FlyCo SA Pty Ltd v Olimarc Pty Ltd - [2023] SASC 143

SUPREME COURT OF SOUTH AUSTRALIA
(Magistrates Appeal: Civil)
FLYCO SA PTY LTD v OLIMARC PTY LTD
[2023] SASC 143
Judgment of the Honourable Justice McDonald
5 October 2023
MAGISTRATES - APPEAL AND REVIEW - SOUTH AUSTRALIA - APPEAL TO SUPREME COURT
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS
This is an appeal against the decision of a Magistrate to award damages in the sum of $70,000 along with interest, against FlyCo SA Pty Ltd (‘FlyCo’) to Olimarc Pty Ltd (‘Olimarc’) for a breach of contract.
FlyCo is a company which conducted the business of pest control services. FlyCo’s sole director and secretary is Craig Slator. On 24 September 2014 FlyCo as franchisor entered into a Franchise Agreement with Olimarc as franchisee. The directors of Olimarc were Gary March and his stepson Jason Oliver. The Franchise Agreement was due to naturally expire on 24 September 2019.
In about January 2018, Mr March and Mr Oliver determined to sell the franchised business. Under the franchise agreement, Olimarc were required to provide FlyCo with a first right of refusal to purchase the business. After negotiations, an agreement was reached whereby FlyCo would purchase the business for $110,000 to be paid in five instalments. Two instalments of $20,000 were paid in March 2018 and December 2018 respectively. Since that time, no further payments have been made.
FlyCo contended that Olimarc were disentitled to the remaining payments under the Buyback Agreement on the basis that they had breached multiple clauses of the Franchise Agreement. It was Olimarc’s position that, even in the event they had breached the Franchise Agreement, FlyCo remained obliged to pay the outstanding sum under the Buyback Agreement until either termination by FlyCo under the terms of the Franchise Agreement or the fixed termination date. FlyCo made no efforts to terminate the Franchise Agreement.
The Magistrate preferred the construction advocated for by Olimarc, determining that regardless of any breaches of the franchise agreement, termination only occurred at the natural end of the agreement on 24 September 2019, and consequently FlyCo remained liable for the outstanding amount of $70,000 to Olimarc.
It is against that decision that FlyCo appeals. The notice of appeal contained two grounds, each based on what could be said to be a principal and prevailing error by the Magistrate, namely that his Honour failed to properly construe the terms of the Buyback Agreement.
Held, the appeal is dismissed on Ground 1 in that the Magistrate did not err in finding that each instalment payment was subject to FlyCo having not terminated the Franchise Agreement. It is not necessary to determine Ground 2 of the appeal given the findings made on Ground 1.
Australian Broadcasting Commission v Australian Performing Rights Association Ltd (1973) 129 CLR 99; Craig Slater, FlyCo Pty Ltd v Steve Amos, Olimarc Pty Ltd & Jason Oliver [2022] SAMC 12; Phantom Precision Engineering Pty Ltd v Luscombe [2021] SASC 59; Jones v Dunkel (1959) 101 CLR 298, considered.

FLYCO SA…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2023] SASC 143
Decision Date: 5 October 2023

CaseChat Overview and Summary

FlyCo SA Pty Ltd appealed against a decision of the Magistrates Court of South Australia concerning the interpretation of the Buyback Agreement between the parties. The central issue in the case was whether the instalment payments FlyCo was required to make to Olimarc Pty Ltd were subject to the continuation of the Franchise Agreement or whether they were contingent on Olimarc’s adherence to certain obligations under that agreement. The dispute arose from FlyCo's refusal to make further instalment payments, arguing that Olimarc had breached the Franchise Agreement. Olimarc, in turn, claimed that FlyCo's interpretation was incorrect and that the payments were contingent only on the continuation of the Franchise Agreement, which had not been terminated.

