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 PTY LTD v OLIMARC PTY LTD
[2023] SASC 143
Magistrates Appeal: Civil
MCDONALD J.

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 (‘the business’). Pursuant to clause 23(2)(a) & (b) of the Franchise Agreement Olimarc was required to provide FlyCo with a first right of refusal to purchase the business.
After a period of negotiations an agreement was reached (‘the Buyback Agreement’) whereby FlyCo would purchase the business for $110,000 to be paid in five separate instalments. In return FlyCo would take over the operations of the business and receive the income that Olimarc would have made under the terms of the Franchise Agreement.
FlyCo made the first payment of $20,000 on 20 March 2018. In early December 2018 FlyCo made a second payment of $20,000 to Olimarc. Since that time no further payments have been made. FlyCo continued to conduct the operations of the business until the expiry date 24 September 2019 and received the income that Olimarc would have otherwise received under the original Franchise Agreement.
The basis upon which FlyCo determined to cease making the payments were breaches of certain clauses of the Franchise Agreement in particular clauses 17 and 27. These clauses related to the protection of FlyCo’s confidential information and restricted Olimarc from entering into competition with FlyCo for 24 months after the expiration or termination of the agreement. It was FlyCo’s position that Olimarc and Mr Oliver had been in breach of both of these clauses such that they were disentitled to any further payments under the Buyback Agreement.
It was Olimarc’s position that even if Olimarc and/or Mr Oliver had breached the Franchise Agreement, FlyCo remained obliged to pay the outstanding sum under the Buyback Agreement until either there was a termination by FlyCo under the terms of the Franchise Agreement or the fixed termination date. It was submitted that given that FlyCo made no efforts to terminate the Franchise Agreement in accordance with the termination clauses of that agreement, FlyCo remained liable for the outstanding payments that fell due before 24 September 2019.
The Magistrate preferred the construction of the contract advocated for by Olimarc. He determined that regardless of whether Mr Oliver and/or Olimarc breached the Franchise Agreement, termination of that agreement only occurred at the natural end of the agreement on 24 September 2019 and as a consequence FlyCo remained liable for the outstanding payments amounting to $70,000. It is against that decision that FlyCo now appeals.
The Appeal
On 21 February 2022 FlyCo filed a notice of appeal challenging the Magistrate’s orders. Although there are two grounds of appeal and various particulars to those grounds, the issue that fell for consideration in the hearing before the Magistrate, and remains the central issue on appeal, is the proper construction of the Buyback Agreement.
As this is an appeal to a single judge of the Supreme Court against a judgment made in the Civil Division of the Magistrates Court, the appeal is of right pursuant to s 40(1) of the Magistrates Court Act1991 (SA).
Pursuant to Uniform Civil Rule 217.10 this appeal is by way of rehearing.
It is for the Court to conduct an independent review of the evidence giving weight to the advantage held by the Magistrate in seeing and hearing the witnesses and assessing their credit. Generally the Magistrate proceeded on the basis of affidavits filed by Mr March and Mr Slator, the various documents contained in the tender books and a statement of agreed facts.
Mr March was the only witness presented for cross-examination. The Magistrate formed the view that Mr March was an honest and reliable witness who made appropriate concessions, even if it was against his own interests. [1] It is not suggested that the Magistrate was in error in arriving at that view, indeed, on appeal there was no dispute about the matters upon which Mr March gave evidence.
[1] Craig Slator, FlyCo SA Pty Ltd v Steve Amos, Olimarc Pty Ltd & Jason Oliver [2022] SAMC 12 (‘Magistrates Judgement’) [65].
At trial, FlyCo was critical of the failure of Olimarc to present Mr Oliver to give evidence, despite the fact that Mr March gave evidence that there was no reason why Mr Oliver could not have attended court. FlyCo submitted that in those circumstances a Jones v Dunkel,[2] inference should be drawn against Olimarc, namely that Mr Oliver’s evidence would not have assisted the respondent’s case.
[2] (1959) 101 CLR 298.
The Magistrate accepted FlyCo’s submission,[3] and drew the inference that Mr Oliver’s evidence both personally and as a director of Olimarc would not have assisted Olimarc’s case.
[3] Magistrates Judgement at [145].
Given that the determination of this matter turns upon the construction of the Buyback Agreement and the proper characterisation of the conduct of Olimarc in breach of the contract, this Court is in just as good a position as the Magistrate to make an assessment of the competing arguments. This is not a situation in which the Magistrate had an advantage in having heard the initial proceedings and the witnesses at trial. Indeed, by the time of appeal many of the subsidiary arguments had fallen to one side resulting in some clarity around the central issues under consideration.
The notice of appeal contains two grounds of appeal. These are:
1.The learned Magistrate erred in the construction of the Buyback Agreement entered into between the cross-applicant (Olimarc) and the cross-respondent (FlyCo), in that the learned Magistrate:
1.1.   erred in finding that each instalment payment was subject to FlyCo not having terminated the Franchise Agreement at the time at which the particular payment was due to be paid, on the basis that FlyCo’s contention involved a re-writing of the agreement construction and Olimarc’s construction reflected the ordinary and plain meaning of the Buyback Agreement (J [125]-[126]), when, in fact:
(a)each of Olimarc’s three proposed constructions (including the primary construction accepted by the Magistrate) involved reading words into the express language of the correspondence (in the case of the primary construction – a requirement that the termination be by FlyCo (and not by Olimarc)).
(b)the correspondence comprising the Buyback Agreement was informal and did not purport to comprise a detailed articulation of the parties’ respective obligations, so that it was appropriate to construe the words used to reflect commercial common sense in light of the context and the parties’ prior dealings;
(c)the construction urged by Olimarc and accepted by the Magistrate was uncommercial and inconsistent with the evident purpose of the Buyback Agreement in that:
(i)because it was agreed (or implicit) that during the term of the Buyback Agreement, Olimarc and the principals would no longer undertake or conduct the franchise business, the only remaining and extant obligations under the Franchise Agreement comprised their obligations of good faith and their obligations of confidentiality and fidelity.
