Instate Esidential Pty Ltd v Regency Pty Ltd & Manthorpe

[2022] SADC 55

DISTRICT COURT OF SOUTH AUSTRALIA

(Civil)

INSTATE ESIDENTIAL PTY LTD v REGENCY PTY LTD & MANTHORPE

[2022] SADC 55

Judgment of her Honour Judge Deuter  

6 May 2022

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH

GUARANTEE AND INDEMNITY - CONTRACT OF GUARANTEE - CONSTRUCTION AND EFFECT - EXTENT OF LIABILITY AND OTHER MATTERS

The Applicant became the South Australian Master Franchisee of the GJ Gardner Homes building franchises in South Australia by purchasing the business 23 February 2015.

At the time of purchasing the SA Master Franchise the First Respondent, Regency Pty Ltd was a relatively new GJ Gardner Homes franchisee pursuant to a franchise agreement entered into with the previous master franchisee on 22 September 2014 (the franchise agreement).  The Second Respondent was the sole shareholder and director of the First Respondent.  With his wife, the Second Respondent executed a Deed of Guarantee and Indemnity that jointly and severally guaranteed the liabilities of the First Respondent.  The deed was signed at the same time as the franchise agreement and was an annexure to it.

There was no Deed of Assignment or Novation of the franchise agreement signed by the Respondents upon the Applicant becoming the SA Master Franchisee.  The Respondents were aware that the SA Master Franchisee had been transferred to the Applicant, and thereafter worked with the Applicant to establish and operate its GJ Gardner Homes franchise in the southern areas of Adelaide.  The First Respondent initially met its obligations under the franchise agreement, including paying franchise fees relative to each building contract it entered into.

In April 2018 the Applicant became aware that the First Respondent was performing building and construction work outside of the franchise agreement and in breach of that agreement.  No franchise fees had been paid to the Applicant in relation to this building work.  At a meeting on 8 May 2018, the Applicant indicated that there was no alternative to the franchise being terminated, and made a without prejudice offer to the Respondents of mutual termination on terms.  The franchise agreement was terminated on 8 May 2018, the terms and affect of that termination are in dispute.

The Applicant claims payment by the respondents of all unpaid franchise fees on the building contracts entered into by the First Respondent in breach of the franchise agreement, in addition to termination and penalty fees, for the balance of the term of the franchise agreement.

The First Respondent went into liquidation on 18 February 2021, and as a result the Applicant seeks to recover the First Respondent's liability to them from the Second Respondent pursuant to the guarantee provided as part of the franchise agreement.

Issues:

Was the franchise agreement assigned or novated to the Applicant?

Did the Respondents breach the franchise agreement?

Is the First Respondent liable to the Applicant under the franchise agreement?

Is the Second Respondent personally liable on the guarantee for the amounts claimed by the Applicant against the First Respondent?

Held:

1.  The franchise agreement was novated by implication to the Applicant from 23 February 2015.  From that date the obligations and benefits of the franchise agreement passed to the Applicant.

2.  The Respondents breached the franchise agreement by entering into, and performing building contracts outside of the franchise agreement and in competition with GJ Gardner Homes.  The First Respondent breached the franchise agreement by not paying franchise fees in relation to these building contracts.

3.  The franchise agreement was legally terminated on 8 May 2018.  This was a mutual termination agreed by the Second Respondent on behalf of the First Respondent.

4.  Alternatively the Applicant had good reason to terminate the franchise agreement without notice as a result of the Respondents acting fraudulently in connection with the operation of the GJ Gardner Homes franchise.

5.  The First Respondent failed to meet the terms of the agreed mutual termination, and failed to pay any franchise fees in relation to its breaches of the franchise agreement.

6.  The First Respondent was indebted to the Applicant under the franchise agreement in the amount claimed of $252,487.43.

7.  On the express terms of the Deed of Guarantee the Second Respondent is liable for the amounts claimed by the Applicant.

8.  The Deed of Guarantee was assigned to the Applicant as part of the totality of the business transaction whereby the Applicant became the SA Master Franchisee.  The Deed of Guarantee continues to bind the Second Respondent.

9.  Judgment for the Applicant against the Second Respondent in the sum of $252,487.43.

10.  The parties are to be heard on the question of interest and costs.

Competition and Consumer (Industry Code – Franchising) Regulations 2014; Competition and Consumer Act 2010 (Cth) s 82; Australian Consumer Law ss 236, 237, referred to.
Aon Risk Management Services Australia Limited v Australian National University (2009) 239 CLR 175; Channel Seven v Manock [2010] SASCFC 59; Pacific Brands Sport and Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40; Better Sprinkler Systems v Koussidis [1998] SASC 6892; Fightvision Pty Ltd v Onisforou [1999] NSWCA 323; Lawrence v R (1996) 138 ALR 487; Tyndall Life Insurance Co Ltd v Chisholm [1999] SASC 445; Coghlan v SH Lock (Australia) Ltd (1987) 61 ALJR 289; Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424; Flexirent Capital Pty Ltd v Mills [2020] NSWDC 259; Mark Sensing (Aust) Pty Ltd & Anor v Flammea & Ors [2003] VSCA 41; McMahon & McMahons Dairy v National Foods Milk Ltd [2009] VSCA 153, applied.

INSTATE ESIDENTIAL PTY LTD v REGENCY PTY LTD & MANTHORPE
[2022] SADC 55

Civil

1. The applicant, Instate Residential Pty Ltd, (Instate) is the Master Franchisee of the GJ Gardner Homes (GJG Homes) Franchise in South Australia.  The second respondent, Glenn Charles Manthorpe, (Mr Manthorpe) is a builder, and the sole director and shareholder of the first respondent, Regency Pty Ltd (Regency), now in liquidation. This dispute arises out of the early termination of a franchise agreement to which Instate and Regency were parties (the franchise agreement). This termination occurred during a meeting on 8 May 2018, between Mr Kris Gill, a director of Instate; its South Australian General Manager, Ms Sue Dilena; and Mr Manthorpe (the 8 May meeting).

2. Instate’s claim is against Regency in contract for breach of the franchise agreement, and against Mr Manthorpe pursuant to a guarantee.  Instate seeks damages by way of various franchise fees it claims have not been paid by Regency, and for which Mr Manthorpe is liable.

3. In response, the respondents claim against Instate that it breached the Franchising Code of Conduct (the Code)[1] and engaged in unconscionable conduct in the manner the GJG Homes franchise (the franchise) was operated, and ultimately terminated. The respondents’ case is that there was no mutual termination of the franchise, and no reasonable or proper notice of the intended termination given by Instate at, or before the, 8 May meeting. On Regency’s behalf, by his Second Counterclaim, Mr Manthorpe claims damages pursuant to s 82 of the Competition and Consumer Act 2010(Cth) (CCA) and sections 236 and 237 of the Australian Consumer Law (ACL), being the amount of any damages recovered by Instate pursuant to the terms of the franchise agreement.[2] There is no claim pleaded for general damages, and the counterclaim is pleaded in terms of a set-off.

   [1]    Competition and Consumer (Industry Code – Franchising) Regulations 2014.

   [2]    FDN 22.

4. During his closing address Mr Manthorpe raised, for the first time during the trial, that he should be entitled to general damages based upon the unlawful termination of the franchise agreement, and breaches of the Code by or on behalf of Instate. Those damages included $187,000.00 in legal fees paid to defend the action; $55,00.00 for loss of the chance to sell his GJG Homes franchise as an ongoing business; $180,000.00 being loss of profits from 3 building projects said to have been taken from him; and undefined losses for mental stress and loss of his building licence etc.

5. I will deal with the legal basis for any counterclaim in my reasons generally regarding termination of the franchise agreement.  However, at the outset I note that no evidence was led at trial by Mr Manthorpe to establish the extent of any losses he submits that he allegedly suffered.  He did not seek to re-open his case to lead such evidence. In the absence of any application to re-open his case to re-plead his counterclaim, and lead evidence of his alleged losses, I will deal with Mr Manthorpe’s counterclaim only upon the basis that it is pleaded.

6. Mr Manthorpe, while unrepresented at trial, had solicitors and senior counsel act for him over a period of three years.  He was represented by his legal team at 18 November 2019 when the decision was made to restrict his counterclaim to a set-off as pleaded in the Second Counterclaim.  A decision was therefore made at that time to amend the counterclaim to not seek general damages.  It would be highly prejudicial to the applicant in this action to allow the counterclaim to be amended very late in a trial, some two years later.

7. In coming to my decision, I adopt the approach of the High Court set out in Aon Risk Management Services Australia Limited v Australian National University,[3] where the Court was asked to consider the relevant ACT Supreme Court rules and the impact of the rigors of case flow management upon principles of ensuring justice for the parties. It was found that although parties have a right to bring and defend proceedings, and in the way they are pleaded, ‘limits will be placed upon their ability to effect changes to their pleadings, particularly if litigation is advanced’.[4]  The views of the High Court were adopted by the Full Court of the Supreme Court in Channel Seven v Manock.[5]

   [3] (2009) 239 CLR 175

   [4] Ibid at para [111]-[112]

   [5] [2010] SASCFC 59.

8. On the evidence led at trial there is no dispute that the parties acted upon the basis that there was a franchise agreement in place between Instate and Regency.  It is Instate’s case that this agreement was novated to them as part of a transfer of the GJG Homes Master Franchise in South Australia (SA Master Franchise).[6]  It is not in dispute that Regency breached the franchise agreement by not paying franchise fees for several building contracts it had entered into while the GJG Homes franchise remained on foot.[7] Those franchise fees remain unpaid.  The extent to which any of those, and other continuing fees are now payable to Instate, is in dispute.

   [6]    T144.20-30; T148.31-34; T149.26-30; T151.5-10; T152.2-4; T153.20-T154.19; T161.4-6; T180.16 – T182.10; T183.3-12; T185.14-25.

   [7]    T156.23-T157.21; T158.14-T159.24; T160.17-35; T165.23-T166.2; T189.26-T190.2; T194.20-31; T196.14-26.

9. Neither Regency nor Mr Manthorpe were legally represented at trial.  Although represented by solicitors and counsel for the first three years of the action, and during a period of considerable argument regarding the pleadings, those solicitors ceased to act for the respondents after Regency went into liquidation in March 2021.  Thereafter Mr Manthorpe conducted the defence of the action.  He did not file an affidavit of evidence as ordered by the court, nor did he file a written opening.[8]  I excused him from doing so, without any opposition from counsel for Instate.

   [8] FDN 48.

10. In considering the issues in dispute I have taken account of Mr Manthorpe’s lack of knowledge of legal forms and practices.  At no time did counsel for Instate seek to take advantage of Mr Manthorpe’s lack of legal expertise and he worked co-operatively with him to ensure that the trial was conducted in an appropriate manner.  This was particularly so in relation to the large number of documents that were tendered.  I found that Mr Manthorpe, an experienced business owner, understood all aspects of the trial and was able to fully participate.

11. The pleadings in this matter are extensive, and not all issues in the respondents’ second defence[9] were addressed by Mr Manthorpe, despite time and opportunity provided to him to present his case.  In determining the matter, full consideration has been given to the matters pleaded, and those matters were taken in account in making findings based on the evidence as tendered, and as given orally at trial.

    [9] FDN 21.

    Issues

12. The issues to be determined in this matter are:

    1.What was said at the 8 May meeting and what are the consequences?

    2.Was a mutual termination of the franchise agreed by Regency via Mr Manthorpe at the 8 May meeting, and if so, what are the consequences?

    3.Alternatively, was the franchise wrongfully terminated by Instate?  If so, what are the consequences?

    4.Whether Regency breached the franchise agreement prior to its termination and if so, whether Regency is liable to Instate in damages, and to what extent, for those breaches?

    5.If Regency is liable to Instate in damages, whether Mr Manthorpe is responsible for payment of the damages, pursuant to a guarantee given by him?

    Witnesses

13. Instate called two witnesses: one of its directors, Mr Kris Gill, and the South Australia General Manager, Ms Sue Dilena.  Both Mr Gill and Ms Dilena gave their evidence in a clear and straightforward manner, appropriately conceding when they could not recall a particular matter they were asked about.  Their evidence was also consistent with the tendered documents and contemporaneous records, including correspondence between the parties, and notes from the 8 May meeting.

14. Mr Gill and Ms Dilena’s evidence was not challenged in any significant way by Mr Manthorpe.  In this regard I have taken into account that Mr Manthorpe conducted the trial without legal representation.  Leniency was provided to him in the conduct of his cross-examination. Neither Mr Gill nor Ms Dilena showed ill feeling towards Mr Manthorpe.  They contained their evidence to the factual issues in dispute.  I found their evidence compelling.

