Cevet Pty Ltd v Buxmar Pty Ltd

[1992] FCA 330

JUDGMENT No. ,,d 330 S 2 .-,

LIMITED DISTRIBUTION

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I	IN THE FEDERAL COURT OF AUSTRALIA	)
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!	NEW SOUTH WALES DISTRICT REGISTRY )	NO G 790 of 1991
!	GENERAL DIVISION	1
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BETWEEN:  CENVET PTY LIMITED

Applicant

AND :  BUXMAR PTY LIMITED

First Respondent

MURRAY RICHARD CLARK

Second Respondent

LOIS JOYCE CLARK

Third Respondent

Coram:	Davies J.
Date:	29 May 1992

Place: Sydney

MINUTES OF ORDER

NOTE :	Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules.

THE COURT ORDERS THAT:

1.        There be judgment in favour of the Applicant against the Respondents for the sum of $251,701.25.

2.        The cross-claim be dismissed.

3.        The Respondents pay the Applicant's costs of the application.

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W. m PY~"!G~EYFEDERAL COURT OF AUSTRALIA

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NEW SOUTH WALES DISTRICT REGISTRY ) NO G 790 of 1991

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GENERAL DIVISION	1
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BETWEEN:  CENVET PTY LIMITED

Applicant

AND:  BUXMAR PTY LIMITED

First Respondent

MURRAY RICHARD CLARK

Second Respondent

LOIS JOYCE CLARK

Third Respondent

Corm:	Davies J.
Date :	29 May 1992

Place: Sydney

REASONS FOR JUDGMENT

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This is an application alleging breach of a franchise

agreement and misleading and deceptive conduct under the Trade

Mr T. Alexis of counsel appeared for the applicant. There was	Practices Act 1974 (Cth). On the hearing of the application,
no appearance by or for the respondents. In the event, Mr Alexis did not rely on s.52 of the Trade Practices Act, but put his case solely on the basis of contract.

The applicant, Cenvet Pty Limited ( "Cenvet " ) , carries on

business as a wholesaler and distributor of veterinary

products throughout Australia. The first respondent, Buxmar Pty Limited ("Buxmar"), was the franchisee of the applicant's business for the state of Victoria. It is a family company owned and directed by the second and third respondents, Murray Richard Clark and Lois Joyce Clark ("Mr and Mrs Clark"). Mr and Mrs Clark are guarantors of Buxmar's obligations under the franchise agreement. They are also parties to an indemnity agreement whereby they promise to "indemnify and save harmless" Cenvet from "any loss, costs of damages" caused by Buxmar's failure to perform the franchise agreement.

The franchise agreement was entered into on 31 January 1989, for a term of five years. In early 1991, Mr Clark informed Cenvet that Buxmar wished to terminate the franchise. Various negotiations ensued, and a formal agreement for terminating the franchise was drawn up. This agreement had not been executed when, on 19 April 1991, CenvetJs solicitors received a letter from Buxmar's solicitors stating that Buxmar would vacate the franchised premises and would "conclude its

agreement.	to suggest various amendments to the proposed termination operations at the premises by 5 pm today". The letter went on
It is clear on the evidence that no legally effective agreement had been reached between the parties as to terminating the franchise agreement before the letter of 19 April. Therefore, the franchise agreement was on foot when Buxmar indicated it would be treating the franchise as at an

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end, and doing so on 19 April 1991.	This was clearly so	,
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serious a breach of the franchise agreement as to amount to a

repudiation of it. Cenvet was accordingly entitled to give I

notice of termination under c1.9C but did not do so. Cenvet accepted the repudiation by re-entering into possession of the

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franchised business.	M r Alexis has suggested 19 April as the	I
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date of termination, which I accept.	, t . l
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Mr Alexis put forward a claim both for moneys which would

have been payable under the franchise agreement had it not	[.
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been terminated by acceptance of the repudiation on 19 April

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1991 and also damages for its breach. Mr Alexis relied upon	!
c1.91 of the franchise agreement, which read:-

"All oblrgatlons of the partres hereto which expressly or by their nature survive the expiration of termination of the

Franchise shall continue in full force and effect

notwithstandrng such expiration or termrnation."