(ii)there would be no commercial purpose served by requiring that FlyCo must terminate the Franchise Agreement before being relieved of the obligation to make the instalment payments in circumstances where: (1) the fact and extent of such breaches were likely to be difficult to detect and incapable of effective remedy; and (2) terminating the Franchise Agreement would, contrary to FlyCo’s interests, contract and diminish the period during which those obligations were to ensure for its benefit;
1.2.   erred in failing to find:
(a)that FlyCo’s obligation to make each of the second to fifth instalment payments was conditional upon the continued adherence by Olimarc and its principals (Messrs Oliver and March) to the obligations owed by them under the Franchise Agreement.
(b)in the alternative, that Olimarc’s right and title to recover the liquidated sums fixed by the Buyback Agreement was conditional upon the co-operation contemplated by the Buyback Agreement, namely, the continued adherence by Olimarc and its principals with their obligations owed under the Franchise Agreement (and, as a corollary, that any obligation upon FlyCo to make those payments was suspended at least whilst Olimarc and its principals were not complying with those obligations and/or had not remedied their defaults);
(c)in the further alternative, that FlyCo’s obligation to make each of the second to fifth instalment payments was conditional upon Olimarc and its principals having continued to adhere to their obligations and not having committed breaches of those obligations or otherwise conducted themselves in a repudiatory manner or otherwise such as to entitle FlyCo to have terminated the Franchise Agreement (whether immediately or by giving notices which would have led to the termination of the Franchise Agreement).
2.Having correctly found that Olimarc and Mr Oliver failed to adhere to their obligations under the Franchise Agreement in numerous respects (J [147]-[149]), and that such breaches were not trifling (J [150]), the learned Magistrate erred in failing to find that:
2.1.   accordingly, by reason of the matters in paragraphs 1.2(a) and/or (b) above, FlyCo was not required, or was discharged from the obligation, to pay the second to fifth instalment payments and/or Olimarc was disentitled from recovering those instalments because it was not co-operating in the performance of the Buyback Agreement by reason of the unremedied breach of the Franchise Agreement by it and its principals;
2.2.   alternatively, on the basis set out in paragraph 1.2(c) above, FlyCo was not required, or was discharged from the obligation, to pay the second to fifth instalment payments because the conduct of Olimarc and Mr Oliver involved substantial breaches of the Franchise Agreement and/or evinced an unwillingness to be bound to its terms such as would have entitled FlyCo (had it known of the extent of the relevant conduct) to immediately terminate the Franchise Agreement or to give a notice of termination that would inevitably have led to its termination (because the breaches were not capable of being remedied and damages would not have been an adequate remedy for the breaches).
Although particularised in this form it can be said that each ground is based on what is 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.
Legal Principles of Construction
There was general agreement between the parties as to the principles applicable to the construction of written commercial agreements. Written contracts are to be objectively construed by reference to the contract’s text, context and purpose. The meaning of the contract is to be determined by reference to what a reasonable businessperson would have understood those terms to mean, rather than by reference to what the parties subjectively thought that a contract meant. It follows that a contract must be construed in a businesslike manner, that is, in a way that assumes that the parties intended to produce a commercial result and in such a manner that avoids a commercial nonsense or working a commercial inconvenience.
In Phantom Precision Engineering Pty Ltd v Luscombe,[4] Lovell J summarised the approach to be adopted in the following terms: [5]
A written contract is to be construed by reference to its text, context and purpose. The construction of a commercial contract is to be approached on the basis that the parties intended to produce a commercial result. The court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, and the market in which the parties are operating. Therefore, consideration must be given, not only to the text of the documents, but also the surrounding circumstances known to the parties, and the purpose and object of the transaction. The terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract. The objective background includes the contract’s external context comprising facts notorious or known to both parties to which its terms refer. However, evidence of the subjective intentions of the parties is not admissible. Such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself.
(Footnotes Omitted).
[4] [2021] SASC 59.
[5] Ibid [47].
A further principle relevant to determining the meaning of a contract is that if the words used by the parties in the contract are unambiguous the Court must give effect to them: [6]
…notwithstanding that the result may appeal capricious or unreasonable, and notwithstanding that it may be guesses or suspected that the parties intended something or different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust.
[6] Australian Broadcasting Commission v Australian Performing Rights Association Ltd (1973) 129 CLR 99 at 109 per Gibbs J.
Of course, not all contracts are comprehensive and formal. In circumstances where a contract is of an informal and non-comprehensive type that is part of the context in which it must be assessed.
The circumstances leading up to the Buyback Agreement
In order to properly assess the various submissions made on this appeal, it is necessary to have some understanding of the events that led up to the Buyback Agreement.
The pre-existing relationship between Mr March and FlyCo
FlyCo was a company which conducted the business of pest control services under the name “Greedy Gecko” with franchises operating in the areas identified as “mid-north”, “southeast”, “west coast” and “greater Adelaide” in South Australia.
Prior to entering into the Franchise Agreement, Mr March had a pre-existing relationship with Mr Slator and FlyCo. In about 2005, Mr March had entered into a Specialist Services Agreement with FlyCo as a pest control technician. In that role, although subcontracted to FlyCo, Mr March generally dealt with FlyCo’s franchisees, as it was through them that work was assigned to him and other pest control technicians.
In about mid-2014, Mr March became aware that FlyCo had terminated its contract with the franchisee for the greater Adelaide area. He and Mr Oliver entered into negotiations with Mr Slator in relation to their potential purchase of the Adelaide franchise of the Greedy Gecko business. Olimarc was incorporated in September 2014 for the sole purpose of purchasing and operating the Adelaide franchise. Mr March and Mr Oliver each owned half of the share capital of Olimarc and were both the Directors of the company.
