century 21 because she found some of Mr Tarbey’s Facebook comments offensive. It was put to Mr Johnson that the second defendant was disillusioned with the management of the Plaintiff. He said that he could not speak for the second defendant except to say that as far as he was aware she was very keen to continue her business under a different trading name. It was not put to him that the plaintiff was keen to terminate its franchise agreement with the defendants as appeared to be Ms Smith’s contention. I detected no suggestion in Mr Johnson’s evidence that this was the plaintiff’s position. Rather the tenor of his evidence was that his intention going into the meeting on 10 October was solely to resolve the issue of the name change.
Mr Mylott said that the defendants’ business was very profitable. He described the second defendant as an ‘exceptional real estate practitioner and she was entrepreneurial and yes, different’.[20] He recalled that she made an approach to change the name of her franchise some months after signing this particular franchise agreement. He was familiar with the request for the name ‘Century 21 Free Makeover’. He agreed that request was refused. He said that it was because the name would be damaging to other franchises within the market place and it had no relation to real estate.
[20]T126
Mr Mylott said that he was aware that the second defendant had other entrepreneurial businesses on the side. He said the plaintiff was comfortable with that as long as those businesses did not in any way use or involve the plaintiff’s brand. Again he was not asked about Ms Smith’s contention that the plaintiff wanted her out of the organisation but the clear import of his evidence was that the defendants’ business was profitable and therefore valuable to the plaintiff.
Ms Stolz gave evidence that she was Ms Smith’s personal assistant and she worked very closely with her. She explained the free makeover concept as offering the client the opportunity to have their house styled with furniture so that they would look the best they could to get the best price. She explained how they marketed that concept with social media predominantly Facebook and Twitter.
Ms Stolz was aware that there was a request by the second defendant to change the business name to ‘Century 21 Free Makeover’ in about July 2011. Ms Stolz said that some time later, she thought in October, she received a phone call from Michael Coxon the plaintiff’s State Manager saying that the name had been rejected. Ms Stolz said that Wayne Johnson wanted to catch up with her and the second defendant and they were keen to do so. She and Ms Smith wanted to catch up to discuss what other new names would be suitable to Century 21. Ms Stolz arranged the meeting by telephone but she couldn’t specifically recall when she did that. She did recall that the meeting was to be on Monday 10 October 2011.
The second defendant, Ms Smith, gave evidence that at the time of the second renewal of the franchise agreement in 2004 she was still in partnership with Jason Irwin. She gave evidence about being at a Century 21 awards dinner at about that time and telling Wayne Johnson that she and Jason were going to sign on for another five years. She said that there was a ‘flicker’ across Mr Johnson’s face but he said ‘fantastic, congratulations’.[21] She did not attach any importance to this at the time. Down the track however she says that Mr Irwin came to her office and said that he was resigning because he was going to set up the Aberfoyle Park office of Century 21. He told her that Wayne Johnson had approved it. Ms Smith said that she was in a state of shock and the next day telephoned Paul Mylott. Mr Mylott said that there was nothing happening in Aberfoyle Park that he was aware of. Ms Smith felt after a long conversation that she could accept Mr Mylott’s assurance that Jason Irwin was not going to be approved in the Aberfoyle Park area. This conversation was not put to Mr Mylott for comment in cross-examination. As outlined above Mr Johnson completely disagreed with the proposition that Mr Irwin had been approved by him and he did not recall the asserted incident at the 2004 awards dinner.
[21] T125
In any event Ms Smith and Mr Irwin overcame their differences and renewed the franchise with the plaintiff together. Towards the end of that second franchise period however Mr Irwin left and went to work for another real estate agent.
The October Meeting
Three people gave evidence about what occurred at the October meeting: Mr Johnson, Ms Stolz and Ms Smith.
Mr Johnson said that he went to the defendant’s Blackwood office at about 2.00 pm and was taken to Ms Smith’s lounge/reception area. He sat down and sometime shortly after that Ms Smith entered the room. He then gave evidence as follows.[22]
AWe had brief ‘Hello, how you going’, all very cordial. Then Jo made the statement, something to the effect ‘Wayne, I think that where I want to go and where the Century 21 brand is going doesn’t fit and I think we may have to part company’. Words to those effect – that effect.
