Heaney Enterprises Pty Ltd v Just Cuts Franchising Pty Ltd - [2017] VCC 293

IN THE COUNTY COURT OF VICTORIA

Revised
Not Restricted
Suitable for Publication

AT MELBOURNE

COMMERCIAL DIVISON
GENERAL LIST

Case No. CI-16-00008

HEANEY ENTERPRISES PTY LTD	Plaintiff
v.
JUST CUTS FRANCHISING PTY LTD	Defendant
JUST CUTS FRANCHISING PTY LTD	Plaintiff by Counterclaim
v.
HEANEY ENTERPRISES PTY LTD and OTHERS	Defendants by Counterclaim

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JUDGE:	His Honour Judge Anderson
WHERE HELD:	Melbourne
DATE OF HEARING:	28-30 November and 1, 2 and 5 December 2016
DATE OF JUDGMENT:	19 May 2017
CASE MAY BE CITED AS:	Heaney Enterprises Pty Ltd v. Just Cuts Franchising Pty Ltd
MEDIUM NEUTRAL CITATION:	[2017] VCC 293

REASONS FOR JUDGMENT
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Catchwords: Contract – Franchise agreement – Whether failure by the franchisor to comply with the Franchising Code of Conduct – Whether relief should be granted – Loss of opportunity damages claimed.

Contract – Franchise agreement – Breach notice served by franchisor – Agreement required 30 days to be given to remedy breaches – 21 days given, although extended to 30 in subsequent letter – Validity of breach notice – MLW Technology Pty Ltd v. May [2005] VSCA 29 and Mannai Investment Ltd v Eagle Star Assurance [1997] UKHL 19; [1997] AC 749 applied.

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APPEARANCES:	Counsel	Solicitors
For the plaintiff and defendants by counterclaim	Mr J. G. Levine of Counsel	TGA Legal Pty Ltd
For the defendant and plaintiff by counterclaim	Mr C. H. Truong of Counsel	LegalVision ILP Pty Ltd

HIS HONOUR:

1Caroline Heaney secured a Just Cuts franchise in October 2010 at the Point Cook Town Centre (“the Point Cook franchise”). Heaney Enterprises Pty Ltd (“Heaney Enterprises”) was the nominated franchisee and the franchisor was Just Cuts Franchising Pty Ltd (“Just Cuts”). Heaney Enterprises entered into a five year lease with the Town Centre owner, Walker Corporation Pty Ltd. The Point Cook franchise was established as a new hairdressing salon by Mrs Heaney.
2Just Cuts have about 170 franchise businesses throughout Australia. They have a standardised business operation which offers haircuts to both female and male customers, at standard prices, with no fixed appointment in similarly appointed salons. These are located primarily in shopping centres.
3In about July 2011, Mrs Heaney, through Heaney Enterprises, acquired a second Just Cuts franchise; a new salon she established in the Pacific Werribee Shopping Centre (“the Werribee franchise”), about 7 kilometres by road from the Point Cook franchise.
4In November 2013, Just Cuts was considering establishing a Just Cuts franchise at the Williams Landing shopping centre (“the Williams Landing franchise”). The first stage of the shopping centre was under construction. It was only about 2 to 3 kilometres by road from the Point Cook franchise, on the other side of the Princes Freeway. The franchise was first offered to Mrs Heaney, although she rejected it. In November 2014, a franchise agreement was executed by Just Cuts and Abhay Oberoi for the Williams Landing franchise.
5The Williams Landing franchise opened in January 2015. At about this time, the takings from the Point Cook franchise suffered a significant decline and did not improve over the following months. Mrs Heaney blamed the decline in sales primarily as a result of the competition from the Williams Landing franchise. There were, however, other factors which may have influenced the level of trading, including the change of major tenants at the Point Cook Town Centre.
6The 5 year term of the lease for the Point Cook franchise premises was due to expire on 19 December 2015. The Point Cook Town Centre was now operated by Stockland Property Management Pty Ltd (“Stockland”). Mrs Heaney negotiated directly with Stockland for a renewal at a reduced rental. At the same time, Mrs Heaney was also negotiating with Just Cuts for a renewed franchise agreement. Just Cuts imposed two conditions upon the renewal; that Heaney Enterprises install the Just Online point of sale system and that it cease selling Fudge products through the salon. Just Cuts alleged that these matters constituted breaches by Heaney Enterprises of the Point Cook franchise.
7The Point Cook lease was not renewed, although Heaney Enterprises remained in occupation until June 2016 when it “vacated and conducted a de-fit of the premises”. The franchise was also not renewed, and the Just Cuts signage in the salon was removed. From about January 2016, Heaney Enterprises traded as Jakob’s Hair Salon (“Jakob’s”). After Mrs Heaney vacated the premises, Mr Oberoi was granted a second Just Cuts franchise and from about August 2016 has operated a salon at the Point Cook premises.
8On 5 January 2016, Just Cuts served a “breach notice” on Heaney Enterprises, as the franchisee of the Werribee franchise. The notice alleged that the franchise agreement had been breached, including by Mrs Heaney spending time running the Jakob’s salon at Point Cook, and thus neglecting her management responsibilities towards the Werribee franchise.
9The critical issues for determination in the proceeding are:
a.whether Just Cuts complied with the requirements of the Franchising Code of Conduct in relation to the Point Cook franchise;
b.whether Just Cuts and Heaney Enterprises executed a written franchise agreement for the Point Cook franchise;
c.whether Heaney Enterprises has a claim for damages in respect of Just Cuts’ grant of the Williams Landing franchise to Mr Oberoi;
d.to what damages (if any) is Heaney Enterprises entitled, as a result of Just Cuts granting the Williams Landing franchise;
e.whether Just Cuts was liable to Mrs Heaney or Heaney Enterprises as a result of Just Cuts:
i.taking a lease of the premises previously occupied pursuant to the Point Cook franchise;
ii.refusing to extend the Point Cook franchise;
iii.entering into a franchise agreement with Mr Oberoi in relation to the Point Cook premises;

f.whether Just Cuts is entitled to damages as a result of the alleged breaches by Heaney Enterprises’ of the Point Cook franchise;
g.whether Just Cuts’ breach notice served on about 5 January 2016 was effective to terminate the Werribee franchise;
h.whether Just Cuts is entitled to damages or other relief from Heaney Enterprises as a result of the matters raised in the breach notice dated 5 January 2016 in relation to the Werribee franchise.

Course of the proceeding
10The proceeding was issued on 4 January 2016. At that stage:
a.Mrs Heaney had failed to negotiate an extension of the lease of the Point Cook premises and Stockland was dealing directly with Just Cuts as a possible replacement tenant;
b.Just Cuts had refused to grant an extension of the Point Cook franchise and Heaney Enterprises had commenced trading as Jakob’s at the Point Cook premises;
c.Mrs Heaney blamed the unfair competition from the Williams Landing franchise as having undermined her business at Point Cook. This necessitated her negotiating for a reduced rental of the Point Cook premises;
d.Just Cuts had, by letter dated 22 December 2015, threatened to terminate the Werribee franchise as a consequence of Mrs Heaney (as the “nominated person” under the franchise), not devoting her “complete attention” to the Werribee Franchise, because of her commitments to Jakob’s.

11The service of the threatened breach notice on 5 January 2016, precipitated an application for an interlocutory injunction to restrain Just Cuts from acting on the breach notice until the resolution of the dispute. This matter was determined by mutual undertakings being given to the Court on 25 January 2016.
12The proceeding returned to Court on 20 April 2016 for an application by Just Cuts to strike out parts of Heaney Enterprises’ claim and a cross-application for summary judgment of part of Heaney Enterprises’ claim. I dismissed both applications. In my view, the statement of claim was poorly drafted and the defence was unresponsive and unhelpful. The summary judgment application was misconceived.
13I considered that there was a real risk that the parties would become mired in interminable interlocutory disputes. Rather than pursue a more useful set of pleadings, I directed the parties to consult and settle documents in the nature of statements of agreed and disputed facts and legal issues.
14This attempt was largely unsuccessful. The parties did, however, manage to come to trial in 2016 with only one vacated trial date (on 11 July 2016). Amended pleadings were delivered by the parties which, whilst broadening the dispute, did result in a degree of clarity on some issues. The statement of agreed facts was not helpful.
15At the trial, there were 9 folders of Court Books, 6 from the plaintiff and 3 from the defendant. A large number of documents were replicated in both parties’ sets.
16Mr Levine opened his case perfunctorily. Mr Levine called witnesses including Adam Biggs, a Project Leasing Executive of Stockland and the Williams Landing franchisee, Mr Oberoi. Whilst, it was no doubt forensically important for the evidence of these witnesses to be introduced, the constraints upon Mr Levine in leading this evidence and the lack of constraint on Mr Truong meant that their evidence was, perhaps, not adduced or tested in a way that it otherwise might have been. Fortunately, both of these witnesses were reasonably cooperative and responsive.
17Mr Truong submitted that Mrs Heaney’s evidence “was characterised by generalised self-serving and evasive answers, and contradicted a number of express statements made in more contemporaneous documents…she was also evasive and often refused to answer the question as put, preferring to provide answers she considered would help her case”.
18However, I considered that Mrs Heaney, Just Cuts’ Chief Executive Officer Dennis McFadden and Just Cuts’ Business Development Manager Chiree Craig (now Chiree Henderson) were generally satisfactory witnesses. At times Mrs Heaney was argumentative and, as Mr Truong suggested, at times she appeared to be submitting a case rather than recalling events in which she had participated. On occasions, Mrs Henderson and Mr McFadden gave evidence of matters based on mere speculation rather than recollection.
19There is a comprehensive documentary record of the parties’ dealings, particularly during late 2010 when the Point Cook franchise was negotiated, in early 2015 when the Williams Landing franchise commenced trading and in late 2015 when the Point Cook franchise and lease expired. In relation to these matters, I have generally relied upon what the parties wrote at the time rather than the recollections of witnesses some years later.
20The expert evidence was controversial. Mr Truong submitted that I should ignore the report of Mr James Miller. I shall discuss this matter in detail later. Mr Miller did not appear to understand the responsibilities of an expert witness and, often he presented as an advocate for the plaintiff’s case. However, both he and the defendant’s expert, Mr Michael Smith, relied on basically the same financial data and similar methodology. This permitted the issues raised by both experts to be considered, so far as this was necessary or possible by reason of the conclusions I reached about the matters underpinning their opinions.
21Mr Truong submitted that I should infer, from the failure of Mr Levine to call Aaron Heaney as a witness, that his evidence would not have assisted the plaintiff’s case. I consider that it is appropriate to draw such an inference as no real explanation was given for the failure. However, during the years the franchises operated, Mr Heaney continued in his own occupation and there appeared to be only limited evidence he might have given about contentious matters.

Agreement for the Point Cook franchise
22In 2010, Mrs Heaney was working as a primary school teacher. Mr Heaney was an electrician. They were looking for a business in which to invest. Mrs Heaney had been a customer of the Just Cuts franchise at Watergardens and she made enquiries about the availability of a Just Cuts franchise.
23Mrs Henderson spoke to Mrs Heaney by phone and sent her an application form. Mrs Heaney executed a deed of confidentiality on 18 October 2010 and returned it to Just Cuts. On 25 October 2010, Mr and Mrs Heaney met with Mrs Henderson at Just Cuts’ head office in Sydney. They discussed a number of possibilities including the establishment of a Just Cuts salon at the Point Cook Town Centre. This was of interest to Mrs Heaney because she had previously taught in the area. Mr and Mrs Heaney were introduced to the Just Cuts in-house solicitor.
24The following day, 26 October 2010, Mrs Henderson communicated by email with a leasing manager at the Point Cook Town Centre and with Just Cuts’ in-house solicitor. The solicitor detailed the terms that would be acceptable to Just Cuts and with the “aim to have an opening before Christmas”. This was to be “subject to the potential franchisee executing a franchise agreement”.
25Mrs Heaney spoke with a friend who was an accountant. As a consequence, she wrote to the Just Cuts’ in-house solicitor on 31 October 2010 stating that, “after speaking with my accountant today he suggested the letter of offer and company name ‘Heaney Enterprises Pty Ltd’, the rest of the business will be run through the Family Trust”. Although the accountant had advised Mr and Mrs Heaney to buy an existing business, they had made the decision themselves to start a new business at Point Cook.
26The Heaneys inspected the Point Cook Town Centre, although they left the negotiation of the lease to Just Cuts. Mrs Heaney had discussions with an interior designer nominated by Just Cuts. On 5 November 2010, Just Cuts invoiced Heaney Enterprises the sum of $5,500 for “Design fees – Just Cuts Point Cook”. This sum was immediately paid by bank transfer.
27On 9 November 2010, the Just Cuts’ in-house solicitor responded to Mrs Heaney’s email dated 31 October 2010, stating, “I will be forwarding you documents [meaning franchise documents] tomorrow”. There is no direct evidence that any such documents were sent by Just Cuts the next day.
28The in-house solicitor had correspondence with the lessor on 9 and 10 November 2010, copies of which she forwarded to Mrs Heaney on 10 November 2010. On 10 November 2010, Mrs Heaney sent the following request to the solicitor:
“Just a short note to let you know we need the following so we can finalise our loan with our bank. (The loan is approved, just need the following so we can access the money!:)
·     A copy of the lease with our company name on it
·     A letter of offer with our company name
·     A copy of contract of sale, I am working with Amanda Binnie regarding pricing for shop fitting, is this part of the contract of sale document?”