15. Mr Manthorpe gave evidence in his own case and on behalf of Regency.  It was clear that he believed that he and his company had been deceived and wronged by the actions of Instate in relation to the termination of the franchise.  This led to him unfairly losing his livelihood.  I found Mr Manthorpe to be a witness who gave evidence that was truthful from his perspective.  However, his ultimate dissatisfaction with what had occurred with the termination of the franchise coloured his perception of events and led to him becoming discursive and repetitive in his evidence.

16. A great deal of the evidence in this matter relies upon the interpretation of the tendered documents.  In determining the meaning, and the use to be made of those documents, I am more persuaded by the evidence of Mr Gill and Ms Dilena. I accept their evidence in preference to that of Mr Manthorpe where there is a conflict.  I also prefer their evidence as to what took place at the 8 May meeting.

    Background

17. GJG Homes is a franchise building business specialising in custom built homes. There are multiple GJG Homes franchises throughout Australia.  The franchisor of GJG Homes is Netdeen Pty Ltd (Netdeen).  GJG Homes provides distinctive building plans and drawings for house designs unique to their business, and oversees the construction of the homes, through their franchisees.  There are specialised marketing and promotional techniques, and integrated computer programs and systems, used across all franchises.  Master franchisees provide training and support to ensure franchisees maintain high standards of quality.  Marketing and promotional materials are provided to franchisees.

18. GJG Homes franchises are purchased by way of an initial franchise fee and an agreement to pay a minimum monthly continuing franchise fee.  This fee is the greater of a nominated percentage of the aggregate building contract amounts entered into by the franchise for which a slab had been laid, or a set fee as contained in the franchise agreement (continuing franchise fees).  There is regular accounting between the master franchisee and the franchisee regarding the payment of continuing franchise fees.

19. Instate first become involved with GJG Homes when it commenced operation of a GJG Homes franchise in Bendigo in 2006.  This franchise performed well and Instate was approached by Netdeen in August 2014 to consider purchasing the SA Master Franchise from Now Home Services Group Pty Ltd (Now Home Services).  The director of Now Home Services was Dean Lindstrom.

20. At the time Instate was negotiating with Dean Lindstrom to purchase the SA Master Franchise, Regency was a South Australian GJG Homes franchisee pursuant to the franchise agreement, signed with Now Home Services on 22 September 2014. This was described as ‘G J Gardner Homes Franchise Agreement South Adelaide, South Australia’.[10]  The franchise agreement provided that Regency could market and build GJG Homes within a specific area of Adelaide under the business name G J Gardner Homes South.  The franchise business was to commence on 1 November 2014 and operate out of business premises at Glandore (the Glandore premises).  The term of the franchise agreement was for a period of five years with an option for renewal.

    [10] Exhibit A1.3.

21. The franchise agreement contained a Deed of Guarantee and Indemnity (the guarantee) whereby Mr Manthorpe and his wife Grace, jointly and severally, guaranteed the performance of the terms and conditions of the franchise agreement, including the payment of any monies due and owing by Regency.[11]

    [11] Annexure G to Exhibit A1.3.

22. The franchise agreement was negotiated between Mr Manthorpe and Dean Lindstrom at a time when Mr Manthorpe was looking to expand his previous unincorporated small businesses, Regency Bathrooms which conducted bathroom restorations and renovations, and Regency Home Improvements that built home additions.  He had worked most of his life as a tiler progressing to obtaining a builder’s licence in about 2002.  Mr Manthorpe’s son and daughter worked in the businesses with him, and all were attracted to the potential of a GJG Homes franchise as a way of expanding their business opportunities and income.

23. Before committing to the GJG Homes franchise Mr Manthorpe met on several occasions with Dean Lindstrom to ensure that the franchise was the right fit for the family’s business plans.  He also wanted to ensure that there would be sufficient support and input from Mr Lindstrom in the conduct of the franchise.  Mr Manthorpe regarded the relationship to be very important to his success as a franchisee.  It was a very large investment for his family, and Mr Manthorpe did not agree to become involved with GJG Homes without significant input from Mr Lindstrom.  When Mr Manthorpe finally agreed to become a franchisee, he created Regency as an incorporated business for the sole purpose of operating the franchise.  The company was registered on 20 June 2014, with Mr Manthorpe as the sole director and shareholder.[12]

    [12] Annexure KG-1 to the Affidavit of Kristian Gill dated 10 November 2021 (Exhibit A8).

24. Regency began business as a GJG Homes franchisee on 1 November 2014 after Mr Manthorpe and his daughter had participated in training with Mr Lindstrom to learn the GJG Homes systems and the marketing and administrative sides of the business.  A salesperson, Norman Clark, was hired to assist in winning contracted jobs.  This all took some time, and given the approaching Christmas period, the plan was to start the new business in earnest in January 2015.

1. At the same time (September to November 2014) Mr Lindstrom was negotiating the sale of the SA Master Franchise to Instate.  This now included the franchise held by Regency.  Mr Manthorpe did not know of these negotiations, or the prospect that he would no longer be working with Mr Lindstrom in developing his new business.  When he later found out, their relationship soured.

2. Mr Manthorpe first became aware of the proposed transfer of the SA Master Franchise to Instate when he received an email from Peter Love, the General Manager of GJG Homes, dated 19 November 2014. This email was directed to all South Australian franchisees.[13]  It introduced the two directors of Instate, and set out that after several months of negotiation, they would be taking over the SA Master Franchise from Dean Lindstrom.  A meet and greet was proposed for 10 December 2014, which Mr Manthorpe indicated by return email he was free to attend and did attend.  After that meeting Mr Manthorpe accepted, although not happily, that there would be a transfer of the SA Master Franchise.[14]  Having already invested in the franchise, Mr Manthorpe believed he had no alternative but to work with Instate as the new SA Master Franchisee.  This is what he did.

   [13] Exhibit A1.8.

   [14] T200.30–T201.32.

3. On 23 February 2015, Instate signed a GJG Homes Master Franchise agreement with Netdeen pursuant to which it formally became the SA Master Franchisee. Instate therefore became the master franchisee for the franchise conducted in South Australia by Regency.

4. Although not pleased with what had occurred, Mr Manthorpe accepted that Instate was the SA Master Franchisee after 23 February 2015 and he continued to operate the GJG Homes franchise with assistance from Ms Sue Dilena and others of the Instate team.  This included Instate’s South Australian Business Development Manager, Kevin McGee, who spent several days each week assisting the team at Regency with their marketing processes and the conversion of leads into sales.

5. Regency began experiencing serious financial difficulty in late 2016 as the franchise was not able to win sufficient building contracts to make a profit. Mr Manthorpe came under significant pressure as Regency’s financial reserves, and his personal overdraft, become depleted.  His son became dissatisfied and eventually left the franchise business.  Mr Manthorpe made the decision that he would not renew the franchise after the initial five-year period expired.  It was his view that he was not a good fit for what GJG Homes required for a franchisee.  His plan was to work out the five years of the franchise and the office lease, and then leave by selling the business.

6. As a result of his financial issues and the difficulties Regency was having selling GJG Homes to prospective clients, Mr Manthorpe made the decision in late 2016 to enter into contracts to build, extend and renovate homes under his business, Regency Home Improvements.  This was in breach of several non-competition clauses contained in the franchise agreement.  Some of the contracts entered into were notified to Instate via the GJG Homes systems, some were not.  However, it is agreed that no franchise fees were paid to Instate in relation to those contracts.

7. The fact that Regency was performing home building work outside of the franchise agreement came to the notice of Sue Dilena.  She conducted searches of the GJG Homes IT system and learned from Mr Manthorpe’s emails that contracts for builds with GJG Homes’ clients had been drafted under the Regency Home Improvements name.  GJG Homes documents had been used with just the logo changed to Regency Home Improvements.  Ms Dilena raised her concerns regarding this with Mr Gill.

8. The 8 May meeting was arranged as a result of what had been found in the GJG Homes system regarding building work being conducted outside of the franchise.  Instate’s position was that the franchise could not continue given what they regarded as the respondents’ deception and fraudulent behaviour.  However, the option of a mutual termination of the franchise was offered, based upon the terms of a letter from Instate’s solicitors dated 8 May 2018 (the termination letter).[15]  This letter was presented to Mr Manthorpe at the 8 May meeting.  It set out the detail of the breaches of the franchise agreement and made a without prejudice offer that included Regency agreeing to pay the then outstanding franchise fees of $115,417.60 plus costs of $1,650.00 within 14 days; to provide full details of several other contracts they had entered into; and agree to pay continuing franchise fees on those contracts.  If Regency agreed to the terms of the offer then the franchise agreement would be mutually terminated, with no further action being pursued.

   [15] Exhibit A12.

9. After taking a short time to consider the termination letter, Mr Manthorpe signed it.  Instate’s position is that as a result of what occurred at the 8 May meeting the parties reached a binding mutual agreement to terminate the franchise agreement with immediate effect.  This termination required the payment of outstanding franchise fees.  These have never been paid.  As a result of Regency not paying the required franchise fees, Instate now claims those fees from Mr Manthorpe, pursuant to the guarantee, together with other franchise fees now said to be owing because of the termination of the franchise agreement. 

10. Mr Manthorpe’s case is that he never agreed to the termination of the franchise.  He says that the way in which the termination occurred was a breach of the Code, in that, no notice was provided to him before the 8 May meeting, of either the alleged breaches of the franchise agreement or the intention by Instate to terminate it.  No alternative to a termination of the franchise was offered by Instate.  Mr Manthorpe claims that his business and livelihood was taken away from him illegally.  He alleges that the actions of Instate in relation to termination of the franchise amounted to unconscionable conduct.

11. Mr Manthorpe denies that he is liable to Instate pursuant to the guarantee.  He claims that the guarantee was never legally assigned to Instate from Now Home Services.  It is not in dispute that a Deed of Covenant and Novation of the guarantee prepared on behalf of Instate was never executed by Mr Manthorpe.  His case is that Instate cannot rely upon the guarantee signed by him on 22 September 2014 to pursue him for any monies found to be owed by Regency.

12. Instate argue that the purchase of the SA Master Franchise from Now Home Services was intended to, and did, effect an assignment to them of the benefit of the Deed of Guarantee contained in the franchise agreement.  Their case is that the terms of the franchise agreement clearly permit the novation or assignment of the guarantee to a new master franchisee, and by its express terms, the guarantee was given in contemplation that the franchise agreement might be assigned or novated to another party.  Instate’s case is that Mr Manthorpe understood that there was a guarantee in favour of them, and his actions at all times do not form a basis to find that he intended that the Deed of Guarantee would no longer bind him.

    Preliminary Issues

    Purchase of the SA Master Franchise

13. The respondents dispute by their Defence, that there was an assignment of the franchise agreement with Now Home Services, as a result of Instate purchasing the SA Master Franchise.  It is pleaded that the Sale of Business Agreement between Instate and Now Home Services does not include an express term assigning the franchise agreement to Instate, and that in any event that Sale of Business Agreement was never executed. [16]

    [16] FDN 21 at [6.1] and [6.2].

14. This issue was only addressed by Mr Manthorpe in a limited way at trial, as he had no knowledge of what had taken place between Instate and Now Home Services.  He did positively assert that the failure to execute the Sale of Business Agreement was an issue.  He did not elaborate on the reasons why. 

15. Instate’s case is that there was a transfer of the business operated as the SA Master Franchise, and that this was never disputed by Mr Manthorpe prior to these legal proceedings.  Instate relies upon the documents tendered, Mr Gill’s evidence, and the subsequent conduct of the parties to establish transfer of the SA Master Franchise and assignment by novation of the franchise agreement.

16. The evidence of Mr Gill, not contested by Mr Manthorpe, establishes that on 23 February 2015:

    1.Netdeen and Now Home Services signed a Deed of Surrender (Deed of Surrender), whereby Now Home Services ceased to hold the SA Master Franchise;[17]

    2.Netdeen and Instate signed a Master Franchise agreement whereby Instate became the SA Master Franchisee;[18]

    3.Instate and Now Home Services signed a Business Sale Agreement (Business Sale Agreement) whereby the business operated as the SA Master Franchise was transferred to Instate.[19]

    [17] Exhibit A8 at [14.2] and as Exhibit KG-4 thereto.

    [18] Exhibit A8 at [14.1] and as Exhibit KG-3 thereto.

    [19] Exhibit A8 at [14.3].