QWhat did you say in response to that.
AI said ‘Jo, I agree with you. What you need to do is put forward a proposal to Century 21 management, specifically Paul Mylott, and suggest terms for termination and I’m sure that we can work something out’.
QYou’ve told her Honour that you said ‘I agree with you’. What was your thinking in giving that answer.
AWell, I did agree at this stage of game. Jo had already tried to push the boundaries. She wanted to do something outside the franchise agreement through 2011 with her preoccupation with the internet sites, with her various internet sites, and her Free Makeover strategy, which I didn’t mention also involved some rebranding of her office premises which would have been totally not acceptable by us. I felt that it was really the best thing. I felt that we were at a point where she was definitely continuing down this line and that it would be best for her and us if we came to an arrangement, mutually agreeable terms of termination.
QYou told her Honour that you said that she needed to contact Mylott in order to take the next step. What was her response to that.
AI can’t recall exactly what the response was but I made it very clear that ‘You need to put that proposal in writing to Century 21 management, specifically Paul Mylott’ and I did that because I wanted to make it clear that I didn’t want the letter to go to me, I wanted that letter to go straight to the general manager and that she would know then that it was being handled directly.
[22] T48 line 14 – T49 line 11
He said that Ms Stolz walked in shortly after the conversation started. He said that after the discussion about termination of the franchise agreement they had some casual conversation of about 20 minutes concerning Ms Smith’s internet sites and various matters not directly related to the franchise agreement. He may have, on the way out, reiterated that Ms Smith had to put her request in writing. Mr Johnson denied that he made any agreement with Ms Smith to terminate the franchise agreement or that he said anything that could have been interpreted to suggest that the defendants would have no further liability to Century 21. He said there was no discussion about future rights and liabilities. He said that he would not have discussed these matters because he was fully aware that only Mr Tarbey as the owner had the authority to approve early termination of agreements. In cross-examination Mr Johnson agreed that he was familiar with clause 19A of the agreement which dealt with loss of future profits and that those were calculated by reference to the previous performance of the franchise. He agreed that he did not raise this at the meeting.
Mr Johnson agreed that the second defendant was moving in a different direction from other franchisees through 2011. He denied saying to her that he had given up driving past her office because her brand was so different from the rest. Mr Johnson said that the second defendant’s branding was not that different although it had some of her own treatments. In his view they were acceptable. The plaintiff’s logo was preserved, the plaintiff’s colours in general were preserved and whilst the second defendant had some of her own expression on window displays he thought they were very professional and not detrimental to the brand. He agreed she was moving away from wearing the plaintiff’s gold jackets but said that was common throughout the network. He agreed the second defendant was actively using social media and various online entities. Mr Johnson said that the plaintiff encouraged the use of social media. Some other franchisees were interested in what the second defendant was doing and he supported an information session at the second defendant’s home in about May 2011 which a number of franchisees attended.
Mr Johnson was cross-examined about the conversation at the October meeting. Mr Johnson reiterated his evidence-in-chief that there was courteous small talk at the start of the conversation and then Ms Smith made her statement about the direction of her business. It was put to Mr Johnson that he began the meeting by explaining why Century 21 free makeover wasn’t acceptable. Mr Johnson’s response was that there wasn’t any discussion of that because they had that discussion in the previous week.[23]
[23] T88
Mr Johnson was then cross-examined as follows:[24]
[24] T89 line 21 – T90 line 18
QJo didn’t raise the question of termination, did she; you raised the question of Jo moving away.
ANo, Jo raised that.
QI suggest that you said to Jo ‘Would you like to peel off?’
AI don’t recall saying ‘peel off’. As I said, to me it was a very simple conversation where after we exchanged pleasantries Jo said ‘Look, Wayne, I’ve been thinking where my brand is going and where Century 21 is, it’s vastly different so I would like to leave the brand’. Something to that effect.
QYou denied saying it but Jo, after you said ‘Would you like to peel off?’, she said ‘Yep, that would be great’.
AOkay, who said that?
QJo said that.
AI can’t recall.
QAt that point you said ‘I guess that’s it then’.
AThat’s not correct.
