Foxeden Pty Ltd v IOOF Building Society Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

COMMERCIAL LIST

No. 2078 of 2000

FOXEDEN PTY LTD (ACN 076 987 650)	Plaintiff
v
IOOF BUILDING SOCIETY LIMITED (ACN 087 652 104) AND OTHERS	Defendants
and
No. 2085 of 2000
KENNETH TAYLOR AND JANET TAYLOR	Plaintiffs
v
IOOF BUILDING SOCIETY LIMITED (ACN 087 652 104) AND OTHERS	Defendants

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JUDGE:	HABERSBERGER J.
WHERE HELD:	MELBOURNE
DATE OF HEARING:	12-15, 18-22, 25-27 March; 3-5, 8-11 April; 2-3 May 2002
DATE OF JUDGMENT:	19 September 2003
CASE MAY BE CITED AS:	Foxeden v IOOF Building Society Limited
MEDIUM NEUTRAL CITATION:	[2019] VSC 356

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CONTRACT – Agreement to operate branch of Building Society – Whether relationship was agency, franchise or something else – Whether operator purchased customers of the Building Society – Nature of goodwill – Authority to make agreement on behalf of Building Society – Terms of agreement – Commission to be paid – Whether agreement unlimited in duration or terminable – Implied term that agreement could be terminated on reasonable notice – Estoppel preventing reliance on written termination clause – Reasonable notice at time it should have been given was one year - Whether notice of termination given - Repudation

TORT – Conversion – Whether there can be conversion of chose in action

TORT - Interference with contractual relations – Personal liability of director of company when action causes company to induce breach of contract – Knowledge of contract – Whether action by parent company constituted interference with contractual relations in respect of contract made by subsidiary company

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr P.R. Hayes Q.C. with Mr I.B. Stewart	Mallesons Stephen Jaques
For the Defendant	Mr G. Beaumont Q.C. with Mr L. Glick and Mr M.K. Gurvich	Phillips Fox

TABLE OF CONTENTS

The Parties........................................................................................................................................... 1

The Pleadings in the Foxeden Proceeding.................................................................................... 2

The Pleadings in the Taylor Proceeding....................................................................................... 7

Common Background Evidence................................................................................................... 15

The Plaintiffs' Case in the Taylor Proceeding............................................................................ 19

The Plaintiff's Case in the Foxeden Proceeding........................................................................ 45

The Defendants' Case in both Proceedings................................................................................ 61

The Picture Disclosed by the Defendants' Own Documents.................................................. 66

Overview of the Witnesses............................................................................................................. 84

The Legal Issues............................................................................................................................... 85

The Taylor Proceeding.................................................................................................................... 89

The Terms of the Agreement with the Taylors....................................................................... 89
The Authority of Mr Wood to make the Agreement with the Taylors............................... 99
Was the Agreement with the Taylors Breached by IOOF?................................................. 102
Alternative Claims by the Taylors against IOOF................................................................. 106
The Taylors’ Claims Against Mr Turner................................................................................ 107
The Taylors’ Claim in Conversion Against Bendigo Bank................................................. 107
The Taylors’ Claim Against IVFS and Bendigo Bank for Interference with Contractual Relations 108

The Foxeden Proceeding.............................................................................................................. 110

The Terms of the Agreement with Foxeden.......................................................................... 110
The Authority of Mr Wood to Make the Agreement with Foxeden.................................. 117
Was the Agreement with Foxeden Breached by IOOF?...................................................... 119
Alternative Claims by Foxeden Against IOOF..................................................................... 120
Foxeden’s Claims against Mr Turner..................................................................................... 120
Foxeden’s Claim in Conversion against Bendigo Bank...................................................... 120
Foxeden’s Claim against IVFS and Bendigo Bank for Interference with Contractual Relations 120

Answers to the Questions in Each Proceeding......................................................................... 121

The Foxeden proceeding......................................................................................................... 121
The Taylor Proceeding............................................................................................................. 122

HIS HONOUR:

The Parties

In both of these proceedings the four defendants were the same. The first defendant, IOOF Building Society Limited ("IOOF" or "the Building Society") had by 1996 developed a network of 20 branches and a number of other outlets in Victoria. The Building Society also had one branch in Canberra and two in Adelaide.

The second defendant, IOOF Limited (formerly known as IOOF of Victoria Friendly Society Limited) ("IVFS") was until about 31 March 1999 the ultimate controlling entity of IOOF, through a subsidiary company, IOOF BS Holdings Pty Ltd ("BSH") which held all the shares in IOOF. IVFS was the parent company of the IOOF Group. Another subsidiary of IVFS was Winchcombe Carson Financial Planning Pty Ltd ("Winchcombe Carson").

The third defendant, Bendigo Bank Limited ("Bendigo Bank"), became the ultimate controlling entity of IOOF on or about 1 April 1999 by acquiring all of the shares in BSH pursuant to a Share Sale Agreement with IVFS dated 5 March 1999.

The fourth defendant, Robert John Turner ("Mr Turner"), became the Managing Director of IVFS, and thus the IOOF Group, on about 14 August 1996. He has remained in that position. On 14 April 1997 Mr Turner also assumed the role of Chief Executive Officer of the Building Society, replacing the then General Manager, Mr Andrew Mainprize, whose position had become redundant under the new Group Management Structure. Mr Turner retained his formal position with IOOF until 6 April 1998, when Mr Jack Regan was appointed as the General Manager of IOOF. Mr Regan left the Building Society in about November 1998. A Mr Robert Wood had been the acting General Manager of IOOF between 1995 and March 1996 when he was made Senior Manager in charge of Branch Distribution and Mr Mainprize was appointed General Manager. Both Mr Wood and Mr Mainprize were called by the plaintiff(s).

There were other employees, past and present, of the IOOF Group who gave evidence. Mr Christopher Bruce, who at the relevant time was General Manager of Member Services for IVFS, was also called by the plaintiff(s). Ms Vicki Pearce, who succeeded Mr Wood as Operations and Sales Manager of IOOF, Mr Alan Mollison, who at the relevant time was the Finance Manager of the Building Society, and Mr Ross Higgins, General Manager, Corporate Services of IVFS, were called by the defendants. Another witness called by the defendants was Mr Raymond Schoer, the Chairman of IOOF's Board of Directors for part of the relevant time.

The plaintiff in proceeding number 2078 of 2000 ("the Foxeden proceeding") was Foxeden Pty Ltd ("Foxeden"), a company owned by Mr Warwick Hawksworth, an accountant and financial planner. In May 1997, Foxeden took over the operation of the Mildura branch of IOOF pursuant to an agreement between Mr Hawksworth or his nominee, which became Foxeden, and IOOF. Foxeden's involvement with the Mildura branch of the Building Society ceased on 30 June 1999 when all of the branch's customers and their accounts were transferred to Bendigo Bank following its purchase of the Building Society. The dispute which arose between the parties concerning the nature and terms of the agreement between Foxeden and IOOF and the circumstances and consequences of its termination led to the Foxeden proceeding being commenced.

The plaintiffs in proceeding number 2085 of 2000 ("the Taylor proceeding") were Mr Kenneth Taylor and Mrs Janet Taylor. Mr Taylor was also a financial planner. In March 1996, the Taylors took over the operation of the Frankston branch of IOOF pursuant to an agreement between them and IOOF. The Taylors' involvement with the Frankston branch of the Building Society also ceased on 30 June 1999 when all of the branch's customers and their accounts were transferred to Bendigo Bank. The dispute which arose between the parties concerning the nature and terms of the agreement between the Taylors and IOOF and the circumstances and consequences of its termination led to the Taylor proceeding being commenced.

The Pleadings in the Foxeden Proceeding

In the Foxeden proceeding, the plaintiff alleged in its Further Amended Statement of Claim ("Foxeden's Claim") that IOOF repudiated an agreement made between Mr Warwick Hawksworth or his nominee, Foxeden, and IOOF, in about November 1996, as a result of which Foxeden had suffered loss and damage. It was said that the agreement had been negotiated with Mr Wood on behalf of IOOF. The agreement alleged by Foxeden ("the Foxeden Agreement") was that, on and from a date to be agreed between the parties, in consideration of Mr Hawksworth or his nominee assuming the liabilities of the building society branch being operated by IOOF in Mildura ("the Mildura Business"), Mr Hawksworth or his nominee would become entitled to deal exclusively with the customers of the Mildura Business as he or it saw fit and to have exclusive access to the customer list of the Mildura Business and to utilise that list as he or it saw fit, that IOOF would not compete with Mr Hawksworth or his nominee in respect of the provision of goods or services to the customers of the Mildura Business and that all assets, expenses and liabilities of IOOF relating to the operations of the Mildura Business would be transferred to, assigned to or assumed by Mr Hawksworth or his nominee. It was further alleged that pursuant to the Foxeden Agreement Mr Hawksworth or his nominee were to be paid certain specified commissions in return for acting as IOOF's agent for the purpose of accepting deposits from customers for their Building Society accounts, permitting customers to withdraw funds from their Building Society accounts and accepting applications from customers for loans from the Building Society. It was also alleged that it was agreed that IOOF would not terminate the Foxeden Agreement, or the rights of Mr Hawksworth or his nominee under it to perform the agency functions or earn the commissions, without the consent of Mr Hawksworth or his nominee, alternatively, without reasonable notice to Mr Hawksworth or his nominee.

The commissions which Foxeden alleged IOOF agreed to pay were as follows:

(a)0.75 per centum of the value of all funds under deposit with the Mildura Business as at the agreed date, and all future funds placed under deposit by reason of business generated by Mr Hawksworth or his nominee and their officers, employees and agents;
(b)0.25 per centum of the value of all funds deposited with the Mildura Business by reason of business generated by IOOF;
(c)0.25 per centum of the value of all loan balances relating to customers of the Mildura Business; and
(d)$500 for each new loan to a customer of the Mildura Business generated by Mr Hawksworth or his nominee and their officers, employees and agents.

Foxeden further alleged that IOOF had failed to pay some of the commissions earned by it.

Foxeden alleged that it was nominated as Mr Hawksworth's nominee in about February 1997 and that the date agreed between Foxeden and IOOF for Foxeden to take over the running of the branch in Mildura was 28 May 1997.

The particular conduct allegedly constituting the repudiation by IOOF of the Foxeden Agreement was that, on or about 30 June 1999, it purported to transfer all customers of the Mildura Business to Bendigo Bank and transferred all accounts of the Mildura Business, including all deposit accounts and loan accounts, to Bendigo Bank and gave Bendigo Bank access to the customer list of the Mildura Business, which Bendigo Bank began utilising as it saw fit. Foxeden pleaded that it had accepted IOOF's repudiation of their Agreement. Foxeden alleged that but for IOOF's conduct, it would have had the opportunity to sell its rights to Bendigo Bank or to another financial institution or to be compensated by IVFS and BSH and IOOF and Bendigo Bank for the loss of those rights. Substantial figures were put on the value of those rights. Alternatively, Foxeden alleged that it lost 12 months and 60 days' trading from 1 July 1999.

Further causes of actions were pleaded in Foxeden's Claim. It was alleged that each of IVFS, Bendigo Bank and Mr Turner knowingly interfered with the Foxeden Agreement and induced IOOF to breach it. Next, Foxeden alleged that IOOF, alternatively Bendigo Bank, had converted Foxeden's interest in the Mildura Business to its own use. Then it was said that IOOF, alternatively Bendigo Bank, had unjustly derived a profit at Foxeden's expense and that Foxeden was entitled to restitution. The next cause of action pleaded by Foxeden was that IOOF had made certain false, misleading and deceptive representations to Foxeden concerning Foxeden's rights under the agreement with IOOF, in contravention of s.52 of the Trade Practices Act 1974 (Cth) ("the TPA"). It was alleged that the representations were made by Mr Turner and that he aided, abetted, counselled or procured, induced, was knowingly concerned in and/or conspired to effect the alleged contravention of the TPA. Further, Foxeden pleaded that the defendants were estopped from contending that it did not have the rights it claimed under the Foxeden Agreement. Finally, Foxeden pleaded that IOOF's conduct created in Foxeden a legitimate expectation that it had the rights claimed under the Foxeden Agreement, even if it was not made in the terms pleaded or at all.