The classic description of the effects of a termination

for breach of contract or repudiation is that of Dixon J. in	i .
McDonald v. Dennvs Lascelles Ltd (1933) 48 C.L.R. 457 at 476-

contracting party of a condition of the contract, elects to

"When a party to a simple contract, upon a breach by the other

treat the contract as no longer binding upon him, the contract is not rescrnded as from the beginning. Both partlee are discharged from further performance of the contract, but rights are not divested or drscharged which have already been uncondrtionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of actron which have accrued from its breach alrke continue unaffected. When a contract as rescinded because of matters which affect its formatron, as rn the case of fraud, the parties are to be rehabilrtated and restored, so far as may be, to the position they occupred before the contract was made. But when a contract, which rs not vord or voidable at law, or liable to be set aside in equrty, rs dissolved at the electron of one party because the other has not observed an essentral condition or has committed a breach going to its root, the contract is

determrned so far as it is executory only and the party in
default is liable for damages for its breach."

In principle, a party to a contract which has been repudiated cannot terminate for a breach of one term leaving the contract in existence for other purposes. However, exceptional obligations may continue to exist. As Lord Diplock said in Moschi v. LEP Air Services Ltd [l9731 AC 331 at 350:-

"Although thls is the general rule as to the effect of rescrssion of the contract upon obligations of which it is the source, there may be exceptional prlrnary obligations which continue to exlst notwithstanding that the contract has been

rescinded. These are obligations that are ancillary to the

marn purpose of the contract - which is, of course, that the parties should perform their primary obligations voluntarily. Mutual promises to submit to arbitratron disputes arising as to the performance by the parties of their other obligations arlsing from the contract may be expressed in terms which make it clear that it was the common intention of the parties that their primary obligation to continue to perform these promises should continue notwithstanding that their other primary

obligations had come to an end: Heyman v. Darwins Ltd. [l9421

A.C. 356."

Similarly, Hutley J.A. in Vandvke v. Vandvke (1976) 12 A.L.R. at 367:-
621, after noting the survival of arbitration clauses after

termination on the authority of Hevman v. Darwins Ltd [l9421

which determrnes the effect of the rescission under these	"As Lord Diplock indicates, it is the intention of the parties
circumstances. ... As a matter of principle the proposition
that resclssron of one part of the contract for breach necessarily termrnates all positive obligations between the parties m the future should be rejected."

On this basis, Cenvet's claim for the Goodwill Payment, Initial Franchise Fee and Administration Fee specified in clauses 4A, 4B and 4G of the franchise agreement must be rejected, as they were not payable until 26 May 1991. This is subsequent to the time of termination and so cannot be said to have been "unconditionally acquired" by Cenvet at the time of

termination. See Carter. Breach of Contract (2nd ed., 1991) para. 1235-1248. Clause 91 did not make these obligations exceptional obligations which survived the acceptance of the repudiation.

Mr Alexis sought moneys alleged to be payable under c1.50 of the agreement which provided:-

"The Franchlsee shall, during the Term and any Renewal Term and after the termination or expiration of the Franchise, indemnify the Franchisor and hold it harmless from and against all damages, losses, clams, actions, liability, expenses and costs for which it is held liable, or which it incurs (including its solicitor and client costs, travel, investigation and living expenses of its employees and witness fees) in any litigation or proceeding as a result of or arming out of:

(a) a breach of this Deed, or any other agreement between the parties, by the Franchlsee;

However, although this provision may well have continued in force had Cenvet terminated the agreement for breach in accordance with c1.9C, it did not survive Cenvet's acceptance of the repudiation. Both parties by their acts treated the contract as at an end, so far as executory obligations were

concerned.