QThen you stood up and that was the end of the meeting.
AThat is not correct. I’ve already made it clear that we spoke for some 20 minutes after quite – you know, there was no animosity, it was just a discussion. She was filling me in again about where she intended to go. It was all very cordial. I made it very clear that she needed to put her request in writing to terminate the agreement. She brought it up and if she did desire to leave the brand, she needed to formally do that.
QI don’t suggest any animosity. In fact, you gave Jo a hug at the end of the meeting.
AThat could have happened, yes, as happened generally, as I do with many.
QYou wished her all the best for the future and said head office would be in touch.
AI did not say that. I reminded her that she needed to put in her proposal for the termination of the agreement just as an aside as the meeting finished.
Ms Stolz said that her diary recorded the appointment as being at 3 pm at Ms Smith’s residential property. She recalled being embarrassed because Mr Johnson called her saying he was at Jo’s home and she had Ms Smith at the office. The office was less than 5 minutes away from Ms Smith’s home and Mr Johnson arrived at the office shortly after. The receptionist met Mr Johnson and took him to the customer lounge. She said that she and Ms Smith went into the lounge together to meet Mr Johnson. She said there were some general polite exchanges. She recalled Mr Johnson reiterating that ‘Century 21 Free Makeover’ had been rejected saying that it could cause confusion with the public thinking every Century 21 offered free makeovers. She said he reiterated what had been said on the phone and they were fully aware of that prior to the meeting. Indeed Ms Stolz had a note to that effect in her diary on 6 October 2011. Ms Smith said that they wanted a name that reflected who they were. Mr Johnson responded by saying that they had always been different and things had always been done differently in their office. He also said that there had been phone calls from other offices because of what the defendants were doing online and the fact they were not wearing their gold Century 21 jackets.

Ms Stolz then gave evidence as follows:[25]
[25] T145 line 22 – T146 line 14
AI was looking forward to hearing what suggestions he had. That was the whole purpose of the meeting. It was at this point, though, that Wayne said would we like to peel off.
QWhat happened in response to that.
AThere was a long silence and at that point Jo looked over to me, we were sitting next to each other and Wayne was on the other side and after a while she – she didn’t ask me for my opinion but, you know, we knew each other well and I was happy for her to answer it and she said ‘Yes, that would be great’.
QAre those the actual words she used or is that the gist of what she said.
ANo, I remember it was quite an important moment because it was a big call to accept.
QWhat happened after that.
ANot a lot. The meeting ended straight after that where Wayne stood up and he just wished us well and gave us hugs and we saw him to the door and he said ‘Head office will be in touch’. It was quite a short meeting.
QSo where were you when that was said.
AI was right there with Jo and Wayne. We were all together. He gave us both a hug and left from there.
QWhat happened after Wayne had left.
AAfter Wayne left Jo and I – we actually took down a Century 21 sign from our office. Our office was heavily branded with different signs. I did also write a note in my diary after Jo prompted me and she said ‘Make sure you write this down’. So I entered into my diary the location shift to say ‘at office’. As poorly as it is written it’s there and those exact words in my diary.
The diary was produced and tendered.[26] There are several entries on 10 October 2011 that are relevant. Ms Stolz gave evidence about making those entries.
[26] Exhibit D4
The first entry was ‘at 3 o’clock at Jo’s with Wayne Johnson’. She later wrote ‘at office’ to reflect the fact that the meeting was actually at the office rather than at Ms Smith’s house. She wrote ‘Wayne said would we like to peel off’ after she was prompted by Ms Smith following the meeting. She added the words ‘mutual termination decided between Wayne, Jo, myself’ after receiving an email from Michael Coxon about a week after the meeting. She said she wrote that because mutual termination had been decided even though that language had not been used in the meeting and this contradicted Mr Coxon’s email.[27]
[27] T148
Ms Stolz said that Ms Smith asked her to make the note about ‘peeling off’ and that she wrote down exactly what Mr Johnson said in the meeting. She said that Ms Smith did not ask her to put in the ‘mutual termination’ phrase. This was not a term used in the meeting. She said she picked that phrase up from having read Mr Coxon’s email a week later.