In their Defence to Foxeden's Claim, the defendants pleaded that if IOOF entered into a concluded agreement with Mr Hawksworth or his nominee, it was entered into in or about May 1997 and not November 1996, and that the terms of that agreement ("the Foxeden Agency Agreement") were wholly in writing and were contained in either one of two identified agreements, (which became exhibits "B" and "CB 160"), the terms of which were very similar. Both of these agreements contained a clause B XIII dealing with "Transmission Matters" which provided that "Effective 28 May 1997 IOOF will transfer the employment of all employees" at the Mildura branch to Foxeden. That clause also provided that all rights and obligations under the lease of the premises would be transferred by a sub-leasing agreement to Foxeden and title to all fit-out items, fixtures and fittings in the premises would be transferred to Foxeden "effective" 2 December 1996!

Both agreements contained a similar clause B VIII "Duration and Termination". Sub‑clause (a) provided that:

"The Agency hereby appointed shall be terminated at the expiration of not less than sixty (60) days written notice given by either party to the other at any time."

The only significant difference between those two agreements was clause B VI dealing with "Remuneration". Both had similar sub-clauses (a) and (b) as follows:

"(a)The Society shall pay commission to the Agent at the end of each calender month at the rate of 0.75% per annum based on a daily calculation of deposit funds retained by the agent during the course of the month.
(b)The Society will pay commission to the agent on sub-agent funds on the basis of 0.25% per annum based on a daily calculation of deposit funds retained by the agent during the course of the month."

However, the second agreement (which became exhibit "CB 160") also had sub-clause (c) which provided that in addition:
"(c)The Society will pay commission to the agent on drawn down loans on the basis of 0.25% per annum based on a daily calculation of drawn down loan funds retained by the agent during the course of the month."

The defendants further pleaded that if the terms of the Foxeden Agency Agreement were not contained in either of the above documents then no concluded agreement which was enforceable at law was entered into by Foxeden and IOOF. They further pleaded that on or about 27 May 1997 Foxeden commenced to act as the agent of IOOF in respect of the deposit and lending transactions at the Mildura branch under an implied agency agreement. The term of the implied agency agreement concerning remuneration was said to be similar to that contained in exhibit "B". The term concerning termination was said to be that the agreement could be terminated summarily, or on 60 days' notice, or the giving of reasonable notice, by either party.

The defendants denied that on 28 May 1997 Foxeden became entitled to deal with the customers of the Mildura Business as it saw fit or to access to the customer list of the Mildura Business or to utilise that list as it saw fit or that all assets, expenses and liabilities of IOOF relating to operations of the Mildura Business were transferred to, assigned to or assumed by Foxeden. They also denied that IOOF became obliged not to act in competition with Foxeden in respect of the provision of goods and services to the customers of the Mildura business.

The defendants pleaded that if Mr Wood made any agreement with Foxeden which contained terms not contained in, or additional to or different to, the written terms of either exhibit "B" or exhibit "CB 160", then he had no authority, actual or ostensible, to enter into any such agreement on behalf of any defendant.

Whatever the agreement was between Foxeden and IOOF, the defendants pleaded that it was terminated on 3 March 1999, when Mr Hawksworth became aware of the public announcement by IOOF and Bendigo Bank made on that day, or on 20 April 1999, when a circular by Bendigo Bank was faxed to Mr Hawksworth, or on 12 May 1999, when Mr Hawksworth was allegedly informed by Mr Dennis Bice, a representative of Bendigo Bank that "the Mildura operations of IOOF would be closed down and that its banking operations would be merged on 30 June 1999 with the existing business carried on by Bendigo Bank". Therefore, they denied that IOOF had repudiated any agreement with Foxeden.

The defendants pleaded that IOOF had paid all of the commissions earned by Foxeden to which it was entitled pursuant to any agreement with IOOF.

The remainder of the defendants' Defence generally denied or did not admit all of the other causes of action pleaded by Foxeden. In respect of the loss and damage claimed by Foxeden, they pleaded that it had failed and refused to take reasonable steps to mitigate any loss and damage by not accepting an agency offered by Bendigo Bank. Also, they pleaded that any claim under the TPA could not succeed because the action was not commenced within three years after the date on which the statutory cause of action accrued. Finally, the defendants pleaded that Foxeden had never expressed or claimed the alleged legitimate expectation until shortly prior to amending its claim on 5 April 2002.

The Pleadings in the Taylor Proceeding

In the Taylor proceeding, Mr and Mrs Taylor pleaded, in their Further Amended Statement of Claim ("the Taylors' Claim"), an agreement allegedly made between the Taylors and IOOF in about February 1996 ("the Taylor Agreement"), whereby it was agreed that in consideration of the Taylors assuming, on and from 1 March 1996, certain specified operating expenses of the building society branch being operated by IOOF in Frankston ("the Frankston Business"), the Taylors would become entitled to deal exclusively with the customers of the Frankston Business in their discretion and to exclusive access to the customer list of the Frankston Business and to utilise that list in their discretion, that IOOF would not compete with the Taylors in respect of the provision of goods and services to the customers of the Frankston Business, that certain specified operating expenses, including staffing costs, would be the responsibility of the Taylors, and that all other operating costs, including the rent of the premises occupied by the Frankston Business, would be the responsibility of IOOF. It was said that the agreement had been negotiated with Mr Wood on behalf of IOOF. It was further alleged that pursuant to the Taylor Agreement it was agreed that the Taylors were to be paid certain specified commissions in return for acting as IOOF's agent for the purpose of accepting deposits from customers for their Building Society accounts, permitting customers to withdraw funds from their Building Society accounts, accepting applications from customers for loans from the Building Society and selling insurance policies to customers. It was also alleged that it was agreed that existing and new business of the Frankston Business would form part of the Taylors' goodwill should they wish to sell the Frankston Business and that IOOF would not terminate the Taylor Agreement, or in any way modify the rights of the Taylors under it to perform the agency functions or earn the commissions, without the consent of the Taylors, alternatively, without reasonable notice to the Taylors.

In the Taylors' Claim it was then alleged that in about September 1996, IOOF and the Taylors agreed to vary the Taylor Agreement by varying the commissions payable to the Taylors and increasing the operating expenses payable by them, including a contribution to the rent of the premises in certain specified circumstances.

It was further alleged by the Taylors that, on about 24 March 1997, they and IOOF entered into a further agreement ("the Taylor Agency Agreement"), which confirmed the commissions payable to the Taylors, identified by geographic area which customers' business would be included in the calculation of commissions, and identified which items would be included in the "branch retained funds" for the purpose of calculating the rent contribution from the Taylors. The Taylors pleaded that except where expressly inconsistent with the terms of the Taylor Agency Agreement, the terms of the Taylor Agreement as varied continued to operate. Clause VI(a) of a document entitled "Agency Agreement" dated 24 March 1997 which was signed by the Taylors provided that it could be terminated by either party on the giving of not less than 60 days' written notice to the other party. The Taylors further pleaded that it was agreed that the Taylor Agency Agreement would be a forerunner to a Franchise Agreement between them and IOOF on terms which contained at least the same benefits to the Taylors as the Agency Agreement.

The Taylors' Claim pleaded that they entered into the Taylor Agency Agreement relying upon representations by Mr Wood on behalf of IOOF that it was only an interim agreement until a Franchise Agreement between the parties was documented, that the Franchise Agreement was in the course of preparation by IOOF, that the terms of the Franchise Agreement would contain at least the same benefits to the Taylors as the Taylor Agency Agreement and that IOOF would negotiate the terms in clause VI(a), including the period of notice, and that a period of notice of 12 months and 60 days was not unreasonable. The Taylors therefore pleaded that, as a result, IOOF was estopped from seeking to rely upon or enforcing the Taylor Agency Agreement and in particular clause VI(a).

It was further pleaded that by a letter dated 13 August 1998, IOOF gave the Taylors 60 days' notice of the termination of the Agency Agreement and that, after several extensions, the date for termination was extended indefinitely by mutual agreement in about late January 1999.

The Taylors' primary cause of action was that IOOF repudiated the Taylor Agreement as varied and the Taylor Agency Agreement by, on or about 30 June 1999, purporting to transfer all customers of the Frankston Business to Bendigo Bank and transferring all accounts of the Frankston Business, including all deposit accounts and loan accounts, to Bendigo Bank and giving Bendigo Bank access to the customer list of the Frankston Business, which Bendigo Bank began utilising as it saw fit. The Taylors alleged that but for that conduct, they would have had the opportunity to sell their rights to Bendigo Bank or to another financial institution or to be compensated by IVFS and BSH and IOOF and Bendigo Bank for the loss of those rights. Substantial figures were put on the value of those rights. Alternatively, the Taylors alleged that they lost 12 months and 60 days' trading from 1 July 1999.

Further causes of actions were pleaded by the Taylors in their Claim. It was alleged that each of IVFS, Bendigo Bank and Mr Turner knowingly interfered with the Taylor Agreement as varied and the Taylor Agency Agreement and induced IOOF to breach them. Next, the Taylors alleged that IOOF, alternatively Bendigo Bank, had converted their interest in the Frankston Business to its own use. Then it was said that IOOF, alternatively Bendigo Bank, had unjustly derived a profit at the Taylors' expense and that they were entitled to restitution. The next cause of action pleaded by the Taylors was that IOOF had made certain false, misleading and deceptive representations to them concerning their rights under the Taylor Agreement as varied, in contravention of s.52 of the TPA. It was alleged that the representations were made by Mr Turner and that he aided, abetted, counselled or procured, induced, was knowingly concerned in and/or conspired to effect the alleged contravention of the TPA. Further, the Taylors pleaded that the defendants were estopped from contending that it did not have the rights it claimed under the various agreements. Finally, the Taylors pleaded that IOOF's conduct created in them a legitimate expectation that they had the rights claimed under the Taylor Agreement as varied and the Taylor Agency Agreement, even if they were not made in the terms pleaded or at all.

In their Defence to the Taylors' Claim, the defendants admitted the existence of an agreement between the Taylors and IOOF but pleaded that there were different terms to those alleged to form part of the Taylor Agreement. They denied that there were terms that the Taylors would become entitled to deal exclusively with the customers of the Frankston Business in their discretion or to exclusive access to the customer list of the Frankston Business and to utilise that list in their discretion, or that IOOF would not compete with the Taylors in respect of the provision of goods and services to the customers of the Frankston Business, or that existing and new business of the Frankston Business would form part of the Taylors' goodwill should they wish to sell the Frankston Business.

The defendants pleaded that the agreement they admitted was varied in September 1996 but not as extensively as alleged by the Taylors. According to the defendants, the variation was confined to the commission payable under the agreement, although they pleaded that the rent contribution was later agreed.

The defendants pleaded that the Agency Agreement signed by the Taylors on 24 March 1997 wholly replaced the pre-existing agreement between the Taylors and IOOF.

Again, the defendants pleaded that if Mr Wood made any agreement with the Taylors which contained terms not contained in or additional to or different to the written terms of the Taylor Agency Agreement, then he had no authority, actual or ostensible, to enter into any such agreement on behalf of any defendant.

The defendants denied the allegation that the Agency Agreement was represented to be only an interim agreement until a Franchise Agreement was documented and that accordingly IOOF was estopped from relying on the 60 day period of notice for termination.

They further pleaded that if the Agency Agreement were unenforceable for some reason, then the Taylors continued in possession of the Frankston branch of IOOF after 24 March 1997 and to act as the agent of IOOF, under an implied agency agreement. The term of that agreement concerning termination was said to be that it could be terminated summarily, or on 60 days' notice, or the giving of reasonable notice, by either party.

Whatever the agreement was between the Taylors and IOOF, the defendants pleaded that it was terminated 60 days after 13 August 1998, following written notice to that effect, or in December 1998, following oral notice by Mr Turner to Mr Taylor when he informed him that IOOF had been sold to Bendigo Bank, or on 21 January 1999, following oral notice at a meeting that day between the Taylors and representatives of IOOF, including Mr Turner, or on 3 March 1999, when the Taylors became aware of the public announcement by IOOF and Bendigo Bank made on that day, or on or about 20 April 1999, when a circular was sent by Bendigo Bank to the Taylors, or on 5 May 1999, when Mr Taylor was informed by Mr Bice that the Frankston branch would be closed down. The defendants denied that the date for termination was extended indefinitely. They pleaded that it was extended up to 31 January 1999. Thus, they denied that IOOF repudiated any agreement with the Taylors.

The balance of the defendants' Defence in the Taylor proceeding mirrored the remainder of their defences in the Foxeden proceeding. Apart from denials or non‑admissions, they raised failure to mitigate, a limitation defence in respect of the TPA claims and a late introduction of the legitimate expectation claim

There was no issue about unpaid commissions in the Taylor proceeding.