The Franchise Agreement
On 24 September 2014, FlyCo entered into a Franchise Agreement with Olimarc for the greater Adelaide area. The Franchise Agreement was for an initial term of 5 years and was due to expire on 24 September 2019. Olimarc paid FlyCo a franchise fee of $120,000. Mr March continued to be engaged as a pest control technician as a subcontractor to FlyCo from that time up until Olimarc entered into the Buyback Agreement.
In May 2015, Mr Oliver also entered into a Specialist Services Agreement with FlyCo pursuant to which he was contracted by FlyCo to provide pest control services to the business as a sub-contractor. Mr Oliver continued in this role until about mid-June 2018.
Under the Franchise Agreement, Olimarc did not provide pest control services directly to customers but rather acted as an intermediary between FlyCo, the pest control technician and the clients.

In general terms Olimarc’s business operated in the following manner:
·Pest control technicians acted as independent contractors who would enter into Specialist Services Agreements directly with FlyCo. Olimarc was not a party to these specialist service agreements.
·The pest control technicians were responsible for acquiring and managing their own pest control chemicals and tools as necessary.
·Olimarc would receive bookings from customers and would coordinate with the pest control technicians to schedule the customer bookings.
·Olimarc managed the customer service aspect of the business, including taking complaints and resolving any other issues raised by customers.
·The pest control technicians would perform the required services and issue clients with an invoice.
·Olimarc would manage the accounts receivable for the invoices issued by the pest control technicians and was responsible for all the financial accounting and administrative aspects of the business.
Under the Franchise Agreement 20 per cent of the revenue was retained by Olimarc, 20 per cent was remitted by Olimarc to FlyCo and 60 per cent was remitted to the pest control technician who provided the relevant services.
Relevant clauses of the Franchise Agreement
Clauses 2 to 5 of the Franchise Agreement set out the terms and preconditions of the agreement. As to the duration of the agreement, clause 4 in the Franchise Agreement provided:
4. Term
This agreement shall commence on the Commencement Date and shall continue for the Term unless earlier terminated in accordance with this Agreement.
Clause 6 “The scope of the Franchise” set out the various operational conditions imposed upon Olimarc. This included matters such as the hours that were required to be kept and the manner in which customers enquiries were to be dealt with.
Clause 7 “Code of Conduct compliance” read:
7.Code of Conduct compliance
(1)The parties to this Agreement agree to comply with the provisions of the Code of Conduct throughout the duration of this Agreement.
(2)Where the Franchisor elects to register or comply with the terms of any voluntary code of conduct pursuant to section s 51AE of the Competition and Consumer Act 2010 (as amended from time to time) or any other industry code of conduct or other standards of conduct, the parties to this agreement will comply from the time of such election with such code of conduct or standards.
(3)Where any amendments are made to the Code of Conduct, the parties will comply with the Code of Conduct as amended as and from the date such amendments became mandatory or such earlier date as is otherwise agreed between the parties in writing.
(4)This Clause 7 shall, at the option of Franchisor to be exercised by written notice to the Franchisee, cease to apply immediately where:
(i) The Code of Conduct is withdrawn or declared invalid or unconstitutional by any court of competent jurisdiction; or
(ii) The Code of Conduct ceases to be mandatory.
The next relevant clause for current purposes was clause 17 “Confidential Information”. This related to obligations of confidentiality imposed on Olimarc. It provided:
17.Confidential Information
(1)The Franchisee, the Principals and the Nominated Representative shall keep the Confidential Information absolutely confidential at all times and will sign confidentiality agreements as requested by the Franchisor.
(2)The Franchisee will take reasonable steps to ensure that its employees and contractors also observe such requirements as to the confidentiality and will at the request of Franchisor procure that they enter confidentiality agreements. The Franchisee’s obligation under this clause shall continue to be binding notwithstanding the expiration or termination of this Agreement except in relation to information which is or becomes generally available to the public.
(3)Franchisor may use any information provided by the Franchisee for its own purposes or for promotional, benchmarking, sales or other purposes.
It is of note that the restrictions contained within this clause remained in place indefinitely subsequent to the termination or expiration of the Franchise Agreement.
Clause 23 “Transfer/assignment” included a requirement that in the event that Olimarc desired to sell the business, they were to notify FlyCo in writing of the proposed sale price and terms of the sale and provide FlyCo with the option to buy the franchised business at that sale price and with those terms within 14 days of the notice of the sale.
Clause 25 “Breach/termination” set out the details of the circumstances in which the franchisor, FlyCo could terminate the Franchise Agreement and provided a comprehensive regime for the manner in which that was to occur. Given the significance of this clause to the resolution of the issues on this appeal I set it out in full.
25.     Breach/termination
(1)Franchisor may terminate this Agreement by written notice effective immediately in the event that the Franchisee or any of the Principals:
(a) Commits any act of bankruptcy as defined in the Bankruptcy Act 1966 (Cth), makes a scheme or arrangement with creditors, or is placed in receivership, liquidation, administration or any form of insolvency administration;
(b)     Is convicted of a criminal offence carrying a gaol term of five years or more, or an offence involving fraud, deception, dishonesty or misleading conduct;
(c)     Is fraudulent in connection with the operation of the Franchised Business;
(d)     Abandons the Franchised Business. Where the Franchisee loses the right to occupy the Premises or otherwise fails to operate the Franchised Business for three consecutive Business Days without notifying Franchisor the Franchisee shall be deemed to have abandoned the Franchised Business for the purpose of this clause;
(e)     Ceases to hold any licence, registration or authority required by this Agreement;
(f)     Operates the Franchised Business in a way that endangers public health and safety;
(g)     Takes, or omits to take, any action which is at the times listed in the Code of Conduct as a ground for immediate termination of a Franchise Agreement; or
(h)     agrees to termination of this Agreement.