29Mrs Heaney sent a follow up email shortly afterwards, stating:
“We are unable to finalise our loan with the ANZ without them reviewing three main documents (I just sent you an email about 5 min ago detailing the documents we need). Once we have these I will be able to let you know when the money from our loan will be available for our use”.
30The solicitor responded on 12 November 2010 apologising for “the delay”, saying that she had “been in Melbourne”. The email enclosed a “letter of offer”. The letter of offer was a substantial legal document of 9 pages. It was signed, apparently by the solicitor on behalf of Mr McFadden, on the last page with a place for execution by the franchisee left blank and a statement that, “The executed letter of offer must be returned in its entirety”.
31Execution of the letter of offer by the franchisee would “indicate our and/or our company’s desire to enter into formal Franchise and Licence Agreements with JUST CUTS Franchising Pty Limited in respect of the premises subject to the terms and conditions mentioned in this letter of offer. By our acceptance of the terms of the letter of offer we signify our acceptance of these terms and acknowledge that all documents required by the Franchising Code of Conduct have been delivered to us”.
32Clearly, Mrs Heaney received the letter of offer. However, no copy of that document executed by her, no subsequent request for the return of the letter of offer, and no “documents required by the Franchising Code of Conduct”, were produced at the trial.
33The letter of offer is largely a standard form document prepared by external solicitors and adopted by the in-house solicitor for each specific franchise. The letter of offer noted that, “We also attach, as required by the Franchising Code of Conduct, a Disclosure Document setting out all relevant information required by the Franchising Code of Conduct”. The email dated 12 November 2010 noted in its heading that the only attachment was the “letter of offer Point Cook.pdf”.
34The letter of offer stated that, “Before executing this letter of offer, you should obtain independent legal and financial advice. When executing the Franchise and/or Licence Agreements submitted by JUST CUTS™ you may be required to provide Certificates of independent advice from yourself, from your solicitor and from your financial advisor. Subject to you satisfying all our solicitors’ requirements, the conditions on which JUST CUTS™ will grant you and/or your company a franchise and licence are set out below…”.
35The specific conditions of the franchise agreement were stated, in the letter of offer, as including:
a.a term of 5 years;
b.the premises was “shop 414 at the Point Cook Town Centre”;
c.the “commencement date” was 12 November 2010;
d.the “territory” was “Point Cook Town Centre”;
e.various fees that would be payable.

36Just Cuts’ obligations as franchisor were specified as including:
a.to “provide to the Franchisee a Disclosure Document in the form required by the Franchising Code of Conduct”;
b.a 14 day ‘cooling off’ period in which the franchisee “may terminate an ‘Agreement to agree’ [which the letter of offer was said to constitute] to enter into a Franchise Agreement”.

37The franchisee’s obligations were stated to include:
a.the “execution and return to Just Cuts of the signed letter of offer”;
b.if the franchisee wished to do so, to notify the termination of the “Agreement to agree” within 14 days;
c.to “familiarise yourself with the requirements of the Franchising Code of Conduct” in regard to the franchisee’s obligations both prior to and after the execution of the franchise agreement;
d.to provide a certificate that the franchisee had received and read the Disclosure Document, the Franchising Code of Conduct and “the Franchisee’s Guide”;
e.to provide a certificate that the franchisee’s solicitor has explained the franchise and any license agreement to the franchisee.

38The letter of offer noted that the premises “cannot be handed over to you and/or your company” until substantial fees and charges had been paid. Invoices for “Legal fees, administration fees, training fees” of $7,700 (incl. GST) with “initial service fees” of $38,500 (incl. GST) were issued on 24 November 2010 and the total amount of $46,200 was paid by bank transfer shortly afterwards.
39On 22 November 2010, Heaney Enterprises was incorporated. On 22 December 2010, Heaney Enterprises executed a lease of the Point Cook premises. The Point Cook salon commenced trading the following day.

The Werribee franchise
40Mrs Heaney said in evidence that in December 2010, she made enquiries with Just Cuts about whether it intended to open a salon in the Werribee Plaza shopping centre. In May 2011, Mrs Heaney was told that a site had been found, although apparently another existing Just Cuts franchisee was also interested.
41Mrs Henderson said in evidence that Mrs Heaney had argued that she should get the Werribee franchise because it was “the next closest suburb to Point Cook”. On 15 August 2011, the new Just Cuts in-house counsel, Sarah Walters, sent a copy of the franchise agreement for Werribee. This followed a request from Mrs Heaney for an “electronic copy” to provide to her banker.
42On 3 September 2011, both Mr and Mrs Heaney signed a “Franchisee’s Statement of Reasonable Opportunity” agreeing that, in the capacity as a “director of the franchisee”, they had each “received, read and had reasonable opportunity to understand the disclosure document and the Franchising Code of Conduct”. Mr Heaney was not a director of Heaney Enterprises, but subsequently executed the franchise agreement with Mrs Heaney, as “guarantors”.
43Mrs Heaney agreed in her evidence that when she sent the email on 26 October 2011, she believed “that the Point Cook franchise agreement was the same as the Werribee one”. The Werribee franchise agreement was substantially in the form of the Just Cuts standard franchise agreement.
44The Werribee franchise agreement is dated 27 September 2011. It had been executed by Heaney Enterprises and Mr and Mrs Heaney on 21 September 2011 and by Mr McFadden on 27 September. The “commencing date” was “29 August 2011” and the “territory” was described as, “Shop no. T147 on the ground floor of Werribee Plaza Regional Shopping Centre, corner Heath and Derrimut Roads, Werribee”.
45Mrs Heaney, through Heaney Enterprises, operated both the Point Cook franchise and the Werribee franchise until the end of 2015. Mrs Heaney was regarded by Just Cuts management, including Mr McFadden, as a very competent and successful operator of the two franchises.
46It is apparent that in about September 2011, Mrs Heaney had received the disclosure statement and the Franchising Code of Conduct and had received legal advice. Mrs Heaney then continued to operate both the Point Cook franchise and the Werribee franchise with full knowledge of the obligations of a Just Cuts franchisee and of Just Cuts as the franchisor and with the belief that the Point Cook franchise agreement was “the same” as the Werribee franchise agreement. The Werribee franchise agreement generally contained the standard terms in relation to the issues of territory (clause 3 and item 5 of the First Schedule), options for renewal (clause 2 and item 3 of the First Schedule) and the surrender value of fitout (clause 17.2).

Williams Landing franchise
47Luke Manning, Just Cuts’ National Business Development Manager, said that in November 2013 he was contacted by the Williams Landing Shopping Centre about the possibility of a Just Cuts salon being established as part of the stage 1 development of the Centre.
48By email dated 29 November 2013, Mr Manning sent information to Mrs Heaney about the “potential site at Williams Landing” and asked if she were “interested”. Mrs Heaney responded the same day. She considered the $73,000 starting base rent as “way over-priced” and expressed concern about “another Just Cuts going up so close to my existing salon – it’s the same clients, same area would definitely hurt my business”. She noted that the Williams Landing site was “extremely close…a short drive” from her Point Cook salon.
49Mr Manning said that he “researched” the potential customer areas for the Williams Landing franchise, being Truganina, Hoppers Crossing, Tarneit and Laverton, but did not “chase anything up” with the proposal. In April 2014, Mr Manning visited the Williams Landing Centre which was “only a concrete slab”. The Centre had been chasing him and, as a “colour salon” had pulled out of a leasing arrangement, Mr Manning was told, “we could name the rent” Just Cuts wanted.
50In an email dated 23 April 2014, Mr Manning passed on this information to Mrs Heaney. He stated that he believed “we could name the price and get a fairly large contribution for the site”. He also sent Mrs Heaney documentation from the Centre. Mrs Heaney was still not interested. Mr Manning told Mr McFadden that he was going to advertise the availability of the opportunity for a Just Cuts Salon at Williams Landing. Mr McFadden asked Mr Manning if he had offered the salon to Mrs Heaney, and was told by Mr Manning that he had.
51The opportunity for a salon at Williams Landing was advertised by Just Cuts. In about mid-2014, Mr Oberoi had been investigating a Just Cuts franchise for purchase. He expressed interest in the Williams Landing site and in about August 2014 Mr Manning negotiated a lease with the Centre with a base annual rental of $35,000 and a contribution of $40,000. It was further agreed that the Just Cuts salon would be the only hairdressing salon in stage 1 of the shopping centre development.
52In November 2014, Mr Oberoi entered into an agreement with Just Cuts and opened the salon at the Centre on 29 January 2015.
53On 19 November 2014, Mrs Heaney had written to Mr McFadden and Mr Manning to “advise that I am strongly against opening [a Just Cuts salon at Williams Landing] at this point of time as I don’t believe there is a large enough demand to support a third Just Cuts within the territory”. She suggested that “it would be unethical” for Just Cuts to allow this as, “Williams Landing Just Cuts would be a battle between two owners for a limited number of clients”.
54At a Just Cuts owners meeting on 2 December 2014, Mrs Heaney raised the issue of “where the territory of salons begin and end”. She was told by Mr McFadden and the new in-house counsel that the answer was “in the Just Cuts Franchise Agreement; the territory of your salon is your centre”.

How was the Point Cook franchise formalised?
55There was no issue between the parties that in November 2010, Mrs Heaney on behalf of Heaney Enterprises, agreed with Just Cuts that she would enter into an arrangement to conduct the Point Cook franchise for a period of five years.
56There is, however, a significant dispute as to whether the appropriate formalities were complied with and the parties in fact executed a franchise agreement. Just Cuts’ witnesses, Mr McFadden and Mrs Henderson, considered that the usual processes had been followed and the agreement has been properly documented. Mrs Heaney denied that this had occurred.
57Mr McFadden and Mrs Henderson gave evidence that the usual practice of Just Cuts, at that time, was to send hard copies of the franchise agreement and disclosure statement by express post to the franchisee and that this was likely to have been followed with the Point Cook franchise.
58Just Cuts’ counsel, Mr Truong submitted that the Court should infer that the usual “bundle of documents”, including the draft franchise agreement, disclosure document and Franchising Code of Conduct, had been sent to Mrs Heaney by Just Cuts on 10 November 2010.
59Mr Truong submitted that this inference arises from the following facts:
a.on 9 November 2010, in an email from Just Cuts’ in-house solicitor to Mrs Heaney, it was stated that “I will be forwarding you documents tomorrow”;
b.on 24 November 2010, Mrs Heaney was invoiced for the “initial service fees Just Cuts Franchise – Point Cook” of $38,500 and “Legal fees, administration fees, training fees” of $7,700 by Just Cuts. Mrs Heaney paid $46,200 to Just Cuts on 29 November, which Mr Truong submitted indicated that she was satisfied to proceed with the franchise, after the 14 days provided in the Code for consideration of the documents, had passed.