17. No executed copy of the Business Sale Agreement was tendered at trial.  The vendor’s unsigned ‘Executed Copy’ dated February 2015 was tendered.[20]  Mr Gill’s uncontradicted evidence was that the Business Sale Agreement was signed by him.  A copy of an executed signing page, where Now Home Services is listed as vendor, and Instate as purchaser, was tendered.[21]  This signing page had been executed by both Dean Lindstrom and Mr Gill.  A schedule for settlement of the business sale was also tendered.[22]  This not only notes the parties to the sale, but contains signing directions for each, and a direction that the agreement be signed and returned by express post.  Mr Gill does not know what ultimately happened to the final signed copy of the Business Sale Agreement, which on his evidence, he executed on behalf of Instate.

    [20] Exhibit A1.4.

    [21] Exhibit A1.5.

    [22] Exhibit A1.10.

18. By reason of this evidence, in combination with the evidence not disputed by Mr Manthorpe, that from 23 February 2015 Instate acted in all ways as the SA Master Franchisee, I find that the Business Sale Agreement was executed.  I find that from 23 February 2015 Instate was the SA Master Franchisee and that Mr Manthorpe worked with its employees to operate the GJG Homes franchise in the name of Regency.[23]

    [23] T110.30-T111.8; T185.12-25; T203.31-T204.3.

19. I find that from 23 February 2015 Regency acted in all ways as if both it and Instate were bound by the franchise agreement.  Mr Manthorpe did not suggest otherwise.  He gave clear evidence that he was aware Instate had purchased the SA Master Franchise from Dean Lindstrom.[24]  He was then to work with Instate, and he did.

    [24] T144.2-30; T180.28-33; T201.18-32.

    Deed of Covenant and Novation

20. Despite this, a controversial issue at trial was the significance of a Deed of Covenant and Novation (the Deed) contained as Schedule 3 of the Sale of Business Agreement.  It was intended that the Deed be signed by each South Australian GJG Homes franchisee.  By the Deed it is confirmed that the Exiting Master Franchisee had, with the consent of Netdeen, as franchisor:

    … novated all of its right, title, interest and obligations in the GJG Homes Master Franchise for South Australia including novating its interest and obligations in the Franchise Agreement to the New Master Franchise…[25]

    [25] Exhibit A1.7 at Clause E.

21. The Deed set out that the New Master Franchisee (Instate) had replaced the Exiting Master Franchisee (Now Home Services), undertaking all rights and obligations of the franchise agreement.  Clauses H and I set out the resulting obligations of the franchisee (Regency):[26]

    H.The Franchise Agreement contains a covenant at clause 17;

    (i) on the part of the Exiting Master Franchisee, not to assign the Franchise Agreement without first having obtained a Deed of Covenant from the New Master Franchisee to be bound by the rights and obligations of the Exiting Master Franchisee under the Franchise Agreement; and

    (ii) on the part of the New Master Franchisee, upon request to execute any novation documentation requested by the Master Franchisee; and

    (iii) on the part of the Franchisee, upon request by the Exiting Master Franchisee, to execute any assignment or novation documentation.

    I.Accordingly, the Franchisee is obliged to and hereby consents to the novation of the Franchise Agreement and to release the Exiting Master Franchise in consideration of the New Master Franchisee undertaking to perform the Franchise Agreement and assuming the rights and obligations of the Exiting Master Franchisee on the terms set out in this Deed of Covenant and Novation.

    [26] Exhibit A1.7.

22. The terms of the Deed expressly provide for novation of the franchise agreement from Now Home Services to Instate including all if its rights, obligations, and liabilities.  Of importance in this action is Clause 8 of the Deed that provided that:

    … the franchisee shall, upon execution of this Deed, procure from the Guarantors a continuing Guarantee and Indemnity in the form contained in Annexure A.

23. The Deed was never signed.  Mr Manthorpe’s evidence was that his wife refused to sign the Deed, and that he therefore never signed it.[27]  Mr Gill’s evidence was that he never saw a signed copy of the Deed.[28]  On the evidence at trial, I find that the signing of the Deed was overlooked, and the parties simply proceeded on the basis that Instate was now the SA Master Franchisee.

    [27] T203.31-T204.3.

    [28] T110.30-T111.8.

24. Instate’s case is that although the Deed of Covenant and Novation was a formal document to be executed by all parties to formalise the novation of Regency’s franchise agreement from Now Home Services to Instate, it was not necessary for the Deed to be signed for the novation to occur.  They argue that such a novation was expressly contemplated in the franchise agreement at Clause 17.1 whereby Regency had agreed that the master franchisee (then Now Homes Services) could assign the SA Master Franchise:

    17.1 (Assignment by Master Franchisee) The Master Franchisee may merge, restructure or refinance the Master Franchisee, or transfer or assign the whole or part of its rights, title and interest, benefits and obligation under this agreement and related agreements or merge restructure, or refinance the Master Franchisee, (including the benefit of any guarantees relating thereto) and the same shall inure to the benefit of any assignee or other legal successor to the interest of the Master Franchisee herein and upon such assignment the Master Franchisee shall:

    (a)procure the assignee to enter into a deed whereby the assignee agrees in favour of the Franchisee to be bound by the terms of the sub-licence, this agreement and such of the related agreements as are also assigned;

    (b)give or cause to be given notice of the assignment to the Franchisee;

    (c)after procuring such deed and giving such notice, not be liable under this agreement except for any antecedent breach. [29]

    (Emphasis added)

    [29] Exhibit A1.3.

25. Instate’s case is that Clause 17.1 of the franchise agreement does not make the signing by Regency of the Deed, a prerequisite to the agreement being assigned, or novated to them.  They base this upon the wording of Clause 17.1 whereby it sets out action to be taken at sub-paragraphs (a)-(c) ‘upon such assignment’.  They argue that Clause 17.1 should be properly construed to mean that Regency had agreed in signing the franchise agreement that it could be assigned or novated to a new master franchisee without any reference to them.  This is in fact what happened.  The Deed was simply formal acknowledgement of what had been envisaged by the terms of the franchise agreement, as able to occur, and had occurred.

26. Instate argued, and it was not disputed by Mr Manthorpe at trial, that the actions of all parties lead to a clear inference that they intended that Interstate and Regency would become parties to a franchise agreement in place of Now Home Services.  It is not clear however whether Instate considered that the franchise agreement had been novated or assigned to them, and whether there is any essential difference.

27. The franchise agreement, at paragraph 17, specifically refers to a process whereby the SA Master Franchisee can assign the agreement to another SA Master Franchisee.  It does not refer to novation.  However, it was a Deed of Covenant and Novation that was presented to the respondents to sign pursuant to the requirements in Clause 17.1 of the franchise agreement.  The assignment of contractual rights does not lead to Instate becoming a party to the franchise agreement, rather it gains the ability to enforce any promise in the agreement, by the benefit of it being assigned to them.  The law in relation to assignment of contractual rights was set out in detail by the Full Court of the Federal Court as follows:

    By way of background, it is appropriate to begin with a number of relatively non-contentious propositions.  First, it is well accepted that assignable contractual rights are choses in action; are a species of personal proprietary rights; and can be transferred to a third party at law or in equity in accordance with the formal rules governing the transfer of such rights: see Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 26; Loxton v Moir (1914) 18 CLR 360 at 379. Secondly, while it is not legally possible to assign the burden of a contract (i.e., the obligation to render performance), it may be possible to assign (a) the entire benefit of a contract (i.e. the right to receive performance): Don King Productions Inc V Warren [2000] Ch 291 at 318 (“Don King”); (b) if a right under a contract is separate and severable, such a separate and severable right: cf Federal Commissioner of Taxation v Everett (1980) 143 CLR 440 at 449-450; or (c) if some only of the rights under a contract are assignable, those rights. “[A]ssignability is not a matter of all obligations arising under a contract or none at all”: Don King, above, at 319. Thirdly, a contract may expressly or impliedly authorise assignment of rights in a contract which would not otherwise be assignable: Devefi Pty Ltd v Mateffy Perl Nagy Pty Ltd (1993) 113 ALR 225 at 235 (“Devefi v Mateffy”); or, conversely, may expressly or impliedly prohibit assignment of rights otherwise prima facie assignable: Don King, above, at 319. “Such contractual provision are legally effective” as between the contracting parties: Don King, ibid; Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 at 103.

    ….

    Sixthly, the assignee of a contractual right under a legal assignment is entitled, as owner of that right, to take action in respect of it: e.g., Conveyancing Act 1919 (NSW), s 12. Seventhly, a third party may become a “substituted contracting party” by novation of the original contract.  Novation will, ordinarily, require the agreement of the original and the substituted party although the original contact itself may, on its proper construction, authorise a party to substitute a contracting party in its place without need for a further tri-partite agreement: see Harry v Fidelity Nominees Pty Ltd (1985) 41 SASR 458 at 460. On novation, though, there is no assignment of rights and obligations, but rather the creation of new rights and obligations in a new contract: Olsson v Dyson (1969) 120 CLR 365 at 288; Cheshire & Fifoot’s Law of Contract, above, [8.45] ff.  Eightly, a contractual obligation cannot be assigned without the consent of the other contracting party: Tolhurst v Associated Portland Cement Manufacturers (1990) Ltd [1902] 2 KB 660 at 668. This, for practical purposes, requires novation of the original contract; Furmston, “The Assignment of Contractual Burdens” (1998) 13 Jo Contract Law 42; see also Vickery v Woods (1952) 85 CLR 336 at 345; Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 at 491-493.[30]

    [30] Pacific Brands Sport and Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40 at [32].

1. The difference between novation and assignment is explained by this passage, namely that novation, provides for substitution of the new contracting party into the original contract thereby in fact creating a new contract.  This was described by Lander J in Better Sprinkler Systems v Koussidis (Better Sprinklers) as follows:

   A novation occurs where a new contract is substituted for an original contract and in circumstances when the parties to both contracts accept the substitution: Tito v Waddell [1977] 1 Ch 106 at 287. The novation creates a new contract and therefore all the normal requirements for the formation of a contract must be present. There is no reason why a novation cannot be implied so long as the requisite intention is present. In Mutual Export v Asia Express Ltd (1990) 19 NSWLR 285 at 295 Carruthers J held that “there may be tacit acquiescence by one party in the novation of a contract”. (see also Olsson v Dyson (1969) 120 CLR 365).[31]

   [31] [1998] SASC 6892 at [26].

   Was the Franchise Agreement Novated?

2. It is clear from the terms of the Deed, and the behaviour of the parties thereafter, that the intention was that the franchise agreement be novated from Now Home Services to Instate.  The intention was that not only the benefit of the franchise agreement should be transferred to Instate.  Although the word ‘assignment’ is used in Clause 17.1, by its terms that clause extends beyond assignment as it provides that the master franchisee can transfer all, or parts of, not only its rights and benefits under the franchise agreement, but also its obligation.  There are multiple obligations upon the master franchisee set out at Clause 13 of the franchise agreement, including the provision by the master franchisee of a significant level of training, consultation, soft-ware and IT services, and referrals to the franchisee.

3. By entering into, and signing the franchise agreement, Regency acknowledged by Clause 17.1 that it could be transferred to another master franchisee.  Mr Manthorpe argues that this could not occur until the Deed was signed.  I disagree. As set out above, in Better Sprinklers Lander J found that novation of a contract can be implied if the requisite intention is present.[32]  This was confirmed by the NSW Court of Appeal in Fightvision Pty Ltd v Onisforou where it was said:

   Novation is a transaction by which all parties to a contract agree that a new contract is substituted for one that has already been made (Olsson v Dyson (1969) 120 CLR 365 at 388 per Windeyer J). Novation involves the extinguishment of one obligation and the creation of a substituted obligation in its place. Intention is crucial to show a novation; see for example Vickery v Woods (1952) 85 CKR 336 at 345 per Dixon J as his Honour then was. A novation may be express or implied from the circumstances.[33]

   [32] [1998] SASC 6892 at [26].

   [33] [1999] NSWCA 323 at [78].

4. It was found in that decision that, the way the parties conducted themselves after the contract to promote boxing fights had been transferred to another promotion company led to a finding that novation had taken place:

   … as is only common sense, ‘… if the parties have conducted themselves on the basis that a contract exists between them, a court will readily infer that such a contract has been brought into being’ Greig & Davis, The Law of Contract, 1987 at 249 …’.[34]

   [34] Ibid at [80].