The Form of the Hearing

When both of these proceedings were set down for trial by Mandie J on 1 June 2001 the parties asked that they be fixed together so that the trial Judge could determine whether to hear them one after the other or the two at the same time. On the first day of the hearing, after hearing short argument, I ordered that the two matters should be heard together and that the evidence in one proceeding be evidence in the other. By then, I had read the witness statements, including those of Mr Wood and Mr Mainprize who were going to be called by the plaintiff(s) in each proceeding. Clearly, the two matters were separate cases, but from the pleadings and witness statements it was apparent that they shared a sub-stratum of facts.

Regrettably, due to the exceedingly late and disjointed discovery by the defendants of a substantial number of extra documents, the late amendments to the statement of claim in both proceedings and the consequence that the hearing was clearly going to exceed its estimate of duration of 7 to 10 days, I decided at an early stage that the issues of liability and damages would have to be split. Eventually, after further debate, I ordered pursuant to r.47.04 of the Supreme Court Rules that liability be determined as a separate question to be tried in the form of a set of questions in each proceeding. As a result of further amendments to both statements of claim the number and wording of the questions changed over time.

The final form of the questions in the Foxeden proceeding was as follows:

Question 1:
What were the terms of the agreement between Hawksworth or his nominee and IOOF whether as alleged in paragraphs 8 to 11 of the Further Amended Statement of Claim and paragraphs 8, 8A to 11 of the Amended Defence or otherwise?
Question 2:
Are any of the defendants estopped as alleged in paragraphs 45 and 46 of the Further Amended Statement of Claim?
Question 3:
Did Mr Wood and/or Mr Mainprize have actual or apparent authority from IOOF to make any such agreement?
Question 4:
Was the agreement breached by IOOF as alleged in paragraphs 21 and 23 to 25 of the Further Amended Statement of Claim?
Question 5:
Did IOOF give notice of termination to the plaintiff in accordance with the agreement between Hawksworth or his nominee and IOOF?
Question 6:
Did IOOF engage in misleading and deceptive conduct as alleged in paragraphs 35 to 41 of the Further Amended Statement of Claim?
Question 7:
Did Hawksworth or his nominee have a proprietary interest in the Business as alleged in paragraph 29 of the Further Amended Statement of Claim?
Question 8:
Was Mr Turner relevantly involved in any conduct as alleged in paragraphs 14, 18, 27(a) and 43 and 44 of the Further Amended Statement of Claim?
Question 9:
Were IOOF and/or Bendigo relevantly involved in any conduct as alleged in paragraphs 20, 21, 23 to 25, 27(c), and 29 to 31 of the Further Amended Statement of Claim?
Question 10:
Was IVFS relevantly involved in any conduct as alleged in paragraphs 19, 21, 23 to 25 and 27(b) of the Further Amended Statement of Claim?
Question 11:
Did Foxeden have the rights alleged in paragraph 8 even if the Agreement was not made in the terms pleaded in paragraph 8 or at all?

The final form of the questions in the Taylor proceeding was as follows:

Question 1:
What were the terms of the agreement between the Taylors and IOOF whether as alleged in paragraphs 6 to 10 of the Further Amended Statement of Claim and paragraphs 6 to 10A of the Amended Defence or otherwise?
Question 2:
Are any of the defendants estopped as alleged in paragraphs 45 and 46 of the Further Amended Statement of Claim?
Question 3:
Did Mr Wood and/or Mr Mainprize have actual or apparent authority from IOOF to make such agreement?
Question 4:
Was the agreement breached by IOOF as alleged in paragraphs 22 to 25 of the Further Amended Statement of Claim?
Question 5:
Did the agency agreement wholly or partly replace the agreement as alleged in paragraph 10(a) of the Amended Defence?
Question 6:
Did IOOF give notice of termination to the Taylors in accordance with the agreement between the Taylors and IOOF?
Question 7:
Did IOOF engage in misleading and deceptive conduct as alleged in paragraphs 35 to 41 of the Further Amended Statement of Claim?
Question 8:
Did the Taylors have a proprietary interest in the Business as alleged in paragraph 29 of the Further Amended Statement of Claim?
Question 9:
Was Mr Turner relevantly involved in any conduct as alleged in paragraphs 15, 19, 27(a) and 43 and 44 of the Further Amended Statement of Claim?
Question 10:
Were IOOF and/or Bendigo relevantly involved in any conduct as alleged in paragraphs 21 to 25, 27(c) and 29 to 31 of the Further Amended Statement of Claim?
Question 11:
Was IVFS relevantly involved in any breach as alleged in paragraphs 20, 22 to 25 and 27(b) of the Further Amended Statement of Claim?
Question 12:
Did the Taylors have the rights alleged in paragraph 6 even if the agreement was not made in the terms pleaded in paragraph 6 or at all?

Common Background Evidence

Mr Robert Wood said in his witness statement that he had been involved in the finance industry since about 1974 when he was the branch manager of the Shepparton branch of a building society. Some years later IOOF took over that building society. Mr Wood continued as the Shepparton branch manager until about August 1991 when he was promoted to a regional manager with IOOF. At the end of 1991, he was promoted to State Manager of IOOF. In 1995, he was appointed acting General Manager of IOOF and in March 1996 he was made Senior Manager in charge of Branch Distribution, with responsibility for the management of the entire branch network of IOOF. In this position he reported to the General Manager, Mr Mainprize. Mr Wood said that he had the authority, on behalf of IOOF, to restructure the branch network and to enter into a franchise agreement.

Mr Wood said that in 1995 and 1996, a number of IOOF branches had relatively high income/expense ratios compared with the rest of the building society industry. As acting General Manager, Mr Wood attended all Board meetings of IOOF. He was present when the Board discussed the need to improve the income/expense ratio. Subsequently, he was directed by Mr Mainprize to take the necessary steps to close or otherwise restructure the most unprofitable of the branches. Rather than simply closing unprofitable branches, Mr Wood developed a strategy of "merging" the uneconomic branch with a neighbouring branch, so that IOOF could sell to its customers and the public that it was improving services, rather than just closing branches.

Mr Wood said that he entered into negotiations on behalf of IOOF with Mr Hawksworth, and with Mr and Mrs Taylor, in general terms because he thought that by franchising the Mildura and Frankston branches, it would be possible to keep those branches open, while at the same time reducing IOOF's expenses, and retaining income producing resources, namely the deposits and loan books. He said that the key to both was the customer lists which the Taylors and Mr Hawksworth could use as a database in their financial planning business. Mr Wood said that this strategy seemed to him to offer a "win-win" scenario for IOOF and the franchisees.

Mr Wood agreed that by the time he left IOOF in August 1997, the terms and conditions of a standard franchise agreement had still not been finalised.

Mr Andrew Mainprize said in his witness statement that he was employed by the IOOF Group between March 1996 and August 1997, when he was retrenched. However, in cross-examination, Mr Mainprize accepted that he had left IOOF on 2 April 1997 not August of that year, as he had previously stated. He denied that he was sacked. He said that his position was made redundant. This was confirmed by the minutes of the Board meeting held on 14 April 1997.

Mr Mainprize first became the Group's General Manager of Retail Financial Services, which included the retail operations of the Building Society, the Friendly Society and the Trustee Company. Mr Mainprize said that at an early stage he discussed with the Managing Director of the IOOF Group, Mr Graham Cook, the question of improving the structure of the Building Society. Mr Cook told him that the Building Society had high overheads and that it needed to lower its cost-income ratios to a more acceptable level. Mr Mainprize became aware that this was a view shared by the Victorian Financial Institutions Commission.

Mr Mainprize was soon appointed to be the General Manager of the Building Society. Although he was not a formal member of the Board of the Building Society, he was invited to attend all Board meetings. It was his responsibility to ensure that the Board papers and proposals were prepared and distributed to Board members in a timely fashion.

Mr Mainprize said that the franchising concept was developed as a means of reducing the overheads associated with running a branch network, whilst still maintaining a corporate presence in particular geographical locations. He said that Mr Wood informed him of his discussions with the Taylors and that he agreed with the concept of franchising the Frankston branch as an experiment. Mr Mainprize told Mr Wood that he would take the matter to the Board.

Mr Mainprize said that he and Mr Wood prepared a Board paper which recommended that the Frankston branch be used to test the viability of franchising branches. The paper incorporated the terms of the agreement reached with the Taylors as set out in the correspondence between them and Mr Wood. At a Board meeting in early 1996, about April/May, the Board considered and approved the proposal to enter into a franchising arrangement using Frankston as a pilot. The discussion at the Board meeting was primarily about the cost structure of the branch. According to Mr Mainprize, it was also approved that the duration of the agreement was unlimited. Nothing was said about it being terminable on 30 or 60 days' notice. Termination was limited to default or misconduct. The Board agreed that the first franchisee should be a Winchcombe Carson financial planner. This meeting took place before Mr Turner joined the Board. A paper prepared by Mr Marc Flipo, the secretary of IOOF, showed that Frankston was running at an operational loss. Mr Mainprize said that as the Board endorsed the agreement he had no doubt that Mr Wood had authority to negotiate on behalf of IOOF. Mr Mainprize also said that the Board later approved the idea that the original agreement with the Taylors would be superseded by a franchise agreement.

Mr Mainprize said that he spoke to Mr Turner on several occasions about franchising the Frankston branch including how the franchising concept would work and also the specifics of the agreement with the Taylors. He said that Mr Turner said that he was excited by the prospect of franchises completely replacing the branch network.

According to Mr Mainprize, the proposal with respect to Mildura was also discussed at Board level. Mr Turner was present on this occasion. Similar papers were put before the Board. He prepared one which discussed the recommendation to close specific branches, including Mildura, which was running at an operational loss. The terms of the Mildura arrangement were similar to Frankston. [Subsequently, he seemed to suggest that the Board had not approved any agreement relating to Mildura.] Mr Mainprize said that he no longer had a copy of these Board papers.

Mr Mainprize said that he delegated to Mr Wood the authority to negotiate the franchise for the Mildura branch. He did not think any concluded agreement had been reached with Mr Hawksworth prior to his departure in April 1997.

Mr Mainprize was vigorously cross-examined on the basis that the minutes of the Board meetings in early 1996 contained no reference to franchises, or the Frankston branch specifically, or any resolution relating to the agreement with the Taylors. It was a similar position with respect to the Mildura branch and the later minutes up to March 1997, which was the last Board meeting attended by Mr Mainprize. His credit was attacked given the absence of these references.

In 1996, Mr Christopher Bruce held the position of General Manager of Member Services for IVFS. He had commenced employment with IVFS in 1993 and had been appointed to that position in November 1995. His duties involved supervising the funds management client services, including those members of the Friendly Society who had been introduced to the Friendly Society through the Building Society and who relied upon the Building Society retail branches as service centres for IOOF Group products and services. He reported to Mr Mainprize. Mr Bruce became the General Manager, Corporate Development in May 1997. He left the IOOF Group in February 2000.

In cross-examination, Mr Bruce said that he first heard the word "franchise" used at IOOF in late 1995 or early 1996, close to the time when Mr Mainprize came into the organisation and was starting to generate ideas about lifting profits. But he did not know where the idea of franchising came from. Mr Bruce said that he was present at discussions with Mr Turner and Mr Mainprize about franchising.

I turn then to the evidence led on behalf of the plaintiff(s) in each proceeding. Although the Foxeden proceeding was the first of the two proceedings to be issued, I will consider the Taylors' case first because the relevant events commenced earlier.

The Plaintiffs' Case in the Taylor Proceeding

Mr Kenneth Taylor gave evidence that he was a financial planner, holding a proper authority from Winchcombe Carson. He said that in 1991 he moved his financial planning business into an office located within the new Frankston branch of IOOF. It was regarded as a sub-branch of the Southland branch of the Building Society.

According to Mr Taylor's witness statement, in about late January 1996 he was told by Mr Glenn Welsh, the manager of the Frankston branch, that IOOF was intending to close it, effective 1 March 1996. (Closure of the branch was approved by the Board at its meeting on 24 January 1996.) It was said not to be profitable. Mr Wood said in his witness statement that in early 1996 the Frankston branch was unprofitable, and that he believed it would have to be closed, unless it could be "merged" with another branch or otherwise restructured to his satisfaction.