60I consider that no such inference should be drawn from those facts. There are other facts which would suggest that such an inference was not appropriate. Those other facts include the following:
a.the only direct evidence on these matters by Just Cuts’ witnesses was given by Mrs Henderson and Mr McFadden. However, Mrs Henderson only had the initial contact and interview with Mrs Heaney. The preparation of the documentation was not part of her duties. Mr McFadden had no personal involvement with Mrs Heaney or with the Point Cook franchise at this stage;
b.Just Cuts’ in-house counsel had the responsibility to prepare and send out the necessary documentation to the franchisee. The solicitor was not called as a witness. She had subsequently been the subject of a police investigation and prosecution as a result of her employment with Just Cuts. It was understandable that she was not called as a witness by Just Cuts;
c.in-house counsel only sent the “letter of offer” to Mrs Heaney after Mrs Heaney had requested that Just Cuts provide certain documents for her bank;
d.when in-house counsel sent the “letter of offer” on 12 November 2010, the email did not attach the bundle of documents and the email did not refer to the fact that these documents, listed as being enclosed with the letter of offer, had been sent separately;
e.the sending of documentation by express post, including the usual “bundle of documents”, was ordinarily recorded in a posting book. The relevant posting book from November 2010 had apparently been mislaid after the Just Cuts’ office processes were computerised;
f.it is apparent that no documents (including an executed franchise agreement or an acknowledgment of receipt of the disclosure document) were returned by Mrs Heaney. Further, there is no evidence of any follow-up request by Just Cuts for the return of those documents;
g.Mr McFadden said in evidence that he did not sign an agreement in respect of the Point Cook franchise. Presumably this was because Mrs Heaney did not return the documents;
h.there was evidence which suggested that the process was not invariably followed or might be varied, for example if a lease had not been concluded or there were otherwise not complete details available, in which case it would not be possible to do more than send out draft documents;
i.it was discovered in 2011 that some completed sets of franchise documentation were not in the Just Cuts hard copy files. Between August and October 2011, requests were made by Just Cuts to a number of franchisees (including Mrs Heaney) to provide Just Cuts with copies of their documentation. Mrs Heaney initially responded that she recalled having the franchise agreement. However, she did not locate or return the franchise agreement of other relevant documents relating to the Point Cook franchise;
j.on 27 February 2012, in response to a request by the Australian Consumer and Competition Commission (“ACCC”) for Just Cuts to forward copies of all franchise agreements entered into between 2009 and 2011, Just Cuts failed to mention the Point Cook franchise at all, although it had noted that some written agreements were missing.

61In light of these matters, I consider it is unlikely that Mrs Heaney was sent the usual “bundle of documents” by Just Cuts. It is puzzling why neither party followed up the absence of the documents; in Mrs Heaney’s case, why she did not query the fact that they had not been sent to her by Just Cuts, and in Just Cuts’ case (whether or not the documents had in fact been sent), why the documents had not been returned.
62There is also no evidence to suggest that the bundle of documents was sent at any other time than when it would have been sent in the “usual course”. The letter of offer stated, “We also attach, as required by the Franchising Code of Conduct, a Disclosure Document setting out all relevant information required by the Franchising Code of Conduct”. However, the email from in-house counsel dated 12 November 2010 only attached the letter of offer and that letter did not itself attach any further documents.
63Accordingly, it is likely that:
a.no agreement relating to the Point Cook franchise was received by Mrs Heaney before February 2015 when Just Cuts sent a franchise agreement for her to sign and return;
b.Just Cuts had not complied with the requirements of the Franchising Code by providing Mrs Heaney with copies of the Code, the Disclosure Statement and the draft franchise agreement.

64There were two further matters relied upon by the parties as supporting their respective contentions about the likelihood that the requirements of the Franchising Code had, or had not, been complied with:
a.correspondence between the parties about the existence of an executed franchise agreement for the Point Cook franchise in 2011;
b.Just Cuts’ responses during an investigation by the ACCC in 2012 about Just Cuts’ compliance with the Code requirements.

65I shall examine these matters in detail below. However, I do not consider that these matters affect the conclusions I have reached that no franchise agreement was executed in relation to the Point Cook franchise and that Just Cuts had not complied with the formal requirements of the Franchising Code.

Correspondence about the missing Point Cook franchise document
66In about August 2011, Just Cuts conducted an audit of its franchise documents. It found that there was no copy of the Point Cook franchise agreement on file. At about this time, Mrs Heaney was finalising the Werribee Franchise. She was sent a copy of the Werribee franchise agreement on 15 August 2011. Mrs Heaney executed that document on 21 September 2011, after receiving legal advice on 2 September 2011.
67Between August and October 2011, there was an email exchange between Just Cuts and Mrs Heaney:
a.on 23 August 2011, Zoe Stanton of Just Cuts wrote an email to Mrs Heaney stating that, upon reviewing Just Cuts’ files, it was noticed “we are missing a signed copy of your lease and Franchise Agreement for Point Cook” and asked, “Would you be able to send me a fully signed copy please?”;
b.on 5 October 2011, Ms Stanton followed up her request. On 6 October 2011, Mrs Heaney responded, “I located a copy of the Franchise agreement. I will confirm tonight when I am home exactly which doc. it is as sent by [in-house counsel]”;
c.on 10 October 2011, Ms Stanton followed up again. On 12 October 2011, Mrs Heaney replied, “I am chasing up docs. for Point Cook as requested. I can recall signing Franchise Agreement. I am attaching documents I have electronically just so you know what I have down here in Melbourne. Please see attached copy of letter of offer”.
d.on 26 October 2011, Mrs Heaney at the end of a long email about staffing matters wrote, “I am still looking for Pt Cook Franchise Agreement – I do recall signing it with Denis’ signature on it. I apologise for this it is just annoying because I know it exists however please advise what you would like me to do? If legal would like Aaron and I to sign a new copy can you please ask them to send straight to me and not to lawyer as we just spent hundreds on paying for legal on Werribee’s agreement and a second copy of Pt Cook’s agreement will be same – I know a copy does exist as [the in-house lawyer] organised this”.

68In relation to this sequence of emails, Just Cuts submitted that:
a.Mrs Heaney’s memory on 12 October 2011, was that she recalled signing the franchise agreement. She had the letter of offer, but apparently no other documents had been sent electronically;
b.if the franchise agreement had been received by Mrs Heaney, it would have been sent by express post as part of the usual “bundle of documents”;
c.there was no suggestion by Mrs Heaney that she had not received the documents, either then or until after the proceeding was issued;
d.Mrs Heaney, in the 26 October 2011 email, considered that the “Pt Cook agreement will be [the] same” as the Werribee agreement, which she had sought legal advice about and executed the previous month;
e.“the complaint concerning non-disclosure is a recent invention designed to bolster a claim for loss in relation to Point Cook”.

69Mrs Heaney said in evidence that her recollection of signing a franchise agreement “was only a memory of seeing the document, but I couldn’t locate it”. She said she was “very aware of what the franchise agreement looked like because I’d just undergone the process [with] Werribee”. On 26 October 2011, “from her memory”, she believed the Point Cook agreement was the same as the Werribee agreement.
70In early 2015, Just Cuts again followed up the “missing” Point Cook franchise agreement with Mrs Heaney:
a.on 17 February 2015, Aaron Ward, then Just Cuts’ Retail Leasing Administrator, wrote to Mrs Heaney stating that after reviewing the files it had been “noticed that we do not have a copy of your signed Franchise Agreement for Point Cook”. A bundle of documents including the Disclosure Document, Information Statement, Franchise Agreement and copy of the lease was forwarded for review, acknowledgement of receipt of the disclosure document and return of signed copies of the Franchise Agreement;
b.Mrs Heaney acknowledged receipt of the documents on 19 February 2015 stating that she had “passed on the docs. to my legal team”, although she said that at that time they were “very busy” with legal proceedings involving disruption to the trading of the Werribee franchise due to alterations at the shopping centre;
c.on 10 April 2015, Mr Ward chased up the “signed franchise agreement for Point Cook”, stating that, “Your solicitors have had more than enough time to review the document”. Mrs Heaney replied that day, explaining that the Werribee litigation meant that there would be a further delay before her lawyers could examine the documents.

2012 ACCC investigation of Just Cuts’ compliance with the Franchising Code
71In February 2012, ACCC conducted an investigation of Just Cuts’ compliance with the Franchising Code. A notice to produce documents dated 2 February 2012 required Just Cuts to produce copies of “all franchise agreements between Just Cuts…and each of its franchisees entered into from 1 January 2009 to 31 December 2011” and “all disclosure documents issued by Just Cuts” in the same period and other specified documents.
72In a response dated 27 February 2012, Just Cuts purported to comply with the ACCC request. Just Cuts said that it had produced copies of “all franchise agreements” and “all disclosure documents for the relevant period as requested”.
73The Just Cuts letter to ACCC continued:
“The documents have been compiled based on our data base records and my own enquiries of Just Cuts CEO and external counsel.
Five volumes of documents are produced, each contains a contents page, and documents are arranged chronologically for your ease of reference.
Some agreements have not been signed and returned by franchise owners, in such cases the document as issued by JCF has been produced to you.
Our practice is to issue disclosure documents to franchise owners with a receipt attached to be signed and returned, a bundle of receipts is produced. Not all receipts have been returned”.
74The attached summaries of the documents produced to ACCC show that no documents were produced in relation to the Point Cook franchise.
75It is apparent from this letter and the lists of documents produced to ACCC, and from documents made available during discovery, that on a number of occasions including during 2010, other signed Franchise Agreements were missing from the Just Cuts files. It was suggested that the missing documents related to renewals of existing franchises and that, in respect of the new franchises, the failure to return the appropriate documentation by new franchises “would have been picked up by the in-house solicitor”.

76The evidence does not, however, support a conclusion that the absence of signed franchise agreements was limited to renewing franchisees. Further, the requirements of the Franchising Code apply without distinction between new and renewing franchisees. In my view, this evidence confirms the likelihood that the “normal procedures” of Just Cuts, at least in about 2010, were not invariably followed.

Legal consequence of Just Cuts’ non-compliance
77It is therefore necessary to consider:
a.the effect on the validity of the Point Cook franchise;
b.what actually comprises the agreement between the parties;
c.any and what relief that should be granted by the Court.

78In Master Education Services Pty Ltd v Ketchell [2008] HCA 38 (“Ketchell”), the High Court considered the question of whether contravention of the Franchising Code of Conduct, and section 51AD of the Trade Practices Act 1974 (Cth), resulted in illegality and unenforceability of the franchise agreement.
79The Court said in paragraph [1] that, “Section 51AD, in Pt IVB of the Trade Practices Act 1974 (Cth) (“the Act”), provides that a corporation must not, in trade or commerce, contravene an applicable industry code. The Franchising Code of Conduct is such a code. Clause 11(1) of the Code provides that a franchisor must not enter into a franchise agreement or receive non-refundable money under a franchise agreement unless the franchisor has received, read and had a reasonable opportunity to understand the disclosure document and the Code”.
80In Ketchell, the New South Wales Court of Appeal had held that “the contravention of the Code and of s 51AD led to illegality at common law and consequent unenforceability of the franchise agreement. The issue on the appeal to [the High Court] therefore concerns the interaction between Pt IVB of the Act and the common law” (paragraph [2]).
81The High Court concluded as follows:
“The detailed provision by the Act for the consequences of non-compliance with an industry code, such as the Franchising Code of Conduct, does not support a conclusion that it was intended that the harsh consequence provided by the common law were to follow upon contravention of s 51AD. The Act provides a more flexible approach. It allows a court to prevent entry into a franchise agreement, to vary the terms of an agreement entered into in breach of the Code or to terminate such an agreement or provide compensation for loss and damage, if it is shown to have been caused by the contravention. In that regard the extended meaning which may be given to loss and damage by s 82, which is suffered by reason of entry into contractual obligations, may assume significance” (paragraph [38]).
“Section 51AD does not in its terms prohibit the making of a franchise agreement where a franchisor has not complied with the Code. That section and the Code are concerned with the regulation of the conduct of participants in the franchising industry; in particular the conduct of franchisors. It is not to be inferred from the purpose which promotes or prescribes better and fairer business practices that contractual relations between parties will be affected” (paragraph [40]).
82The principal relief Heaney Enterprises seeks in relation to the Point Cook franchise is a claim for damages. In addition, the prayer for relief in the further amended statement of claim includes claims for:
a.“an order restraining [Just Cuts] from continuing to negotiate with the landlord of the Point Cook shop;
b.“an order restraining [Just Cuts] from entering into a lease of the ‘Point Cook shop”;
c.“a declaration that [Just Cuts] holds the lease of the Point Cook shop on trust for [Heaney Enterprises]”.