(2)Franchisor may terminate this agreement where:
(a)     The Franchisee has breached a provision of this Agreement;
(b)     Franchisor has given the Franchisee written notice of:
i.the breach;
ii.the fact that Franchisor proposes to terminate the Agreement as a result of the breach unless it is rectified within the Reasonable Period;
iii.the action required by Franchisor to rectify the breach; and
iv.the Reasonable Period in which the Franchisee has to rectify the breach; and
(c)     The Franchisee fails to rectify the breach within the Reasonable Period.
(3)Subject to Clauses 25(4), (5), (6) and (7), it is agreed that the Reasonable Period of notice required by this Agreement and the Code of Conduct is not more than 30 days.
(4)Where a Franchisee breaches a provision of this Agreement on more than two occasions in any 12 month period and has in each case received written notice of breach in accordance with this Agreement, it is agreed that the Reasonable Period of notice required by this Agreement and the Code of Conduct for any subsequent breach of the same or similar provision is two Business Days.
(5)Where a Franchisor determines on reasonable grounds that any breach of this Agreement has been deliberate and calculated to cause damage to Franchisor, the parties agree and accept that the Reasonable Period of notice required under this Agreement and Code of Conduct is seven days or such shorter period as Franchisor determines as necessary to avoid Franchisor suffering material loss or damage.
(6)Franchisor may terminate this Agreement by written notice effective immediate in the event that:
(a)     The breach is incapable of being remedied and Franchisor has suffered or is likely to suffer substantial loss or damage; or
(b)     The Franchisee acts in a manner which would permit immediate termination at law.
(7)The Franchisee will not collude or cooperate with other parties to withhold any payment due to the Franchisor pursuant to this Agreement. Where any breach of this Agreement occurs as a result of any such collusion or cooperation the parties agree and accept that the period of reason or notice required by this Agreement or the Code of Conduct prior to termination shall be seven days or such shorter period as Franchisor determines as necessary to avoid Franchisor suffering material loss or damage.
(8)Franchisor shall be entitled to immediately suspend the Franchisee pending rectification of the breach where the Franchisee has been served with a notice pursuant to Clause 25(2) above and Franchisor reasonably believes:
(a)     That there is a risk to the goodwill of the Franchised Business or the integrity of the image or the system; or
(b)     That the Franchisee is likely to continue to breach the Agreement during the period allowed for rectification.
(9)Without prejudice to any of the foregoing rights, Franchisor may suspend some or all of the consequences of termination for a period of not exceeding 90 days to allow the Franchisee to attempt to sell the Franchised Business. Should Franchisor do so, in the event that the Franchisee in the reasonable opinion of the Franchisor fails to make genuine efforts to sell the Franchised Business, Franchisor may serve a further notice of termination cancelling all prior notices and terminating this Agreement effective immediately.
(10)In the event that Franchisor considers that it would be inappropriate for the Franchise to continue to serve Customers whilst attempts are being made by the Franchisee to sell the Franchised Business, Franchisor may service all Customers of the Franchisee and retain any income, commission, allowances or other entitlements which might otherwise be due to the Franchisee together with a reasonable fee to cover the costs of servicing the Customers.
Clause 27 “Restrictive covenant” prevented Olimarc from engaging in any form of competitive conduct with FlyCo’s products or services. The terms of this clause were broad and comprehensive. Subject to presently immaterial conditions it read:
27. Restrictive covenant
(1)Except with the prior consent of Franchisor, during the currency of this Agreement and for a period of 24 months after the expiration or termination of this Agreement neither Franchisee, the Nominated Representative nor the Principals shall be involved in, directly or indirectly, whether alone or in partnership with, or as an employee, agent, director, member of, shareholder of, or as consultant or advisor to any person, firm, association, corporation or entity which is engaged or concerned in or carries on in any manner whatsoever or has pecuniary interest of any kind in any business or undertaking involved in the supply of any services within the Territory which are competitive with the Franchisor’s products and the services.
(2)The Franchisee, the Nominated Representative and the Principals acknowledge that the prohibitions and restrictions contained in Clause 27(1) are important to protect the legitimate goodwill of Franchisor and are reasonable given the nature of the Franchised Business and the unique systems and procedures imparted to the Franchisee as part of the training and support.
The final clause said to be of significance on this appeal is clause 39 “Injunction”. It provided:
39. Injunction
The Franchisee acknowledges that strict adherence by the Franchisee to the provisions of this Agreement is vital to the success of the system as a whole, and to Franchisor and other Franchisees, and that damages would not be an appropriate remedy in the event of breach by the Franchisee. Accordingly, it is acknowledge that Franchisor shall be entitled to apply for and obtain temporary or permanent injunctions, declarations and orders for specific performance enforcing the provisions of this Agreement in the event of breach by the Franchisee and to prohibit or restrain any act or omission by the Franchisee or any employee or contractor that would constitute a breach of this Agreement.
It was said that this clause was included as an acknowledgement by Olimarc that such was the importance of adherence to the terms of the Franchise Agreement, that in the event of a breach damages would not be a sufficient remedy.
Relevant clauses in the Specialist Services Agreement
Also contained within each of the individual Specialist Services Agreements were clauses relating to confidentiality and restrictions on engaging in commercially competitive conduct. Although expressed in different terms to those clauses in the Franchise Agreement, they essentially imposed the same obligations on the individual contractor as those imposed on Olimarc under the Franchise Agreement. As with the Franchise Agreement the restriction in relation to entering into competition with FlyCo extended for two years following the termination of the Specialist Services Agreement.
Negotiations surrounding the Buyback Agreement
In about January 2018 Mr March and Mr Oliver made the decision to sell the business. On 25 January 2018 they sent an email to Mr Slator to advise him of that intent and made an offer to sell him the business for $140,000. On 8 February 2018 Mr Slator responded by email attaching a letter declining the offer and made a counter offer to take over the operations of the business and continue to pay Olimarc the “franchise income” but not pay a purchase price as such. In that letter Mr Slator made allegations that Olimarc had breached the Franchise Agreement although these were not the breaches upon which FlyCo ultimately relied.[7]
[7] These alleged breaches related to a change of operational control from Mr March and his wife to Mr Oliver and his wife, a refusal by Olimarc to treat timber pests and a failure to follow the operations manual.
