Gel Holdings Pty Ltd v ACN 082 310 727 Pty Ltd
[2008] FMCA 266
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| GEL HOLDINGS PTY LTD v ACN 082 310 727 PTY LTD & ANOR | [2008] FMCA 266 |
| TRADE PRACTICES – Alleged breach of Franchising Code of Conduct. CONTRACT – Implied terms – alleged breach of implied terms – alleged breach of contract. |
| Ultrarad Pty Ltd v Health Insurance Commission (2005) 88 ALD 797; [2005] FCA 816 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 |
| Applicant: | GEL HOLDINGS PTY LTD (ACN 008 871 850) |
| First Respondent: | ACN 082 310 727 PTY LTD (ACN 082 310 727) |
| Second Respondent: | AARON WAGNER |
| File Number: | PEG 331 of 2006 |
| Judgment of: | Lucev FM |
| Hearing dates: | 30-31 May, 1 June 2007 |
| Date of Last Submission: | 1 June 2007 |
| Delivered at: | Perth |
| Delivered on: | 6 March 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr M Hemery |
| Solicitors for the Applicant: | Talbot Olivier |
| Counsel for the First and Second Respondents: | Ms P Cahill |
| Solicitors for the First and Second Respondents: | Maxim Litigation Consultants |
ORDERS
The Application be dismissed.
The Applicant pay the First Respondent the sum of $6,647.08 within twenty-eight days.
The Applicant pay the cost of the Respondents, and if not agreed, the matter of the quantum of costs be listed for hearing on the application of the Respondents.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
PEG 331 of 2006
| GEL HOLDINGS PTY LTD (ACN 008 871 850) |
Applicant
And
| ACN 082 310 727 PTY LTD (ACN 082 310 727) |
First Respondent
| AARON WAGNER |
Second Respondent
REASONS FOR JUDGMENT
Introduction
Under a franchise agreement of 8 December 2000[1] the Applicant operated the Colortech Systems sub-franchise in Western Australia. The franchise agreement was made with a master franchisor who was the predecessor to the First Respondent.
[1] “December 2000 Agreement”.
The sub-franchise agreement with the Applicant was terminated by the First Respondent on 18 February 2004.
The termination of the sub-franchise agreement gives rise to a number of issues requiring determination in these proceedings which are dealt with hereunder.
Claim for breach of contract
The Applicant alleges a Subsequent Agreement was made following the termination of the sub-franchise agreement.[2]
[2] Statement of Claim, paragraphs 3 to 17 and 26 to 29.
The Subsequent Agreement is said to consist of an exchange of letters between the Applicant and First Respondent allowing the First Respondent to operate the sub-franchise for a further period of 4 months, during which period the Applicant would endeavour to find a purchaser for the sub-franchise.
The Applicant alleges the following terms are to be implied into the Subsequent Agreement, namely:
a)the terms of the December 2000 Agreement applied to the Subsequent Agreement unless inconsistent with the express terms of the Subsequent Agreement; and
b)that if the Applicant found a purchaser for the sub-franchise approved by the First Respondent the purchaser would purchase on the same terms as contained in the December 2000 Agreement, including the right to a minimum franchise term of 10 years.[3]
[3] Statement of Claim, para 11.2
Where a contract has not been reduced to a completed written form, the question is whether the implication of the particular term is necessary for the reasonable or effective operation of the contract in the circumstances of the case.[4]
[4] Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 422 and 442
The First Respondent denies that there was a Subsequent Agreement with the alleged implied terms. There was an exchange of letters between the Applicant and the First Respondent on 18 and 27 February respectively,[5] but the matters put were in relation to a prospective sale of the sub-franchise to a third party, and not the Applicant operating the sub-franchise in the longer term, that being a matter which, on the evidence, had not been contemplated at that time.[6]
[5] Trial Bundle Vol 2 at 650 and 652
[6] Responsive Witness Statement of Wyndham at para 25.