83Heaney Enterprises appears to seek relief on the basis of:
a.Just Cuts’ breach of terms, including implied terms, of “the franchise agreement”;
b.Just Cuts’ breach of “the Franchising Code of Conduct 1999 pursuant to s. 51AD of the Trade Practices Act”.

How the parties referred to the franchise agreement in the pleadings
84Heaney Enterprises alleged in the further amended statement of claim that “the franchise agreement was partly oral and partly to be implied”. It relied upon the following matters:
a.conversations in November and December 2010 between Mrs Heaney and representatives of Just Cuts with regard to:
i.“the availability and suitability” of the Point Cook franchise (a conversation with Mrs Henderson);
ii.that there would be payable an “up front fee” of $46,200, a design fee of $5,500, a weekly franchise fee of $313 and a monthly advertising fee (conversations with the accounts department);

b.that, with “the knowledge and consent” of Just Cuts, Heaney Enterprises:
i.“entered into a lease of the Point Cook shop”;
ii.proceeded with “fitting out the Point Cook shop”;
iii.proceeded with “opening a Just Cuts franchise at the Point Cook shop”;

c.payment to and acceptance by, Just Cuts of “franchise fees and other fees”.

85Heaney Enterprises alleged that terms were implied into the franchise agreement as follows:
a.“a term of good faith and fair dealing which obliged [Just Cuts] to exercise the powers conferred upon it by the franchise agreement in good faith and reasonably and not capriciously or for some extraneous purpose” (“implied by necessity from the nature of the franchise agreement”);
b.a term that Just Cuts “will not do anything to derogate from the grant of the franchise (which includes impacting upon the profitability of the Point Cook shop)” (“implied”).

86Just Cuts admitted in its defence that “the parties entered into a franchise [that] was in writing and is recorded by the letter of offer dated 12 November 2010… and ancillary documents thereto [including] a then current ‘usual form’ franchise agreement, being version 18.2”.
87The defence alleged that the letter of offer “was signed by Denis McFadden on behalf of Just Cuts [and] was sent to [Mrs] Heaney attaching a then current disclosure document and a then current ‘usual form’ franchise agreement [upon which] it will rely… for their full terms and effect”.
88The letter of offer was sent by email to Mrs Heaney by Just Cuts’ in-house counsel on 12 November 2010. The letter was apparently signed on behalf of Mr McFadden. It was conceded by Just Cuts that neither the letter nor the email attached the disclosure document or the usual form franchise agreement, although they were referred to in the letter of offer as being attached.
89Just Cuts relied upon the fact that the “bundle of documents”, which usually included the disclosure document and the usual form franchise agreement had been sent by express post to Mrs Heaney on about 10 November 2010. As I have indicated earlier, I do not consider that is likely to have happened.
90Mrs Heaney did, however, receive the letter of offer and I will need to have regard to that document and to consider it in the context of my finding that it is unlikely the disclosure document had been sent by Just Cuts to Mrs Heaney.
91By its counterclaim, served on the day following the defence to the further amended statement of claim, Just Cuts purported to rely upon a number of clauses in the “usual form” franchise agreement which it alleged in the defence had been attached to the letter of offer dated 12 November 2010. These included clauses 2.2, 2.4, 5.2.4, 3.1, 3.2, 7.1 12.2.1, 12.3.1, 12.4.1, 12.5.1, 12.16.1, 15.1, 15.2 and Item 5 of the First Schedule of the “usual form” franchise agreement.
92However, as the email dated 12 November 2010 from Just Cuts’ former in-house solicitor to Mrs Heaney only noted the letter of offer as an attachment, I cannot be satisfied that, at that time, Mrs Heaney or Heaney Enterprises had notice of the provisions of the “usual form” of franchise agreement.
93Mr Truong submitted that, even if Just Cuts and Heaney Enterprises had not formally executed a franchise agreement in respect of the Point Cook franchise, the Court should nevertheless find that Heaney Enterprises’ assent to the “usual form” of franchise agreement might be “inferred from the whole of the circumstances of the dealings between the parties”.
94Mr Truong relied upon decisions including Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1998) 14 NSWLR 523 (New South Wales Court of Appeal) and of Croft J in Apple and Pear Australia Ltd v Pink Lady America LLC [2015] VSC 617.
95However, in the present case, there is no reliable evidence that Mrs Heaney became aware of the terms of the “usual form” of franchise agreement in November/December 2010. This did not happen until Just Cuts sent her the draft Werribee franchise agreement on 15 August 2011.
96In my view, the agreement between Just Cuts and Heaney Enterprises had been effected in November or December 2010 and it could not be seriously submitted that the franchise agreement had been “varied” in about August or September 2011 to take account of the specific provisions of the Werribee Franchise Agreement.

Disclosure pursuant to the Franchising Code of Conduct
97Heaney Enterprises relies upon the following breaches by Just Cuts of the Franchising Code of Conduct:
a.breach of sections 10 and 11 of the Code, by Just Cuts’ failure to provide prior to or at the time the parties entered into the franchise agreement:
i.a copy of the code;
ii.a disclosure document;
iii.a written franchise agreement in the form that was to be executed;

b.its failure to obtain a written statement from Heaney Enterprises or Mrs Heaney that:
i.they had a reasonable opportunity to read and understand the disclosure statement and Franchising Code of Conduct;
ii.they had received independent advice on the franchising agreement or the franchise business.

98Just Cuts, by its defence, pleaded that “the Franchising Code of Conduct and section 51AD of the Trade Practices Act applied to the franchisor prior to the enactment of the Australian Consumer Law but says that the Trade Practices Act was repealed with effect from 1 January 2011”. This matter was not raised by Just Cuts in its final submissions. In fact, Mr Truong referred to the Franchising Code of Conduct contained as a schedule to the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 which by section 3(1) provides that the code applies to “outstanding obligations that arose under the old code… in relation to a franchise agreement entered into on or after 1 October 1998”. The express exceptions do not include the requirements of section 10 and 11 of the old code.
99I consider, that by reason of my finding that Just Cuts was unlikely to have sent to Mrs Heaney the “bundle of documents” on 10 November 2010 or at any other relevant time, that Just Cuts breached its obligations under the Franchising Code of Conduct pursuant to section 51AD of the Trade Practices Act or section 51ACB of the Competition and Consumer (Cth). Section 82(1) of the Competition and Consumer Act 2010 provides that, “A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV or IVB [the provisions relating to industry codes]… may recover the amount of the loss or damage by action against that other person …”.

Articulation of Heaney Enterprises’ claims
100Heaney Enterprises claimed in the further amended statement of claim that it was denied:
“a. the right to negotiate an exclusive territory that would have protected the goodwill that was created at the Point Cook shop;
b.the right to negotiate further options for a renewal of the franchise agreement; and/or
c.the right to negotiate for a surrender value of the fit out if the franchise agreement was not extended”.

101Heaney Enterprises was primarily concerned, in the proceeding, with the first of these matters, which it was said would have protected the Point Cook franchise from being adversely affected by the grant of the Williams Landing franchise in January 2015.
102The legal basis for the claim that Heaney Enterprise had been wrongfully denied the right to negotiate beneficial terms of a written franchise agreement for the Point Cook salon in November 2010, was alleged to have resulted from:
a.Just Cuts’ failure to comply with the Franchising Code of Conduct;
b.misleading and deceptive conduct by Just Cuts constituted by it “failing to inform [Heaney Enterprises] of its rights under the Franchising Code of Conduct”;
c.unconscionable conduct in trade or commerce at the time of granting the Point Cook franchise agreement by reasons of Just Cuts:
i.using “unfair tactics against [Heaney Enterprises]” by Just Cuts’ failure to comply with the Franchising Code of Conduct;
ii.placing “unfair pressure and/or undue influence on [Heaney Enterprises]” by Just Cuts’ failure to comply with the Franchising Code of Conduct;
iii.failing to comply with the Franchising Code of Conduct, as Just Cuts had done when it had granted franchises to other parties.

103Heaney Enterprises has sought to make a “loss of opportunity claim” on the basis of “the failure of [Just Cuts] to comply with the Franchising Code of Conduct and [section 51AD of] the Trade Practices Act”.
104It is alleged that Heaney Enterprises was “denied an opportunity of a written franchise agreement and in particular the benefit of” three specific terms that it would have negotiated relating to:
a.“an exclusive territory that would have protected the goodwill that was created at the Point Cook shop”;
b.“further options for a renewal of the franchise agreement”;
c.“a surrender value of the fit out if the franchise agreement was not extended”.

105Heaney Enterprises claims damages comprising:
a.“the reduction in the profits” of the Point Cook franchise;
b.“the loss of the value of the Point Cook franchise”, as a result of Just Cuts “granting the Williams Landing Franchise”.

106I have concluded that it was likely that in December 2010, Just Cuts breached the Franchising Code of Conduct in relation to the Point Cook franchise. I must consider whether Just Cuts should pay damages to Heaney Enterprises as a result of that breach.

Loss of opportunity claims – legal principles
107The relevant principles to be applied in relation to a “loss of opportunity” claim, are as follows:
a.where damages are claimed where a party has been deprived of a commercial opportunity, the same principles apply, “whether the deprivation occurred by reason of breach of contract, tort or contravention of s. 52(1) [of the Trade Practices Act 1974]” (Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 (“Sellars”) at 355 per Mason CJ, Dawson, Toohey and Gaudron JJ;
b.“the initial question is whether the breach of contract, negligence or breach of statutory duty caused the loss of an opportunity answering [the] description [of the valuable opportunity claimed to have been lost]. That question is decided on the balance of probabilities” (Hart Security Australia Pty Ltd v Boucousis [2016] NSWCA 307 (“Hart Security”) per Meagher JA, (with whom Bathurst CJ and Beazley P agreed) at paragraph 131;
c.“the applicant must prove…that he or she had sustained some loss or damage…[T]he applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value)”. “The general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage” (Sellars at page 355);
d.“once it is established on the balance of probabilities that such a valuable opportunity has been lost, its value is to be ascertained by reference to the ‘degree of probabilities or possibilities’ and ‘it is no answer to that way of viewing an applicant’s case to say that the commercial opportunity was valueless on the balance of probabilities because to say that is to value the commercial opportunity by reference to a standard of proof which is inapplicable’” (Hart Security at paragraph 134 quoting from Sellars at page 355);
e.where the assessment of damages involves “proof of future possibilities and past hypothetical situations…the civil standard of proof [does not] apply” (Sellars at page 350);
f.“If the law is to take account of future or hypothetical events in assessing damages, it can only do so in terms of the degree of probability of those events occurring. The probability may be very high – 99.9 per cent – or very low – 0.1 per cent. But unless the chance is so low as to be regarded as speculative – say less than 1 per cent – or so high as to be practically certain – say over 99 per cent – the court will take that chance into account in assessing the damages. Where proof is necessarily unattainable, it would be unfair to treat as certain a prediction which has a 51 per cent probability of occurring, but to ignore altogether a prediction which has a 49 per cent probability of occurring. Thus, the court assesses the degree of probability that an event would have occurred, or might occur, and adjusts its award of damages to reflect the degree of probability” (Malec v J.C. Hutton Pty Ltd (1990) 169 CLR 638 at 643 per Deane, Gaudron and McHugh JJ, quoted in Sellars at page 350.

