Clark Rubber Franchising P/L (ACN 065 708 723) and Malcolm, Christopher Hastings v Greatbay P/L and Greaves, Rodney Lee
[2002] VSC 465
•28 OCTOBER 2002
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
| AT MELBOURNE COMMERCIAL AND EQUITY DIVISION |
No. 5214 of 2001
| CLARK RUBBER FRANCHISING PTY LTD | Plaintiffs |
| (ACN 065 708 723) and CHRISTOPHER HASTINGS MALCOLM | |
| v | |
| GREATBAY PTY LTD (ACN 010 819 and | Defendants |
| RODNEY LEE GREAVES |
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| JUDGE: | HABERSBERGER J |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 28 OCTOBER 2002 |
| DATE OF JUDGMENT: | 28 OCTOBER 2002 |
| CASE MAY BE CITED AS: | CLARK RUBBER FRANCHSING PTY LTD v GREATBAY PTY LTD |
| MEDIUM NEUTRAL CITATION: | [2002] VSC 465 |
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CONTRACT - Breach of settlement agreement and breach of purchase agreement – Neither agreement held to be "franchise agreement" within meaning of Franchising Code of Conduct – Plaintiffs entitled to damages claimed.
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Ms C Mavroudis | Mason Sier Turnbull |
| For the Defendants | No appearance | |
| HIS HONOUR: |
In this proceeding the plaintiffs, Clark Rubber Franchising Pty Ltd ("Clark Rubber") and Mr Christopher Hastings Malcolm, have sued two defendants, Greatbay Pty Ltd ("Greatbay") and Rodney Lee Greaves, for breach of an agreement made between them in June 2000. There has been no appearance on behalf of the defendants. The first defendant was deregistered on 28 April 2001. Despite that fact, the two defendants delivered a defence and counterclaim dated 31 May 2001 in which it was admitted that the first defendant "is and was at all material times a company duly incorporated in Queensland. "
Mr Greaves had continued to participate in the interlocutory steps in this proceeding, but at the stage in which the matter was being set down for trial he advised the court that he was no longer in a position to defend the matter and that he would not be coming across from Perth to appear at the hearing.
Very briefly, the circumstances leading to this dispute arose as follows.
The first plaintiff is a franchisor and it had entered into a franchise agreement with a Mr and Mrs Harnden and their company Amand Pty Ltd ("Amand"). This agreement had been arranged through Greatbay's role as master coordinator in Western Australia of Clark Rubber's franchising operations. The Harndens had complaints about certain alleged misrepresentations made to them by Mr Greaves and Greatbay. They consulted their solicitor who sent a detailed letter of complaint to Clark Rubber and Mr Greaves dated 10 March 2000.
Eventually a mediation was held in Melbourne in June 2000. Prior to that mediation there had been quite detailed discussions between Mr Malcolm, the managing director of the first plaintiff, and Mr Greaves, and between Ms Valkan, the corporate counsel of the first plaintiff, and Mr Greaves and his solicitor, a Mr Hewitt of Deacons Graham and James. Mr Malcolm and Ms Valkan and Mr Greaves met, on the night before the mediation was to commence, at a restaurant in Melbourne and discussed what was to be done with respect to the mediation.
Without reciting all of the detail, it was agreed between the parties that Mr Greaves and Greatbay or a nominee of Mr Greaves would purchase Amand's business assets, if that was the only way to resolve the complaint by Amand ("the Purchase Agreement"). Certain concessions were made by the first plaintiff with respect to the terms of a franchise agreement with the ultimate purchaser of those assets, the terms of which are set out in the statement of claim. Clark Rubber also agreed to lend Mr Greaves $25,000 to assist with the purchase of the business assets.
The agreement that was reached with the Harndens and Amand required Mr Malcolm and Clark Rubber and Mr Greaves and Greatbay to enter into what has been described by Ms Mavroudis in her opening and submissions as "the Settlement Agreement". That Agreement provided for certain payments to be made by the other parties to Amand, it provided for the termination of the franchise being conducted by Amand at Mandurah in Western Australia and the Harndens and Amand released Mr Malcolm, Clark Rubber, Mr Greaves and Greatbay from the complaints made against them in respect of the entering into of the franchise agreement.