On 15 February 2018, Mr March and Mr Oliver responded by letter to Mr Slator’s letter of 8 February 2018. They declined FlyCo’s counteroffer and made a further offer for the sale of the business at a reduced price of $110,000.
On 22 February 2018, Mr Slator responded by letter rejecting the further offer. There was then some correspondence between the parties about the provision of profit and loss statements which is now of no moment in the consideration of the current issues.
On 5 March 2018, Mr Slator sent a further letter of offer to Mr March and Mr Oliver. This was the Buyback Agreement. This offer was in the following terms:
Formal Offer: $110,000
First payment: $20,000 within 10 days of acceptance
Second payment: $20,000 24^th of September 2018
Third payment: $20,000 30^th of January 2019
Fourth payment: $20,000 of 30^th April 2019
Fifth payment: $30,000 of 24^th September 2019
FlyCo SA P/L has in good faith agreed to your asking price. The payment terms are not negotiable. All payments are subject to the continuation of the Franchise Agreement excluding clause 6(1) and 6(2) until the termination date of 24^th September 2019. FlyCo SA P/L will require both principals to sign a confidentiality agreement as stated in clause 17(1) of the agreements.[8]
Due to the considerable time FlyCo SA P/L needs to prepare for the coming season, the above offer is valid until end of business Wednesday 7^th March 2018. If Olimarc P/L and FlyCo SA P/L cannot come to a formal agreement, FlyCo SA P/L will be left with no other option but to explore our foregoing rights with regards to the agreement including any past and present breaches.
(Emphasis Added).
[8] No further confidentiality agreement was entered into.
On 8 March 2018 Mr March and Mr Oliver sent an email to Mr Slator accepting the terms of the Buyback Agreement. On 9 March 2018, Olimarc’s access to FlyCo’s database was withdrawn and from that point Olimarc had no involvement in the operation of the business and no ability to view or access any of the business records.
On or about 20 March 2018, FlyCo made the first instalment payment of $20,000 to Olimarc.
Breaches of the Franchise Agreement
Although breaches of various clauses of the Franchise Agreement were alleged against Olimarc throughout the franchise relationship, those central to the issues arising at trial and on appeal related to clauses 7 – Code of Conduct Compliance, 17 – Confidential Information and 27 – Restrictive Covenant.
Whilst at trial there was no concession made by Olimarc that there had been any breaches of the Franchise Agreement, on appeal it was accepted that Olimarc and Mr Oliver had been in breach. There remained however a dispute over the extent of the breaches and the resulting damages.[9]
[9] It was Olimarc’s position that the damages amounted to approximately $754 whilst FlyCo contended the loss was significantly greater than that however given the nature of the breaches it was difficult to quantify the true sum.
In order to put into context the competing submissions about the nature and effect of the breaches it is necessary to say something about the involvement of a third-party Steven Amos.
On or about 1 August 2015, Mr Amos, also entered into a Specialist Services Agreement with FlyCo as a pest control technician. At the time of entering into this agreement Mr Amos was a close friend of Mr Oliver and had been for approximately 20 years. Mr Amos continued to provide pest control services to the business until about August 2018 when he declined to enter into a new Specialist Services Agreement. During that time, whilst Mr Amos was engaged in the Specialist Services Agreement with FlyCo he was managed, overseen and assigned pest control jobs by Olimarc.
By about September 2016 Mr Slator held concerns about Mr Amos breaching the terms of the Specialist Services Agreement. These concerns were that whilst in possession of FlyCo’s confidential client information and in particular FlyCo’s client contact details, Mr Amos had been contacting FlyCo’s clients in relation to the provision of pest control services in competition with FlyCo.
On 26 September 2018 Mr Slator raised these concerns in an email to Mr March. That email contained the following passages:
This brings us to a phone call I received yesterday from a client in Woodside who had booked in on 24 September 2018. She wanted to cancel her booking due to using a previous technician who “has sprayed my house for the last 10 years”. After asking who the technician is, she advised it was “Steve” ….
…Can you please advise if this was yourself, or anyone from Olimarc P/L franchise and any of your previous employees who have access to FlyCo SA Proprietary Limited Records?
If the situation arises with Steve or any other person from your previous franchise… we will be obtaining legal advice and may have to reassess the payment agreement. This is not our intention but we will be left with no other option. Best course of action is for whoever is using our confidential information to cease ASAP so we can continue to operate as has be done in (sic) past 12 months which will allow us to commit to our current agreement.
On 1 October 2018 Mr March responded to the concerns raised by Mr Oliver. In that email he said:
I can categorically state that neither Jason nor myself have had any contact with a former client from Woodside and I can assure you absolutely, that we (Jason or myself) have not and will not be contacting any former clients.
That same day Mr Slator sent a further email to Mr March in which he said:
I would like to remind you; the current Franchise Agreement has not been terminated. Therefore, even though all past and present technicians are bound by the SSA, Olimarc P/L continues to be bound by clauses of the Agreement and particular clauses “shall continue to be binding notwithstanding the expiration or the termination of the agreement.” If you believed you have “no responsibility for the conduct or misconduct of any technician past or present” I suggest you read the current Franchise Agreement, manual of operations and get legal advice.

On 17 October 2018 Mr Slator commenced proceedings in the Magistrates Court against Mr Amos for various breaches of the Specialist Services Agreement including breaches of the confidential information clause.
On 29 October 2018 Mr Slator sent an email to Mr March in which he advised that he had commenced proceedings against Mr Amos and requested that Olimarc take various “reasonable steps” to ensure that Mr Amos ceased contacting FlyCo’s clients. Mr Slator further referred Mr March to clause 17(1) and (2) of the Franchise Agreement and asked that Mr March advise what steps Olimarc had undertaken to ensure that confidential information was secure. He reiterated what he had said in his email of 26 September 2018 and warned Mr March that if the situation was not remedied, he “may have to re-assess the payment agreement.” Mr Slator concluded that email by saying:
Our advice is as follows. For us to continue our current financial agreement, we will require Olimarc P/L to:
(1)Take “reasonable steps” to obtain from Steve Amos all FlyCo SA P/L confidential information (as stated in the franchise agreement) including a signed statutory declaration from Steven Amos stating he no longer holds FlyCo SA P/L confidential information and will not contact any FlyCo SA P/L clients now or into the future.