Mr Taylor discussed the idea of acquiring the business with his wife, Mrs Janet Taylor. They agreed that although it would be a lot of work, it was an opportunity to obtain a financial benefit in the long term. Shortly after, Mr Wood attended the Frankston branch to tell the staff of the proposed closure. Following the meeting, Mr Taylor spoke with Mr Wood. Mr Taylor raised the idea of taking over the responsibilities of operating the Frankston branch. Mr Wood appeared to be interested in the idea. Mr Taylor said that his objective was to avoid disruption to his financial planning business by losing its presence within the Building Society branch. He also saw it as an opportunity to grow his business by acquiring the customer base and goodwill of the Frankston branch.

Mr and Mrs Taylor met with Mr Wood on 6 February 1996. The thrust of the discussion was that IOOF would transfer the business of the Frankston branch to them and that they would take over most of the operating costs of the business. Mr Taylor said that he stressed that they did not want IOOF to be able to reclaim the branch in the future. They wanted to own the customer base. He said Mr Wood agreed and said that if they wanted they "could strip the assets of the branch and take them to another institution." In cross-examination, Mr Taylor said that this was said in the context of an operating IOOF branch not just after notice of termination.

In her witness statement, Mrs Taylor said that in this conversation her husband said that they were only interested in a long term relationship and that Mr Wood replied that that was what IOOF was looking at. She said that Mr Wood also said:

"You can do what you want with the balances, even strip the balances of the Building Society and invest into the Friendly Society if you wish."

Mr Taylor replied that that was not their intention. They wanted "to increase the client base and grow the business."

Mr Wood denied that he had told the Taylors that they could "strip the assets" or "strip the balance of the accounts". However, he recalled discussions with the Taylors about them being able to sell "Winchcombe Carson type products" or Friendly Society products to IOOF fixed term depositors, which is not that different to what Mrs Taylor said.

In a memorandum dated 6 February 1996 and entitled "Potential Arrangements Frankston Sub-Branch", Mr Wood provided the following details on the matters discussed that morning:

". Proposed transfer date – Friday 1 March.
·The branch will continue to operate at least five days a week, for opening hours of at least six hours a day, excluding Saturdays.
Financial arrangements:-
-.5% p.a. paid monthly on retained deposit fund balances, currently $7.5 million
-IOOF will deduct from each monthly commission payment the value of agreed branch operating costs, estimated to be between $10,000 and $12,000 annualised.

·All staffing costs are the responsibility of the agency.
·Postage and telephone costs are the responsibility of the agency.
·After formal agreement is reached, IOOF (at IOOF's cost) will write to all Frankston members advising of any/all changes to our Frankston operation, with a message agreed to by the agency.
·IOOF will continue to promote our Frankston outlet on all appropriate marketing literature, under the designation of sub-branch.
·Our common objective is to grow the Frankston business, in a mutually profitable manner.
·All business development costs will be the responsibility of the agency.

Once I have your response, I will arrange a formal agency agreement which will detail and document the responsibilities of each party."

Mr Taylor replied by facsimile on the same day. He stated that:

"The long term viability of the business, as we see it, is dependent upon the level of existing business retained and our ability to generate new business …"

He therefore raised a number of points for clarification. Mr Taylor asked for confirmation "that the clients attached to the Frankston branch will be transferred to us together with the trail brokerage". He said that he and his wife saw them "as part of our client base". He also referred to marketing "to our Building Society client base" and to Friendly Society members falling within certain postcodes being attached to the Frankston branch. He concluded by saying that he was seeking to establish "the framework initially".

Mr Wood responded to Mr Taylor by a further memorandum dated 7 February 1996. He stated that there were some matters on which currently he could only give an indication "as they are wider IOOF Group issues" and that he was reluctant to involve other parties "until we reach a formal agreement." Under the heading "Business Generation", Mr Wood wrote:

"I would be happy for you to market to all my Building Society clients, currently 'owned' by Frankston. As with all current branches, I would require final sign-off on all marketing material to these clients."

Mr Taylor said that he and his wife conferred with their accountant concerning the proposal. The accountant was Mrs Taylor's brother. Mr Taylor said that whilst taking over the branch would mean longer working hours for both he and his wife (who would have to be trained as the branch manager), he saw the proposal as an excellent opportunity to incorporate the business of the branch into their financial planning business. The ability to cross-sell meant that the overall business, including goodwill, would grow, leaving them with an asset that would see them into retirement.

By a facsimile dated 8 February 1996, Mr Taylor advised Mr Wood that he and his wife considered that "the long term viability of taking on a sub-branch role" depended on a number of additional items. Point 3 read as follows:

"3)Existing and new Building Society accounts together with new Friendly Society investments introduced through our sub-branch would in conjunction with our financial planning and insurance operation form part of our business goodwill should we in the long term offer our business for sale."

Mrs Taylor said that this was "an extremely important issue." Mr Wood responded by facsimile on the same day agreeing with each point raise by Mr Taylor, including point 3. He said that he was looking forward to "confirmation of acceptance" from the Taylors. Mr Taylor said in cross-examination that he understood he had reached an agreement with Mr Wood when he received his facsimile. However, in re-examination, he said it was when he telephoned Mr Wood, shortly after, to confirm the Taylors' acceptance of the proposal.

Mr Taylor said in his witness statement that at some time in February 1996, he discussed with Mr Wood the ability of he and his wife to on-sell the business of the Frankston branch. He said that Mr Wood agreed that the arrangement would be similar to that operated by Winchcombe Carson. The Taylors would be able to sell the business of the Frankston branch to a purchaser approved by the Building Society, which could not unreasonably withhold its consent. Yet, in cross-examination Mr Taylor said that the conversation did not occur. It was put to him that he had conceded this because he had realised overnight that such a conversation with Mr Wood was inconsistent with his claim that it had been agreed that he owned the business. Mr Taylor did not agree that this was correct. He said that the ability of IOOF to terminate the Taylors' right to operate the Frankston branch was never discussed with Mr Wood or anyone else on behalf of IOOF during February or March 1996. He had not given any thought to questions of termination or duration at that stage.

Mr Wood said in his witness statement that he could not recollect any specific discussions with the Taylors concerning the circumstances (if any) in which IOOF would be entitled to terminate the franchise agreement, or what would happen if it were terminated. However, it was his clear understanding that the franchise agreement could not be terminated unless the Taylors conducted the business of the branch in such a way as to damage IOOF's corporate image or name. He said that IOOF did not have the right to rescind the Taylors' right to utilise the Frankston branch customer list at will.

Contrary to Mr Taylor's evidence that the word "franchise" was not used in the discussions with Mr Wood until July 1996, Mr Wood insisted that it was used in February 1996. I find that Mr Wood was mistaken in his recollection. I accept Mr Taylor's evidence on this point. Apart from in Mr Wood's own memorandum dated 6 February 1996, in two facsimiles dated 15 February and 8 March 1996 respectively from Ms Sharon McKinna, IOOF's Branch Co-ordinator, to Mr Taylor, reference was made to the "Frankston sub-branch".

The Taylors commenced operating the business of the Frankston branch on 4 March 1996. There was no formal opening nor any announcement of the transfer of ownership. Both Mr Wood and the Taylors agreed that they did not want the customers to think there was any difference. Two staff members were retained. The Taylors paid most of the operating costs, including staff costs, although IOOF continued to pay the rent on the premises as well as some operating expenses. Under the Taylors, the branch accepted deposits from customers, permitted withdrawals, and accepted applications for loans. They began to actively cross-sell financial planning services to branch customers, now that they had access to the customer list and to the customers themselves through personal contact.

Mr Bruce said in his witness statement that, prior to taking over the operation of the Frankston branch, Mr Taylor had asked him on many occasions for access to the funds management customer list of the Frankston branch. Mr Taylor told him that knowing which of these customers were also customers of the Building Society and which products they had invested in would improve his ability to sell his financial planning services to them. In accordance with his instructions, Mr Bruce had refused Mr Taylor access to this information. However, once Mr Taylor took over the operation of the Frankston branch, Mr Wood instructed Mr Bruce to release this information to Mr Taylor.

On 27 March 1996, the Taylors met with Mr Wood and Ms McKinna to discuss commissions. A confirmation letter was sent by Ms McKinna on the following day. At Ms McKinna's insistence, commissions were paid to Pastel Manor Pty Ltd, the Taylors' family trust company, rather than to the Taylors themselves.

Mr Taylor sent a facsimile to Mr Wood and Ms McKinna on 17 April 1996 dealing with a number of issues which had arisen in the six weeks "since the transfer of the Branch to us". He pointed out that:

"We are still operating with no formal authorisation from IOOF Building Society for our activities as a sub branch …"

Mr Taylor also recorded that "We see ourselves as long term providers of IOOF product …"

By an internal memorandum dated 24 April 1996 and headed "IOOF Building Society Ltd – Frankston Agent", Mr Matthew Wellington, Group Corporate Lawyer, sent to Ms McKinna "a copy of the Agreement with my marked up alterations". He made a number of points in his memorandum concerning the "agency agreement".

In mid-1996, Mrs Taylor discussed with Ms McKinna the issue of customers with accounts at other branches banking with the Frankston branch. Mrs Taylor told Ms McKinna that these customers should be transferred to Frankston, as otherwise the Taylors were doing work for no reward. Ms McKinna initially said that it was not normal policy to transfer clients from one branch to another, but later she agreed to it provided Mrs Taylor had a letter signed by the customer agreeing to the transfer and that it could be proven that the customer did the majority of his or her transactions at the Frankston branch. Mrs Taylor estimated that about 60 or 70 customers were transferred over time.

On 2 July 1996, Mr Taylor met with Mr Bruce to discuss the question of the Friendly Society compensating the Taylors for the amount of time their staff were spending on Friendly Society matters. In an internal memorandum dated 12 July 1996 to Mr Mainprize, with copies to Mr Wood and Ms McKinna, concerning this request, Mr Bruce recommended a one-off payment of $12,000 to the Frankston "sub-branch". He also referred to he and Mr Wood:

"exploring the possibility and structure of a franchising agreement for Frankston and other Sub Branches".

On 15 July 1996 Mr Mainprize sent an email to Mr Bruce, with copies to Mr Wood and Ms McKinna, approving the recommendation. By a letter dated 26 July 1996, Mr Bruce sent Mr Taylor a cheque for $12,000 as a one-off payment for the time devoted to Friendly Society business.

By a letter dated 8 July 1996, Ms McKinna wrote to Mr Taylor as follows:

"Please find enclosed a copy of the revised Agency Agreement. The Clauses relating to duration and termination have been included from the Winchcombe Carson Agreement, as discussed with Rob Wood.
You will also note the notice period for termination has been increased from thirty to sixty days.
Please acknowledge your acceptance of this Agreement by signing both copies and returning to me for execution."

Mr Taylor said that he did not sign the enclosed agreement because it did not accurately document the agreement he had reached with Mr Wood in February 1996. Mr Wood agreed, in cross-examination, that he authorised Ms McKinna to send the letter of 8 July. Mr Wood also said that he had input, together with Mr Wellington, into the drafting of the agreement enclosed with the letter. He said that this agreement was more detailed than IOOF's standard agency agreement. Yet it was not called a franchise agreement. Mr Wood said that this was an error which he stupidly did not correct. Mr Wood said that by this stage he had reached agreement with the Taylors about the right of either party to terminate the agency agreement on 60 days' notice, which does not seem to accord with later correspondence between them at some length on this disputed term.

Mr Mainprize said that he understood that "the revised Agency Agreement" forwarded to the Taylors by Ms McKinna was going to be replaced by a longer term strategic franchise agreement.

The Agency Agreement in question was a seven page document with 10 substantive clauses including "Duties of Agent", "Duties of the Society", "Duration and Termination", "Assignment" and "Variation".

Mr Taylor said that at a meeting between Mr Wood, Mr Taylor, and Mr Marc Flipo, IOOF's accountant, on 29 August 1996, Mr Wood said that he felt that a franchise more accurately described their relationship and that a franchise agreement was being investigated. Mr Taylor agreed. At the meeting the question of the Taylors contributing to the rent of the premises was also discussed. This discussion would appear to have arisen from concerns about the Frankston branch. In an undated and unattributed paper headed "Frankston Branch", it was stated:

". Frankston branch currently unprofitable to the Society.
·The branch must contribute at least $100k surplus to corporate costs.
…
·Proposal
·Franchise to contribute to rent
…

· Franchise commission to increase with increase in investor funds.
…"

By a letter dated 16 September 1996, Mr Wood wrote to Mr and Mrs Taylor concerning a new scale of commission rates and contributions to rental costs. The letter commenced:

"Further to our recent discussions regarding entering into a longer term relationship at Frankston …"

and went on to refer to the Taylors as "the Franchisee." These changed rates of commission and contributions to rental constituted the variation pleaded by the Taylors.