5. This same approach was adopted by Lander J in Better Sprinklers where he stated:

   In the absence of any evidence of an express agreement the learned Magistrate must have found there to be an implied novation or inferred a novation from the surrounding facts.  Notwithstanding that the usual offer and acceptance cannot be identified; it may still be possible in certain circumstances for a contractual relationship to arise where that relationship is inferred by the parties’ conduct.  It is unnecessary to try and identify in every case the precise moment in which a contract has been formed.  If a contract is to be inferred by a retrospective examination of the conduct of the parties it is pedantic to look for a precise moment of formation.[35]

   [35] [1998] SASC 6892 at [28].

   Conduct of the Parties

6. Mr Manthorpe received an email from the General Manager of GJG Homes on 19 November 2014 advising him of the proposed transfer of the SA Master Franchise from Now Home Services to Instate.  He was taken by surprise by the news but attended a meeting on 10 December where he was introduced to the two directors of Instate, Mr Gill and Danny Breen.  At that meeting he discussed with them his need for more training from them on the GJG Homes systems and other matters relating to moving his franchise business forward.[36]  I find that he clearly accepted that Instate would become his master franchisee and that he would now be working with them as he started to operate his GJG Homes franchise.

   [36] T143.5-29.

7. In February 2015, Dean Lindstrom attended at Regency’s offices with the Deed to be signed for the formal acknowledgement of the novation of the franchise agreement to Instate.  This included a novation of the guarantee, which Mrs Manthorpe was refusing to sign.  From that time onwards Mr Manthorpe only dealt with the two directors of Instate.  Mr Manthorpe’s evidence was:

   So, they virtually took over as master franchisees. … it was never any hard feelings with them, all they did as I said was buy a franchise, a master franchisee from Dean and my problem was with what Dean had done.[37]

   [37] T144.24-30.

8. Once Instate became SA Master Franchisee, Mr Gill, Danny Breen, and Sue Dilena visited Mr Manthorpe at the Glandore premises and worked with him to get him fully acquainted with the GJG Homes software systems.  His evidence was that Mr Gill did a better job at that than Mr Lindstrom.[38]  When Mr Manthorpe experienced financial difficulty early into the franchise, he had multiple discussions with Sue Dilena and she arranged for Instate’s Business Development Manager to attend and provide sales training to the Regency team, and to follow up sales leads.[39]

   [38] T147.9-23.

   [39] T183.29-T184.1.

9. Mr Manthorpe’s evidence was that for the majority of the time from when he commenced the GJG Homes franchise until it was terminated on 8 May 2018, he dealt with Instate, its directors and its employees.  The invoices for franchise fees on building contracts were rendered by Instate and paid by Regency to them without any objection.  Mr Manthorpe accepted this, as Instate was the master franchisee.[40]  He also believed that he had a franchise agreement with Instate after Dean Lindstrom had sold the SA Master Franchise.[41]  Mr Manthorpe candidly gave evidence as follows:

   Q.So what you're really saying, I think, is it didn't even cross your mind that there was any problem with the fact that Instate was now the party you, effectively, had a contract with -

   A.No -

   Q.- until later on.

   A.- as I said before, I was quite happy to ride out the five years with them. It was a problem, but I was obviously prepared to honour the agreement that I thought I had.

   Q.Let's just be clear. When you say it was a problem, what you're referring to is the fact that you were finding it hard to run profitably.

   A.Yeah …

   [40] T180.28-T182.19

   [41] T182.26-28.

10. Mr Manthorpe continued his evidence by answering as follows in cross-examination:

    Q.… when Kevin and Sue and Kris and people like that from Instate were working with you, you knew they weren't doing it out of the goodness of their hearts, they were doing it because there was a relationship between Instate and Regency where they were the master franchisee and Regency was the franchisee. That was why that was happening in your mind, wasn't it?

    A.Yeah …

    And

    Q.So, you didn't say anything to anyone at Instate to the effect that you thought Regency had no contract.

    A.    No.

11. The extensive training and ongoing business assistance provided to Mr Manthorpe and his team by employees of Instate was confirmed by both Mr Gill and Sue Dilena in their evidence.  This was part of their obligation as master franchisee pursuant to the franchise agreement.  By his affidavit of evidence Mr Gill set out that prior to the termination of the franchise agreement, Mr Manthorpe:

    ·made payments to Instate of continuing franchise fees pursuant to the franchise agreement;

    ·attended quarterly franchise meetings;

    ·attended Instate’s end of year franchise celebrations in 2015 and 2016;

    ·accepted leads from GJG Homes marketing initiatives and website, both paid for by the GJG Homes South Australia marketing fund.[42]

    [42] Exhibit A8.

12. Mr Gill also gave clear evidence that Mr Manthorpe had never raised with him that he was of the view that there was no valid franchise agreement between Instate and Regency.  There was never any indication that Mr Manthorpe was of the view that Regency was not bound by the franchise agreement, or that Instate could not rely on its terms.[43]

    [43] T112.17-30.

13. I find on the strength of the evidence before the court as to the behaviour of all parties at the time of, and after the transfer of the SA Master Franchise on 23 February 2015, that there was at the same time, a novation of the franchise agreement to Instate.  I find that it can clearly be inferred that the parties intended that there be a binding franchise agreement between Regency and Instate from 23 February 2015, in the same terms as the agreement between Regency and Now Home Services.  As a result, and upon my findings on the evidence, I find that there was such a franchise agreement between Regency and Instate. I find that the respondents were aware of the terms of, and the responsibilities and obligations set out in, the franchise agreement.

14. The respondents, in their Second Defence, plead that if the franchise agreement had been novated by implication, then such novation was void and unenforceable as a result of failures by the applicant to comply with the Code.[44]  In particular the applicant failed to provide a copy of the proposed franchise agreement and documents required by the code.

    [44] FDN 21 at para [7].

15. This issue was never raised at trial by Mr Manthorpe, and he gave no evidence in relation to it. Mr Manthorpe did not close on the issue.  I have considered the pleadings and note that in a Second Counterclaim filed by the respondents, it is pleaded by them that Regency was a franchisee pursuant to the franchise agreement, and that it operated a GJG Homes franchise until 8 May 2018.[45]  In Regency’s Reply,[46] in addition to the matters above, it is pleaded that at the date of novation of the franchise agreement Regency was a franchisee of a GJG Homes franchise and already in possession of the franchise agreement.  They were operating the franchise, and well aware of, operational matters and relevant documents.

    [45] FDN 22 at paras [1.2], [4] and [36].

    [46] FDN 26.

16. Instate did not address these issues further at trial given that they were not raised by Mr Manthorpe. I have reviewed Clauses 9 and 10 of the Code and find, without further evidence being led by Mr Manthorpe, that in the circumstances of the novation of the franchise agreement to the applicant there was no breach of the Code.

    Key Terms of the Franchise Agreement

    Non-Competition

17. The parts of the novated franchise agreement relevant to the dispute between the parties relate to several non-competition clauses that sought to prevent Regency and Mr Manthorpe from performing building work in competition to GJG Homes. In negotiating with Dean Lindstrom to purchase a GJG Homes Franchise, Mr Manthorpe raised the possibility of still being able to complete bathroom restorations and renovations through his business Regency Bathrooms.  He sought to be able to do this work to cover any cash flow issues he may have if Regency was not able to win GJG Homes building contracts.  While not believing he would have time to do them, Mr Lindstrom agreed that Mr Manthorpe could still do bathroom renovations if he wanted to.[47]

    [47] T187.14-T188.4.

18. As a result of the negotiations with Mr Lindstrom, the non-competition clauses in the franchise agreement contained an exception for bathroom restoration and renovations completed by Mr Manthorpe, in the business Regency Bathrooms.  The relevant clauses are:

    14.9 (Diligence, Good Faith and Loyalty) The Franchisee or the Specified Person must at all times: -

    …

    (e)act with loyalty and good faith towards the Franchisor, the Master Franchisee and the GJ Gardner Homes group;

    (f)not perform any act which is designed to, or is likely to, assist any competitor of the Franchise or any competitor of any other G J Gardner Homes Franchise, provided that the continuing involvement of the sole director of the Franchisee, namely Glenn Charles Manthorpe, in the business Regency Bathrooms BN040899659, which conducts bathroom restorations and renovations, shall not be deemed by the Master Franchisee as the Franchisee performing any act which is designed to, or is likely to, assist any competitor of the Franchise or any competitor of any other G J Gardner Homes Franchisee under this clause 14.9.

    …

    14.33 (Other business interests) The Franchisee and/or Specified Person will not conduct or be involved in any other business interests that would interfere with or prejudice in any way the satisfactory performance by the Franchisee of its obligations under this Agreement, or the financial position of the Franchisee and the Specified Person, provided that the continuing involvement of the sole director of the Franchisee, namely Glenn Charles Manthorpe, in the business Regency Bathrooms BN040899659 which conducts bathroom restorations and renovations, shall not be deemed by the Master Franchisee as the Franchisee conducting or being involved with other business interests that interfere with or prejudice the performance of the Franchisee of its obligations or its financial position under this clause 14.33. The Franchisee will, on request by the Master Franchisee at any time, make full disclosure of any other business interests of the Franchisee and Specified Person, and of their financial position in respect of other business interests.

    …

    20.1 (Franchisee not to Compete) The Franchisee agrees that during the Term and any renewal thereof the Franchise, the Specified Person and any Associates shall not (save as a G J Gardner Homes Franchisee in accordance with this agreement and save Glenn Charles Manthorpe as the sole director of the Franchisee, in the business Regency Bathrooms BN040899659, which conducts bathroom restorations and renovations) engage in, participate in or have any direct or indirect interest whether as an owner, partner, director, shareholder, officer, employee, agent, consultant, representative, contractor or sub-contractor or in any other capacity direct or indirect, in the design, sales, marketing, management, accounting, estimating and construction of any houses, commercial or industrial buildings, units or duplexes.

19. The Specified Person referred to in Clauses 14.9, 14.33 and 20.1, is defined in Item 12 of the Schedule to the franchise agreement, as being Mr Manthorpe.  A special condition, relevant to this action, was also included in the franchise agreement at Part 31. It provided that:

    This grant of the GJG Homes Franchise for South Adelaide by the Master Franchisee to the Franchisee is subject to and conditional upon the director of the Franchisee, Glenn Charles Manthorpe ceasing to operate his business known as Regency Home Improvements BN05061015 prior to the commencement date of this agreement.

20. It is Instate’s case that Mr Manthorpe and Regency breached Clauses 14.9, 14.33, 20.1 and the special condition of the franchise agreement by conducting building work under the Regency Home Improvements business name.  I consider those alleged breaches later in these reasons.

    Obligations to pay franchise fees

21. The obligation upon Regency to pay franchise fees to Instate is found within the terms of the franchise agreement.  As set out above a monthly continuing franchise fee was payable to the master franchisee by franchisees.  In relation to Regency this monthly fee was set out in the franchise agreement to be, the greater of $4,500.00 or 4% of the aggregate original contract amounts of each building contract, for which the slab or floor stage was laid during the preceding month.[48]  Invoices for the continuing franchise fees were rendered by Instate as master franchisee.  These invoices were calculated pursuant to an obligation upon Regency to provide documentation each week to Instate that contained the contract amounts; the estimated construction budgets; and weekly progress reports for each build.[49]  If invoices rendered by Instate were not paid, they had a right to charge interest on any unpaid franchise fees.[50]

    [48] Exhibit A1.3 at Clauses 11.3 and 11.4 and Schedule 11.

    [49] Exhibit A1.3 at Clause 11.5.

    [50] Exhibit A1.3 at Clause 11.9.

    Franchise Requirements

22. The franchise agreement at Clause 14.9 imposed obligations upon Regency and Mr Manthorpe, as the Specified Person, to at all times:

    (a)faithfully, honestly, and diligently perform their obligations under [the] agreement;

    (b)operate the Franchise strictly in accordance with all of the standards, practices and obligations set forth in the Manual;

    (c) continuously exert their best endeavours to promote the Franchise and operate the Franchise so as to maximise the revenue and profits of the Franchise;

    (d)….

    (e) act with loyalty and good faith towards the Franchisor, the Master Franchisee, and the G J Gardner Homes Group.[51]

    [51] Exhibit A1.3 at Clause 14.9.

23. Each month Regency was required to provide to Instate their monthly contracts, and a complete list of all of Regency’s past, current and prospective customers, with all their details.[52]

    [52] Exhibit A1.3 at Clause 14.22.

    Ongoing Franchise Fees after Termination

24. The obligation upon Regency to pay continuing franchise fees continued after termination of the franchise agreement.  Clause 18.6(g) of the agreement provided that a consequence of termination was that:

    The Franchisee must immediately pay Continuing Franchise fees to the Master Franchisee on all jobs in the system which the Master Franchisee has consented in writing that the Franchisee may complete whether the slab or floor stage has been laid or not.