On 2 November 2018 Mr March responded and expressed concerns about the suggestion that Mr Slator intended to cease making payments. In that context he said:
…We have done nothing wrong and have complied with all of our obligations under both the Franchise Agreement and our settlement agreement. I am sorry to hear that Steve Amos is contacting FlyCo clients however this has nothing to do with Olimarc. Steve has never been employed or contracted by Olimarc, Jason or me – as you are aware, Steve was contracted under a Specialist Services Agreement with FlyCo, as was the case with all Technicians/pest controllers. If he has breached the terms of that agreement, then FlyCo should enforce its rights against him however if sees fit, but that does not concern us.
Mr Slator responded by email on 5 November 2018 again raising concerns about the conduct of Mr Amos and the possibility of defaulting on the Buy Back payments. He issued Olimarc with the following warning:
We are also not interested in a lengthy and costly dispute but as far as FlyCo SA P/L is concerned, your refusal to even engage in conversation with Steve Amos leaves us with no other option. It is in the best interest of both parties that Steve Amos cease and desist any further breaches of this agreement. Before the breaches of Steve Amos and the damage he has caused in respect of our earning ability we had no intention to default with our payment agreement. Due to Steve Amos’ actions and Olimarc P/L inactions, we are left with no other option but to cease any further payments until this dispute is resolved and damages assessed.
We again ask Olimarc P/L to engage Steve Amos and ask for all confidential information to be returned before any further damage.
Mr March replied by email on 6 November 2018. In that email he maintained that Olimarc had never had a contractual relationship with Mr Amos however he advised that he was prepared to make contact with Mr Amos and request that he return any of FlyCo’s confidential information that he still had in his possession. In that email he stressed that he had no reason to believe that Mr Amos had any such information. Attached to that email was a copy of a letter that had been sent by Mr March to Mr Amos requesting that Mr Amos cease using FlyCo’s confidential information.
On 8 November 2018 Mr Slator sent a further email to Mr March. He commenced that email with the following:
FlyCo SA P/L has not agreed to any settlement with Olimarc P/L. Rather a good will payment agreement. Therefore, all aspects of the current Franchise Agreement remain active until its termination. We reserve all rights to any breach of the Franchise Agreement.
He then again raised his concerns about Mr Amos contacting FlyCo’s customers.
As a result of that email Mr March again wrote to Mr Amos and requested that he return to FlyCo any confidential information that he held.
On 21 November 2018 Mr March forwarded Mr Slator a letter in response from Mr Amos in which Mr Amos claimed that any confidential information that he held had been destroyed.
Mr Slator sent a further email to Mr March on 28 November 2018 requesting that Mr March again contact Mr Amos and request that he ‘cease and desist’ from any further contact with FlyCo’s clients and delete all of their contact details.
On 1 December 2018 Mr March sent an email to Mr Slator attaching a copy of a letter to Mr Amos in the terms requested by Mr Slator.
In early December 2018, FlyCo made the second instalment payment of $20,000 under the Buyback Agreement. After that no further payments were made leaving a debt of $70,000 outstanding.
Although the second instalment had fallen due in September Mr Slator decided to delay the payment as leverage to get Olimarc to contact Mr Amos. The second payment was made after Mr Slator had received confirmation that Mr March had sent the requested communication to Mr Amos.
On 15 October 2019 Mr Slator received a letter from Olimarc’s lawyers demanding the payment of the remaining instalments of $70,000. On 1 November 2019 Mr Slator applied to join Olimarc and Mr Oliver as the second and third respondents to the Magistrates Court proceedings against Mr Amos.
On 2 April 2020 FlyCo settled its claim against Mr Amos and consequently discontinued its action against him. On 18 January 2021 FlyCo settled its claim against Olimarc and Jason Oliver. The only matter that remained to be determined was the claim for the outstanding payment of $70,000.
The Magistrates Court Trial
As already mentioned, the essential issue at trial was the proper construction of the Buyback Agreement in particular the meaning of the words “All payments are subject to the continuation of the Franchise Agreement excluding clause 6(1) and 6(2) until the termination of 24 September 2019.”
FlyCo’s Construction
It was FlyCo’s case that other than the first payment, all other payments that fell due under the Buyback Agreement were conditional upon Olimarc, Mr March and Mr Oliver not breaching their contractual obligations under the Franchise Agreement. It followed that when an instalment fell due for payment under the Buyback Agreement, the obligation to pay it was subject to the continued adherence by Olimarc (and/or its principals) to the extant terms of the Franchise Agreement. This was on the basis that Olimarc could not properly insist on payment if it was not continuing to honour the Franchise Agreement at the due date of the instalment.
On the FlyCo construction the first payment was distinguished from the other payments on the basis that it was the consideration for the contract (it was described as a good will payment). It followed that any breach of Olimarc’s ongoing obligations under the Franchise Agreement that was more than trivial gave FlyCo the right to terminate any performance of its obligations under the Buyback Agreement namely, to make further payments. That was said to be on the basis that the remaining obligations imposed on Olimarc under the Franchise Agreement were of such a nature that any failure to adhere to them amounted to an act of repudiation. It was submitted that subsequent to that repudiation FlyCo was entitled to the benefit of the business without making any further payments, notwithstanding they did not terminate the Franchise Agreement pursuant to clause 25.
Although not relied upon at trial, on appeal FlyCo contended for an alternative construction. That was that the breaches and conduct of Olimarc were sufficiently serious and evinced an unwillingness to be bound by the ongoing obligations of the Franchise Agreement, such that FlyCo had a right to bring about a termination of the Franchise Agreement.