108The argument relied upon by Heaney Enterprises to establish its claim for damages arising from Just Cuts breach of the Franchising Code, appears to be as follows:
a.in November 2010, Just Cuts failed to provide Mrs Heaney with a copy of the Code, the disclosure document and the written franchise agreement proposed to be executed, prior to Heaney Enterprises becoming a Just Cuts’ franchisee at Point Cook;
b.this deprived Mrs Heaney of the opportunity to make a completely informed decision with full knowledge of her legal rights and responsibilities and the precise terms upon which it was anticipated by Just Cuts that the relationship with Heaney Enterprises would operate;
c.if Mrs Heaney had been aware of these matters, she would have understood that she did not have to accept what was offered to her by Just Cuts but might have negotiated:
i.“an exclusive territory that would have protected the goodwill that was created at the Point Cook shop”;
ii.“further options for a renewal of the franchise agreement”;
iii.“for a surrender value of the fit out if the franchise agreement was not extended”;

d.Mrs Heaney did not pursue those opportunities, and as a consequence, she was unprotected when:
i.after April 2014, Just Cuts sought a franchisee other than Mrs Heaney to establish a Just Cuts’ franchise at the Williams Landing Shopping Centre, which would provide competition for customers who otherwise might have been expected to attend the Point Cook franchise;
ii.after June 2015, Just Cuts would only offer Heaney Enterprises a renewal of the Point Cook franchise if certain conditions were satisfied, namely not stocking Fudge products and installing Just Online;
iii.Heaney Enterprises was not reimbursed for part of the costs of fit out after December 2015, when Just Cuts (unreasonably) failed to renew the Point Cook franchise;

e.in each of these circumstances, it was likely that Heaney Enterprises would suffer some loss or damage;

f.the chance of these circumstances occurring were not “so low as to be regarded as speculative”;
g.the probability of the events occurring should be determined having regard to “proof of future possibilities and past hypothetical situations”, and Heaney Enterprises’ damages should be assessed on that basis.

109In my view, Heaney Enterprises claim expressed in this way or upon any similar basis which it might be suggested that its claim might be determined, should take account of the following matters:
a.the evidence does not support a finding, on the balance of probabilities, that Just Cuts’ failure to comply with the Franchising Code caused “the loss of [the valuable] opportunity” claimed by Heaney Enterprises;
b.as a result of Just Cuts’ failure to comply with the Franchising Code, Mrs Heaney entered into the Point Cook franchise on the basis of the letter of offer sent to her on 12 November 2010, but without being fully, or appropriately, made aware of her rights and responsibilities;
c.in these circumstances, Heaney Enterprises was at that time, denied the opportunity of entering into a franchise agreement with Just Cuts in the “usual form”, which would have generally been in accordance with the letter of offer;
d.however, Heaney Enterprises claims that it was denied the opportunity of negotiating a franchise agreement with different terms, particularly in relation to the franchise “territory”;
e.even though Mrs Heaney was sent the letter of offer which, for example, clearly set out the territory that went with the franchise, she made no attempt to seek to negotiate arrangements different to those specified in the letter of offer;
f.Mrs Heaney did not, however, have the information about her legal position that she would have had, if Just Cuts had complied with the Franchising Code and provided her with the appropriate documents in a timely manner;
g.Mr McFadden gave evidence that Just Cuts would not vary, and had never varied, the terms and conditions of the “usual form” of the franchise agreement in relation to the “territory provisions for any franchise”. It was therefore unlikely that Mrs Heaney would ever have had the opportunity which she says she was deprived of;
h.Heaney Enterprises did not present any evidence of other opportunities (for example franchising proposals with other organisations) which Mrs Heaney did not proceed with, when she agreed to the Point Cook franchise;
i.if Mrs Heaney had sought to negotiate alternative terms of the franchise agreement, and Just Cuts had not agreed with her demands, Mrs Heaney would have had two options; agree to enter a franchise agreement in the “usual form” or forego the opportunity of acquiring a Just Cuts franchise;
j.Mrs Heaney did later become aware of the information which Just Cuts should have provided her with prior to entering into the Point Cook franchise. In August/September 2011, Mrs Heaney was sent the appropriate documents by Just Cuts in relation to the Werribee Franchise; a franchise Mrs Heaney was anxious to acquire because of its proximity to Point Cook;
k.it is uncertain whether at that time, Mrs Heaney would have had a strong basis to withdraw from the Point Cook franchise (constituted essentially by the letter of offer) because of Just Cuts’ failure to comply with the Franchising Code about 9 months earlier. As the High Court said in Ketchell, at paragraph 38, the “approaches” open to a court considering the matter in those circumstances would include, “to vary the terms of an agreement entered into in breach of the Code or to terminate such an agreement or provide compensation for loss and damage, if it is shown to have been caused by the contravention”;
l.it is not suggested that the breaches of Just Cuts’ obligations under the Franchising Code were “cured” in September 2011 by the execution of the Werribee franchise agreement. In fact, even as late as November 2013 when Mrs Heaney became aware that Just Cuts was considering establishing a Just Cuts franchise at Williams Landing, she might have been able to terminate the Point Cook franchise, and to seek damages for the losses Heaney Enterprises would have suffered as a result of the franchise ending in these circumstances, rather than continuing;
m.it is difficult however, on the evidence, to be satisfied on the balance of probabilities that Mrs Heaney or Heaney Enterprises were deprived of an opportunity to renegotiate the territorial limit of the franchise, or the other matters complained of.

110In Hart Security, Meagher JA at paragraphs 135 and 136 summarised the findings in Sellars as follows:
“[135] In Sellars the company, Adelaide Petroleum, claimed that by reason of the misleading or deceptive conduct of its director Mr Sellars and Petroleum Poseidon it lost a valuable commercial opportunity. That opportunity was described by the plurality as being ‘the loss of the opportunity or chance of securing commercial benefits which entry into the Pagini agreement and completion of it would have brought’ (at 348); and by Brennan J as the opportunity ‘to enter into a contract with Pagini and to obtain the financial benefits which completion of the contract would have produced’ (at 357). The trial judge (French J as his Honour then was) had held (as summarised at 346–347) that on the balance of probabilities the Pagini agreement would have been entered into. His Honour also held that there was ‘more than a speculative possibility’ that agreement would have been completed, thereby yielding benefits to Adelaide Petroleum.
[136] The plurality concluded (355–356) that Adelaide Petroleum had established on the balance of probabilities that the contravening conduct caused the ‘loss of a commercial opportunity which had some value’. It did so by proving that but for that conduct it would have entered into the Pagini contract in circumstances where there was a significant chance that it would be completed (at 356). The value of that lost opportunity then depended on an assessment of the prospects of that agreement being completed, and of the value of the benefits that would have been enjoyed in that event”.
111In Hart Security, the appellant (“HSA") sought to enter into a contract with NTA to provide security services to airports in the Northern Territory. NTA would only enter into a contract if a $1 million bank guarantee were provided by HSA. HSA was unable to agree to that requirement, as the major shareholder of HSA (who was providing funding) refused. As a result, the negotiations reached an impasse. An alternative arrangement, involving another entity was eventually entered into by one of HSA’s directors. A claim was made against the director of HSA for alleged breaches of his fiduciary and statutory duties. It was alleged that HSA had lost an opportunity to enter into a contract with NTA, as “the opportunity for further negotiation included a real prospect that NTA might not insist on the requirement for a $1million bank guarantee”.
112At paragraphs 168 and 169, Meagher JA referred to two findings of the trial judge. The trial judge was not satisfied that:
a.HSA’s major shareholder would “have been prepared to support” the $1 million bank guarantee required by NTA;
b.even with further negotiation, NTA “might have been prepared to relax its bank guarantee requirement”.

113At paragraph 170, Meagher J concluded that, “It followed that HSA had not established on the balance of probabilities that the opportunity for further negotiation included any real or substantial prospect of agreement between HSA and NTA. It also followed that HSA had not proved that it had ‘lost’ a valuable opportunity to negotiate a contract with NTA by reason of Mr Boucousis’s [the HSA director’s] conduct”.
114In the present case:
a.Mrs Heaney admitted that when she executed the Werribee franchise agreement, she was “aware of the territorial provisions of the [Werribee] franchise agreement [and] knew at that time that it defined the territory by reference to the Werribee shopping centre”. Mrs Heaney had given evidence that, “Had I sought legal advice [in relation to the Point Cook franchise], I would have negotiated territory had I received a written franchise agreement [for the Point Cook franchise]”. However, Mrs Heaney had “never sought to negotiate the territory terms for Werribee”;
b.Mrs Heaney believed that the terms of the Point Cook franchise agreement were the same as for the Werribee franchise. In those circumstances, it is appropriate to conclude that Mrs Heaney believed that the territory for the Point Cook franchise was confined to the shopping centre. This had been made clear in the letter of offer in relation to the Point Cook franchise;
c.there is insufficient evidence to support a finding that Just Cuts would have been prepared to provide a “territorial area” to Heaney Enterprises beyond the Point Cook Town Centre. Mr McFadden said that Just Cuts would not have agreed. There is no evidence that any of Just Cuts’ franchisees had such an arrangement;
d.a territorial area beyond the limits of the shopping centre in which a particular franchisee operated, would seem to be inconsistent with Just Cuts’ strategy of establishing a presence in as many shopping centres it could, particularly in the major metropolitan areas.

115In these circumstances, it has not been demonstrated that by negotiating with Just Cuts, Heaney Enterprises “would have acquired a valuable opportunity; being one which as described in Sellars ‘had some value (not being a negligible value)’ (at 355) or which involved a ‘substantial, and not merely speculative’ prospect of producing a benefit (at 364)” (per Meagher JA in Hart Securities at paragraph 141, referring to passages from Sellars).

Other similar claims by Heaney Enterprises relating to Williams Landing – breach of implied duty of good faith or not to derogate from a grant, misleading and deceptive conduct, unconscionability
116The other claims by Heaney Enterprises essentially rely upon the same factual basis and arguments as the claim based on the Just Cuts’ breaches of its obligations under the Franchising Code.
117Although the plaintiff’s statement of claim refers to Just Cuts using “unfair tactics” or there being “unfair pressure” and/or “undue influence” in its relationship with Heaney Enterprises, in my view these allegations do not take the claims beyond the matters Heaney Enterprises was required to establish for its claim for damages for breach of the Franchising Code.
118For the reasons previously expressed, these further claims must also fail. It is also doubtful that a duty of good faith would be implied into the agreement between the parties in relation to the Point Cook franchise or that the principles of a grantor not being permitted to derogate from its grant would have any application in the circumstances of the grant of the Point Cook franchise.

Quantum of Heaney Enterprises’ claims relating to the competition from Williams Landing
119In view of these conclusions, it is unnecessary for me to consider the question of the quantum of the claim relating to the competition from the Williams Landing franchise. In fact, it is difficult to make any useful assessment of what relief would have been appropriate to grant, as this would have necessarily involved making different factual findings. These factual findings would have influenced the nature of the relief that those circumstances required as section 236 of The Australian Consumer Law only permits the recovery of loss or damage if it arises “because of the conduct of another person, and…the conduct contravened”; in this case the Franchising Code of Conduct. Similarly, section 82(1) of the Competition and Consumer Act (2010) limits recovery of loss or damage to that suffered “by conduct of another person” (emphasis added).
120The evidence relating to the qualifications of Heaney Enterprises’ loss and damage want its cause was extensive, and I propose to deal briefly with the issues that were raised. Heaney Enterprises’ case was that if it had been protected by a reasonable territorial area, it would not have been subject to competition from a Just Cuts franchise at the Williams Landing Shopping Centre. The protection of a reasonable territorial area would, more likely than not, have been negotiated by Mrs Heaney as a requirement of the Point Cook franchise, if she had been appropriately made aware of her rights and responsibilities.
121Heaney Enterprises asserts that, but for the establishment of a Just Cuts’ franchise at Williams Landing, the Point Cook franchise would have continued to trade profitably, increasing its income each year, with the capital value of the goodwill of the business also continuing to rise. Heaney Enterprises’ claim was for:

$123,680.43 loss of profits

$371,041.29 loss in value of goodwill

$100,000.00 loss in value of fit-out
122Mr James Miller, a forensic accountant, filed an expert report and gave evidence on behalf of Heaney Enterprises. Mr Michael Smith, a chartered accountant and accredited business valuer gave evidence on behalf of Just Cuts. At the trial, they gave evidence in the presence of each other, with some interaction between them.
123Mr Miller made an analysis of the trading records of Heaney Enterprises and noted the decline in income from the Point Cook franchise in February 2015, shortly after the Williams Landing franchise commenced operating in late January 2015. He noted that Mrs Heaney, who managed both the Point Cook and Werribee franchises was regarded as an excellent business person. In Mr Miller’s view, there was no explanation for the decrease in the income of the Point Cook franchise, except the business taken away by the opening of the Just Cuts franchise at Williams Landing.
124Mr Smith, on the other hand referred to a number of other factors which he said might explain the reduction in income at Point Cook and which, although occurring concurrently, were unrelated to the opening of the Williams Landing franchise.
125The other factors referred to by Mr Smith were:
a.the opening of the new Williams Landing Shopping Centre would itself have attracted customers away from the Point Cook Town Centre;
b.during the relevant period, two large shops in “close proximity” to the Point Cook franchise (Best & Less and Harris Scarfe) closed in mid-January 2015 and were replaced by Woolworths and specialty stores which opened in mid-August 2015;
c.in August 2015, a direct competitor, Christiane’s Hair Design (“Christiane’s”), opened near the Point Cook franchise.