    A refund was to be provided if there was written evidence produced that the contract did not proceed.

25. The obligation to pay franchise fees upon early termination of the franchise agreement also included an obligation upon Regency to pay $3,000.00 per month for the balance of the term of the agreement (termination fees).  In addition, if the franchise agreement was breached by Regency’s GJG franchise business premises being used for the design, sale, marketing, or construction of houses in competition with GJG Homes after termination of the agreement, a further $3000.00 per month was to be paid (penalty fees).[53]

    [53] Exhibit A1.3 at Clause 18.6(k).

    Breaches of the Franchise Agreement

26. There is no dispute on the evidence that during 2017 and 2018 both Regency and Mr Manthorpe performed building work, and entered into contracts, for the construction of houses outside of the GJG Homes franchise.  No building contracts for that work were notified to Instate, either formally through the GJG Homes IT system, or informally through discussions with any Instate team member.  As a result no invoices were rendered by Instate for the payment of franchise fees on those contracts.[54]  Sue Dilena and Mr Gill both gave uncontradicted evidence that the respondents had used forged documents for the purpose of some building contracts with the GJG Homes letterhead being removed and the Regency Home Improvements name being inserted.[55]  There is uncontradicted evidence that the respondents performed building work that was not put through the GJG Homes system, meaning that Instate did not render invoices for continuing franchise fees for that work.[56]

    [54] T193.4-9; T194.9-31; T195.15-24; T215.38-T216.15.

    [55] T90.26-T91.1; T114.24-T115.5.

    [56] T91.2-13; T113.32-34; T114.8-13; T126.4-20.

1. Mr Manthorpe’s evidence was that he was worried, from the time that the franchise business started, that if it did not win building contracts at an early stage then he could encounter financial difficulties.  He re-mortgaged his home by an additional $150,000.00, however these funds were quickly depleted, and further borrowings were required.  Some smaller bathroom jobs performed through Regency Bathrooms helped the cash flow situation of the franchise business.  However, Regency was never able to win enough GJG Homes building contracts to cover the running of the franchise business, and Mr Manthorpe exhausted his personal funds.[57]  Mr Manthorpe therefore made the decision to take on building work under the Regency Home Improvements business name, in an attempt to save the franchise business, and to raise cash flow.[58]  These jobs allowed him to be more flexible with his pricing structure, design elements and the type of building work he took on.[59]  His evidence was that the jobs would have been lost if he had insisted on the clients using GJG Homes plans and price structure.  Several of the building jobs followed enquiries that had initially come through the GJG Homes network but were converted to Regency Home Improvements contracts.[60]

   [57] T152.1-T153.7; T154.37-38; T158.20-T159.22.

   [58] T185.26-37; T216.3-15.

   [59] T156.9-T157.1; T158.8-20; T160.20-35.

   [60] T163.26-T164.16; T186.5-T187.13.

2. Mr Manthorpe’s evidence is that he did not hide these jobs from Instate, as he continued to use the GJG Homes email system, and folders for each building contract was on display in his office.  He denied that he deliberately tried to hide the jobs he was doing under the Regency Home Improvements business name.  However, he accepted they were never entered into the Instate GHG Homes IT system and Instate were not notified of them.[61] This was a breach of Clauses 11 and 14 of the franchise agreement.

   [61] T195.15-24.

3. Mr Manthorpe accepted in evidence that when he negotiated the franchise agreement with Mr Lindstrom, it was agreed that he could continue doing bathroom renovation work outside the franchise system, but that there was no agreement that he could carry out general building and construction work.  He fully admitted that he entered into contracts for, and did, such building work in breach of Clause 20.1 of the franchise agreement.[62]

   [62] T187.28-T189.36.

4. Mr Manthorpe agreed that in breach of the franchise agreement, the following building contracts in the name of Regency Home Improvements, were not notified to Instate during the term of the franchise agreement (the unnotified properties):[63]

   1.7 Ewell Avenue, Warradale for the contract price of $669,053.00 (incl GST).[64]

   2.121 Sturt Street, Dover Gardens for the contract price of $343,196.00 (incl GST).[65]

   3.63 Gladys Street, Clarence Gardens for the contract price of $182,600.00 (incl GST).[66]

   4.29 McKell Street, Kidman Park for the contract price of $125,000.00 (incl GST).[67]

   5.46 Lewis Road, Carrickalinga for the contract price of $75,988.00 (incl GST).[68]

   [63] T233.15-19.

   [64] T223.33-T227.18 and documents at Exhibits A3.4, and A3.5.

   [65] T227.23-T229.21 and documents at Exhibits A4.3, A4.4, A4.5 and A4.6.

   [66] T229.22-T230.22 and documents at Exhibits A4.7 and A4.8.

   [67] T230.24-T231.11 and documents at Exhibits A4.1 and A4.2.

   [68] T231.13-T233.2 and documents at Exhibits A3.2 and A3.3.

5. Each of the building contracts on the unnotified properties was completed, and Regency Home Improvements was paid the contracted price.[69]  No continuing franchise fees were paid to Instate for these builds.  The building contracts, and their performance, breached multiple obligations in the franchise agreement including to act in good faith towards Instate and not perform acts to assist a competitor (Clause 14.9); not to conduct other businesses (Clause 14.33); not to compete with GJG Homes (Clause 20.1); to cease operating Regency Home Improvements (the Special Condition at Part 31); to pay continuing franchise fees (Clauses 11.3 and 11.4); and to provide all building contract details including contract amounts and deposit details, weekly progress reports on builds, and variation details to Instate (Clauses 11.5). 

   [69] T233.3-14.

6. In his closing address to the court Mr Manthorpe conceded that he and Regency had breached the franchise agreement by entering into, and completing, the building contracts on the five unnotified properties.  He conceded that if I find that the franchise agreement had been novated to Instate then continuing franchise fees, that should have been paid on those contracts, were not paid.[70] In cross-examination Mr Manthorpe admitted that he had understood the ‘non-competition’ clauses of the franchise agreement, and despite those he had entered into building contracts under the Regency Home Improvements due to his dire financial position.  He candidly said he would do it again in the same circumstances.[71]

   [70] T288.27-T289.11; T289.35-T291.18.

   [71] T189.22-T190.2.

7. Mr Manthorpe also agreed that there were five other building contracts that had been registered in the GJG Homes franchise system by Regency (the notified properties) for which continuing franchise fees were never paid to Instate.[72]  The building work for these contracts was completed after the franchise agreement had been terminated.[73]  Those contracts were:

   1.606 Swamp Road, Lenswood dated 18 September 2017 for the contract price of $669,053.00 and with a slab pour on 2 May 2018;

   2.22B McArthur Avenue, Rostrevor dated 17 January 2018 for the contract price of $324,288.00 and with a slab pour on 9 July 2018;

   3.14 Warburton Road, Valley View dated 30 May 2017 for the contract price of $364,688.00 and with a slab pour on 12 October 2018;

   4.1 Morris Street, Cumberland Park dated 16 April 2018 for the contract price of $431,916.76 and with a slab pour on 24 July 2018; and

   5.4 Woodlands Road, Cockatoo Valley dated 7 May 2018 for the contract price of $678,044.00 and with a slab pour on 29 November 2018.

   [72] T234.20-32; T235.27-T236.6; T236.25-T237.15; T244.31-36.

   [73] T303.22-T304.7.

8. Each of these five building contracts was entered into by Regency before termination of the franchise agreement on 8 May 2018.  Instate claims a 4% continuing franchise fee on each, in the total sum of $98,719.59.  They claim $45,767.84 in relation the franchise fees for the contracts on the unnotified properties.

9. There is a dispute regarding Regency’s liability to pay the continuing franchise fees in relation to the contracts on the five notified properties.  The building work on those properties was completed after termination of the franchise agreement.  There is also a dispute regarding Regency’s liability to pay post termination fees due from 8 May 2018 until the term of the contract expired on 31 October 2019.  These fees are monetary compensation and are claimed pursuant to the terms of the franchise agreement at $6,000.00 per month.  This claim is made on the basis that after termination of the franchise agreement Regency and Mr Manthorpe breached Clause 18.6(k)(ii) in that they used the Glandore premises for the ‘design, sales and marketing or construction of houses in competition with the GJ Gardner Homes Network’.[74]

   [74] Exhibit A1.3.

10. It was pleaded on behalf of the respondents that in relation to the five notified properties Instate had accepted termination of the franchise agreement before the slabs had been poured for each property.  As a result, there was no obligation upon Regency to notify Instate of the laying of the slabs, and therefore for continuing franchise fees to be paid.  In his evidence Mr Manthorpe stated that some of the contracted jobs had not started when the franchise agreement was terminated.[75]

    [75] T235.1-5; T235.18-T236.6.

11. In his closing address Mr Manthorpe conceded that if the franchise agreement had not been terminated on 8 May 2018, then Regency would have been required to pay the continuing franchise fees for the notified properties.[76]  His position is however, that once the franchise agreement was terminated, he no longer had any obligation to pay the continuing franchise fees on building contracts where the slabs had not yet been poured.

    [76] T288.13-26.

12. Instate’s case is that the termination of the franchise agreement does not impact upon Regency’s obligation to pay the continuing franchise fees on the building contracts for the notified properties.  Clause 18 of the franchise agreement sets out the consequences of the termination of the agreement.  Instate relies upon the express terms of Clause 18.6(g) to claim the continuing franchise fees in relation to the notified properties.

13. The issue of the additional termination and penalty fees was not addressed in evidence by Mr Manthorpe.  The franchise agreement clearly sets out that a continuing franchise fee is payable upon termination of $3,000.00 per month for the balance of the term of the agreement,[77]  and an additional $3,000.00 per month is payable where following termination, the franchisee, or the specified person, utilises the premises previously used for the franchise business for building work in competition with the GJG Homes Network.[78]

    [77] Exhibit A1.3 at clause 18.6(k)(i).

    [78] Exhibit A1.3 at clause 18.6(k)(ii).

14. Mr Gill, in his affidavit of evidence, set out that following termination of the franchise agreement Regency and/or Mr Manthorpe registered the business name ‘Regency Custom Builders’ on 9 May 2018 and used the Glandore premises to operate both Regency Home Improvements and/or Regency Custom Builders in competition with Instate’s business as the SA Master Franchisee, and the businesses of other GJG Homes franchises.[79]  Annexed to Mr Gill’s affidavit is a copy of an ASIC Business Name Details extract for Regency Custom Builders that confirms the registration of the business name, and that Mr Manthorpe was the holder of that business name from 9 May 2018.[80]  It was also set out that the principal place of business of Regency Custom Builders was the Glandore premises.

    [79] Exhibit A8 at [25].

    [80] Exhibit A8 at Exhibit KG-8 thereto.

15. Mr Manthorpe was never asked about the creation of Regency Custom Builders only one day after his GJG Homes franchise had been terminated.  However, registration of that business name on 9 May 2018 was admitted in the Second Defence.[81]  Mr Manthorpe’s evidence was clear that he continued business as a home builder from the Glandore premises after the termination of the franchise agreement.  He said that he had to do this to pay his bills.  Mr Manthorpe in fact extended the lease by another 12 months.[82]  I find that Regency and Mr Manthorpe operated home building businesses in competition with the GJG Homes network after termination of the franchise agreement.  These businesses were operated from the Glandore premises from where the GJG Homes Adelaide South franchise had been operated before the franchise agreement was terminated.

    [81] FDN 21 at para [21.7].

    [82] T168.1-14.

16. Mr Manthorpe and Regency continued to use the GJ Gardner Homes Adelaide South business name after the termination of the franchise agreement.  This was confirmed by Mr Gill in his affidavit evidence and by an Australian Businesses Register historical details search for Regency.[83]  This search, dated 9 November 2021, confirmed that Regency held the GJ Gardner Homes Adelaide South business name between 14 November 2014 and 28 March 2019.  Regency’s failure to terminate the business name registration, and thereby continuing to suggest an ongoing connection with the GJG Homes franchise, was a further breach of its obligations upon termination of the franchise agreement.[84]

    [83] Exhibit A8 at Exhibit KG-9 thereto.

    [84] Exhibit A1.3 at Clause 18.6(c).