Olimarc’s Construction
It was Olimarc’s primary construction that FlyCo had a contractual liability to make each of the instalment payments on the dates identified in the Buyback Agreement. Each payment was subject to FlyCo having not terminated the Franchise Agreement under clause 25 of that agreement at the point in time at which the particular payment was due to be made. It followed that given that FlyCo did not terminate the Franchise Agreement at any point during the period of the Buyback Agreement, FlyCo remained liable to make each of the payments.
Olimarc also advanced a second alternative construction. This was that each of the instalment payments was only payable on the dates identified in the Buyback Agreement if FlyCo did not have a right to terminate the Franchise Agreement, pursuant to the terms of the Franchise Agreement, as at that particular date.
It was submitted however that none of the breaches would have justified FlyCo terminating the Franchise Agreement under the terms of that agreement given that the total value of the breaches was approximately $3,770 with the loss being in the order of $754. Further that none of the breaches were sufficiently serious to evidence a repudiation of the agreement by Olimarc.
This alternative construction was advanced to meet FlyCo’s submission that it was a commercial absurdity to suggest that FlyCo was required to terminate the Franchise Agreement in circumstances in which they had no knowledge of or the extent to which Olimarc was in breach of its obligations.
Although advancing an alternative submission, FlyCo maintained that its primary construction was in fact the correct construction of the contract.
The Magistrate’s Findings on the Construction of the Contract
The Magistrate commenced consideration of the construction of the Buyback Agreement by ascertaining its commercial purpose on the assumption that the parties intended to provide for a commercial result. His Honour found: [10]
The commercial purposes were for FlyCo to take back ‘operational control’ of the Franchisee Business in consideration of FlyCo paying the Instalment Payments.
[10] Magistrates Judgment [122].
FlyCo and Olimarc had made competing submissions about the commercial purpose of the payment structure involving payment over five instalments. FlyCo contended that it was in order to ensure that Olimarc continued to fulfil their obligations under the Franchise Agreement. They submitted that this supported their overall construction of the contract. It was Olimarc’s submission that the commercial purpose of the payment structure was to enable FlyCo to make the payment out of the revenue generated by the business over the relevant period of time.
The Magistrate preferred the construction advanced by Olimarc. His Honour found:
On proper construction, a reasonable business person would understand the parties to have objectively agreed that FlyCo would pay Olimarc $110,000 for the Franchise Business by way of five instalments so that the purchase price could be funded from sales revenue generated by the Franchise business during the Buyback Period.[11]
[11] Magistrates Judgment [123].
The Magistrate accepted Olimarc’s primary construction of the Buyback agreement. His Honour found that regardless of whether Mr Oliver and/or Olimarc breached the Franchise Agreement, absent a termination of that Agreement by FlyCo prior to 24 September 2019, FlyCo remained liable for all of the instalment payments.
In case he was wrong in preferring Olimarc’s primary construction of the contract, the Magistrate went on to consider whether FlyCo had proved that Olimarc and/or Mr Oliver had breached the Buyback Agreement and whether those breaches were more than trivial. Central to the consideration of that question were the Agreed Facts. The Agreed Facts were divided into three topics. These were:
·Six occasions on which Mr Oliver purchased pest control chemicals to service nondisclosed customers after entry into the Buyback Agreement.
·Six occasions on which Mr Oliver serviced identified customers after entry into the Buyback Agreement.
·Seventeen occasions on which Mr Oliver disseminated FlyCo’s confidential information to Mr Amos after entry into the Buyback Agreement.
The Magistrate also took into account evidence that there had been extensive telephone conservations and text messages between Mr Oliver and Mr Amos during the Buyback period as well as tax invoices from Mr Amos which identified various jobs that Mr Amos had completed on behalf of FlyCo clients whilst operating a competing business.
Finally in considering the combined weight of this evidence the Magistrate drew a Jones vDunkel inference against Olimarc, namely, that Mr Oliver’s evidence could not have assisted their case on the issue of the nature and extent of any breaches.
The Magistrate made the following findings about whether there had been a breach of the Franchise Agreement:
Based on the evidence of Mr March and the Agreed Facts, I find that Olimarc through Mr Oliver as Director and Mr Oliver in his personal capacity breached the Franchise Agreement during the Buyback Period in ways including but not limited to: -
·       Providing FlyCo confidential information to Mr Amos in breach of clause 17 of the Franchise Agreement; notwithstanding Mr Oliver knew that Mr Amos was operating a pest control business in competition with FlyCo.
·       Breaching the obligations of Good Faith with respect to both the Franchising Code of Conduct and clause 7(1) of the Franchise Agreement.
·       Breaching clause 27 of the Franchise Agreement on the basis Mr Oliver continued to purchase pest control chemicals for the purpose of using them to provide pest control services.
·       Undertaking pest control services for FlyCo customers,[12]
[12] Magistrates Judgment [149].
On that basis the Magistrate found that the breaches were not trifling. His Honour did not however consider that FlyCo had proved that the breaches were such that Olimarc and/or Mr Oliver’s conduct amounted to a repudiation of the Franchise Agreement. It followed that even on FlyCo’s contended construction the Magistrate would have found that FlyCo was liable for the outstanding payments. The Magistrate did not provide any reasons for arriving at that finding.
What was the commercial purpose of the Buyback Agreement?
The clear commercial purpose of the Buyback Agreement was for Olimarc to disengage from the responsibility of the operational running of the business, whilst continuing to receive payments in return for relinquishing the profits that they would have otherwise received as a consequence of having paid the initial purchase price. At the same time, it was for FlyCo to obtain the profits of the business, by taking over operational control and in return compensate Olimarc for the income that they had lost.