The First Respondent says that the parties entered into the Gel Franchise Agreement in late February 2004, completing the agreement by an exchange of counterparts.[7] Further, the First Respondent says it acted in reliance upon the rights and obligations created under the Gel Franchise Agreement.[8]
[7] The “Gel Franchise Agreement”; Wagner’s witness statement at paras 56-61; Trial Bundle Vol 2, pp.582-642
[8] Trial Bundle, Vol 2 at 662
The Applicant does not deny entering into the Gel Franchise Agreement. Indeed, the Applicant made subsequent disclosures and entered into a franchise agreement consistent with the terms of the Gel Franchise Agreement in relation to equipment fees and franchise administration fees.[9]
[9] Trial Bundle, Vol 2 at 802, 994 and 995
It is significant that the terms of the Gel Franchise Agreement provide that it replaces any preceding agreement. Thus even if there was a Subsequent Agreement entered into (which in the Court’s view there was not) it was almost immediately replaced or superseded by the Gel Franchise Agreement.
A written contract was made between the parties in the terms of the Gel Franchise Agreement: there is written evidence of the exchange of counterparts, and the Court accepts Mr Wagner’s evidence about the exchange of counterparts in late February-early March 2004.[10]
[10] Ultrarad Pty Ltd v Health Insurance Commission (2005) 88 ALD 797, [2005] FCA 816 at para 54
It is the Court’s view that the Gel Franchise Agreement applied to the parties relationship and that no contractual term can be implied contrary to its terms. Where there is a complete written agreement, including provisions concerning the transfer of the franchise business[11] the implication of a term contrary to the written agreement is not necessary for the reasonable or effective operation of the agreement. That ought to be self evident where the terms of clause 36 of the Gel Franchise Agreement provide that in order to transfer the franchise business the Applicant:
a)must first offer to sell the franchise business to the First Respondent;
b)must deliver a written notice to the First Respondent specifying a price and terms of the proposed transfer;
c)may only transfer the franchise business to a third party if the First Respondent rejects its offer;
d)in any event must not transfer or deal with the agreement, its rights or business without the prior written consent of the First Respondent.[12]
[11] Gel Franchise Agreement, clause 36
[12] Gel Franchise Agreement clause 36.1, 36.4 and 36.5; Trial Bundle, Vol 2 at pp.582-642, especially 618-619
The terms of the Gel Franchise Agreement are unambiguous: it is for a limited term of four months. There is no right of renewal. After the expiry of the term the Applicant was holding over on a month to month basis.
There is an allegation that the Applicant became the purchaser for the purposes of the implied term. It is unnecessary to deal with this allegation at any length. It suffices to say that the Applicant could not be the purchaser, because as the sole sub-franchisor it was the vendor, and as such the allegation that it was also the purchaser simply cannot stand.
Alternative claim for breach of contract
The Applicant entered, with the First Respondent’s approval, into a franchise agreement with a franchisee in July 2004. The term was 10 years. The Applicant alleges that the term of the alleged Subsequent Agreement was thus varied to become 10 years rather than 4 months.[13] For reasons set out above, the Court does not consider there was a Subsequent Agreement, so this alternative claim must fail.
[13] Statement of Claim, para 18.6
In any event, the Applicant did not plead a variation of the alleged Subsequent Agreement. The Subsequent Agreement could in any event only be changed by a variation to that agreement, and, if the terms of the December 2000 Agreement applied to the alleged Subsequent Agreement, then any variation had to be in writing signed by the parties.[14]
[14] Trial Bundle Vol 1 at p.52
There is no variation in writing signed by the parties. Thus, there was no variation of the term of the Subsequent Agreement from 4 months to 10 years. Further, there is no evidence of consideration in support of the variation to the Subsequent Agreement, nor is there any evidence that the alleged variation was under seal. In those circumstances, it cannot be said that there was an agreement to vary the Subsequent Agreement.
The Applicants alternative claim for breach of contract must therefore fail.
Estoppel
In order for there to be a successful plea of estoppel there must be a representation made upon which the Applicant relied to its detriment.
There was no evidence that the First Respondent ever represented that the alleged Subsequent Agreement was, or would be, for a term exceeding 4 months. In the absence of this essential evidentiary plank, the Applicant’s claim based upon estoppel must fail.
Alleged breach of the franchising code of conduct
The Applicant alleges that the First Respondent was required to make certain disclosures to the Applicant under the Franchising Code of Conduct.[15]
[15] Statement of Claim, para 32
It is unclear what the Applicant complains of in relation to the alleged failure to disclose. The Statement of Claim appears to assert that the Applicant was under a misapprehension that the Subsequent Agreement contained a term of only 4 months, and that something else (precisely what is unclear) ought to have been disclosed by the First Respondent.[16] However, the term of 4 months was contained, and was manifestly clear, within the letters which allegedly constituted the Subsequent Agreement. Thus, there was no failure to disclose by the First Respondent in respect of the alleged Subsequent Agreement.