    Events leading to the 8 May Meeting

17. In April 2018 Sue Dilena became aware that Regency was performing building work outside of the franchise agreement.  This related to the property at 7 Ewell Avenue, Warradale (the Ewell Ave property).  Ms Dilena had been asked by a building contact about a crane supplied to the Ewell Ave property in early April 2018 in relation to a building job being carried out by Regency.  Ms Dilena was not aware of that job and attended at the Ewell Ave property on 16 April 2018.  She found a house build partway through construction, GJG Homes branded vehicles parked at the site, and signage in place for Regency Home Improvements.

18. Ms Dilena later searched the GJG Homes IT system and found that the Ewell Ave property was being advertised as an example of GJG Homes work.  She could find no notification by Regency or Mr Manthorpe that a contract for the construction of a house on the Ewell Ave property had been signed.  Ms Dilena’s evidence was that a house build on the Ewell Ave property had been quoted in the GJG Homes system but had never proceeded to the contract stage.  By later searching emails, she found that the exact same quote had also been prepared for the Ewell Ave property build, using the Regency Home Improvements logo.[85]

    [85] T90.16-T91.1.

19. This discovery caused Ms Dilena to conduct a full review of the GJG Homes IT system, whereby she learned of the additional unnotified properties, and the contracts for construction of homes and/or building work upon those properties.  Her uncontradicted evidence is that Instate had not been notified by Regency or Mr Manthorpe of those contracts.

20. As a result of her search of the IT system Ms Dilena also became aware that Regency had, through the website promoted the general building business, Regency Home Improvements.  This business was said to build new homes from ‘concept to completion’.  Ms Dilena also found communication between GJG Homes’ customers and Regency using a Regency Home Improvements email signature, and further GJG Homes documents that had been re-produced using the Regency Home Improvements logo.

21. Ms Dilena reported what she had found to Mr Gill.  He was concerned about what was occurring, and particularly the possibility of Regency and Mr Manthorpe forging documents and converting leads to Regency Home Improvements.  Mr Manthorpe was contacted by Sue Dilena in early May 2018, who advised that she and Kris Gill wanted to have a meeting with him.  A meeting was arranged for 2.00pm on 8 May 2018.  Mr Manthorpe was not told what the meeting was about.  He was not provided with any documentation prior to the 8 May meeting.

    The Termination Letter

22. Mr Gill was disturbed to learn that Regency was entering into building contracts in competition with GJG Homes, and appeared to be forging GJG Homes documents, by changing them to Regency Home Improvements.[86]  This caused him to seek advice from DW Fox Tucker.  They prepared a letter to be presented to Mr Manthorpe at the 8 May meeting (the termination letter).[87]

    [86] T114.8-T115.5.

    [87] Exhibit A8 at Exhibit KG-6 thereto.

23. The termination letter set out Regency’s alleged breaches of the franchise agreement.  These were stated to be the undertaking of home renovation and construction work under the GJG Homes banner for which franchise fees had not been paid; the operation of the business Regency Home Improvements in competition with GJG Homes; and the non-payment of continuing franchise fees.  Details of the five unnotified properties were set out, with it being stated that the entering into of building contracts by Regency Home Improvements for work to be performed on those properties, breached the franchise agreement.

24. As a result of the stated breaches, demands were made of Regency in the termination letter.  These were that:

    1.all documentation for the builds on the unnotified properties be provided within 30 days;

    2.payment be made within 30 days to Instate of all continuing franchise fees for the builds on the unnotified properties, from the date that the slab was laid under each build;

    3.the customer details and all documentation for customers who had paid deposits for other anticipated builds be provided to Instate within 30 days, and if any of those customers had entered into build contracts that proceeded, then payment of continuing franchise fees within 30 days of the date that the slab was laid under each relevant build;

    4.Regency complete all construction works in accordance with building and any other contracts entered as per 3 above, including associated 90-day maintenance obligations;

    5.Regency pay continuing franchise fees in the total sum of $115,417.60, within 30 days of the date that the slab was laid in relation to the notified properties and the Ewell Ave property, and that all construction works on those properties be completed by Regency, including associated 90-day maintenance obligations;

    6.Regency pay Instate’s legal costs of $1,650.00 plus disbursements within 14 days;

    7.within five business days:

    (i)     all GJG Homes signage be removed from Regency’s office, vehicles and properties;

    (ii)    Regency return to Instate the GJG Homes manual, signage, advertising materials, records, and files; and

    (iii)   Regency divert the business phone and fax lines to Instate

    (the demands)

25. A without prejudice offer was made that if Regency complied with the demands, Regency would terminate the franchise agreement and the GJG Homes Software Licence Agreement ‘by agreement’.  The letter continued:

    7.If you agree to termination by agreement, and subject to your compliance with paragraph 5 of this letter [the demands], our client [Instate] will not demand payment from you of any further amounts under the Franchise Agreement, including but not limited to the termination fees payable to the Master Franchisee for the balance of the term of the Franchise Agreement under clause 18.6(k) of the Franchise Agreement.

    8.If you do not comply with the matters set out in paragraph 5 of this letter [the demands] in accordance with those terms, our client expressly reserves its rights to take action against you under the Franchise Agreement and at law.[88]

    [88] Exhibit A8 at Exhibit KG-6 at page 3 thereto.

26. Despite the wording of the termination letter Mr Gill’s evidence was that in arranging and attending the 8 May meeting, the initial intention was to present options to Mr Manthorpe other than just termination of the franchise agreement.  His view at the time was that if the breaches of the agreement could be satisfactorily rectified then there would be no need to terminate the franchise.  This included paying the outstanding franchise fees and bringing the building jobs on the unnotified properties into the GJG Homes system.  That was, if Regency complied with the demands.[89]  Ms Dilena in her evidence confirmed this to be the case.[90]

    [89] T113.27-T114.21; T121.14-33.

    [90] T97.4-12; T98.7-12.

    The 8 May Meeting

27. Mr Gill’s evidence was that although he was prepared to hear Mr Manthorpe’s version of events before attending the 8 May meeting, he was very concerned that Regency was performing building work outside of the GJG Homes system, not paying franchise fees on those builds, and was forging GJG Homes documents for his own use.  Mr Gill and Ms Dilena regarded this as fraud.[91]  There was no doubt that both Mr Gill and Ms Dilena regarded Mr Manthorpe through Regency as having acted deceptively.[92]

    [91] T91.36-38; T93.36-38; T98.7-12; T113.32-T114.32.

    [92] T91.36-38.

28. The uncontradicted evidence is that Mr Gill and Ms Dilena attended the 8 May meeting with the understanding that the franchise agreement would be terminated unless Mr Manthorpe could satisfy them of a way in which the breaches of the agreement could be rectified.  This was primarily by Regency paying the unpaid franchise fees, and having a satisfactory reason for the breaches, including why building work was accepted in competition with GJG Homes and using GJG Homes documents for his Regency Home Improvements business.[93]

    [93] T121.14-33; T122.5-11.

1. The claim is larger than the sum set out in the termination letter of $115,417.60.  This is because the continuing franchise fees claimed then, were only in relation to six building contracts, being those contracts that Instate had full knowledge of having been contracted outside of the franchise agreement at the date of the letter.  Instate was aware of the names of other clients who had entered into building contracts with Regency and by the termination letter, required full details be provided of all these additional building contracts and demanded payment of the associated franchise fees in relation to those contracts within 30 days of the date that the slab was laid under each such contract.  Those additional continuing franchise fees are included in Instate’s claim.  As I have stated, Mr Manthorpe did not dispute the total of the sum claimed for payment of continuing franchise fees on each building contract.

2. As part of the mutual termination of the franchise agreement, and subject to Regency paying all continuing franchise fees on the ten building contracts entered into on the notified and unnotified properties, Instate agreed it would not demand payment from Regency of any further amounts under the franchise agreement ‘including but not limited to the termination fees payable to the Master Franchisee for the balance of the term of the Franchise Agreement under clause 18.6(k)’.[118]

   [118] Clause 7 of the Termination Letter (Exhibit A8).

3. Regency did not meet the terms of the mutual termination and made no payments of any continuing franchise fees.  Instate claims that it is not therefore bound by Clause 7of the termination letter.  I agree.

4. As I have found the franchise agreement was validly terminated on 8 May 2018.  This termination was mutually agreed and acknowledged by Mr Manthorpe and Regency by the signing of the termination letter.  By that letter, Instate forgave the termination fees payable pursuant to Clause 18.6(k) of the agreement, but only if Regency paid the outstanding franchise fees as agreed.  They did not.  There is no reason why the termination fees are not now payable by Regency.

5. Instate had grounds to terminate the franchise agreement without Regency’s agreement due to Regency and Mr Manthorpe’s fraudulent behaviour, pursuant to the terms of Clause 18.3(d) of the franchise agreement.  Such immediate termination by Notice would trigger the requirement for Regency to pay the fees of $3,000.00 per month for the balance of the franchise term.[119]  It also meant that Regency and Mr Manthorpe could not continue to operate, Regency Home Improvements, or the new business, Regency Custom Builders, out of the Glandore premises and in competition with GJG Homes, without having to pay the further penalty of $3,000.00 per month.[120]

   [119] Clause 18.6 (k)(i) of the franchise agreement (Exhibit A1.3).

   [120] Clause 18.6 (k)(ii) of the franchise agreement (Exhibit A1.3).

6. The offer of mutual termination provided Regency, and Mr Manthorpe, with the opportunity to avoid paying these additional fees.  This was worth some $108,000.00 to Regency and was another reason why mutual termination was an attractive option, in circumstances where termination of the franchise was the only viable option to them, given their financial circumstances, and their fraudulent behaviour in their operation of the GJG Homes franchise.  Despite this, by failing to meet the terms of the mutual termination, and by making no payment of any continuing franchise fees, the terms of the mutual termination no longer apply.  Clause 18.6(k) of the franchise agreement now applies to the termination of the agreement.

7. For the reasons I have already outlined, I find that following termination of the franchise agreement and pursuant to Clauses 18.6(k)(i) and (ii) of that agreement, Regency became liable to pay Instate a total of $6,000.00 per month for the balance of the term of the franchise.  This was 18 months to 31 October 2019.  No payments were made. I find Regency is now liable to pay Instate $108,000.00.

8. I find that Instate has suffered loss and damage as a result of Regency’s breaches of the franchise agreement in the total sum of $252,487.43.  This is made up of Regency’s liability to pay the continuing franchise fees of $144,487.43; the unpaid termination fees payable from 8 May 2018 until 31 October 2019, totalling $54,000.00; and the unpaid penalty fees for operating businesses in competition to Instate from the Glandore premises from 8 May 2018 until 31 October 2019, totalling $54,000.00.

   Regency’s Inability to Meet its Liabilities

9. Although continuing to operate as a building business following termination of the franchise agreement, Regency continued to suffer financial difficulties, and on 18 February 2021 the company went into liquidation as a result of a creditors voluntary winding up.  Instate acknowledges that Regency cannot meet payment of its liabilities, and it seeks to recover the damages of $252,487.43 from Mr Manthorpe personally, pursuant to the guarantee.

10. As I have set out above, it is not in dispute that neither Mr Manthorpe or his wife executed a Deed of Covenant and Novation presented to them on behalf of Instate in early 2015.  There is divergent evidence as to whether Mr Manthorpe told Mr Gill that he would sign a deed as sole guarantee.  Mr Manthorpe was very clear in his evidence that he does not recall attending a meeting where the guarantee was discussed.[121]  I accept that evidence.  In any event, for some reason the issue of a new guarantee was never followed up and the Deed with the new guarantee was never signed.  As I have already found the parties proceeded upon the basis that from 23 February 2015 Instate was the SA Master Franchisee.

    [121] T201.25-T204.3.

11. The concession that the Deed of Covenant and Novation, with the new guarantee, was never signed by Mr Manthorpe was only made by Instate at the end of the trial, after hearing all of the evidence.  This was despite this being Regency and Mr Manthorpe’s pleaded case.[122]  Mr Gill’s evidence was that Mr Manthorpe had told him that he would sign the Deed of Covenant and Novation and therefore the guarantee, even if his wife would not, however after he had arranged for the Deed to be sent off, he admitted that he never saw the document again.[123] 

    [122] Paragraph 7.1 of the Second Defence.

    [123] T110.1-T111.11; T128.29-33.

12. Instate accepts this is the position.  It seeks therefore to rely upon the original Deed of Guarantee and Indemnity signed by both Mr Manthorpe, and his wife, Grace Margaret Manthorpe, on 22 September 2014.  This Deed of Guarantee and Indemnity was given to Now Home Services Group and is annexed to the franchise agreement as Annexure G (the guarantee)[124].  By the guarantee, Mr and Mrs Manthorpe covenanted ‘jointly and severally’ in favour of Now Home Serves.  Mrs Manthorpe was never a party to these proceedings.  Instate seek to recover Regency’s liability to them solely from Mr Manthorpe, pursuant to his severable liability.