Throughout the course of this matter there have been competing submissions about the commercial purpose for the staggered payments on the basis that there was a single motivation for adopting such an approach. That does not necessarily follow. In my view, taking into account the text and context of this aspect of the contract a reasonable business person would have understood that the purpose of the structured payments was to achieve both purposes. That is to enable FlyCo to fund the purchase whilst also ensuring that Olimarc maintained their obligations under the franchise agreement.
The starting point to the determination of the issues on this appeal is the fact that the parties chose to adopt a course that involved retaining the original Franchise Agreement and introduced new contractual obligations by the creation of the Buyback Agreement. The consequence is that the two must sit together and be read together. Those obligations created by the Franchise Agreement remained in place and operative absent express exclusion under the Buyback Agreement. The fact that the parties saw fit to carve out clauses 6(1) and 6(2) is additional support for this construction. Clauses 6(1) and 6(2) imposed obligations on Olimarc in relation to the timeliness and manner in which they serviced customers. These clauses became redundant once the Buyback Agreement was entered. Whilst a number of other clauses of the Franchise Agreement also became obsolete as a consequence of the creation of the Buyback Agreement, those that remained capable of operation remained in force.[13] This included not only those clauses that FlyCo sought to rely upon but also clause 25 that provided for the circumstances and regime for the termination of the Franchise Agreement.
[13] Even prior to the Buyback Agreement there were clauses in the Franchise Agreement that were obsolete. These included clauses in relation to cooling off and early termination of the agreement.
It was open for the parties to have reached the same outcome by terminating the Franchise Agreement and entering into an entirely new contract. That was not a course that they chose to adopt. It was also open for the parties to make the payments due under the Buyback Agreement contingent upon a particular clause or obligation rather that making it subject to the “continuation of the Franchise Agreement.” If it had been the intention to limit the operation of the Franchise Agreement in the manner contented by FlyCo it would have been a straightforward matter to draft the Buyback Agreement such that the instalment payments were subject to Olimarc continuing to satisfy their obligations arising under clauses 17 and 27 of the Franchise Agreement. The parties chose not to adopt that course. Instead, the only reference to confidentiality in the Buyback Agreement was that FlyCo would “require both principals to sign a confidentiality agreement as stated in clause 17(1) of the agreement.” Curiously that never occurred.
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.
FlyCo’s third argument on this ground of appeal was that the construction accepted by the Magistrate was uncommercial and inconsistent with the purpose of the Buyback Agreement. That was said to be on the basis that, given that subsequent to the Buyback Agreement, Olimarc would no longer undertake the running of the business their only extant obligations under the Franchise Agreement compromised their obligations of confidentiality and fidelity. It was submitted that there would be no commercial purpose served by requiring FlyCo to terminate the Franchise Agreement before being relieved of their obligation to continue to make payments. It was submitted that was particularly so in circumstances in which the fact and extent of such breaches were likely to be difficult to detect and incapable of effective remedy and further that terminating the Franchise Agreement would be contrary to FlyCo’s interests.
This argument again involves a disregard for the plain wording of the Buyback Agreement. I do not accept that the construction favoured by the Magistrate was uncommercial. FlyCo was in no different a position in terms of its ability to become aware of and know of the extent of a breach than it was prior to the Buyback Agreement. The regime for termination under the Franchise Agreement provided commercial certainty for the manner in which a breach was to be dealt with. Both parties were on notice of the rules and requirements for a termination of the Agreement.
FlyCo’s construction resulted in FlyCo being afforded with a unilateral discretion to determine when to stop making payments whilst retaining the profits of the business. Prior to the Buyback Agreement it would not have been open for FlyCo to take Olimarc’s income away in circumstances in which they determined that the breach was of such a nature that it warranted that action.
In my view it makes no commercial sense to construe the Buyback Agreement in such a way that it gives all power and financial reward to FlyCo and deprives Olimarc of the protections provided by the structure created under clause 25. The point is illustrated by the very manner in which these events unfolded. As early as September 2018 Mr Slator was threatening to “reassess payment arrangements”. At that time Mr Slator was unaware of the nature and extent of Mr March’s breaches, most of which occurred subsequently. The concern at that time was the conduct of Mr Amos. Mr Slator only became aware of the extent of Mr March’s breaches when Mr Amos made discovery in the Magistrates Court proceedings in about June 2019.[14] The commercial illogicality of that is on FlyCo’s construction, Mr Slator was entitled to withhold the second and third payments on the basis of his suspicions about Mr Amos’ conduct.
[14] Affidavit of Craig Slater dated 6 April 2021 [126]-[128].
Although requiring FlyCo to terminate the Franchise Agreement may in some respects operate against FlyCo’s interest in that it would diminish the period over which the good faith, confidentiality and fidelity obligations would continue, that is again no different than the arrangement in place prior to the Buyback Agreement. This submission also has to be considered in the context of the confidentiality clause and restrictive covenant continuing beyond the termination or expiry of the Franchise Agreement. In respect of the former Olimarc’s duty in relation to confidentiality continued indefinitely and the restrictive covenant continued for 24 months after the expiry or termination of the Franchise Agreement.
On FlyCo’s argument they were entitled to not only the profit and the payments due to Olimarc but also the benefits of the continuation of the restrictive covenant for an additional two years. This is hardly a commercially sound construction.
Ground 1.2 The Magistrate erred in failing to make findings consistent with the FlyCo’s Construction of the Buyback Agreement
Given the findings that I have made about the Buyback Agreement it follows that this ground must also fail.
Although expressed as three alternative arguments, central to the complaint in this ground is a submission that the Magistrate was in error in failing to find that as a consequence of the Buyback Agreement Olimarc was only entitled to the second to fifth payments in circumstances in which they had continued to adhere to their obligations under the Buyback Agreement.
For reasons I have already provided I reject that construction of the Buyback Agreement.
Ground 2 Having found that the breaches were not trifling the Magistrate erred in failing to find that FlyCo was not required to pay the second to fifth payments
Given my findings on Grounds 1 it is not necessary for me to determine this ground of appeal.
Orders
1. The appeal is dismissed.
2. The parties to be heard on the question of costs.