The Settlement Agreement provided for a payment of $10 on or before 30 June 2000, $179,990 on or before 24 July 2000, $45,000 on or before 31 August 2000 and the balance (a maximum of $45,000) on or before 30 September 2000. Those figures add up to the sum of $270,000, which was the maximum sum agreed to be paid to Amand. The uncertainty in the figure was that there was stock to be valued and the agreement was that an amount up to a maximum value of $110,000 would be paid for the stock.
Mr Greaves paid the $10 and entered into possession of the business, but very quickly he and his solicitor attempted to assert that the Purchase Agreement, that is the agreement between the plaintiffs and the defendants, was subject to two conditions. The first of these alleged conditions was that the Agreement was subject to finance. The second alleged condition was that the Agreement was in some way linked with the settlement of another dispute involving Mr Greaves, arising out of the franchise agreement with the Port Kennedy franchisee. Both Mr Malcolm and Ms Valkan have denied that there were any such conditions attached to the making of the Purchase Agreement. I accept their evidence.
The result was that Mr Greaves and Greatbay did not make any other payments to Amand and the plaintiffs therefore were obliged to step in and make the payments to Amand, which they did. I accept the evidence in that respect. However, by virtue of the default by the defendants, further payments were incurred, over and above the agreed amount, which are now claimed by the plaintiffs as loss and damage flowing from the breach of the agreement by the defendants. These were an amount of $4703 for interest on the payments to Amand being later than agreed, the sum of $5493 for the legal costs of Amand and the Harndens, incurred by them as a result of the renegotiation of the payments, and amounts of $1439 for air fares and accommodation of Mr Malcolm and $1392 for air fares and accommodation of Ms Valkan, in both of them going to Perth in August 2000 to finalise the winding up of the Mandurah franchise.
The first plaintiff, in order to try and minimise the loss that was otherwise going to incur, took over the running of the Mandurah store and engaged the previous individuals running the franchise, Mr and Mrs Harnden, who ran the business until it could be closed down in August 2000. Although some income was received from sales of Clark Rubber products during that time, overall there was a loss incurred and that is also part of the claim made. After allowing for extra expenses, such as the cost of freighting racking to Victoria to be sold to another franchisee and storage of racking, the loss from trading claimed is a sum of $25,440. Offset against all of these payments is the amount of $67,492, which the plaintiffs have received as a result of the sale of the remaining stock and plant.
I am satisfied, therefore, that the claim now made by the plaintiffs, being the sum of $231,917, is the amount of the loss suffered by them as a result of the breach of the Purchase Agreement by the defendants.
There is a counterclaim by the defendants but I have heard no evidence or argument in support of that counterclaim and there is no appearance on behalf of the defendants to advance that counterclaim. In the circumstances, subject to one issue which is considered below, the counterclaim must be dismissed.
The one issue that it seems to me I must give some attention to is a matter of law that was pleaded in the defence and counterclaim and that is that either or both of the Settlement Agreement and the Purchase Agreement was caught by the Franchising Code of Conduct and that because it or they did not comply with the Franchising Code the Agreement, or Agreements, was, or were, void. The relevant definition of a "franchise agreement" in clause 4 of the Franchising Code of Conduct reads as follows.