    [124] Exhibit A1.3.

13. The guarantee was provided at the request of, and directed to, Now Home Services Group and was in the following terms:

    TO: New Home Services Group ACN 006 824 442

    WE, the undersigned Director and/or Shareholders and third party of Regency Pty Ltd (“the Franchisee”) whose names and addresses appear in the Schedule hereto IN CONSIDERATION of you entering into a franchise agreement (“the agreement”) to which the guarantee and indemnity is an annexure at our request HEREBY COVENANT jointly and severally for ourselves and our respective personal representatives, successors and permitted assigns in favour of you and your successors and permitted assigns as follows:

    1.WE GUARANTEE the due performance and observance of the terms and conditions in the agreement and any related agreement referred to in the agreement contained and on the part of the Franchisee [Regency] to be performed and observed (including the due payment of any monies and interest thereunder) and we hereby specifically agree and declare that this guarantee shall be a continuing guarantee and shall in no way be avoided released or affected and shall remain in full force and effect notwithstanding any time or indulgence given or allowed to the Franchisee by you or any variation of the agreement irrespective of whether we have consented to or received notice of any such indulgence or variation.

    2.WE shall pay to you forthwith upon written demand all monies due and owing by the Franchisee to you under this agreement or any such related agreement.

    3.Our liability under this guarantee will be deemed not to be discharged by any payment made to you by the Franchisee that is later avoided by the application of any statutory provisions. In such an event, the parties are to be restored to the rights which each respectively would have had if the payment had not been made by the Franchisee.

    4.WE INDEMNIFY you against all losses, costs and expenses whatsoever (including but not limited to any legal costs and disbursements on a solicitor and own client basis) which may be incurred as a result in any way of any dealing whatsoever with the Franchisee.

    5.This guarantee shall be enforceable against us by you notwithstanding any action that you may take against the Franchisee in pursuance of your rights under the agreement or any such related agreement.

    6.You may at any time grant to the Franchisee any time or indulgence and may compound or compromise with or release the Franchisee without releasing discharging or affecting the liability of us under this guarantee irrespective of whether we have consented to or received notice of any such act matter or thing.

    7.You may act as though we were the Franchisee and we hereby waive any and all of our rights as surety which may at any time be inconsistent with the provisions of the guarantee herein contained.

    8.We undertake to exercise our powers as directors or shareholders of the Franchisee as the case may be to ensure its compliance with the provisions of the agreement and any such related agreements.

    9.Any claim or right that you may have against the Franchisee must in all respects take priority over any similar right that we might have against the Franchisee under this agreement or otherwise howsoever arising.

    10.This Guarantee and Indemnity shall be binding on each of us who shall have signed it notwithstanding that one or more persons named as guarantors may not have executed the same.

    11.We agree that our liability under this Deed shall be as principal obligors and debtors and we will not be released by any circumstance that will release a Guarantor only.

    12.This Deed shall be enforceable against us notwithstanding any expiry or termination of the Agreement and will extend to a guarantee and Indemnity of obligations of the Franchisee arising following such expiry of termination.

    (Emphasis added)

14. Instate rely upon the guarantee in two ways.  Their primary submission is that the terms of the Deed, of themselves as a legally binding document under which the Manthorpe’s, jointly and/or severally agreed to guarantee the obligations of Regency under the franchise agreement are effective and operate in favour of Instate.  The secondary submission is that the benefit of the guarantee was assigned by Now Home Services to Instate as part of the transfer of the SA Master Franchise in February 2015.

15. Mr Manthorpe very strongly disputes both positions and argues that it is unfair of Instate to now change its previous case that a new guarantee had been signed by was of the proposed Deed of Covenant and Novation.  He submits that Instate was always aware that the Deed of Covenant and Novation had not been signed, and at any time during the franchise could have come to him to get it signed.  Whether he would have signed the Deed of Covenant and Novation is not certain.[125]  However Mr Manthorpe’s very clear position is that he would never have signed a personal guarantee with Instate.  He had developed a business relationship of trust with Dean Lindstrom before signing the guarantee with him.  However, at the time he was asked to sign the new deed with Instate, he had only had one brief meeting with them and was somewhat annoyed that he was now expected to work with people he did not know at all.  He was therefore not prepared to sign any legal documents that bound him personally to them.[126]  He told Dean Lindstrom this, and the Deed of Covenant and Novation was never signed.[127]

    [125] T292.27-T293.31.

    [126] T294.30-T295.5.

    [127] T296.5-21.

16. Mr Manthorpe rejects any suggestion that the guarantee could be assigned by Now Home Services to Instate without his agreement.  He rejects Instate’s position that the guarantee was assigned to them by Now Home Services upon transfer of the SA Master Franchise.[128]  Mr Manthorpe’s case, as far as I can discern it, is that this would simply be unfair.[129]

    [128] T294.2-T295.18.

    [129] T295.8-18.

    The Terms of the Deed of Guarantee

17. Instate rely upon the wording of the guarantee to submit that it benefits Instate in its terms.  Firstly, the primary covenant is expressed to be given in favour of not only the named party, Now Home Services, but also a class of potential beneficiaries described as Now Home’s successors and permitted assigns.  Instate is such a successor as an assignee of Now Home Services.

18. It is argued that this interpretation of the guarantee is strengthened by it being given in consideration of Now Home Services entering into the franchise agreement, in circumstances where Part 17 of that agreement (with the heading of ASSIGNMENT) expressly provided for and allowed novation or assignment of the franchise agreement to a new master franchisee.  It is submitted by Instate that the guarantee was therefore given, and the deed executed, in circumstances where it was objectively in the contemplation of the parties that the primary contract, the franchise agreement, could be assigned or novated to another party.  The wording of the guarantee reflects that.

19. Upon this interpretation of the guarantee, it is submitted by Instate that upon novation of the franchise agreement they became the successor, and assign of Now Home Services, and brought itself within the class of persons in favour of whom the covenant was expressly given in the guarantee.  The novation of the franchise agreement to Instate does not change the fundamental obligations of the guarantee, including the Manthorpe’s obligation to guarantee Regency’s performance, including payment of all franchise fees.  The guarantee was never terminated and remained an annexure to the franchise agreement at the time it was novated to Instate.  Their case is that it is entitled to now call upon the guarantee as a successor and assign of Now Home Services.

20. This argument is strengthened by the fact that Mr Manthorpe was well aware that the SA Master Franchise had been transferred to Instate, and that from soon after signing the franchise agreement, including the guarantee, he was no longer dealing with Dean Lindstrom and Now Home Services.  As I have already found the franchise agreement was legally novated to Instate in February 2015 and from that time Mr Manthorpe worked closely with Instate’s staff in operating the GJG Homes franchise through Regency.

21. In cross examination Mr Manthorpe confirmed that while he was unhappy with what had occurred, he accepted that there were terms in the franchise agreement that allowed Mr Lindstrom to transfer the SA Master Franchise without his consent.[130]  He also confirmed that when he and his wife signed the guarantee, although with Mr Lindstrom as master franchisee, he understood that he had entered a franchise for five years and during that period he was personally guaranteeing Regency’s financial obligations under the franchise agreement.[131]

    [130] T200.19-29.

    [131] T198.28-T199.15; T199.25-T200.8.

    Construction of the Deed of Guarantee

22. The well accepted principles in relation to the construction of guarantees, include that they fall to be construed strictly, and where there is dispute that they are to be construed in favor of the surety.  However, this does not mean that the wording of the guarantee, adopted by the parties, is to be ignored.  In circumstances where the wording is ambiguous, regard may be had to the circumstances surrounding the execution of the document as an aid to construction.[132]  Inferences can be drawn from the evidence before the court as to the original intention of the parties.[133]  Where the guarantee is for the payment of amounts owing by another under the ‘agreement’, consideration must be given to the definition of the ‘agreement’ in the guarantee, to ensure it extends to the sums being sought to be paid pursuant to the guarantee.[134]  A capricious and unreasonable construction should be avoided, as should meanings that are unrealistic or unlikely.[135]

    [132] Coghlan v SH Lock (Australia) Ltd (1987) 61 ALJR 289.

    [133] Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424 at 433.

    [134] Flexirent Capital Pty Ltd v Mills [2020] NSWDC 259 at [61].

    [135] Ibid at [39].

23. The wording of the guarantee is clear and unambiguous. I find that by the Deed of Guarantee and Indemnity Mr and Mrs Manthorpe jointly and severally guaranteed the performance and observance by Regency of the terms of the franchise agreement in favour of not only Now Home Services, but also in favour of Now Home Services successors and permitted assigns.

24. Mr Manthorpe does not dispute that Instate was Now Home Services successor or assign.  In his evidence he acknowledged that he understood that the terms of the franchise agreement included Regency paying the continuing franchise fees set out in the agreement, and that the guarantee meant that he would have to pay those fees if Regency, as a company, did not.  He understood what his obligations were to Instate, the master franchisee he had worked with for all but a few weeks of the time that he conducted the GJG Homes franchise through Regency, after officially opening his office in January 2015.  He only ever paid continuing franchise fees on building contracts to Instate.[136]

    [136] T180.16-T182.28.

25. The signed guarantee was annexed to the franchise agreement. That agreement clearly sets out the obligations of Regency.  There is no dispute at all as to the meaning of the agreement and those obligations, and no dispute that pursuant to the guarantee that the Manthorpe’s were required to pay any monies due and owing by Regency under the agreement.  Both the franchise agreement and the guarantee are clear in their terms.  The construction of the guarantee argued for by Instate is not capricious and unreasonable.  Although Mr Manthorpe was not happy with how the SA Master Franchise was transferred to Instate, he understood his obligations under both the franchise agreement and the guarantee.  I find that he understood them because they were clear and unambiguous.

26. In this regard I agree that the franchise agreement itself provides very clearly that the franchise agreement can be assigned by Part 17.  At Clause 17.1, set out above,[137] it is clearly stated that the master franchisee may transfer or assign its rights, title and interest, benefits and obligation under the agreement and related agreements, including the benefit of any guarantees relating thereto and those agreements will then vest to the benefit of the assignee or successor.

    [137] See para 56 above.

27. I find, on the express wording of the guarantee and the franchise agreement generally, that there was a covenant in the guarantee that provided that the benefit of the guarantee was given by the Manthorpe’s, jointly and severally to any assignee or successor of Now Home Services.  Instate was such an assignee and successor.  Mr Manthorpe’s evidence, and the evidence generally, supports that finding.

1. I find that the guarantee is expressly enforceable against Mr Manthorpe in relation to Regency’s breaches of the franchise agreement, and in particular its failure to pay continuing franchise fees.  Clauses 1, 2 and 4 of the Deed of Guarantee and Indemnity provide that Mr Manthorpe as guarantor, guaranteed Regency’s performance, and observation of the terms of the franchise agreement; agreed to pay all monies owing by Regency under the agreement; and agreed to indemnify Instate for all losses, costs and expenses incurred in connection with the franchise agreement.  These clauses cover the matters in dispute in this action for the reasons set out herein. Mr Manthorpe is liable to Instate in the sum of $252,487.43.

   Assignment of the Benefit of the Guarantee

2. Although not strictly necessary to determine this issue, I will make some comments and findings. I have already set out in detail the evidence regarding the transfer of the SA Master Franchise, and the evidence upon which I base my finding that the franchise agreement was as a result, novated by Now Home Services to Instate.  The issue then becomes whether, given the novation of the franchise agreement to Instate and thereby the creation of a new contract in the same terms, was the guarantee at Annexure G to the agreement also novated and/or assigned by Now Home Services?  Can novation or assignment of the guarantee be implied by the conduct of the parties?