[16] Statement of Claim, para 36
There was no duty on the First Respondent to disclose in respect of the purchase agreement allegedly made between the Applicant and its former partner. No duty of disclosure upon the First Respondent arises in those circumstances.
In respect of the Gel Franchise Agreement disclosure was required, but the Applicant told the First Respondent that relevant disclosures were not required or wanted by the Applicant.[17] No issue was raised in this regard by the Applicant until this action was instituted. In the Court’s view whilst there may have been a technical breach of the Franchising Code of Conduct by the First Respondent, but it is really a case of the law not concerning itself with trifles, which this is, in the overall context of what occurred. There was no loss or damage sustained by the Applicant as a consequence of the technical breach. No order will be made in relation to this issue.
[17] Wagner’s witness statement at paras 49-53; Wagner’s diary, entry for 26 February 2004
Alleged breach of implied duty of good faith and fair dealing
In October 2005 the First Respondent advised Western Australian franchisees that the franchise administration fee payable by them was more than that payable by franchisees in Queensland and the Australian Capital Territory.[18] The Applicant alleges that this breached an implied term of good faith and fair dealing in the original sub-franchise agreement dated 8 December 2000.[19]
[18] Statement of Claim, paras 5 and 39
[19] Statement of Claim, para 39
By October 2005 the original sub-franchise agreement, and the alleged Subsequent Agreement, had both been terminated. That fact is not in dispute.[20]
[20] Statement of Claim, par 28
It is unclear to the Court how the charging of different franchising administration fees in different geographic areas constitutes a breach of an implied term of fair dealing or good faith, or how the breach of any such term implied into an agreement between the Applicant and the First Respondent is breached by charging franchisees in this way.
In the circumstances, the Court finds that there has been no breach of any implied duty of good faith or fair dealing by the First Respondent.
Conduct of audit
The Applicant complains concerning the conduct of an audit by the First Respondent about 6 days before it gave notice of termination of the Gel Franchise Agreement.
Under clause 22 of the Gel Franchise Agreement the First Respondent was entitled to inspect and remove for copying business and financial records concerning the sub-franchise business, and to require those records to be audited.[21]
[21] Trial Bundle, Vol 2 at pp.606-607 and 662
The First Respondent kept the records it had obtained from the Applicant so as to enable it to continue to run the sub-franchise business subsequent to the termination of the Gel Franchise Agreement.[22]
[22] Wagner’s witness statement at para 121
Once the Gel Franchise Agreement was terminated there were no remaining rights or obligations to provide the Applicant with an audit report.
The Applicant’s claim in this respect fails.
Claim for franchise premium
There is no dispute that the Applicant and First Respondent made an agreement in or about March 2005 to share equally a franchise premium payable by a new franchisee, Mr Stocker.
At that time, the Applicant was indebted to the First Respondent under a loan agreement made in or about July 2004.[23] The Applicant’s share of the franchise premium ($8,250.00) was applied in reduction of the Applicant’s indebtedness to the First Respondent under the July 2004 loan agreement.[24]
[23] Trial Bundle, Vol 2 pp.517-522
[24] Wagner’s witness statement paras 111-115; Trial Bundle Vol 1 at 149. See also Witness Statement of Wyndham at para 94
The claim for the franchise premium therefore fails.
Counterclaim
Under the Further Amended Defence and Further Amended Cross Claim filed on 21 May 2007 the First Respondent alleges that clause 9.2 of the Gel Franchise Agreement required the Applicant to pay a franchise administration fee within 30 days of the end of each month. The First Respondent claims for the month of August, September and October 2005. The sum claimed is $6,647.08.
There was no dispute that the franchise administration fee as claimed has not been paid to the First Respondent.[25]
[25] Amended Reply and Defence to Counterclaim at para 32
The Court finds that the Applicant owes the First Respondent the sum of $6,647.08 and there will be an order that that amount be paid by the Applicant to the First Respondent.
Conclusion and Orders
The Application will be dismissed.
The Counterclaim is upheld and there will be an order for payment by the Applicant to the First respondent of the sum of $6,647.08.
Subject to further submissions, the Applicant ought to pay the costs of the Respondents.
I certify that the preceding forty-three (43) paragraphs are a true copy of the reasons for judgment of Lucev FM
Associate:
Date: 6 March 2008
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