The legal issues before the court involved the proper construction of the Buyback Agreement, particularly the phrase "subject to the continuation of the Franchise Agreement." The court had to determine whether this phrase implied adherence to the obligations of confidentiality and fidelity or merely required the non-termination of the Franchise Agreement. Additionally, the court considered whether the Magistrate was correct in interpreting the phrase as meaning non-termination rather than adherence to obligations.

The court found that the Magistrate's interpretation of the Buyback Agreement was correct. The phrase "subject to the continuation of the Franchise Agreement" was held to mean the non-termination of the agreement, not adherence to specific obligations. The court noted that if the payments were contingent on adherence to obligations, there would be no reason to limit the relevant period to the expiration of the Franchise Agreement. The court also rejected FlyCo's argument that the informal nature of the Buyback Agreement should influence its interpretation. Given that the parties chose to retain the original Franchise Agreement, there was no basis to disregard the plain meaning of the Buyback Agreement.

The court's decision upheld the Magistrate's interpretation and dismissed FlyCo's grounds of appeal. The court concluded that FlyCo had other rights and remedies available, both at law and under the Franchise Agreement, and that taking action for damages for breaches of the Franchise Agreement evidenced this fact.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

MCDONALD J

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Ratio Decidendi

Legal Principle Established

Established by: MCDONALD J

Further support for construing the phrase “subject to the continuation of the Franchise Agreement” as meaning the non-termination of the agreement and not the adherence to the obligations of confidentiality and fidelity is found in the inclusion of the reference to the termination date of 24 September 2019. The obligations imposed on Olimarc by clauses 17 and 27 both extended beyond that date. If payments were only subject to Olimarc’s continued adherence to those obligations there would be no reasons to limit the relevant period to the expiration of the Franchise Agreement.Consideration of the grounds of appeal For the reasons that I have given and will elaborate on I do not accept that the Magistrate was in error in his construction of the Buyback Agreement. I agree with the Magistrates’ observation that whilst the construction may result in a “commercial inconvenience” FlyCo had other rights and remedies available both at law and under the terms of the Franchise Agreement. The very fact that they took action against Olimarc and Mr Oliver for damages for breaches of the Franchise Agreement evidences that fact.Ground 1.1 – The Magistrate erred in finding that each instalment payment was subject to the FlyCo having not terminated the Franchise Agreement Three arguments were made in support of this ground of appeal. The first was that the Magistrate erred in finding that FlyCo’s contention involved a re-writing of the words of the Buyback Agreement whilst Olimarc’s construction reflected the ordinary and plain meaning of the words of the Buyback Agreement. It was submitted that Olimarc’s proposed constructions involved reading words into the express language of the Buyback Agreement. The words that it was suggested Olimarc required be read in were “it is limited to a case where FlyCo terminates the Franchise Agreement”. That was said to be on the basis that under the Franchise Agreement only FlyCo had the right to terminate. I do not accept this submission. The words of the Buyback Agreement are plain on their face. “All payments are subject to the continuation of the Franchise Agreement.” The Franchise Agreement continued. FlyCo had the right to terminate. FlyCo chose not to terminate even in circumstances in which the breaching conduct became known. The fact that it was only FlyCo who had the right to terminate under the Franchise Agreement is a consequence of the continuation of that agreement and does not require the words be read in as contended by FlyCo. The second submission made in support of this ground of appeal was that the correspondence comprising the Buyback Agreement was informal and did not purport to comprise a detailed articulation of the parties’ respective obligations. Whilst as a general principle it is correct that if a contract is informal and non-comprehensive, its meaning must be assessed in that context, it does not advance FlyCo’s argument in the circumstances of this case. The original Franchise Agreement was a formal agreement and the parties chose to retain it and not exclude the clauses relating to termination. FlyCo’s argument suggests that because the Buyback Agreement was informal, for reasons that are not clear clause 25 should be simply pushed to one side or ignored. To adopt that approach would require a complete re-writing of the Buyback Agreement. In circumstances in which the decision was made to retain the original Franchise Agreement there is no basis upon which to read the contract in that manner.