Even had Cenvet been entitled to rely upon the term, Cenvet would not, in my opinion, have been entitled to claim the costs of litigation and of preparing for litigation as it now seeks to do. Costs in this respect are a matter for the discretion of the Court. Section 43(2) of the Federal Court of Australia Act 1976 (Cth) provides:-

"Except as provided by any other Act, the award of
costs is in the diecretion of the Court or Judge."

This discretion cannot be overridden by agreement between the parties. In the present case there is no sufficient reason why the ordinary principles as to costs should not apply.

I turn then to the assessment of damages. On Buxmar's

abandoning the business, Cenvet was obliged to take over the business so as to protect its goodwill. In so doing, Cenvet made a loss. It is claiming the amount of that loss, plus other expenses and lost franchise fees, using January 1992 as a cut off date, which is a reasonable period to adopt. In addition, Cenvet claims the Goodwill Payment, Initial Franchise Fee and Administration Fee referred to above which it would have received had the franchise agreement prevailed.

The general rule for assessment of damages for breach of contract is to put the plaintiff in the same position as if the contract had been performed. See Commonwealth v. Amann Aviation Ptv Ltd (1991) 104 A.L.R. 1. This formulation

result of the breach. It seems to me that the expenses	comprehends both profits lost and expenses incurred as a
claimed by Cenvet can reasonably be said to follow in the usual course of things from Buxmar's breach, or be within the contemplation of the parties, within the rule in Hadlev v. Baxendale (1854) 9 Ex. 341; 156 E.R. 145. An exception is the claim for "lost" franchise fees due to sales in January to April 1991 being lower than those in the corresponding period

in 1990. I do not think this claim has been proved. With this exception, and in the absence of other evidence, I accept the quantification of these damages provided by Cenvet.

I therefore award the applicant the following damages:-

Franchise fees $ 59,475.50

(This includes the Goodwill Payment, Initial Franchise Fee and Administration Fee and franchise fees for the month of April 1991. It also includes money owing as a debt due to Cenvet from two debtors accounts and franchise fees due but not paid prior to April 1991, less credits and payments already made.)

Lost franchise fees May 1991
to January 1992

(These are franchise fees Cenvet says it would have received if Buxmar had continued the franchise, based on Cenvet's sales figures for the franchise from May 1991 to January 1992.)

Trading loss May 1991 to January 1992 $ 56,346.00

(Cenvet says it would not have suffered this loss if Buxmar had continued with the franchise, rather than Cenvet having to take it over and run the franchise itself.)

Accountant's time
Relocation of staff
Travelling expenses
Finance charges

(These are costs associated with Cenvet re-entering and

operating the franchise.)

Total :  $239,529.60

Other amounts claimed for the preparation and conduct of these proceedings, including legal costs on a solicitor/client basis will not be allowed.

I propose to award interest at a rate of 5% from 19 April 1991 to the date of judgment. This is intended to reflect the fact that most of Cenvet's damage was suffered subsequent to 19 April 1991, so the full rate of interest should not apply. The applicant will have judgment for $239.529.60 plus interest of $12,180.67. It will also have its costs of the proceedings, which it will be able to prove before the taxing officer in the usual fashion.

The final matter is an application by Cenvet to have

Buxmar wound up. The application is based on Buxmar's deemed

respond to that demand under s.460(2)(a) of the Cor~orations	insolvency following service of a demand and failure to
LW. Service of the notice and an acknowledgment of a debt of
$23,921.25 was admitted on the pleadings subject to the respondents' cross-claim. However, the sums conditionally admitted included sums payable under the agreement after the date of acceptance of the repudiation. As this judgment proceeds on a different basis, I shall not consider Cenvet's

application to have Uuxmor Pty Ltd wound up. Any proceedings

for winding up should be separately instituted.

The cross-claim will be dismissed.

I certify that this and the 8 preceding pages are a true copy of the reasons for judgment herein of the Honourable 9

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Associate:

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Date:	29 May 1992
Counsel for the Applicant:	M r T. Alexis
Solicitors for the Applicant:	Abbott Tout Russell Kennedy
Date of hearing:	6 May 1992
Date of judgment:	29 May 1992