Mr Taylor subsequently asked Mr Wood where the franchise agreement was. He was told Mr Flipo was attending to it. Mr Taylor later spoke to Mr Flipo and was told that it was being prepared. It was said that Mr Flipo was liaising with the IOOF legal department, but it was busy with other issues.

By a letter dated 23 October 1996, Mr Wood wrote to Mr Taylor concerning the possibility of him holding dual proper authorities from IOOF and Winchcombe Carson. Mr Wood referred to any agreed operational guidelines "being included as part of our franchising agreement." Mr Wood said in his witness statement that he considered that as a franchisee Mr Taylor needed a proper authority from IOOF. In a memorandum dated 20 November 1996 from Mr Pat Ryan, the head of Winchcombe Carson, to Mr Taylor approving the issue of the second authority, there was reference to "a franchised branch for IOOF". Although this step was approved, the IOOF proper authority was later revoked, which meant that the Taylors' commission was reduced as the business had to be placed through Winchcombe Carson. According to Mrs Taylor, this step followed a meeting between the Taylors and Mr Turner, Ms Pearce, Mr Mollison and IOOF's compliance officer whose name she could not remember.

On 13 March 1997, Mr and Mrs Taylor again met with Mr Wood. At that meeting, Mr Wood told the Taylors that he was under pressure from the internal auditors of IOOF to have a signed formal agreement with the Taylors. Following the meeting, Mr Wood sent the Taylors a facsimile which read:

"Further to our meeting this morning, I am pleased to confirm the following points:
4The Agency Agreement to be signed is to be treated as a fore-runner of a formal Franchise Agreement, which will be completed as soon a [sic] practicable.
4As part of the Franchise Agreement process, we will renegotiate at this time your contribution to rental costs, and the amounts to be set-off against new business development.

As agreed, I would appreciate a fax copy of the Agency Agreement duly signed, as a matter of urgency."

Mr Taylor said that he received another copy of the Agency Agreement at this time.

On 14 March 1997, Mr Taylor sent a facsimile to Mr Wood stating that after re-reading the agreement he remembered what his and his wife's concerns about signing the Agency Agreement were and he set them out. They included boundaries, calculation of rental, address to be used in the agreement and the crediting of business generated in the defined area from marketing campaigns. The facsimile concluded:

"We really cannot sign the current agreement without the adjustments outlined in the enclosed sample and considering the new terms we discussed yesterday, the new agreement could be drawn up including the new terms with the proviso that some fine tuning could occur providing the agreement we sign does not provide less benefits than the final document."

The "enclosed sample" which Mr Taylor sent to Mr Wood had clause IV "Rental Subsidy" and clause X "Variation" deleted by hand. Clause VI "Duration and Termination" had two handwritten changes. The first was that sub-clause (a), which provided for 60 days' notice in writing by either party, was said to be "subject to" sub-clause (b) which provided for immediate termination upon breach or liquidation. The second was that sub-clause (e), which restricted the agent's right to recommend clients change investment products during the period of the agreement and one year from the date of termination, was crossed out. Mr Taylor had written alongside:
"As clients are owned by us, this should not apply."

Mr Wood responded on the same day by sending a revised version of the Agency Agreement for signing. He said:

"I have amended the agreement with deletion of the clauses you requested, being: rental subsidy, duration and termination(e), and variation."

Although sub-clause VI(e) was deleted, as Mr Wood said, sub-clause VI(a) remained untouched. Mr Wood also referred to completing in the future "the Franchise Agreement." He undertook to ensure that the Taylors' concerns were "encompassed in the actual Franchise Agreement".

Mr Taylor said that following a discussion with a family friend who was a solicitor he rang Mr Wood to express his concerns about certain clauses in the agreement. He said that Mr Wood said that he did not need to be concerned, because the agreement was only required to satisfy the auditors and was in any event going to be replaced by a formal franchise agreement.

On 17 March 1997, Mr Taylor sent a further facsimile to Mr Wood. One of the points made was that clause VI(a) Duration and Termination was "subject to only [sic] and dependent on clauses VI(b)–(d) inclusive." Mr Wood replied by a memorandum dated 21 March 1997, in which he accepted all but one of Mr Taylor's points, including that:

"The terms and conditions of any franchise or other agreement entered into will not provide less benefits then [sic] this agreement."

However, Mr Wood went on:
"Ken, I have basically agreed to all your requests without question, however at this time I am not prepared to delete clause VI(a) under Duration and Termination. To do so would be commercially irresponsible, from both the view of IOOF as franchiser and yourself as franchisee, as I firmly believe both parties need the protection of a 'get-out' clause, and should not sign an agreement that removes this completely.
However, I agree that the 60 day period is also too short, again from both parties viewpoint.
Accordingly I commit to negotiation of this clause in the forthcoming franchise agreement, with a view to extending the period to a mutually acceptable one.
As you now have either my agreement, or commitment to negotiate, on all matters you have raised, I would appreciate your execution of the agency agreement as a matter or urgency."

Mr Taylor in a facsimile headed "Agency Agreement", which he sent to Mr Wood on the same day, thanked him for his patience, explaining that his main concern had been "to ensure there were no unforseen surprises down the track." He concluded by saying that he was looking forward "to chatting about the franchise agreement etc."

Mr Taylor said that in a further conversation with Mr Wood between 21 and 24 March 1997 they discussed the length of the termination period in the Agency Agreement. He told Mr Wood that 60 days would not be sufficient time to make alternative arrangements and to find another financial institution "to hold the customers' deposits and loans" in place of IOOF and that he needed at least 12 months plus the original 60 days. He said Mr Wood replied that that was not an unreasonable request.

The Agency Agreement was signed by Mr and Mrs Taylor on 24 March 1997, in the form of the draft forwarded by Mr Wood on 14 March 1997. On the day it was signed, it was forwarded to Mr Wood with a facsimile in which Mr Taylor referred to his recent conversation with Mr Wood and confirmed three points discussed in that conversation. He said:

"You indicated that the original agency agreements were merely two pages long, were compiled peace meal [sic] and require revamping.
1/Clause 1. (a) – This clause will not give rise to any agreement being terminated.
2/Clause 1. (j) – This clause will also not give rise to any agreement being terminated and is currently difficult to define.
3/VI(a) You have agreed to negotiate this clause and consider a period of 60 days after 12 months notice is not unreasonable."

Clause 1(a) of the Agency Agreement concerned the duty of the agent to "foster and encourage investment" by the public in IOOF. Clause 1(j) concerned the duty of the agent to "perform all such acts as are proper and usual in accordance with the established practice of Building Society Agencies".

Surprisingly, perhaps, Mr Taylor said in re-examination that his expectation was that when the franchise agreement was negotiated the period of notice would have been longer than one year and 60 days. This would indicate that he regarded the length of notice as still unresolved. Mr Wood agreed that this was the case.

Mr Taylor said that he signed the Agency Agreement in the belief that it was for the benefit of the internal auditors of IOOF and not a document which reflected the terms of the agreement regarding the Frankston branch which had been agreed in February 1996 and which remained in operation. After signing, the Taylors continued to run the Frankston branch as before.

Mrs Taylor said that she understood that IOOF needed to have a clause which terminated the Taylors' right to act as IOOF's agent if they acted fraudulently or brought IOOF into disrepute. However, she did not believe that a termination clause could affect their ownership of the customer base. Given that there was to be a formal franchise agreement, she said that she was prepared to sign "the Agency Agreement."

The Agency Agreement set out the remuneration of the Taylors, and that the agency could be terminated at the expiration of not less than 60 days' written notice by either party to the other at any time. In cross-examination, Mr Taylor said that although he and his wife signed the Agency Agreement:

"… there were supporting documents to say that this was just a forerunner to a full franchise agreement and we never treated the Agency Agreement as anything more than just a temporary agreement which would be substituted for the proper agreement at some stage down the track and we always waited for that and it never came."

Later, he said that he did not believe that the agreement he and his wife signed had "any legal consequence." It did not bind them. He regarded it as irrelevant because Mr Wood had told them it was only "an interim agreement." The reason that they signed was because Mr Wood told them "a full franchise agreement" would be "coming in a very short term." However, Mr Taylor said that he never thought that by signing the Agency Agreement he might be assisting someone to mislead IOOF's auditors.

Mrs Taylor said that she did not understand that the signed agreement would have any legal effect. She said that: "It was a forerunner for a full franchise agreement which was supposed to take into account the whole agreement that we had." It did not occur to her that by signing the agreement and sending it in she might be a party to misleading the auditors.

Mr Wood said in his witness statement that the Agency Agreement signed by the Taylors did not, and was not intended to, replace the franchise agreement under which the Taylors had been operating the Frankston branch since March 1996. Although he had discussed with the Taylors on several occasions the need to have a formal franchise agreement setting out the rights and obligations of the parties, this was the first agreement of this kind entered into by IOOF and Mr Wood did not have any precedents upon which to draw in documenting the agreement. In cross-examination, Mr Wood explained that the IOOF Group in-house lawyers were busy on other matters and could not prepare the formal franchise agreement in time. Mr Wood said that the Agency Agreement dealt only with the performance by the Taylors of the functions of an agent of IOOF. It did not deal with such matters as the Taylors' right to utilise the customer list of the Frankston branch as they saw fit, nor with IOOF's obligation not to complete with the Taylors' business, nor with their "ownership" of the customers as part of their business goodwill.

Mr Wood denied that he had ever asked the Taylors to sign an agreement purely to give to the auditors. He said that he would not allow IOOF to sign an agreement which did not accurately reflect the terms which had been negotiated between the parties and that it would be incorrect to present such an agreement to auditors. Mr Wood said in respect of the Agreement signed by him and the Taylors in March 1997 that he believed it contained the terms which had been negotiated between them prior to that date. He understood the agreement to be binding on the parties. He considered that this agreement could be terminated on 60 days' notice.

Nevertheless, as Mr Wood said in re-examination, the form of most of the agency agreements sent out by him to the Taylors or Mr Hawksworth went well beyond the standard agency agreement. On the other hand, the agreement signed by the Taylors did not include all of the points previously agreed upon in the correspondence between the Taylors and Mr Wood. These would have been included in the final form of the franchise agreement, according to Mr Wood.

Mr Mainprize said in respect of the Agency Agreement that he did not doubt that it accurately reflected the agreement which had been reached between Mr Wood and the Taylors, at that stage. That agreement had been forced on them by the auditors, while they were still working out the terms of the franchise agreement. Like Mr Wood, he was frustrated by the lack of action from the legal department. When asked about "ownership" of the customers, Mr Mainprize said:

"IOOF's customer base was to be shared with the Taylors so they would have access to using those customers … to service, cross-sell, etc."

By a letter dated 20 July 1998 Mr Taylor wrote to Ms Vicki Pearce, who had taken over from Mr Wood. He referred to "our recent discussions regarding the franchise agreement", and then set out the relevant history. The letter contained the following statements:

"A range of agreements were signed off by Rob [Wood] during February [1996] and subsequently which were to be incorporated into a franchise agreement.
Later during 1996/1997, Rob approached me to sign a basic agreement as he was under pressure from the auditors as there was no agreement in place. The agreement was to be replaced by a full franchise agreement at a later date."

Mr Taylor then set out the points agreed with Mr Wood, including:
"T Existing and new building society accounts and new friendly society investments form part of our business goodwill should we in the long term offer our business for sale.

…
TThe agency agreement was to be treated as a fore-runner to a formal Franchise agreement which was to be completed as soon as practicable.

…
TAny franchise agreement entered into would not provide less benefits than the agency agreement.
TThe franchise agreement would extend the cancellation period to 60 days after the expiration of 12 months."

He concluded by stating that he was looking forward to receiving "the Franchise agreement in the short term and resolving other issues mentioned."

Despite the words used in his letter of 20 July 1998, Mr Taylor denied that his agreement with Mr Wood was that after the agreement had been in existence for 12 months, the cancellation period would be extended to 60 days. He maintained that what he agreed with Mr Wood was that a period of notice of 12 months plus 60 days would not be unreasonable. Mr Taylor asserted that this was what the earlier correspondence had said and what his letter of 20 July 1998 stated. However, it seems to me that the letter of 20 July 1998 was not well expressed in this respect. I do not read it in the same way as Mr Taylor. In my opinion, this passage in the later letter was mistaken as to what the agreement was, because a period of 60 days "after the expiration of 12 months" is not the same as "a period of 60 days after 12 months' notice", which was how Mr Taylor had put it in his earlier letter.