3. The applicant argues that Now Home Services did assign the benefit of the guarantee to Instate in the transaction by which the business of the SA Master Franchise was purchased.  They rely upon a summary of the law set out by the Victorian Court of Appeal in the following paragraph in Mark Sensing (Aust) Pty Ltd & Anor v Flammea & Ors:[138]

   It is unnecessary to cite authority for the proposition that the benefit of a contract of guarantee is assignable as a legal chose in action.  It is a question of construction of the assignment of the principal debt whether the benefit of a guarantee such as the present, and not merely the principal debt, was intended to be assigned to the assignee.[139]  Wherever the words of assignment provide expressly for the assignment of the guarantee in respect of a debt, the position is clear.  If, however, there has been no express assignment of the guarantee, the words used may nonetheless be construed as sufficiently broad to extend to related securities, if the assignee is able to show that the express assignment of the principal contract has impliedly carried with it the benefit of the guarantee; Consolidated Trust Co Ltd v Naylor;[140] Farrow Mortgage Services Pty Ltd v Hogg and Cathie.[141]  But if the creditor simply assigns the benefit of the principal contract and the words of the assignment are limited to that transaction, the benefit of the guarantee securing it will not follow the assignment; International Leasing Corp (Vic) Ltd v Aiken.[142]  In this situation, neither the assignor nor the assignee is able to enforce the guarantee; International Leasing Corp (Vic) Ltd v Aiken;[143] Hutchens v Deauville Investments Pty Ltd.[144]

   [138] [2003] VSCA 41 at [21].

   [139] O’Donovan and Phillips: The Modern Contact of Guarantee, 3^rd ed. (1996) at 507.

   [140] (1936) 55 CLR 423 at 435-437.

   [141] [1995] ANZ Conv.R. 233 at 238-239 (Full Court of Supreme Court of South Australia).

   [142] [1967] 2 NSWR 427 at 439 per Jacobs JA, and 451 per Asprey JA.

   [143] [1967] 2 NSWR 427 at 439.

   [144] (1986) 61 ALJR 65 at 68.

4. Instate concedes that there is no document which has been produced in these proceedings that expressly assigns the franchise agreement to Instate, and therefore there is no express assignment that can be used as a basis for implying assignment of the benefit of the guarantee from Now Home Services to Instate.  They argue however, that on construction of the business transaction, there is no doubt that there was intended to be, and was, an assignment of the benefit of the guarantee.  The novation of the franchise agreement did not change the nature of the business, including the risk of Regency, as a company with few assets, not paying its obligations.  The business conducted by Regency, with its risks and obligations owed to the master franchisee, did not change by novation of the franchise agreement on 22 February 2015.

5. However, more importantly the Deed containing the guarantee was one annexure of ten separate annexures to the franchise agreement.  Those annexures concern many fundamental and important matters relative to the terms of the agreement.  In several instances the annexures expand upon what are standard clauses within the franchise agreement, by providing detail that more precisely defines the terms of the agreement entered into by Regency, and the circumstances applicable to their franchise business.  The three-page index to the franchise agreement includes each of the annexures as part of the agreement.

   The annexures and their subject matter are:

   ·the trademark of GJG Homes that could be used by Regency in their business, and a Trademark User Agreement defining the limits upon the use of the trademark: Annexures ‘A’ and ‘I’;

   ·the area the franchise covered and the ‘Primary Marketing’ area for Regency’s business: Annexures ‘B’ and ‘BB’;

   ·the Construction Schedule for Regency, setting out the number of buildings required to be commenced each month over the first three years of the franchise and thereafter: Annexure ‘C’;

   ·the Software Licence Agreement that allowed Regency to use GJG Homes copyrighted software programs and specialised computers owned by the Master Franchisee: Annexure ‘D’;

   ·the terms as to payment by Regency of the Initial Franchise Fee of $55,000.00: Annexure ‘E’;

   ·a Deed of Covenant in favour of Now Home Services given by Regency regarding Non-Competition during and after termination of the franchise agreement: Annexure ‘F’;

   ·a Deed of Guarantee and Indemnity: Annexure ‘G’;

   ·a Deed of Covenant in favour of Regency given by Now Home Services as the Master Franchisee, and Dean Lindstrom not to compete in business with Regency during the term of the franchise agreement: Annexure ‘H’.

6. In relation to the guarantee, Part 24.1 of the franchise agreement provides:

   (Guarantee) If the Franchisee is a corporation or if the Franchisee consists of more than one person and one or more of them is a corporation, the Franchisee shall on or before the commencement date procure the Guarantor to execute a Deed of Guarantee and Indemnity in favour of the Master Franchisee in the form contained in Annexure ‘G’ or in such other form as the Master Franchisee may accept.

7. The Guarantor is defined in Part I of the franchise agreement as the person(s) named in Item 16 of the Schedule to the agreement.  Mr and Mrs Manthorpe are the persons named as Guarantors.  This is the same way that other parts of the franchise agreement are drafted, particularly in relation to the other Deeds of Covenant.  The requirement for the deed is contained in clauses of the franchise agreement, and the terms are then included as a separate annexure to the agreement.

8. In McMahon & McMahons Dairy v National Foods Milk Ltd,[145] the Victorian Court of Appeal was considering a commercial dispute where Licensed Distributor Agreements had been novated twice, by agreement, by the purchaser of the milk (McMahon).  The original contract remained on foot with different iterations of the same purchaser.  The initial Heads of Agreement document contained a guarantee clause:

   [145] [2009] VSCA 153.

   GUARANTEE

   In consideration of the parties entering into this agreement, the Guarantor [scil Mr McMahon] guarantees the payment of all sums payable by McMahon under this agreement referred to in clauses 3.3 and 3.4.  This guarantee will be a continuing guarantee and will not be released by any neglect or forbearance on the part of National Foods or any time or other indulgence granted to McMahon by National Foods.

9. At the same time as the Heads of Agreement were executed, National Foods entered into a written Licensed Distributor Agreement with McMahon’s Milk, of which the obligations were secured by a separate Guarantee and Indemnity executed by McMahon.  By that guarantee agreement McMahon guaranteed payment for milk products to National Foods. In due course the commercial relationship between the parties broke down and McMahon’s Dairy owed a significant sum to National Foods. One of the issues in dispute was whether the guarantee given by McMahon in the Heads of Agreement applied post the novation of the obligations to M P McMahon and later McMahon’s Dairy.

10. The Heads of Agreement whereby McMahon agreed with National Foods to guarantee the payment of all sum’s payable under Clauses 3.3 and 3.4 of the Heads of Agreement, and a Licensed Distributor Agreement guarantee whereby McMahon guaranteed payment of all monies, fees and outgoings payable by the Licensed Distributor were in dispute.  The trial judge, Hargrave J had found that, by reason of the novation’s, McMahon should be taken to have agreed to the continuation of his guarantees as they were part of the whole of the commercial arrangements between National Foods and the McMahon companies, which had been the subject of the novation’s.  His conclusions as to why that was the case were approved by Nettle JA on appeal,[146] upon the basis that that there was an implied agreement that the guarantee under Clause 10 of the Heads of Agreement should apply to the substituted debtors.  Hargrave J had stated:

    In my view, once it is inferred that the parties agreed to a novation of the arrangements between them, it should also, as a matter of business common sense and avoiding any narrow or pedantic approach, be inferred that Tony McMahon agreed to the continuation of his guarantees of the whole of the commercial arrangements between National Foods and his companies which were the subject of the novation.

    This is particularly so in circumstances where Tony McMahon requested the second novation and indicated a clear intention that his guarantee should continue to apply to the trading arrangements under the licensed distributor agreement by executing a fresh guarantee when he submitted the credit account application form.  There is no reason to suppose that he intended any different result in connection with his guarantee of the licence fees due under the heads of agreement.

    In all the circumstances, I infer that both novation’s were subject to the agreement of the parties that Tony McMahon’s guarantee would continue to apply to the whole of the trading relationship between the McMahons and National Foods.  In these circumstances, neither the first novation nor the second novation should be taken to have discharged Tony McMahon’s guarantee.  Each novation was for his benefit and at his request.[147]

    [146] Ibid at [74].

    [147] [2008] VSC 208 at [266]-[268].

11. On appeal Nettle JA summarised the positions as follows:[148]

    As a matter of law, however, there is nothing to preclude a court from inferring the existence of a contract from the acts of the parties, as well as or in the absence of words, and so from the totality of the dealings between the parties.[149]  Hence, as matter of law, there is nothing to preclude inferring the existence of a contract of novation from conduct such as, for example, the conduct of a creditor in apparently accepting the liability of a new debtor in substitution for the old.[150]   And as was pointed out by the New South Wales Court of Appeal in Tszyu v Fightvision Pty Ltd; Fightvision Pty Ltd v Onisforou,[151] the principle that no narrow or pedantic approach is warranted when searching for contractual intention in commercial arrangements[152] applies equally when searching for an intention to novate. 

    [148] Ibid at [77].

    [149] Empirnall Holdings Pty Ltd v MachonPaull Partners Pty Ltd (1988) 14 NSWLR 523, 528; Vroon BV v Foster’s Brewing Group Ltd [1994] 2 VR 32, 82; cf Riseda Nominees Pty Ltd v St Vincent’s Hospital [1998] 2 VR 70; Cheshire & Fifoot’s Law of Contract 9^th Aust. Ed [3.5]; Branir v Owston Nominees (No 2) (2001) 117 FCR 424, 525 [369].

    [150] Fightvision Pty Ltd v Onisforou; Tszyu v Fightvision Pty Ltd (1999) 47 NSWLR 473, [74]-[76]; Cheshire & Fifoot’s Law of Contract, 9^th Aust Ed [8.49].

    [151] Ibid [86].

    [152] The Council of the Upper Hunter County District v Australian Chilling and Freezing Co Pty Ltd (1968) 118 CLR 429, 437 (Barwick CJ).

12. It was the view of the court that this could extend to a guarantee contained in the initial agreement. At trial Hargraves J found that the parties conducted themselves towards each other so that it could be inferred that they agreed to novate the Licensed Distributor Agreement to McMahon’s Dairy and, as part of that arrangement, that McMahon would go guarantor for McMahon’s Dairy upon the terms of the existing guarantee.  Nettle JA agreed and was of the view that there was no reason why the guarantee should not be enforced:[153]

    So far as the law is concerned, I have dealt already with the principles which determine whether it is open to infer the existence of a novation agreement (including the novation of a guarantee), and I have noticed that no narrow or pedantic approach to the drawing inferences of that kind is warranted when one is dealing with commercial novation arrangements.  As has also been observed, where a surety instigates or is otherwise involved in the novation of an underlying obligation, it may more readily be inferred that the surety thereby agrees that his or her guarantee of the old arrangement will stand as a guarantee of the new.[154]  Consequently, as Mahon J observed in Winstone Ltd v Bourne,[155] in circumstances where a guarantor argued that he had not assented to a variation in underlying obligation in his capacity as guarantor, but only in his capacity as director of the debtor company:

    On the facts, bearing in mind the clear knowledge of the defendants of their liabilities as guarantors, I cannot hold that their informed and endorsed assent as directors of that company to the alteration in the debenture was not also an informed though unrecorded assent as guarantors of the plaintiff’s debt.[156]

    [153] [2009] VSCA 153 at [93].

    [154] Williams v Frayne (1937) 58 CLR 710, 729; Swanson Bros v Stardown Investments Pty Ltd, (Unrep, Supreme Court of Victoria, 8 May 1967, Newton J); Wren v Emett Contractors Pty Ltd (1969) 43 ALJR 213, 220 (Menzies J, in diss but not in point of principle); Mytian v Williams [2001] NSWSC 47 [13]; O’Donovan & Phillips, Modern Contract of Guarantee 4^th Ed, [7.650].

    [155] [1978] 1 NZLR 94.

    [156] Ibid 96.

13. As I found in relation to novation of the franchise agreement Mr Manthorpe was clear in his evidence that having been told that Instate was to become the SA Master Franchisee he was prepared to ‘ride out’ the five-year term of the franchise agreement with them as the master franchisee.  He never indicated in any way to Instate that he believed he did not have a contract with them.  He never indicated during the course of the franchise that he no longer believed that the guarantee that he had signed no longer applied.

14. I find that the guarantee was a part of the franchise agreement and not a separate deed sitting to the side of it.  The franchise agreement specifically refers to a guarantee being provided where the franchisee is a corporate entity.  Mr and Mrs Manthorpe are named as the guarantors of that guarantee in Item 16 of the signing schedule to the franchise agreement.  I find that the Deed of Guarantee and Indemnity, signed by Mr Manthorpe, is part of the franchise agreement and by inference part of the novation of that agreement.  I adopt the words of Hargraves J that it is a matter of business common-sense that, by inference, the guarantee that was part of the franchise agreement was novated to Instate along with the remainder of the franchise agreement.

15. I find that the Deed of Guarantee was assigned to Instate as part of the totality of the business transaction whereby Instate became the SA Master Franchisee.  As a result, on an alternative basis, I find that the Deed of Guarantee continues to bind Mr Manthorpe.

    Conclusion

16. I find that Instate is entitled to judgment against Mr Manthorpe in the sum of $252,487.43.  I will hear the parties as to the formal entering of judgment, and the question of interest and costs.