It was put to Ms Stolz that she did not have a clear recollection of what occurred on 10 October 2011. Her response to that was:
I have a clear enough recollection of that meeting. It was specifically stated without any clarification that Wayne said, would we like to peel off and Jo accepted that. Nothing else was discussed of a nature – the words mutual termination never came into that meeting. We were never given any other suggestions for our office, for a name even though we knew that was the purpose of the meeting. We knew that free makeover had been declined. That I can recall. I knew that Wayne wanted us gone and that is why he offered.[28]
[28] T167
Ms Stolz was cross-examined about her use of the word ‘we’ and was asked whether that meant her and Ms Smith. Her response to efforts to clarify that topic was evasive and not particularly helpful.[29] I infer from her evidence as a whole that she was in general referring to herself and Ms Smith when she used the term ‘we’. Indeed, Ms Stolz’s consistent use of the term ‘we’ is striking and makes it plain that Ms Stolz strongly identified her interests with those of the defendants in general and Ms Smith in particular.
[29] T151-152
Ms Stolz also appears to have regarded herself as a decision maker within the business and, in effect, as a proprietor. The following passage of evidence concerning her note of the meeting is illustrative of what appears to be Ms Stolz’s view of her role within business and a degree of naiveté about business matters. The evidence was as follows:[30]
[30] T160 line 30 to T161 line 29
QAnd the fact that you say you were one of the decision makers when that wasn’t true. It’s not true, you weren’t part of the decision, were you.
AI think Jo would have wanted to know that I was happy with the decision.
QI didn’t ask you to speculate about what you think Jo might have wanted. I’m just asking you to agree with the obvious proposition that you were not a part of this decision with Jo.
AI was sales partner, so in a sense if I wasn’t happy, I wouldn’t haven’t been there either, so it was important that whatever decision Jo did ultimately make and I would say that that she would have wanted me to also be comfortable with that.
QI’m not combating your evidence so Mr Johnson said ‘Would you like to peel off’. There was a long pause and Jo, without speaking to you or consulting with you said ‘Yes, that would be great’. You are not a part of the decision, are you. The decision even on your own account, was made without you.
AShe didn’t need to say anything. She looked over at me and I didn’t have any problems either way. I could have said anything at that point.
QYou knew that from the look in her eyes, did you.
AWell –
QYou weren’t a member of the business, were you.
ANo, I wasn’t. I was not signed, I did not have any finance –
QYou weren’t a director.
ANo, I wasn’t.
QYou weren’t the ultimate decision maker in relation to the company affairs in any sense.
AThat’s correct.
QYou weren’t a part of the decision, were you.
AThose meetings wouldn’t have occurred without me because we did things together.
Ms Stolz was asked why she and the second defendant took down the plaintiff’s signs after the meeting. She said this was because of what had been said by Mr Johnson at the meeting. She was then asked:
QYou say ‘we’ again. What was your understanding, what did you understand was meant by ‘peel off’ and Jo’s response.
AFrom the meeting that occurred, I guess, having a relationship with Wayne we knew that he was someone that made decisions and the way everything was said, he clearly wanted the picture in that meeting that he didn’t want us there anymore. It was more of what wasn’t said than anything. He was tired of the way Jo needed to be managed. It definitely made his job harder only because she was passionate of having the right marketing.
QDid he say that or was that your observation.
AHe didn’t say he was tired but he inferred we were hard work for them and it was best we went on our own.[31]
[31] T149
Ms Stolz was cross-examined about the occasions upon which she had discussed this matter with Ms Smith and specifically discussions about what was said in the meeting. Her evidence was that, apart from a discussion at the time of Mr Coxon’s email, they did not discuss it at all. She was asked why this was and she said she was made aware that they were not to discuss it by Ms Smith’s husband. The difficulty with this is that her evidence was Mr Smith only told her not to discuss this meeting sometime in 2014. Despite working with Ms Smith from October 2011 until she left Ms Smith’s employment in November 2013 Ms Stolz contends they did not discuss the meeting. I find that difficult to accept. This is particularly the case given some striking similarities in their evidence such as their reliance on what was not said rather than what was said by Mr Johnson and their assessment of his motivations and intentions in the meeting.