On 13 August 1998, IOOF's Corporate Solicitor, Ms Asuka Sugimoto, sent a letter to Mr and Mrs Taylor giving 60 days' notice of termination of the Agency Agreement dated 24 March 1997 pursuant to clause VI(a). The letter continued:

"As referred to in our letter of 13 March 1997 this Agency Agreement was to be treated as a fore-runner of a new Agreement.
We have enclosed an Agency Agreement for your consideration. We are obviously keen to maintain our relationship with you and look forward to entering into a new Frankston Branch Agency Agreement with you."

The draft IOOF Agency Agreement enclosed with the letter contained many more terms than any previous draft. Part 11 dealt with transfer or assignment of the agency by the agent. Part 12 concerned termination. Clause 12.1 provided that unless renewed or extended or terminated earlier, the Agreement would expire two years from commencement. Clause 12.2 stated that either party might terminate the Agreement by giving 60 days' written notice. Clause 12 also dealt with default by the agent and events permitting immediate termination.

Mrs Taylor said that she was angry and surprised by the letter from Ms Sugimoto. She said that she rang Ms Pearce and asked her whether she had looked at the documentation which evidenced their agreement and why she had ignored the terms of that agreement and that Ms Pearce replied that she had the documents, but that IOOF was "looking to renegotiate the agreement." Ms Pearce agreed in cross-examination that the purpose of the notice was to get the Taylors (and other agents) out of their existing agreements and into a new agreement which Mr Regan had had prepared. The notice was not intended to terminate the agency relationship but to cause a changeover of agreement. An action list of IOOF's Internal Audit's outstanding recommendations as at 28 October 1998 noted the current position in respect of agency agreements as follows:

"In Progress. A new Agency Agreement has been written by the IOOF Legal Department. All agents will be required to sign this new agreement."

Further correspondence followed between Mr Taylor and Ms Pearce. By a letter dated 28 August but faxed on 2 September 1998, Ms Pearce responded to the questions and points raised by Mr Taylor in his letters of 20 July and 17 August 1998. The following statements were made by Ms Pearce in her letter:

"1.Jack Regan as General Manager of the Building Society has authorisation to execute any transactions on behalf of the Building Society.

…
8.Consideration paid by a third party for what they deem as goodwill of your business is of no concern to IOOF. Accordingly we do not accept the claim that IOOF customers form part of your business and we will not recognize value or be bound by any contract you may enter into with another party.
…"

Ms Pearce said that she checked "with legal and Rob Turner" before giving the answer in paragraph 1. She then said that all of her answers would have been prepared "in conjunction with Alan Mollison and legal, and I assume Rob Turner and Jack Regan". She continued: "I know Alan and I would have sat down and probably went up to Marion's office and gone through it." Ms Marion Rodwell worked in the legal department. Ms Pearce said that the wording of her answer in paragraph 8 of her letter "came from legal" or that Mr Mollison may have written it. At the time she did not believe that response was consistent with what Mr Wood had agreed on 8 February 1996. Neither was her rejection that boundaries had been agreed. She agreed that what she said in all of this correspondence with Mr Taylor was what she was directed to write as a result of her discussions "with other parties".

Mr Mollison agreed that "quite possibly" he discussed the contents of Ms Pearce's response with her. He doubted that he would have had "a huge input". He believed Ms Rodwell was involved in the preparation of the letter.

Mr Taylor sent a letter dated 5 October 1998 querying Ms Pearce's non-acceptance of many of the points which he said had been agreed with Mr Wood. Mr Taylor said that based on her responses one assumption that he and his wife could make was that "IOOF are not prepared to honour agreements and understandings entered into between our 2 parties". Mr Taylor said in his letter that the new agreement sent by IOOF was an agency agreement not a franchise agreement. He further said that he looked forward to receiving as soon as practicable a final franchise agreement containing all of the previously agreed items. In a telephone conversation between Mr and Mrs Taylor and Ms Pearce on 8 October 1998, the Taylors queried what IOOF was doing and told her that it could not terminate the agreement in the suggested manner. Ms Pearce said she would look into the matter. By a letter dated 12 October 1998 Ms Pearce extended the termination of the Taylor Agency Agreement until 11 November 1998.

On 13 November 1998 Mr Taylor sent a facsimile to Ms Pearce seeking confirmation from IOOF that it would cancel all termination notices with a view to re-visiting the issues in the next year. On 30 November 1998 Mr Taylor sent another facsimile to Ms Peace requesting a time frame for the resolution of a number of outstanding items, including the new proposed agreement and cancellation of termination. On 1 December 1998 Ms Pearce wrote a letter to Mr and Mrs Taylor about the "Frankston Branch Agency Agreement" advising that "the expired agreement will … continue until 31 January 1999. Please note that Clause VI(a) will not be applicable for the extension of this agreement." In a separate memorandum dated the same day on the subject of "Franchise Agreement", Ms Pearce responded to some of the points previously raised by Mr Taylor. In respect of the point that the customers formed part of the Taylors' business, Ms Pearce stated:

The last way in which the defendants said that IOOF had given appropriate notice of termination was the conversation between Mr Bice and Mr Taylor on 5 May 1999 in which Mr Bice told Mr Taylor that "the agency would be closed down". This was not notice of termination of the agreement, rather it was a statement of intent by Bendigo Bank regarding the future of the Frankston branch. It was not notice given by IOOF and it was not in writing. Therefore, in my opinion, the conversation did not constitute valid notice of termination of the agreement between the Taylors and IOOF.

I therefore consider that IOOF has not been able to show that it gave valid notice of termination in accordance with the requirements of clause VI(a) of the Agency Agreement, even if that clause were applicable. However, I have found that IOOF is estopped from relying on that clause and that there should be an implied term that the agreement between the Taylors and IOOF could be terminated on reasonable notice. In my opinion, all of the reasons for each of the alleged notices of termination not being valid are equally applicable to a requirement to give reasonable notice, with the possible exception that the notice be in writing. However, I see no reason why the same formality should not be required in the case of the implied term as was contained in the express term. It follows from the above analysis that if IOOF repudiated the agreement by electronically transferring all of the Frankston branch customers to the nearest Bendigo Bank branch on 30 June 1999, without prior notice to the Taylors of its intention to bring their agreement to an end, then IOOF breached the agreement because it had failed to give any, let alone reasonable, notice of termination to the Taylors.

IOOF's conduct was, in my opinion, a repudiation of the agreement with the Taylors. Even though the customer lists were left with the Taylors, they no longer had exclusive access to the customers of the Frankston branch and to the customer lists. Bendigo Bank was given access to both the customers and the customer lists. All of the customer accounts, including deposits and loans, from the Frankston branch of the Building Society were transferred to Bendigo Bank, thereby depriving the Taylors of the opportunity to have personal dealings with these customers when they visited the branch. It can hardly be argued that this conduct was not a clear repudiation of the agreement.

The question remains what was reasonable notice to terminate the agreement with the Taylors. In Crawford Fitting, McHugh JA held that “the reasonableness of the period of notice depends upon the circumstances existing when the notice is given”.[7] In this case, that must mean when the notice should have been given, which was June 1999 at the latest. His Honour went on to consider what factors might be relevant to the consideration of the length of the period of notice:

“The chief purpose of a notice for a reasonable period, therefore, is to enable the parties to bring to an end in an orderly way a relationship which, ex hypothesi, has existed for a reasonable period so that they will have a reasonable opportunity to enter into alternative arrangements and to wind up matters which arise out of their relationship. Matters to be wound up will include carrying out existing commitments, bringing current negotiations to fruition, and, where appropriate, obtaining the fruits of any extraordinary expenditure or effort carried out within the scope of the agreement. The line between ordinary recurrent expenditure and effort and extraordinary expenditure and effort will not always be easy to draw. But in general it will be determined by what the parties would reasonably have contemplated was extraordinary effort or expenditure.”[8]

[7](1998) 14 NSWLR 438 at 444.

[8](1998) 14 NSWLR 438 at 448.

There was no evidence of any “extraordinary expenditure or effort” by the Taylors which would be relevant to this question.

I do not consider that the answer to this question is necessarily found in the discussion between Mr Taylor and Mr Wood in March 1997 about what period of notice should be included in the formal franchise agreement. Obviously Mr Taylor wanted 14 months and Mr Wood had expressed the view that this was "not unreasonable". If the matter had been the subject of further negotiations, I very much doubt whether the parties would have agreed to 14 months. I consider Mr Wood would have negotiated a shorter period. In any event, what was reasonable in March 1997 is not necessarily the same in June 1999.

Mr Hayes submitted that two years' notice was reasonable bearing in mind that five years would have been an appropriate minimum term and three years had already run by June 1999. (In fact, the agreement had been in existence for three years and four months.) On the other hand, Mr Beaumont made the point that there was a risk of the agent/franchisee being inconvenienced or worse if the period of notice required from either party was too long. In all the circumstances, bearing in mind the nature of the relationship between the Taylors and IOOF which was being brought to an end without default on the part of the Taylors, I consider that a period of one year would have been reasonable notice of termination to the Taylors at the end of June 1999.

Alternative Claims by the Taylors against IOOF

In the plaintiff(s)’ final submissions, Mr Hayes acknowledged that if the Taylors succeeded on their claim in contract then it was unnecessary to consider whether they would have recovered under their alternative claims against IOOF. As he put it, if for some reason the Taylors failed in their contract claim, then they “had a legitimate expectation of those rights, and/or just a promissory estoppel.” And if for some reason the Taylors did not have those rights, then there was the misleading and deceptive conduct claim. Therefore, given my finding that IOOF is estopped from relying upon or enforcing clause VI(a) of the Agency Agreemented dated 24 March 1997 and that there was an implied term that the agreement between the Taylors and IOOF could be terminated on reasonable notice, no purpose would be served by considering whether or not the Taylors could have succeeded in these alternative claims. Although Mr Hayes did not refer to them, the same reasoning applies, in my opinion, to the claims against IOOF for conversion and unjust enrichment.

The Taylors’ Claims Against Mr Turner

The claims made by the Taylors against Mr Turner related to the misleading and deceptive conduct and the inducing breach of contract allegations.

As previously stated, it is unnecessary to consider the misleading and deceptive claim, given the Taylors’ success on their contractual claim. This reasoning extends to the misleading and deceptive claim against Mr Turner. However, I note in passing that Mr Taylor agreed in cross‑examination that Mr Turner had not made to him any of the alleged representations.

It was submitted by the defendants’ counsel in their final written submissions that “directors of a company do not commit the tort of inducing breach of contract when, acting as directors, they cause their company to commit a breach.”[9] Counsel for the plaintiffs accepted the applicability of this principle to the inducing breach of contract claim against Mr Turner.
[9]LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2001] NSWSC 886 at [79] per Barrett J, referring to Said v Butt [1920] 3 KB 497 and O’Brien v Dawson (1942) 66 CLR 18.

This means that the Taylors have not established that they have any claim against Mr Turner.

The Taylors’ Claim in Conversion Against Bendigo Bank

The Taylors pleaded that since about 30 June 1999 Bendigo Bank had, to the exclusion of the Taylors, intentionally exercised control over the Frankston Business, and profited thereby. Thus, it was alleged that Bendigo Bank had converted the Taylors’ proprietary interest in the Frankston Business to its own use.

The tort of conversion is generally limited to a dealing with chattels. There can be no conversion of a chose of action.[10] An exception is the legal fiction applied when a cheque is misapplied. In such a case, the cheque is treated as the conversion of a chattel, the piece of paper, and the value of the chattel converted as the money received under it.[11]
[10]Yu v Kwok [1999] NSWSC 992 at [75] per Simos J.
[11]Lloyd’s Bank Ltd v Chartered Bank of India, Australia and China [1929] 1 KB 40 at 55-56 per Scrutton LJ.

No doubt recognising that the assertion that the Taylors had a proprietary interest in the Frankston Business was insufficient to establish the tort, counsel for the Taylors sought to argue by analogy with a cheque that the customer lists to which the Taylors had exclusive access were converted when Bendigo Bank commenced to deal with the customers. In my opinion, this could not constitute a conversion. The Taylors retained possession of the lists and even though it might be said that Bendigo Bank asserted some rights in respect of their customers, it never dealt with those lists.