126Another factor considered was the downturn in business at the Werribee franchise during 2014 when extensive renovations were undertaken, including:
a.whether those renovations were different in their nature and effect to the renovations at the Point Cook Town Centre in 2015;
b.whether, during the renovations at Werribee, there was a temporary increase in the business undertaken at the Point Cook franchise, either by the transfer of staff from Werribee or for other reasons.

127Mr Miller’s first report stated the “findings” he reached about the financial impact on the Point Cook franchise “due to the opening of the Just Cuts franchise at Williams Landing in January 2015”. He offered opinions on the impact on “profitability”, the “value of goodwill”, “market value” of the franchise, and the loss of value and goodwill for a period of 5 years from the initial term of the Point Cook franchise.
128Mr Miller’s “statement as to findings” includes a number of pages of tables and analysis. Just Cuts’ counsel, Mr Truong, submitted that the expert reports of Mr Miller should not be received in evidence as the reports “did not set out…all of his facts and assumptions upon which each of his opinions were based and therefore set out a clear statement of reasoning”, Mr Truong also submitted that Mr Miller did “not have the requisite specialised knowledge and experience to provide opinions that the opening of Williams Landing factually caused the losses set out in his report”.
129Mr Miller’s first report is dated 17 May 2016. It was served on Just Cuts shortly after that date. No objection to the report was articulated until shortly before the trial commenced. Mr Smith’s report is dated 4 November 2016. Whilst Mr Smith disagreed with the conclusions reached by Mr Miller, they essentially worked off the same or similar data, including the trading figures for the Point Cook franchise.
130I did not delay the trial to determine Mr Truong’s objection to Mr Miller’s reports. After having heard the evidence given at the trial by the two experts, I consider that there was some merit in the objections. Mr Miller’s report consists of statements of conclusions and a number of tables. The data included in the tables:
a.was not sufficiently described (for example, in the table “Financial Results 2012 to 2014”, the years 2012, 2013 and 2014 were financial years whereas in the following table the forecasts referred to the calendar year 2015 or to parts of that calendar year);
b.was sourced from different documents (for example, in the “Financial Results” table, the sales figures were derived from financial year reports, and the data on expenses from quarterly reports);
c.many assumptions inherent in the calculations or conclusions, were unstated.

131Some of these matters were explored in the oral evidence which provided a degree of understanding of Mr Miller’s reasoning processes. However, the oral evidence also made apparent the entrenched view of Mr Miller that the only relevant factor affecting the financial results of the Point Cook franchise in the relevant period was the competition from the Williams Landing franchise. In expressing the basis for that conclusion, Mr Miller offered opinions which involved acceptance of (often unstated) facts about the operation of the Point Cook and Werribee franchises and which related to matters probably outside his expertise. Mr Miller has extensive accounting and business experience, including it seemed, as a director, in the oversight of shopping centres. Nevertheless, many opinions he expressed were unsupported.
132The most significant issues in dispute between the two experts were:
a.the factors which might have explained the variations in the sales data for the Point Cook franchise;
b.the reasonableness of the growth assumptions made by Mr Miller;
c.whether the Point Cook franchise had any value as a business because there was no obligation on Just Cuts to renew the franchise and there was no option to renew the lease at Point Cook.

133The third matter may have had a different significance if the Court had concluded that Heaney Enterprises were entitled to relief, as a result of Just Cuts’ breaches of the Franchising Code of Conduct. If the Court had reached that conclusion, its orders may have involved an extension of the term of the Point Cook franchise, in circumstances where the lessor had been prepared to grant a further lease to Heaney Enterprises. For this reason, I shall not examine this matter further.
134However, in relation to the “other factors”, which may have affected the sales from the Point Cook franchise, it is appropriate to examine the issues in more detail.
135Attached to these reasons for judgment is a schedule detailing the monthly takings from the Point Cook, Werribee and Williams Landing franchises for the period relevant to the factors said by the parties to have affected sales at the Point Cook franchise.

277Mannai is an important decision on the construction of contractual notices, particularly the analysis at [1997] AC 767-769 in the judgment of Lord Steyn (one of the majority with Lord Hoffman and Lord Clyde). These paragraphs contain the reasons of Lord Steyn for the conclusion he reached in the appeal.
278Shortly after the decision in Mannai was handed down, the Victorian Court of Appeal in Central Pacific (Campus) Pty Ltd v Staged Developments Australia Pty Ltd [1997] VicSC 581; (1998) V ConVR 54-575 (“Central Pacific”), in determining the question of the effectiveness of a notice of rescission of a contract for the sale of land, considered Mannai and whether the appeal before the Court should be reopened.
279The Court of Appeal did not consider that the decision of the majority of the House of Lords in Mannai would have affected the conclusion that the Court of Appeal would have reached by the application of a series of decisions that had been followed for many years in Victoria. The Court of Appeal judges “emphasized that this Court is saying nothing as to the correctness or otherwise, or of its applicability to notices of default of this kind, of the decision in the Mannai Investment Case” (per Ormiston JA at page 3).
280The Court of Appeal adopted the test expounded by Brooking J in Catley v Watson (1983) V ConVR (“Catley”) paragraph 54-003 at page 62, 115 as follows:
“[A] notice…is not valid unless it is, in relation to its essential features as required by [the relevant] condition, clear and unambiguous. By this I mean, not that its import must be clear beyond the slightest peradventure, but that its terms must be such that a reasonable person, having given it fair and proper consideration, would be left in no doubt as to its meaning. A notice if not unequivocal, in the sense that such notices are required to be unequivocal in relation to their essential contents, if a reasonable person, having considered the notice as a whole, fairly and properly, might entertain a doubt as to its meaning in relation to some essential matter, even though he would form in his mind a preference for one view, rather than the other, of what the notice was intended to convey. It must be possible to say that, after the appropriate consideration, any doubts that may have arisen would be quieted and the purchaser would not be left in any uncertainty as to the meaning of the notice”.
281This approach was reaffirmed by the Court of Appeal in Greydae Pty Ltd v Malilane Pty Ltd [2003] VSCA 27 (“Greydae”) at [30] and [31]. After quoting the same passage from Brooking J’s judgment in Catley, the Court of Appeal (Winneke P, Charles and Eames JJA) at [31] examined the question of who should be considered the “reasonable person” to whom Brooking J referred.
282The Court of Appeal in Greydae then quoted at [31] with approval from the judgment of Ormiston JA in Central Pacific where he noted (at pages 1-2) that “the ‘reasonable reader in the position of the purchaser’ who is knowledgeable not only of the terms of the contract, but also ‘the circumstances in which and the purposes for which notices of default might be given pursuant to conditions 5 and 6 [of Table A]’. Thus, before it can be said that a notice is not, relevantly, ‘clear and unambiguous’: ‘such of the surrounding circumstances as relate to the default and such understanding as would flow from referring to the very terms of the contract entered into by the parties are all relevant matters to take into account when construing this notice from the viewpoint of the reasonable recipient and in determining whether or not it is sufficiently clear for it now to be given effect’”.
283In Greydae, the Court of Appeal did not refer to Mannai, or to the references to that decision in the judgments of Ormiston JA and Callaway JA (with whom Buchanan JA agreed) in Central Pacific.
284In MLW Technology the Court of Appeal discussed the judgment of Lord Steyn in Mannai in the context of determining the validity of a notice given by a licensee (MLW) to the guarantors of a licence agreement requiring them to purchase the shares in a company (ADVC) transferred by the licensor as part of the licence agreement, and to pay the difference between an agreed sum ($2.3m) and the “aggregate price” of the shares.
285Clause 3.4.1 of the licence agreement required the licensee, who wished to exercise its rights against the guarantors, to “give to the guarantors 30 days’ written notice requiring the guarantors to pay to MLW the difference between the aggregate price (in Australian dollars) received by MLW for the ADVC shares and $2,300,000”.
286The relevant part of the notice (by letter dated 23 September 2002) stated, “Pursuant to clause 3.4.2 I hereby notify you that you are required to purchase from MLW the ADVC shares for the purchase price of A$2.3 million”. It was argued that the notice was ineffective, including on the basis that, “The letter of 23 September 2002 did not specify compliance within 30 days”.
287Gillard AJA (with whom Winneke P and Buchanan JA agreed) stated at [88] that, “the objection is that [the notice] did not give the guarantors 30 days’ written notice requiring one or both of the guarantors to purchase’ from the plaintiff the shares for an aggregate price of A$2.3 million. But one thing is clear – the notice was given pursuant to clause 3.4.2. The reasonable recipient in the shoes of Mr Roger May, knowing the contents of the agreement and the letter, would have been in no doubt whatsoever that the obligation was to purchase within the 30 days’ period. Indeed, in his letter dated 26 September 2002 Mr May did not take the point that there was no period specified in the letter. Reference to clause 3.4.2 would have made it very clear what his obligation was and the time period. What Mr May said was – ‘It is our understanding that while ACT may be a guarantor to such transaction we believe there are many other steps to be taken by MLW before any such guarantee can be called on’. There is [no] mention of a 30 days’ period. The letter has all the hallmarks of evasion and obfuscation. This objection is unfounded, without substance and without merit. That conclusion is reinforced by the fact that at no stage was the point taken prior to the trial. It is not a point taken in the defence”.
288At [78], Gillard AJA noted that, “The law should strive to uphold a contract wherever possible to avoid the reproach of being the destroyer of bargains. The principle applies not only to contracts but also to the actions of businessmen”.
289Gillard AJA referred to the decision of Mannai and to a “number of propositions” Lord Steyn had “formulated” at page 767 of his judgment, particularly proposition 2 where Lord Steyn stated that, “The question is not how the landlord understood the notices [but] simply how the reasonable recipient would have understood such a notice”.
290At [82], Gillard AJA stated that, “The approach [in Mannai] also accords with authority in this Court”, quoting the relevant passage from the judgment of Brooking J in Catley at page 62, 115, which Gillard AJA noted had been “referred to with approval in Central Pacific”.
291Since that time, the decision of MLW Technology has been followed and applied by the Court of Appeal in Burbank Trading Pty Ltd v Allmere Pty Ltd [2009] VSCA 82 at [82], Salta Constructions Pty Ltd v St George Bank [2014] VSCA 289 at [28] and Balanced Securities Ltd v Dumayne Property Group Pty Ltd [2017] VSCA 61 at [128]. A similar approach was taken by the New South Wales Court of Appeal in Etlis v New Age Constructions (NSW) Pty Ltd [2005] NSWCA 165 at [39].
292In my view, and consistent with authority in Victoria and with Mannai, the termination notice served by Just Cuts on 5 January 2016 was clearly ineffective. The authorities reinforce the primacy of the parties’ bargain, construed in accordance with modern principles of construction of commercial contracts.
293Ormiston JA in Central Pacific at page 4, discussed conditions of agreements where, “upon non-compliance with a notice given thereunder, the vendor is entitled to treat the contract as determined and to exercise rights which ordinarily flow from those kinds of breach which evince an intention to repudiate the purchaser’s obligations”. He continued, “Compliance with the correct procedure for giving a notice and clear proof as to continued default enables the vendor to claim rescission where otherwise it would not and to treat the contract as thereby repudiated”.
294It is clear from an examination of the majority judgments in Mannai, that the tests adopted would not have assisted Just Cuts in this case. In Mannai, as Lord Clyde said at page 781, under the relevant term of the lease, there were four requirements to determine the lease, “The tenant must give six months’ notice; the notice must be in writing; the notice must be served on the landlord or its solicitors [and] the notice is to expire on the third anniversary of the term commencement date”. It was in respect of the latter requirement, that the appeal arose.
295The third anniversary of the term commencement was 13 January 1995. The notice given by the tenant was “to determine the lease on 12 January 1995”. Lord Steyn at pages 766-7 stated the issue for determination in the appeal as, “whether, despite the erroneous references in the notices to 12 rather than 13 January, the notices were nevertheless as a matter of construction sufficiently clear to be effective” (emphasis added).
296The determination of this task, Lord Steyn said, was a matter of construction and, “The construction of the notices must be approached objectively. The issue is how a reasonable recipient would have understood the notices. And in considering this question the notices must be construed taking into account the relevant objective contextual scene”.
297A critical statement in Lord Steyn’s judgment is at page 768 where he said, “Prima facie one would expect that if a notice unambiguously conveys a decision to determine a court may nowadays ignore immaterial errors which would not have misled a reasonable recipient...[and] that the reasonable recipient is left in no doubt that the right reserved is being exercised”.
298The majority of the House of Lords were prepared to disregard the earlier authority of Hankey v Clavering [1942] 2 KB 326 (“Hankey”); the minority were not. In Hankey, as Lord Hoffman said in Mannai at page 774, “the notice to quit said ‘21 December’ instead of ‘25 December’, Lord Greene MR said at pp 328, 330, ‘…the whole thing was obviously a slip’ on the part of the landlord’”.
299Lord Hoffman continued at page 776, “Lord Greene MR said at pp 329-330, that because such notices have unilateral operation, the conditions under which they may be served must be strictly complied with. I have already said that this principle is accepted on both sides. But, as an explanation of the method of construction used in Hankey v Clavering, it begs the question. If that clause had said that the notice had to be on blue paper, it would have been no good serving a notice on pink paper, however clear it might have been that the tenant wanted to terminate the lease. But the condition in clause 7(13) related solely to the meaning which the notice had to communicate to the landlord. If compliance had to be judged by applying the ordinary techniques for interpreting communications, there was strict compliance. The notice clearly and unambiguously communicated the required message. To say that compliance must be strict does not explain why some other technique of interpretation is being used or what it is”.
300As Lord Steyn said at pages 770-71, “...Hankey v Clavering was decided more than half a century ago. Since then there has been a shift from strict construction of commercial documents to what is sometimes called purposive construction of such documents…[and that] in determining the meaning of the language of commercial contract, and unilateral contractual notices, the law therefore generally favours a commercially sensible construction”.
301The latter passage that “the law therefore generally favours a commercially sensible construction” was commented upon with approval by Gillard AJA in MLW Technology and, in a more general context by the plurality (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ) in Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5 at [48], an appeal dealing with the construction of a lease.
302Lord Steyn, in Mannai at page 772 reframed the question for determination as follows; “The question is not whether 12 January can mean 13 January: it self-evidently cannot. The real question is a different one: Does the notice construed against its contextual setting unambiguously inform a reasonable recipient how and when the notice is to operate under the right reserved?”
303The reasoning process of Ormiston JA in Central Pacific was not dissimilar. At the commencement of his judgment Ormiston JA said that he, “originally was inclined to the opinion that the notice given by the vendor was imprecise in both form and substance. In the end, however, I have concluded that the defects relied upon by the appellants are of no consequence and the meaning of this notice is sufficiently clear for the recipients to have been in no real doubt as to the claimed default as to what the vendor required them to do and as to when that should be done”.
304In the present case, Just Cuts served a notice which purported to be “issued in accordance with clause 27 of the Competition and Consumer (Industry Codes – Franchising) Regulations 2014 – Schedule 1 – Franchising Code of Conduct”, although the notice referred to “the franchise agreement” and stated that, “This notice is to be taken as notice of our intention to terminate the Franchise Agreement in the event the breaches are not rectified within 21 days hereof”.
305Whether or not the notice was “issued in accordance with clause 27” of the Code was immaterial. To be an effective notice to terminate the franchise agreement, the notice required that the franchisee be allowed “not less than thirty (30) days to remedy the breach”. This is what the notice failed to “allow” and this defect was both fatal and irremediable. This is how any reasonable recipient would read the notice. It simply disregarded the time provision in the franchise agreement, apparently the drafter believing that the maximum time specified in the Code which a franchisor must allow enabled it to choose a lessor period, notwithstanding the parties’ express agreement that 30 days must be given.
306To use words often used in the authorities, the notice was “defective”, “unenforceable” or “invalid”. As Ormiston JA said in Central Pacific at page 5, a party “can ordinarily serve a further notice and so the ineffectiveness of such a notice rarely ought to have irremediable consequences”. However, in this case Just Cuts did not take that course, its solicitors preferring to assert that the time allowed was “clearly reasonable in the circumstances”.
307Although Just Cuts’ solicitors purported, “on a strictly without admission basis, and as a sign of good faith” to extend the time required “to the maximum 30 day period”, that could not save the breach notice.
3084108 Pty Ltd v Sing Fan [2010] VSC 12, a decision of Hargrave J, concerned an agreement between the vendor and purchaser of land where the purchaser failed to complete on the due date. The vendor served a rescission notice which specified the incorrect due date. A second notice was served which specified the correct due date. However, the second notice was served with a letter asserting that the due date specified in the first rescission notice was correct. The letter did not expressly withdraw the first notice.
309Hargrave J declared “that the two rescission notices are invalid”. Applying the tests enunciated in Central Pacific and Greydae, Hargrave J concluded that “reasonable persons in the position of the purchasers would have known that the vendor had expressed varying views as to the due date for payment of the balance of the purchase price [therefore] it was reasonable for the purchasers to entertain a doubt as to this essential feature of the rescission notices” [48].