Ms Smith gave evidence that the purpose of the meeting as she understood it was that they were going to toss around some new ideas and strategies for moving forward and to discuss alternatives that there might be for the business name. She said that she and Mr Johnson had numerous conversations before the meeting and she said that whilst ‘Free Makeover’ was her preferred name she was hopeful there would be other options.
She recalled being alerted that Mr Johnson had arrived. She said she walked with Ms Stolz into the customer lounge. Ms Smith said they exchanged pleasantries and she got a coffee for Mr Johnson. They had a discussion about her on-line social media presence. She said Mr Johnson was very complimentary about this and said that he thought it was going to end up taking over her real estate career. She said that Mr Johnson said that he was getting contact from other offices about why they weren’t wearing their jackets and about the things that were happening on social media. She said he then explained why she couldn’t go ahead with the ‘Free Makeover’ name. She was then asked about the conversation as follows:[32]
[32] T192 line 15 – T194 line 3
QI need to know what was said in the conversation, can you tell me.
AYes, I can and then essentially we talked about the fact that we did things differently and that we’d always done things differently.
QWhen you say ‘we talked’, who was talking.
AMyself and Wayne. It was just a banter, a conversation and Alecia was there so she was nodding. We were saying ‘Well, you know, we’ve always done things differently’ and all the rest and then he said, he just blurted out to us ‘Do you want to peel off’ and I was –
QWhat did you say in response to that if anything.
AI kind of looked over at Alecia who was sitting opposite. Our eyes had a bit, a little bit of conversation, like ‘I can’t believe it’, I was quite stunned.
QWhat did you understand that he meant by that.
ATo my understanding it was the way he was saying, in the fashion it was that ‘Let’s just kind of forget this ever happened. Let’s just kind of move away from each other. You are too high maintenance. You are becoming too much of a challenge’. I also thought in my head at that moment it makes sense to me that they would want me gone because this is going to give him the Hills and Valley office that still has a very good reputation. It will give them Aberfoyle Park. I thought maybe Jason is coming back, all of these type of things. This was a win win for them and my best days were behind me and I wouldn’t make the income for them that I had previously, so I thought this and had a lot of thoughts for them.
QWhat did you say in response to Wayne.
A‘Yes, that would be great’ because at the moment I knew –
QJust pause there. How long did it take you to answer before you said ‘Yes, that would be great’.
AWell, not very long after. You know, I sat there. It was a bit of a surreal moment because I guess it was a bit like realising that they really didn’t want me there anymore. I suspected it for a long time just through things and treatment that they had done to me, various things. But then this was kind of we were surplus to requirements here and it’s actually going to be better for him going forward if we are no longer around if we just do our own thing.
QWhat did Wayne say after you replied ‘that would be great’.
AHe just jumped to this feet. He said ‘Well, that’s kind of it, then’. And with that he’d finished his coffee. It was a bit awkward. It was like no-one really knew what to say. He jumped up and it was like he just wanted to bolt out of there and as we walked out back through the thing, I’ve…..
QJust pause for a minute you said ‘As we walked’, did somebody bring the meeting to an end.
AHe just stood up.
QAnd then there was walking out, who walked out.
AWe all did. We all followed each other out and then Wayne turned around and said ‘That’s it’. Then he gave me a hug, gave Alecia a hug. He looked entirely relieved. He looked about 10 years younger and kind of had a bit of pep in his step and that was it. And I just remember I couldn’t believe it as he walked out the door and I remember standing there and I said it was like this sense of freedom and we started to peel the logo off the door.
Ms Smith said that Mr Johnson also said that ‘head office would be in touch’ as he was walking out. She was asked what she understood by that and her answer was as follows:[33]
AAlways, every head office was always in touch over something or other. My understanding was I thought, well, they might want us to send in the gold jackets. They might want us to finalise each sale. Obviously there would be a period of time where you know they might want certain data back from us. There were things to finalise no doubt.
[33] T194 line 12-18
She denied that Mr Johnson said anything about her putting forward a written proposal and she denied that it was her intention to terminate the franchise relationship.