The claim in conversion against Bendigo Bank must therefore fail.

The Taylors’ Claim Against IVFS and Bendigo Bank for Interference with Contractual Relations

There is no question that IVFS did not know of the existence of the agreement between the Taylors and IOOF. But what is it that IVFS did which the Taylors allege constituted intentional interference with that contract? As I understood the argument, the first way in which it was put was that IVFS intentionally induced breach of the Taylors’ contract by the sale of the shares in BSH and thus of IOOF to Bendigo Bank. However, in my opinion, the sale alone did not mean that IOOF was in breach of, or was inevitably, going to breach, its agreement with the Taylors. Some satisfactory resolution could still have been reached between the parties.

Secondly, it was submitted that Mr Turner’s actions in instructing Building Society staff, such as Ms Pearce and Mr Mollison, to not recognize the Taylors’ rights under the agreement constituted intentional interference with that contract. There are two answers to this point. The first is that it is by no means clear, given his dual executive capacity, which society Mr Turner was acting on behalf of when he adopted this approach. In my opinion, it was more likely to be IOOF rather than IVFS. The second answer is that even if Mr Turner was acting on behalf of IVFS, as the parent company IVFS was not “in the position of an outsider influencing the independent volition of the subsidiary”.[12] As Barrett J held in LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd:

“In such a situation, it is the holding company’s volition which, sometimes formally by exercise of legal powers but often informally … determines the making, the performance or the breach of the subsidiary’s contract. The holding company does not engage in what Herring CJ described in Rutherford v Poole [1953] VLR 130 as “actionable intervention”. There is really no “intervention” at all. The subsidiary makes the relevant decision but that decision proceeds from an exercise of the holding company’s will within and through the subsidiary, rather than upon it.”[13]

[12]LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2001] NSW SC 886 at [98] per Barrett J

[13][2001] NSW SC 886 at [98] per Barrett J

Therefore, there can be no claim by the Taylors against IVFS for interference with contractual relations.

The Taylors made a similar claim against Bendigo Bank. It is not so clear that Bendigo Bank had the necessary knowledge of the agreement between the Taylors and IOOF. However, through Mr Bice, Bendigo Bank knew, by as early as February 1999 and by 5 May 1999 at the latest, that the Taylors were claiming that they were a franchisee. His understanding was not assisted by the clear lack of frankness from Ms Pearce and Mr Mollison in their discussions with him and in their withholding of documents from him. Nevertheless, Mr Bice was sufficiently concerned to go to the Frankston branch to speak with Mr Taylor. At the very least, Mr Bice knew that there were special aspects to the relationship between IOOF and the Taylors and by June 1999 Ms Pearce, with all her knowledge of the Taylors’ situation, was working for Bendigo Bank.

It seems to me that once Mr Bice received the assurance from Mr Turner on 19 May 1999 that IVFS would resolve the issue and that Bendigo Bank would not be required to incur any cost, he lost interest in reaching an accommodation with the Taylors. Thereafter, Bendigo Bank went ahead and arranged for IOOF to transfer all of the customers of the Frankston branch to it, without regard for the rights of the Taylors, comforted by the indemnity it would appear to have received from IVFS.

Nevertheless, by this time Bendigo Bank was now the parent company of IOOF. In my opinion, the principle referred to above also applies to this situation, with the consequence that there was no intervention by Bendigo Bank. This is because the making by IOOF of the decision to proceed with the transfer of the customers proceeds from an exercise of Bendigo Bank’s will “within and through its subsidiary [IOOF] rather than upon it.” Accordingly, the claim by the Taylors against Bendigo Bank for interference with contractual relations fails.

The Foxeden Proceeding
The Terms of the Agreement with Foxeden

I am satisfied that on or about 18 November 1996 Mr Hawksworth and Mr Wood, purportedly on behalf of IOOF, reached agreement that from a date to be agreed between the parties the operation of the Mildura branch would be transferred to Mr Hawksworth or his nominee and that thereafter Mr Hawksworth or his nominee would assume all the liabilities of the Building Society branch, including rent and staffing and that Mr Hawksworth or his nominee would be paid certain commissions, which were not yet agreed, in return for him or it acting as IOOF's agent for the purpose of accepting deposits from customers for their Building Society accounts, permitting customers to withdraw funds from their Building Society accounts, accepting applications from customers for loans from the Building Society and selling other IOOF products.

It was also agreed that Mr Hawksworth or his nominee would have exclusive access to the customers and the customer lists of the business of the Mildura branch and that IOOF would not compete with him or it in providing financial services to these customers. It was further agreed between Mr Hawksworth and Mr Wood that for the duration of the agreement Mr Hawksworth or his nominee would "own" the business conducted by the branch and that, subject to IOOF's approval, he or it would have the right to sell the business and exclusive access to its client base in the future. This relationship was described by Mr Hawksworth, and accepted by Mr Wood, as a "franchise". Yet the plaintiff's submission that Foxeden purchased the customers means that the alleged agreement would have been something more than a franchise.

Mr Beaumont disputed that any agreement could be said to have been reached between Mr Hawksworth and Mr Wood as early as November 1996. Counsel pointed out that it was not until January 1997 that Mr Hawksworth carried out what he described as a "due diligence", but which appears to have been much more superficial than that name would suggest. More importantly, Mr Beaumont relied on the absence of agreement on matters such as commissions and duration and termination provisions.

Nevertheless, the discussions between Mr Hawksworth and Mr Wood must have reached a fairly advanced stage by 11 November 1996 because on that date a draft Agency Agreement (exhibit "D") was faxed to Mr Hawksworth. This version of the Agency Agreement was a longer and slightly more sophisticated draft then had been sent to the Taylors in July 1996. The document contemplated a commencement date of 2 December 1996. However, it contained a remuneration clause limited to commissions only on deposits and a termination clause allowing the agreement to be terminated without cause by either party on 60 days' written notice. Although Mr Wood said that this document represented what he had agreed with Mr Hawksworth at that stage, Mr Hawksworth denied this. He therefore did not sign it. I consider Mr Wood's evidence is mistaken on this point because, in my opinion, matters such as commissions, duration and termination had not been agreed. I have come to this conclusion because of the following.

First, a slightly different version (exhibit CB "76") was sent by Mr Wood to Mr Mainprize attached to his memorandum dated 13 November 1996, in which he said that it was only a draft "Franchising Agreement" in respect of which he and Mr Hawksworth had yet to "reach agreement".

Secondly, an important meeting occurred between Mr Hawksworth, Mr Wood and Mr Jennings on 18 November 1996 at which it seems final agreement was reached on the basics of the agreement, apart from commissions, duration and termination. In his witness statement, Mr Wood said that the rates of fees and commissions on deposits and loans were agreed at this meeting, whereas Mr Hawksworth said this did not occur until March 1997. Again, I think Mr Wood was confused in his recollection. Although he may well be right that he and Mr Hawksworth agreed the high rates of commissions on deposits at that meeting, the subsequent lengthy debate about fees and commissions on loans suggests that no such agreement was reached at that meeting. Further, Mr Wood subsequently gave evidence that he never agreed to the fees and commissions on loans as alleged by Mr Hawksworth. Further, nothing seems to have been said in the meeting on 18 November 1996 about duration and termination.

After 18 November 1996, statements in various internal memoranda of the IOOF Group indicate that there was a widespread view that agreement had been reached with Mr Hawksworth about the fate of the Mildura branch. Although the commencement date of 2 December 1996 was not met, this was replaced, by no later than 19 December 1996, with a 1 February 1997 target date. Mr Smart was advised of this date by Mr Wood in his memorandum dated 19 December 1996. Further, Mr Mainprize reported the same information to the Board in January 1997.

Therefore, I conclude that agreement was reached on or about 18 November 1996 for the transfer of the Mildura branch of IOOF to Mr Hawksworth or his nominee. The transfer date was yet to be agreed. So were the rates of commission, or at least whether any fees and commissions were to be paid by IOOF in respect of loans.

Contrary to the case advanced by Foxeden, I do not accept that it was part of this agreement that it "owned" the customers of the branch from time to time, in the sense that it could sell them or transfer them to another financial institution because it had purchased them as part of an "irreversible" transaction, which could not be terminated. The inclusion of the 60 day termination without cause clause in all of the agreements sent by Mr Wood to Mr Hawksworth indicates that he did not consider that it had been agreed that the customers of the branch had been permanently purchased. As Mr Wood said to Mr Taylor, his view was that it would be "commercially irresponsible" not to have a "'get-out' clause" from the point of view of both the franchisor and the franchisee.

For the reasons already given in respect of the discussion concerning the Taylors' agreement, I reject the dichotomy sought to be drawn between the franchise agreement, which could not be terminated, and the agency agreement, which could. Similarly, I consider that what Mr Hawksworth was concerned about in respect of duration and termination was not to have his business retaken by IOOF in the short term or when he was proposing to assign it to another franchisee, given that he was committing himself to substantial expenditure in order to maintain, and hopefully build up, his valuable asset. Mr Hawksworth's acceptance of Mr Wood's requirement that IOOF be able to reject any proposed purchaser of the branch from Mr Hawksworth on the ground of not being a fit and proper person to carry on Building Society functions in IOOF's name indicates to me that neither Mr Hawksworth nor Mr Wood saw the transaction as an outright purchase of the customers.

However, I accept Mr Hawksworth's evidence that he did not sign the Agency Agreement sent to him on 11 November 1996 (exhibit "D") because it did not represent what he had agreed with Mr Wood. Clause B VIII "Duration and Termination" would have been obviously unacceptable. A 60 day termination without cause clause was far too short from his point of view. Whether these matters were discussed by Mr Hawksworth and Mr Wood on or before 18 November 1996 is not clear, but I am satisfied that no agreement had been reached on the questions of duration and termination by the end of that meeting.

Discussions between Mr Hawksworth and Mr Wood therefore continued. Eventually, the date for the transfer of the Mildura branch's operations was fixed at 28 May 1997, apparently by Mr Wood's memorandum to Mr Hawksworth dated 5 May 1997. This date was confirmed in Mr Wood's memorandum of 9 May 1997, to which was attached another version of "a draft franchise agreement as a basis for further discussion about other matters that need to be included". I find that the document sent was exhibit "B". I accept Mr Hawksworth's evidence that he did not sign the most recent version of the agreement because it still did not reflect what he said was the agreement he had reached with Mr Wood. Apart from the substitution of a differently typed page 11 dealing with the transfer of staff and their entitlements, this version of the agreement was the same as that sent by Mr Wood to Mr Mainprize on 13 November 1996 (exhibit "CB 76"), which in turn was only slightly different in irrelevant ways from that sent by Mr Wood to Mr Hawksworth on 11 November 1996 (exhibit "D"). It is rather unusual, however, that Mr Hawksworth did not immediately complain to Mr Wood about the remuneration clause and the termination clause.

One critical question is whether the agreement between Foxeden and IOOF included the 60 day written notice termination without cause clause. Mr Wood said that he believed that the various drafts he sent to Mr Hawksworth represented the agreement he had reached with him at that stage. But nowhere in his evidence did he say that Mr Hawksworth had specifically agreed to this clause and Mr Hawksworth denied that he had. By 24 March 1977, Mr Wood had agreed with Mr Taylor that the 60 day termination clause was "too short" from "both parties' viewpoint", that a 14 month period was "not unreasonable" and that it would be further negotiated "in the forthcoming franchise agreement". This clause was, therefore, not an issue which Mr Wood would have pressed Mr Hawksworth on, even though he continued to include it in the draft agreement sent to Mr Hawksworth on 9 May 1997. In my opinion, Mr Wood was content to leave this issue unresolved until he was finally able to obtain proper legal assistance in drafting a comprehensive franchise agreement. Mr Hawksworth was also prepared to leave this issue unresolved, even though he said that he expected that as a matter of commercial reality the agreement would be "determinable on some notice".

Mr Beaumont submitted that as Mr Hawksworth never wrote objecting to or querying the inclusion of the termination clause, he should be taken to have accepted it as part of the agreement, even though he never signed any version of the Agency Agreement. I do not agree. Foxeden is not bound by such a clause, in my opinion, unless I am satisfied that Mr Hawksworth agreed to it, and as I have stated, I am not satisfied of that matter.