Sufficiency of the detail in the breach notice of the alleged breaches and what was required to remedy the breaches
310The breach notice listed four breaches, as follows:
a.non-payment of fees in breach of clause 8 of the franchise agreement. The fees were paid immediately;
b.the “nominated person” (Mrs Heaney) had not used “her best endeavours to conduct the business, as those ‘best endeavours’ are being diverted elsewhere” in breach of clause 12;
c.the nominated person “has failed to devote her complete attention to the business or directly supervise it as required by this clause” in breach of clause 12.3;
d.by “seeking to procure the custom of former Just Cuts’ clientele and promoting a competitor” and by “operating a salon not branded Just Cuts”, in breach of clause 15 and the franchisee’s statutory obligation of “good faith” under Division 3 of the Franchising Code of Conduct.

311The further amended statement of claim asserts that the breach notice is defective because it failed “to provide sufficient/proper particulars of the breach relied on”, and specifically “the manner in which the sole director of the plaintiff failed to use her best endeavours to conduct the Werribee shop, the manner in which [she] has failed to devote her complete attention to the Werribee shop or directly supervise it and the manner in which the plaintiff is seeking to procure the custom of former Just Cuts clientele and promoting a competition of Just Cuts”.
312In my view, the breach notice, as was required by clause 16.2 of the Werribee franchise agreement and clause 27(2) of the Franchising Code of Conduct, adequately specified:
a.the breaches of the franchise agreement;
b.what the franchisor required to be done by the franchisee to remedy the breaches.

313This is evident from the response to the breach notice by Heaney Enterprises’ solicitors by email dated 5 January 2016. The breach notice specified each of the relevant clauses of the franchise agreement alleged to have been breached and a summary of the conduct of Heaney Enterprise and Mrs Heaney said to constitute the breach. The breach notice required “written confirmation” of certain matters which it was said would remedy the breaches.
314In relation to the alleged breaches constituted by the running of the Point Cook salon as a non-Just Cuts salon, Heaney Enterprises’ solicitors took issue with the applicability or validity of each of the clauses of the franchise agreement relied upon. There was no misunderstanding of the matters contained in the breach notice, as there would not have been to any reasonably objective person with the background and knowledge of Mrs Heaney, as the sole director of Heaney Enterprises and as a separate party to the Werribee franchise agreement as the “nominated person”.

Whether Heaney Enterprises and Mrs Heaney were, or remained, in breach of the Werribee franchise agreement or had rectified the breaches
315The factual background for the service of the breach notice on 5 January 2016 was as follows:
a.Heaney Enterprises became a Just Cuts franchisee at Point Cook in December 2010 with a lease of the salon in which the business was conducted until 19 December 2015;
b.Heaney Enterprises had paid for the services of an interior designer nominated by Just Cuts who assisted with the design of the salon in late 2010. Mrs Heaney influenced some aspects of the design, including the number of chairs in the salon. The extent that the design at Point Cook followed a standard Just Cuts’ design was not clear on the evidence;

c.there was no written Point Cook franchise agreement executed by the parties in the form of the standard Just Cuts franchise agreement;
d.in September 2011, Heaney Enterprises and Just Cuts executed the standard form franchise agreement in respect of the Werribee franchise. The term of franchise agreement was six years less one day with options to renew for two further terms;
e.Heaney Enterprises operated both franchises; Mrs Heaney was its sole director and the “nominated person” and a separate party to the Werribee franchise agreement, as well as a guarantor with her husband;
f.in November 2014, Mr and Mrs Heaney informed Just Cuts by email that the Werribee and Point Cook franchises “already share a number of clients between the two”. Mrs Heaney agreed in cross-examination that it was “possible” that “the renovations at Werribee led to customers going to Point Cook”;
g.Mrs Heaney considered that trading at the Point Cook franchise had been adversely affected by the opening of the Williams Landing franchise in January 2015;
h.in the second half of 2015, Mrs Heaney wished to obtain a renewal of the lease of the Point Cook premises. The poor performance of the Point Cook franchise caused her to attempt to obtain a lower baseline rental;
i.simultaneously, Mrs Heaney was attempting to obtain a renewal of the Just Cuts franchise, without the conditions about Fudge products and the Just Online system that Just Cuts was insisting upon;
j.in late December 2015, Heaney Enterprises removed the Just Cuts branding from the Point Cook salon and, without further significant structural alterations, continued to operate the salon, independently of Just Cuts, under the name “Jakob’s Hair Salon” until June 2016 when the fit-out from the salon was removed;
k.in about August 2016, the Point Cook salon reopened as a Just Cuts franchise operated by Mr Oberoi;
l.Heaney Enterprises continues to operate the Werribee franchise.

316Clause 12.2 of the Werribee franchise agreement is headed “Best Endeavours”. The clause makes it clear that it is concerned with the Werribee “business”, specifically:
a.how the franchise and the nominated person “conduct the business”;
b.whether the business is conducted “with a view to maintaining and promoting the standards and goodwill of the franchisor in relation to the operation…of the business” (emphasis added).

317There is no evidence that the business of the Werribee franchise, or the “interests” of Just Cuts, or the maintenance or promotion of the “standards and goodwill” of Just Cuts in relation to the Werribee franchise were affected detrimentally by the Point Cook store operating as Jakob’s, and not as a Just Cuts franchise.
318Whereas the earnings of the Point Cook franchise had recovered, to a significant degree from the drop in revenue in January 2015, after December 2015 there was a steady decline in revenue to a historical low. On the other hand, the earnings of the Werribee franchise increased by February 2016 to a historical high and despite a dip in March and April 2016 had, by May 2016, almost returned to the high point.
319It was also asserted that Mrs Heaney, as the nominated person, had “failed to devote her complete attention to the business or directly supervise it as required by this clause”. It was said that this conduct breached clause 12.3 of the Werribee franchise agreement.
320In responding to the notice on 5 January 2016, Heaney Enterprises’ solicitors stated, “My client instructs me that there is no nominated person under the Werribee franchise agreement and that she is devoting proper attention to the Werribee business”. This statement that “there is no nominated person” was incorrect as Just Cuts’ solicitors pointed out in their letter dated 8 January 2016.
321Although the breach notice raised the issue that Mrs Heaney “failed to devote her complete attention to the business”, the letter of 8 January 2016 only referred to Mrs Heaney’s obligations under the Werribee franchise agreement:
a.to use “her best endeavours to conduct the business”;
b.for the business, “at all times to be under its ‘direct supervision’”.