"(1) A franchise agreement is an agreement;
(a) that takes the form in whole or in part, of any of the following: (i) a written agreement;
(ii) an oral agreement;
(iii) an implied agreement; and
(b) in which a person (the franchisor) grants to another person (the franchisee) the right to carry on the business of offering, supplying or distributing goods or services in Australia under a system or marketing plan substantially determined, controlled or suggested by the franchisor or an associate of the franchisor; and
(c) under which the operation of the business will be substantially or materially associated with a trade mark, advertising or a commercial symbol:
(i) owned, used or licensed by the franchisor or an associate of the franchisor; or (ii) specified by the franchisor or an associate of the franchisor;
and(d) under which, before starting business or continuing the business, the franchisee must pay or agree to pay to the franchisor or an associate of the franchisor, an amount, including for example:
(i) an initial capital investment fee; or (ii) a payment for goods and services; or (iii) a fee based on a percentage of gross or net income whether
or not called a royalty or franchise service fee; or(iv) a training fee or training school fee; but excluding
(v)
a payment for goods and services at or below their wholesale price; or
(vi) repayment by the franchisee of a loan from the franchisor;
or(vii) payment for the wholesale price of goods taken on consignment; or
(viii) payment of market value for purchase or lease of real property, fixtures, equipment or supplies needed to start business or to continue business under the franchise agreement."
Ms Mavroudis has submitted that neither the Settlement Agreement nor the Purchase Agreement is a "franchise agreement" within the meaning of the definition that I have just quoted at length. In Agro Holdings Ltd v. Flexicoil Australia Pty Ltd[1], Nicholson J held that the requirements of clause 4 are cumulative. In my opinion, this means that if the agreement said to be the franchise agreement does not meet one of the parts of the definition then it cannot be a franchise agreement.
[1] [1999] FCA 1658
Ms Mavroudis submitted that neither the Settlement Agreement nor the Purchase Agreement fell within clause 4.1(b) of the definition because neither of them granted to any party the right to carry on the business under a system or marketing plan. The Settlement Agreement terminated Amand's franchise and fixed a price for the purchaser under that Agreement to purchase certain of Amand's assets. That, in my opinion, was not an agreement that granted to any party the right to carry on the business under a system or marketing plan.
Similarly under the Purchase Agreement, the two defendants agreed with the two plaintiffs to purchase from Amand its business assets. It is true that there were other terms of the Purchase Agreement whereby certain promises were made by Clark Rubber and Mr Malcolm that the ultimate purchaser, if it entered into what would be a franchise agreement, would have certain concessions in respect of amounts to be paid. But the Purchase Agreement itself, in my opinion, does not grant to the purchaser the right to carry on a business under a system or marketing plan.
It is, therefore, strictly unnecessary for me to consider whether the alleged franchise agreement met the requirements of clause 4.1(c) and 4.1(d). I will, however, just indicate that, in my view, clause 4.1(c) is not satisfied by either the Settlement Agreement or the Purchase Agreement because neither contains any provision with respect to the operation of any business or any business substantially or materially associated with a trade mark, advertising or commercial symbol.
In respect of clause 4.1(d), the Settlement Agreement does not require any payments to be made by the franchisee to the franchisor or an associate of the franchisor and therefore the Settlement Agreement would not meet the requirements of clause 4.1(d). Under the Purchase Agreement, there is also no requirement that any payments be made by the franchisee to the franchisor or an associate of the franchisor, other than the repayment of a loan of $25,000 which the first plaintiff agreed to make to the defendants. Therefore, in my opinion, neither Agreement satisfies the requirements of clause 4.1(d).
Ms Mavroudis submitted that the reference to the repayment of the loan has meant that the Purchase Agreement is within one of the parts of the exclusion in the definition of franchise agreement, sub-paragraph (vi), and that, therefore, whatever the situation would be otherwise, the Purchase Agreement could not be a franchise agreement. An alternative approach would be that repayment of a loan is excluded from consideration in deciding whether the Agreement requires payments to be made by the franchisee to the franchisor.
Because the point strictly does not arise, as I have already found for other reasons that the Purchase Agreement is not a franchise agreement, I prefer not to reach any conclusion in respect of that argument. It can wait for another day, if, and when, the issue squarely arises.
Therefore, it seems to me that the legal point raised in the defence and counterclaim by the defendants is not correct and that there is no reason why the plaintiffs should not have judgment against the second defendant.
Subject to hearing from counsel as to the form of the order, I would propose that there be judgment for the plaintiffs against the second defendant in the sum of $231,917 together with interest by way of damages in the sum of $41,935, that the defendants' counterclaim be dismissed and that the second defendant pay the plaintiff's costs of the proceeding.
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