What then is the situation if there has been no agreement on duration and termination without cause? As with the Taylor proceeding, Mr Hayes submitted that the result was that Foxeden's rights were unlimited as to time, whereas Mr Beaumont submitted that the agreement could have been terminated at will. Applying the previously quoted passage from McHugh JA's judgment in Crawford Fitting[14] to the circumstances of Foxeden's relationship with IOOF in respect of the operation of the Mildura branch of the Building Society, I find that the parties intended their agreement to be terminable on notice and not that it was unlimited as to time, and that there was an implied term that the agreement could be terminated on reasonable notice.
[14](1988) 14 NSWLR 438 at 444.

Mr Wood stated that by the time he left IOOF in August 1997, agreement had still not been reached with Foxeden in respect of the formula for remuneration in respect of loans. I accept that this was the case. I read Mr Smart's memorandum dated 20 June 1997 to Mr Hawksworth as a clear indication that the question of commission on loans was still being discussed at that stage, in contrast to the agreed rates of commissions on deposits, and that no fees had been agreed to be paid in respect of new loans to customers of the Mildura branch. This view is confirmed by Mr Wood's memorandum dated 17 July 1997 to Mr Smart which stated that "the loans formula" was still being worked on. I therefore reject Mr Hawksworth's evidence that Mr Jennings had agreed on 17 March 1997 that IOOF would pay fees and commissions on loans and that he had subsequently received documents recording these commission levels from IOOF, which he no longer had. I have reached this conclusion despite the fact that Mr Jennings was not called by the defendants. I also consider that I cannot act on Mr Smart's evidence that at some time, which he could not identify, the fees and commission on loans had been agreed during a meeting in Ballarat between Mr Smart, Mr Hawksworth, Mr Wood and Mr Jennings. It is just too vague, particularly when initially neither Mr Hawksworth nor Mr Wood referred to such a meeting. I also cannot accept Mr Wood’s claim that the $500 fee for new loans had been agreed “early on”. It is not mentioned in either the draft agreement he sent to Mr Hawksworth or in his relevant correspondence.

I might have been more disposed to accept this evidence if there had been some prompt reaction by Foxeden to the failure by IOOF to pay any fees and commissions on loans after Foxeden commenced operating the branch on 28 May 1997. However, it was not until 10 August 1998 that Mr Graeme Hawksworth made the first request for payment in respect of the period from commencement of the franchise to 30 June 1998. When Ms Pearce rejected the claim by her letter dated 23 September 1998, one might have expected that the response would have been to refer to Mr Warwick Hawksworth's agreement with Mr Jennings on 17 March 1997 or to the agreement reached at the meeting in Ballarat between Messrs Hawksworth, Smart, Wood and Jennings on some unknown date in 1997. Instead, there was further silence on the part of Foxeden. Furthermore, the fact that Foxeden did not include the income allegedly earned on loans in its taxation returns for the 1997/98 and 1998/99 financial years, which Mr Hawksworth conceded it should have done if the extra fees and commissions were in fact due and payable, damages his claim that fees and commissions on loans had been agreed with IOOF.

I am not prepared, therefore, to find that IOOF agreed to pay Foxeden "0.25 per centum of the value of all loan balances relating to customers of the Business" or "$500 for each new loan to a customer of the Business generated by Hawksworth or his nominee and their officers, employee sand agents", as pleaded by Foxeden in its claim.

Although Mr Wood stated that he did not reach agreement with Foxeden in respect of commissions on loans, it is clear, I believe, that IOOF's position always was that it was prepared to pay commission at the rate of 0.25% on loans written at the Mildura branch after 28 May 1997. Mr Wood said as much in his memorandum to Mr Smart dated 7 July 1997. Ms Pearce said the same thing in her letter to Mr Graeme Hawksworth dated 23 September 1998. In the circumstances, I can see no reason why IOOF should not be kept to this promise and I find that it was a term of the agreement between Foxeden and IOOF.

It is interesting to note that in the "amended copy of the Mildura franchise agreement" sent by Ms Peoples to Ms Rodwell on 8 August 1997 the remuneration was said to include commission on "drawn down loan funds retained by the agent". It was common ground that this must be read as an agreement to pay commission on total loan balances and it therefore goes beyond what Mr Wood and Ms Pearce agreed to pay. Unfortunately for Foxeden, the clause can have no operation given that there was no evidence that this document was ever sent to, or received by, Foxeden.

The Authority of Mr Wood to Make the Agreement with Foxeden

Throughout the period of his negotiations with Mr Hawksworth, Mr Wood was the Senior Manager in charge of Branch Distribution. He reported to the General Manager, Mr Mainprize. Thus, Mr Wood was no longer the acting General Manager. Nevertheless, Mr Mainprize said that he delegated to Mr Wood the authority to negotiate the franchise for the Mildura branch. I see no reason to doubt that evidence.

The defendants denied that Mr Wood had any authority on behalf of IOOF to enter into any agreement with Foxeden "which contained terms not contained in, or additional or different to the written terms contained in either exhibit "B" or exhibit "CB 160". This is an interesting statement because it implies, in my opinion, that Mr Wood did have authority on behalf of IOOF to enter into an agreement with Foxeden in the terms of either of those exhibits Yet, the defendants were at pains to stress that the Board of IOOF had never approved any form of agreement with Foxeden, so that Mr Wood must have had some authority to enter into agreements on behalf of IOOF without specific Board approval. Just where the line was said to be drawn, between agreements which Mr Wood had authority to enter into without specific Board approval and other agreements where he did not, was not clear. As with the Taylors, the answer probably lies in the inability of Mr Wood to sell the customers of an IOOF branch to another party As I have held that this did not occur in the case of Foxeden, the issue of lack of authority to make the agreement once again disappears.

Issues such as the commissions payable to the agent/franchisee or the period of notice to terminate the agreement clearly seem to have been within the accepted authority of Mr Wood. I would also be prepared without further examination to hold that it was also within Mr Wood's authority to enter into an agreement on behalf of IOOF in the nature of a franchise of a branch's operation, that is, that the other party would have exclusive access to the customers and the customer lists and that IOOF would not compete with the franchisee in providing financial services to these customers.

Nevertheless, it is appropriate to look briefly at the history of Mr Wood's dealing with the Board in respect of the agreement with Foxeden and senior management's and the Board's knowledge of, and involvement with, that agreement. As early as June 1996, the Board was told by senior management (Mr Flipo) that it was exploring the possibility of a sale of the Mildura branch or "a franchising arrangement, whereby they [former staff] take over all branch costs, and receive a commission or business retained and new business written". Then the "Franchising Concept Mildura Branch" document was said by Mr Mainprize to have gone before the Board, perhaps in July 1996. The Board was told by the General Manager in October 1996 that "Mildura is being discussed for franchising to Warwick Hawksworth". No Board member appears to have queried either the concept of franchising the branch or the authority of those acting on behalf of IOOF in the discussions. The General Manager's Reports to the Board for the months of December 1996 and January 1997 repeated the reference to the proposed franchising of the Mildura branch to Mr Hawksworth. Thus, by the time Foxeden took over the operation of the Mildura branch on 28 May 1997 the Board should have been well aware of what was happening in respect of the Mildura branch.

Subsequent internal IOOF documentation revealed that the Mildura branch was consistently referred to as a franchise. There is no querying of this description by any of the many senior managers involved, including Mr Turner, nor is there the slightest suggestion that either Mr Wood (or Mr Mainprize) had exceeded his authority in entering into, on behalf of IOOF, the agreement with Foxeden.

Was the Agreement with Foxeden Breached by IOOF?

The defendants submitted that IOOF had not breached the agreement with Foxeden because it had been validly terminated following appropriate notice from the Building Society. They again relied on the public announcement of the sale of IOOF to Bendigo Bank made on 3 March 1999, or the circular dated 20 April 1999 sent by Bendigo Bank to all IOOF staff, which Mr Hawksworth acknowledged he had received on or about that date, or the oral notification by Mr Bice when he told Mr Hawksworth at a meeting on 12 May 1999 that "the Mildura agency would be closed down".

For the reasons already discussed in respect of notice to the Taylors, I do not consider that the public announcement on 3 March 1999 or the 20 April circular constituted valid notice of termination by IOOF of the agreement with Foxeden. Also, the conversation in which Mr Bice told Mr Hawksworth that "the Mildura agency would be closed down" was not notice of termination of the agreement, but a statement of intent by Bendigo Bank regarding the future of the Mildura branch. I find that IOOF's conduct in electronically transferring the customers to Bendigo Bank's Mildura branch on 30 June 1999 meant that it breached the agreement with Foxeden because it had failed to give any, let alone reasonable, notice of termination. This was a repudiation of the agreement with Foxeden.

What then was reasonable notice to terminate the agreement with Foxeden in June 1999? By that time, the agreement had been in existence for just over two years. Under the agreement, Foxeden had agreed to take over an excessive lease payment and to meet substantial other expense. Mr Hayes submitted that three years' notice was reasonable. He relied on Mr Hawksworth's evidence that five years was the minimum period of time he would have considered to warrant incurring the burden of operating the branch. In my opinion, despite the heavy initial expenditure which Foxeden committed itself to and the relatively short period which had elapsed since Foxeden commenced operating the Mildura branch, a longer period of notice than I have found the Taylors were entitled to is not required. In all the circumstances, bearing in mind the nature of the relationship between Foxeden and IOOF which was being brought to an end without default on the part of Foxeden, I consider that a period of one year would have been reasonable notice of termination to Foxeden at the end of June 1999.

Alternative Claims by Foxeden Against IOOF

As Foxeden has succeeded in its contractual claim against IOOF in that I have found that there was an implied term of its agreement with IOOF that it could be terminated on reasonable notice, it is unnecessary to consider whether or not the alternative claims against IOOF would have succeeded. As previously stated, counsel acknowledged this consequence in their final submissions.

Foxeden’s Claims against Mr Turner

For the reasons already given in respect of the Taylors’ claims, I consider that Foxeden has failed to establish that it has any claim against Mr Turner.

Foxeden’s Claim in Conversion against Bendigo Bank

The claim in conversion against Bendigo Bank must fail for the same reasons that the Taylors’ claim failed.

Foxeden’s Claim against IVFS and Bendigo Bank for Interference with Contractual Relations

For the reasons already given in respect of the Taylors, I consider that Foxeden’s claim against both IVFS and Bendigo Bank for intentional interference with the contract between Foxeden and IOOF must fail.

Answers to the Questions in Each Proceeding

Subject to hearing from the parties once they have had an opportunity to consider these reasons, I would propose answering the questions in each proceeding as follows:

The Foxeden proceeding
Question 1:
See the above reasons for the terms of the agreement. In particular, it was a term of the agreement that it could be terminated without cause by either party on reasonable notice. It was also a term of the agreement that IOOF would pay Foxeden commission at the rate of 0.25% on loans written at the Mildura branch after 28 May 1997.
Question 2:
Not necessary to answer.
Question 3:
Yes, actual authority, and if not, apparent authority.
Question 4:
Yes.
Question 5:
No.
Question 6:
Not necessary to answer.
Question 7:
Not necessary to answer.
Question 8:
Re paragraph 27(a) – No.
Re paragraphs 43 and 44 – Not necessary to answer.
Question 9:
IOOF – re paragraphs 29 to 31 – No.
Bendigo Bank – re paragraph 27(c) – No.
- re paragraphs 29 to 31 – No.

Question 10:
No.
Question 11:
Not necessary to answer.

The Taylor Proceeding
Question 1:
See the above reasons for the terms of the agreement. In particular, it was a term of the agreement that it could be terminated without cause by either party on 60 days’ notice in writing. However, IOOF is estopped from relying upon or seeking to endorce that term. Instead, it became a term of the agreement that it could be terminated without cause by either party on reasonable notice.
Question 2:
Not necessary to answer.
Question 3:
Yes, actual authority, and if not, apparent authority.
Question 4:
Yes.
Question 5:
Yes, partly.
Question 6:
No.
Question 7:
Not necessary to answer.
Question 8:
Not necessary to answer.
Question 9:
Re paragraph 27(a) – No.
Re paragraphs 43 and 44 – Not necessary to answer.

Question 10:
IOOF – re paragraphs 29 to 31 – No.
Bendigo Bank – re paragraph 27(c) – No.
- re paragraphs 29 to 31 – No.

Question 11:
No.
Question 12:
Not necessary to answer.

I will also hear from the parties in due course about what, if any, orders should be made at this stage and what steps should now be taken in respect of the assessment of damages.

[2003] VSC 356

19 September 2003