322There was no contractual obligation (in clause 12.3 or any other provision of the Werribee franchise agreement) for Mrs Heaney “to devote her complete attention to the business”. Many Just Cuts’ franchisees held a number of separate Just Cuts’ franchises.
323Clause 12.2.1 required Mrs Heaney to use “her best endeavours to conduct the business in accordance with the interests of the franchisor”. I have already referred to the fact that there is little evidence to support the assertion that Mrs Heaney failed to comply with this clause. Similarly, the evidence does not support a conclusion that, as at 5 January 2016, Heaney Enterprises was not operating the business, as required by clause 12.3.1 “in accordance with the terms of this franchise agreement…and any reasonable direction received from the franchisor [or that Heaney Enterprises and Mrs Heaney] failed to continually use their best endeavours to promote the business”.
324Clause 12.3.1 requires the Werribee franchise business to “at all times be under the direct supervision of the nominated person”. There is no evidence that Mrs Heaney’s supervision of the Werribee franchise business was any less direct, at or after 5 January 2016, than it had been since the business commenced to operate in late 2011.
325I note that Just Cuts, as late as 4 December 2015, expressed its “intention to offer [Heaney Enterprises] a new franchise agreement [for Point Cook]…subject to the removal of Fudge products in your store and the implementation of Just Online”. In these circumstances, there is nothing to suggest that Mrs Heaney’s supervision of the Werribee franchise business was lacking in any respect.
326The final complaint made by Just Cuts in the breach notice was that Heaney Enterprises breached the “restraint of trade” provisions of clause 15.2 of the Werribee franchise agreement. The breach notice also refers to Division 3 of the Franchising Code of Conduct as containing “a statutory obligation of good faith”.
327Division 3 of Part 1 of the Franchising Code of Conduct is headed, “Obligation to act in good faith”, and it is presumably to this part of the code to which the breach notice refers.
328Clause 6(1) of the Code imposes an obligation on “each party to a franchising agreement [to] act towards another party with good faith, within the meaning of the unwritten law from time to time, in respect of any matter arising under or in relation to…the agreement; and…this code”. This obligation cannot be limited or excluded by a franchise agreement.
329There is, however, no evidence that would support a conclusion that Heaney Enterprises or Mrs Heaney had acted towards Just Cuts without good faith. Clause 6(3)(a) of the Code provides, “without limiting the matters to which a court may have regard, for the purpose of determining whether a party to a franchise agreement has contravened [clause 6(1), to]…whether the party acted honestly and not arbitrarily”.
330This provision appears to provide an example of the type and seriousness of the matters to which the Court should have regard. In my view, this reinforces the view I have expressed that the conduct of Mrs Heaney or Heaney Enterprises was not lacking in good faith as regards the Werribee franchise, taking into account their conduct in relation to the Point Cook franchise.
331As regards clause 15.2 of the Werribee franchise agreement, the restraint of trade clause prevented certain conduct on the part of Heaney Enterprises and Mrs Heaney, which it was said had been breached by the rebranding and continued operation of the Point Cook premises from 19 December 2015 until about June 2016.
332Clause 15.2 prevented the franchisee, and those associated with it, from:
a.carrying on or operating a similar or related business to the Werribee franchise within a 2 kilometre radius of (in this case) the Werribee franchise or the Williams Landing franchise;
b.procuring orders or contracts, or promoting a similar business to the Werribee franchise.

333The specific conduct referred to in the breach notice was:
a.“seeking to procure the custom of former Just Cuts clientele”;
b.“promoting a competitor”;
c.“operating a salon not branded Just Cuts”.

334One further matter, not mentioned in the breach notice but relied upon by Just Cuts, was that Heaney Enterprises “continued to have access and use confidential manuals and systems owned by Just Cuts”. Mr Truong’s written submissions suggest that, “It should be inferred that [Heaney Enterprises] continued to use [the manuals and systems] without Just Cuts’ authority”.
335Mr Truong appeared to also base the submission on the fact that there was evidence that Heaney Enterprises had continued to use “a Just Cuts email address [and the] Just Cuts radio system”. I do not consider that the evidence of these matters justifies an allegation that the franchise agreement has been breached or that Just Cuts had suffered loss and damage as a result.
336The evidence is that both the Werribee franchise and the Williams Landing franchise were more than 2 kilometres by road from the Point Cook franchise. It is likely, however, that the Point Cook franchise would be within a 2 kilometre radius of the Williams Landing franchise. There was no specific evidence of this fact and the map produced by Just Cuts appeared to inaccurately locate the Point Cook Town Centre.
337Whilst the restraint is prima facie invalid, the law would permit a reasonable restriction necessary to protect the legitimate commercial interests of Just Cuts. If the restraint is too wide it will not necessarily fail but can be read down by the application of section 4(3) of the Restraints of Trade Act 1976 (NSW), which applies, as clause 23.4 of the Werribee franchise agreement makes New South Wales law the operative law.
338In my view, clause 15.2.1 of the Werribee franchise agreement should be read down to exclude the Williams Landing franchise. The evidence of Mr Oberoi and Mr Biggs, and of Mr Manning of Just Cuts, was that the Princes Freeway was a significant barrier to the migration of potential customers and that there were substantial “catchments” in the suburb of Williams Landing and those to the immediate north of the Williams Landing shopping centre.
339Mr Oberoi gave evidence that he did not “take into account the Point Cook area” in his calculations of the catchment area of customers for the Williams Landing franchise “because it’s on the other side of the freeway and we were on this side and the idea was to cater to the community on the other side of the freeway as people in Point Cook already are used to Sanctuary Lakes Shopping Centre and the Point Cook Town Centre”.
340Mr Biggs gave evidence that “based on essentially research that we’ve done and anecdotal evidence”, for the Point Cook Town Centre, “south of the freeway is our main catchment area, where our main customers come from” and that Williams landing was only “minimally” a “competition” to the Point Cook Town Centre.
341Further, each of the agreements for the Werribee franchise and the Williams Landing franchise, and the agreement contended for by Just Cuts as the Point Cook franchise agreement limited the franchise “territory” to the relevant shopping centre. This, apparently, is the case for most of the Just Cuts franchise agreements, save for a few which are located in shopping strips. In these circumstances, the imposition of a restraint clause beyond the limits of the shopping centre would, on its face, appear to be unreasonable.
342Finally, no evidence was led as to the need for a restriction to operate for 3 years, though it is probable that some restriction would be reasonable to protect Just Cuts legitimate commercial interests, if the spatial restriction was otherwise reasonable. In the present case, there was no time delay from the close of the Point Cook franchise to the reopening as Jakob’s.
343As regards a possible breach clause 15.2.2, there is no direct evidence that Heaney Enterprises or Mrs Heaney either sought “to procure the custom of former Just Cuts clientele” or promoted “a competitor” to Just Cuts. However, it is a matter of inference that, with no gap between the closing of the Point Cook franchise and the opening of Jakob’s, and from the continuing (although decreased) trade, that a number of the former Just Cuts’ clientele would have continued to frequent the Point Cook salon.
344It is perhaps another matter as to whether this amounted to “procuring”, or that Jakob’s was “a competitor” to Just Cuts. Clearly Jakob’s was “a salon not branded Just Cuts”. However, these allegations in the breach notice must constitute the factual basis for establishing a breach of clause 15.2.2.
345This would require Heaney Enterprises or Mrs Heaney:
a.to procure or attempt to procure orders or contracts for a business similar to Just Cuts;
b.to promote a person carrying on a similar business.

346Mr Truong submitted that “the ‘overnight’ de-badging meant that ‘Jakob’s Hair’, in essence, remained the same insofar as look and feel, colour systems and the like as Just Cuts”. Mr Truong submitted that the new salon “was offering the same services as Just Cuts for similar prices (if not slightly better), with the same staff and management as the prior Just Cuts”.
347I do not accept that the evidence of these matters, based on limited inspections by witnesses and some photographs, is sufficient to make out all of Mr Truong’s assertions and are clearly insufficient to support a conclusion that customers of the Point Cook franchise would have considered it the “same” salon or would necessarily have given it their custom.
348It is difficult, in the circumstances, to see how a restraint of this width would be reasonably necessary to protect Just Cuts’ legitimate business interests.
349Accordingly, I consider that:
a.if the breach notice were effective, notwithstanding Just Cuts’ failure to allow 30 days for Heaney Enterprises to remedy any default, that there was no breach of the Werribee franchise agreement which was required to be remedied;
b.Just Cuts has no basis for its counterclaim for damages for the alleged breaches of the Werribee franchise agreement.

Just Cuts’ counterclaim – breach of the restraint of trade clause
350If Just Cuts was entitled to succeed on its counterclaim by having established relevant breaches, it has not proved that it suffered loss as a result of the conduct of Heaney Enterprises or Mrs Heaney.
351Just Cuts claims that it suffered the loss of franchising income during the “period of ‘interruption’ to trade” until Mr Oberoi was able to re-open the Point Cook premises as a Just Cuts franchise. In my view, this loss has not resulted from any relevant breach of the Werribee franchise agreement.
352In this regard the following facts are relevant:
a.the lease of the Point Cook premises was in the name of Heaney Enterprises;
b.often, with its franchised premises, Just Cuts was itself the lessee;
c.Mr Oberoi had indicated his willingness on 21 December 2015 to “proceed with Point Cook” and said he was “all geared up”;
d.Mrs Heaney had on 2 November 2015, indicated to Stockland that if she could not negotiate an acceptable rental, Heaney Enterprises would vacate the Point Cook premises “by 23^rd December 2015”;
e.on 16 December 2015, Mrs Heaney informed Stockland that unless it agreed that Heaney Enterprises could trade as Jakob’s, that the salon would close on 19 December 2015;
f.Just Cuts, on 17 December 2015, returned to Stockland the invitation to lease executed on behalf of Just Cuts;
g.the invitation to lease foreshadowed a119 five year lease with “handover date” as “approximately 20 December 2015”;
h.on 18 December 2015, Stockland gave Heaney Enterprises a six month notice of non-renewal of the lease in accordance with Retail Leases Act;
i.Heaney Enterprises and Mrs Heaney did not “procure” the further six month period from December 2015 to June 2016; it was effectively given to them.

353There was no evidence given of any explanation as to Stockland’s invitation to Just Cuts to lease the premises given on 16 December 2015, with an imminent handover date, being replaced on 18 December 2015 by the giving of the six month notice of non-renewal of Heaney Enterprises’ lease.
354In circumstances where Mrs Heaney had previously offered to vacate the premises at the end of the lease, and in the absence of any evidence of any steps by her to insist up on remaining in possession, it is unclear why Just Cuts could not, or did not, proceed with the lease both parties had contemplated only a couple of days earlier.
355In these circumstances, and for these reasons, Just Cuts’ counterclaim in this regard must fail.

Summary and proposed orders
356I have determined the matters raised for decision in the proceeding, as follows:
a.Just Cuts failed to comply with the requirements of the Franchising Code of Conduct in relation to the Point Cook franchise;
b.Just Cuts and Heaney Enterprises did not execute a written franchise agreement for the Point Cook franchise;
c.Heaney Enterprises’ claim for damages in respect of Just Cuts’ grant of the Williams Landing franchise to Mr Oberoi should be dismissed;
d.Heaney Enterprises’ claim for damages as a result of Just Cuts:
i.taking a lease of the premises previously occupied pursuant to the Point Cook franchise;
ii.refusing to extend the Point Cook franchise;
iii.entering into a franchise agreement with Mr Oberoi in relation to the Point Cook premises;

should be dismissed;
e.Just Cuts’ counterclaim for damages as a result of the alleged breaches of the Point Cook franchise was not made out and should be dismissed;
f.the breach notice served by Just Cuts on 5 January 2016 was not effective to terminate the Werribee franchise;
g.Just Cuts’ counterclaim for damages or other relief as a result of the matters raised in the breach notice dated 5 January 2016 in relation to the Werribee franchise was not made out and should be dismissed.

357Accordingly, the following orders will be made:
1.Judgment for the plaintiff against the defendant for a declaration that the defendant’s breach notice dated 5 January 2016 in respect of the Werribee franchise agreement was invalid and ineffective to terminate the agreement.
2.Judgment for the defendant against the plaintiff that the plaintiff’s claims otherwise be dismissed.
3.Judgment for the defendants to counterclaim against the plaintiff to counterclaim that the plaintiff to counterclaim’s counterclaim be dismissed.

358Unless any party wishes to make any submissions to the contrary, I would propose to order that there be no order as to costs of the proceeding, including the claim and counterclaim, and that each party bears their own costs.

SCHEDULE

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Certificate

I certify that these 84 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 19 May 2017.

Dated: 19 May 2017.

Carla Cianfaglione

Associate to His Honour Judge Anderson

$123,680.43	loss of profits
$371,041.29	loss in value of goodwill
$100,000.00	loss in value of fit-out