In cross-examination Ms Smith agreed that there was no discussion along the lines set out in her letter to the plaintiff dated 21 October 2011.[34] Specifically it was not said that there would be a termination of the agreement by mutual consent nor did they specifically agree to release each other from any claims arising under the agreement. It was put to her that no words to that effect at all were said during her conversation with Mr Johnson. Her response to that was ‘they were not said out loud, no’. [35] Ms Smith said that she was very good at reading body language and that she had a long standing relationship with Mr Johnson. She was then asked as follows:[36]
QAnd that knowledge of him and everything you observed during that meeting allowed you to draw conclusions beyond the actual words he spoke. Is that right.
AWayne Johnson was clear Wayne Johnson wanted us gone. There was nothing – there was no way I misunderstood what Wayne Johnson wanted. This had been prior to as well – Wayne had been – Wayne and I had many conversations.
QIt was what he wanted and you knew that not just from what he said but by everything in his demeanour; correct.
AAt the award night when Wayne publicly humiliated me in front of my peers, you don’t generally do that to people you want to keep in your organisation.
QAnd it’s based on your knowledge of that history, your long association with Wayne Johnson and the way that you were behaving prior to that meeting, you knew what he wanted.
AWayne Johnson had made it clear he wanted us to leave. I’m sorry, I’m not going to say anything other than that. That is it.
[34] Ex P1, p427
[35] T205
[36] T205 – line 31 – T206 line 12
She was then asked how she arrived at the conclusion that ‘peel off’ meant that she should leave the franchise. Her response was:[37]
ADo you know what ‘peel off’ means? What does ‘peel off’ mean to you? Has anyone got a dictionary? You can look at six versions and see what it means. ‘Peel off’ in an aerial sense. ‘Peel off’ from a flying formation. The formation can be seen as a group; to leave, or depart. Why use those words? He’s a real estate agent, why not say ‘Do you want to mutually terminate?’ Do you want to cancel?’. Why say peel off?
QWhy not say terminate.
AExactly. Why not be clear about what Wayne Johnson’s intentions were? Wayne Johnson, in hindsight, I believe I’ve embarrassed the company, I believe this is personal not business and their solicitor told me that.
[37] T206, line 23 - 35
This topic of Mr Johnson’s motivation and that of the plaintiff featured in Ms Smith’s evidence on a number of occasions. In non-responsive answer to a question from her counsel about what she understood Mr Johnson’s authority within Century 21 to be she said:
AWhat I believe is this: I believe that as a female in the group and I hate to play the sex card but I believe as a female I was becoming too hard to manage and we were getting too big on line. I felt that they felt threatened, they didn’t like – I think I probably made a big mistake sending off that email about Charles Tarbey. I think I offended Charles. I think that head office doesn’t like to be told what to do, let alone by a woman. And I felt that I caused huge offence and I think I was probably in hindsight look being sized up from that moment on. I think they said ‘Get rid of her, she’s too hard”.[38]
[38] T194-195
Ms Smith’s view that the plaintiff wished to ‘get rid of her’ has, in my view, coloured her actions. As outlined above, I also consider it likely that she and Ms Stolz have discussed this topic given the similarity of their evidence about Mr Johnson’s motivations and intentions based on such limited objective material.
After the October Meetings
Mr Johnson said that after the meeting he advised the local state manager, Mr Coxon, that they should expect a request to terminate the franchise agreement. He also advised Mr Mylott the general manager of the circumstances of the meeting and he told Mr Mylott should expect a letter addressed to him suggesting terms for a termination of the franchise from the second defendant.
Mr Johnson said that nothing was forthcoming from the defendants. He noted during the days following the meeting that the defendant’s marketing on Real Estate.com had changed and that the business was not being promoted as Century 21. This he said was a breach of the franchise agreement and an indication to him that the second defendant was going to proceed with her stated intention to leave the franchise. As nothing had been received from the defendants, Mr Coxon followed up by sending an email dated 19 October 2011.[39] That email read as follows:
Dear Jo,
I hope you and your team are all well.
I understand that you met with Wayne last week and that many matters were discussed and that you indicated that you would seek to come to mutually acceptable arrangements to terminate the franchise relationship. The purpose of my email is to seek your formal (written) clarification of the direction you wish to take.
We note that you are no longer promoting yourself as Century 21 Hills & Valley on realestate.com.au. For this reason it is important that you put forward your request for mutual termination terms by close of business Friday 21 October 2011.
Many thanks
Michael Coxon
[39] Ex D1
The second defendant responded by letter dated 21 October 2011.[40] That letter reads as follows:
Thank you for your email sent on 19 October 2011 in relation to the above matter. We confirm that as a consequence of a discussion between Wayne Johnson and I on Friday 14 October 2011 it was agreed that:
1.     It was in the best interest of the parties that with immediate effect:
1.1     There be a termination of the franchise agreement executed between the                parties on 11 June 2012 (the “franchise agreement”) by mutual consent;
1.2     They release each other from any claims and the like arising under the                   franchise agreement.
2.     It was not in the best interests of the parties that:
2.1     They continue with the franchise agreement;
2.2     They fall in dispute in relation to the franchise agreement.
As you have observed, we have, effective from Friday 14 October 2011, ceased trading under the terms of the franchise agreement in accordance with the agreement.
[40] Ex P1 tab 34
Mr Johnson disagreed with the summary of the discussions at the meeting contained in that letter. He said he did not say anything along the lines asserted in the letter. This appears to be conceded by the defendants.
Mr Johnson drafted the response to that letter on behalf of the plaintiff which was sent on 26 October 2011[41] in which he set out his understanding of what had occurred at the meeting on 10 October 2011. This letter contained the first demand for lost future profits pursuant to clause 19A of the franchise agreement issued by the plaintiff.
[41] Ex P1 tab 35

I also do not consider that the defendants have established that the plaintiff failed to make reasonable efforts to find a replacement franchisee or that the plaintiff acted unreasonably in failing to enter into a contract with Mr Irwin earlier.[57] Further, the defendants have not established a basis upon which the plaintiff ought to give credit to the defendants for service fees payable by Mr Irwin under his agreement.
[57] Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452
The defendants have not discharged their onus. I therefore reject the submission that the plaintiff failed to mitigate its loss.
What is the effect of clause 21 on the question of legal costs?
The plaintiff submits that, in the event of success, the plaintiff is entitled under the terms of the franchise agreement to recover its costs on an indemnity basis and is not subject to the usual order for party/party costs. The plaintiff has been successful in this matter.
Clause 21 of the agreement provides as follows:
Should either party incur legal costs and other expenses in order to enforce the terms and conditions of this agreement, including post term covenance, whether or not a legal action is instituted, the party not in default shall be entitled to reimbursement of such legal costs and other expenses, in addition to any other remedies either party may have at law or in equity. Should any legal action be instituted the prevailing party shall be entitled to recover all litigation costs including legal fees.
In Micarone v Perpetual Trustees Australia Ltd (No. 2)[58] the full Supreme Court said:
The general rule is that, in the absence of an agreement to the contrary, a mortgagee is entitled to costs on a party and party basis. The expression of a contrary intention must be “plainly and unambiguously expressed” to use the words of Vaisey, J in re: Adel.phi Hotel Ltd at 961.[59]
[58] [1999] SASC 533
[59] [1953] 1 WLR 955
This issue was recently considered by The Honourable Justice Blue in Essential Beauty Franchising (W.A.) Pty Ltd & Ors v Pilton Holdings Pty Ltd & Ors.[60]In that case a submission was made that the principle of construction outlined in Micarone applied to mortgages but did not apply to other types of documents. Justice Blue rejected that contention and stated that the principle applied generally. Accordingly it is appropriate to apply that principle of construction in this matter.
[60] (2014) 120 SASR 433
The words ‘all litigation costs, including legal fees’ could arguably refer to party and party costs, solicitor and client costs or indemnity costs. In my view the words of the contract do not therefore ‘plainly and unambiguously’ express an intention to step outside the usual rules relating to the assessment of legal costs. I therefore reject the plaintiff’s contention as to the effect of the franchise agreement on the question of costs. Costs in this matter ought to be assessed under the usual principles applicable to litigation in this court.
Conclusion
The plaintiff is entitled to judgment in the sum of $164,433.15. I will hear the parties as to the formal entering of judgment, the question of interest and costs.