IOOF Building Society Pty Ltd v Foxeden Pty Ltd
[2009] VSCA 138
•19 June 2009
SUPREME COURT OF VICTORIA
COURT OF APPEAL
No 2078 of 2000
No 2085 of 2000
| IOOF BUILDING SOCIETY PTY LTD (formerly IOOF Building Society Limited) (ACN 087 652 104) | Appellant |
| v | |
| FOXEDEN PTY LTD (ACN 076 987 650) | Respondent |
| and | |
| IOOF BUILDING SOCIETY PTY LTD (Formerly IOOF Building Society Limited) (ACN 087 652 104) v KENNETH TAYLOR and JANET TAYLOR | Appellant |
| Respondents |
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JUDGES: | MAXWELL P, ASHLEY JA and HANSEN AJA | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 25 and 26 February 2008 | |
DATE OF JUDGMENT: | 19 June 2009 | |
MEDIUM NEUTRAL CITATION: | [2009] VSCA 138 | |
JUDGMENT APPEALED FROM: | [2003] VSC 356 (Habersberger J) [2006] VSC 47 (Habersberger J) | |
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CONTRACT – Agreement to operate branch of building society – Whether express term in respect of termination of agreement – Whether term should be implied that agreement terminable on reasonable notice – Period of reasonable notice – Breach by building society of implied term that reasonable notice be given.
CONTRACT – Estoppel – Agreement to operate branch of building society – Term of agreement that it be terminable on 60 days notice – Execution of agreement procured by building society’s undertaking to negotiate a different and longer period of notice – Failure of building society to enter into negotiation – Purported termination of agreement by building society in reliance on 60 days’ notice term – Whether 60 days’ notice given – Whether building society estopped from relying upon 60 days’ notice term – Nature of detriment suffered by operator of branch.
DAMAGES – Compensation – Loss of building society commissions and financial planning income during putative period of notice – Lost chance of obtaining financial planning income over time – Lost chance of negotiating compensation in lieu of notice – Whether damage constituted by lost chance of obtaining financial planning income over time too remote – Whether Judge erred in his findings as to integers to be used in valuing branch operator’s lost chance of obtaining financial planning income over time – Whether Judge erred in valuing lost chance of negotiating compensation in lieu of notice.
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| APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr C C Macaulay, SC with Mr M K Gurvich | Phillips Fox |
| For the Respondents | Mr A T Broadfoot with Mr A D Pound | Mallesons Stephen Jaques |
MAXWELL P
ASHLEY JA
HANSEN AJA:
These appeals are brought from orders made in two proceedings that were heard together in the Commercial and Equity Division. The proceedings were heard together as they involved a common substratum of fact. In each case liability and damages issues were tried separately and there were thus separate judgments,[1] and even a third judgment dealing with interest and costs.[2] Ultimately in each case the appellant was ordered to pay the respondents damages for breach of an agency agreement. The plaintiffs were Foxeden Pty Ltd (‘Foxeden’) in proceeding 2078 of 2000, and a married couple Kenneth and Janet Taylor (conveniently, if inaccurately, ‘Taylor’, except where it is necessary to refer specifically to Mr or Mrs Taylor) in proceeding 2085 of 2000. In each proceeding the defendants were the same, namely:
[1]Foxeden Pty Ltd v IOOF Building Society Ltd [2003] VSC 356 (‘the liability judgment’) and (No 2) [2006] VSC 47 (‘the damages judgment’) respectively.
[2]Foxeden Pty Ltd v IOOF Building Society Ltd (No 3) [2006] VSC 207.
(a) IOOF Building Society Pty Ltd (‘IOOF’ or ‘the Building Society’);
(b) IOOF Ltd formerly known as IOOF of Victoria Friendly Society Ltd (‘IVFS’);
(c) Bendigo Bank Ltd (‘Bendigo Bank’); and
(d) Robert John Turner.
Allowing for differences in the facts pertaining to the creation and terms of the respective agency agreements (it is convenient to so describe them, although it begs the question of their true character), the nature of the claims made and the structure of the statement of claim followed the same lines in each case. The only claim that is now relevant is that which the judge upheld, broadly[3] that IOOF failed to give Foxeden and Taylor reasonable notice of termination of their agreement,[4] and in respect of which breach he ordered IOOF to pay damages as follows:
[3]The juristic basis for his determination was not the same in the two cases.
[4]Having so concluded, the judge did not consider the plaintiffs’ alternative claims against IOOF. No issue is now raised concerning those alternative claims.
(a) to Foxeden - $435,747 plus statutory interest of $295,410; and
(b) to the Taylors - $405,100 plus statutory interest of $271,230.
It is from that conclusion and those orders that IOOF appeals, contending that in each case the orders should be set aside.
As to the plaintiffs’ claims against the other defendants, the judge concluded that they all failed. The only order made in relation to those defendants was that there be no order as to their costs. No issue is raised as to those claims or that order.
The Defendants
IOOF was a building society which by 1996 conducted business through 20 branches and other outlets in Victoria. The second defendant, IVFS, was the parent company of the IOOF Group, of which IOOF and Winchcombe Carson Financial Planning Pty Ltd (‘Winchcombe Carson’) were subsidiaries. Placed between IVFS and IOOF was another entity, IOOF BS Holdings Limited (‘BSH’), which held all the shares in IOOF. On or about 1 April 1999 100 per cent ownership of IOOF was acquired by Bendigo Bank pursuant to a share sale agreement with IVFS dated 5 March 1999. The fourth defendant, Turner, became managing director of IVFS and thus of the IOOF Group on about 14 August 1996, and from 14 April 1997 until 6 April 1998 he was chief executive officer of IOOF.
Foxeden
Foxeden was owned by Warwick Hawksworth who was the sole director and secretary of the company. Hawksworth, who is a practising accountant and financial planner, established Foxeden (which was incorporated in January 1997) for the purpose of it taking over the operation of IOOF’s Building Society branch in Mildura, which occurred on 28 May 1997. The judge found that agreement for the transfer had been reached between Hawksworth and Robert Wood of IOOF in November 1996. IOOF submitted in this Court that the judge erred, and that he should have found that the agreement was concluded in May 1997 when the transfer occurred.
By way of background concerning Hawksworth, from 1981 to 1989 he was employed by IOOF as the Area Manager of its Ballarat branch. In 1989 he transferred his employment to Winchcombe Carson Financial Planning Pty Ltd, a financial planning organisation, and a wholly owned subsidiary of IOOF. On 1 January 1997 he became an external advisor to Winchcombe Carson. On 1 July 1999 he became a Winchcombe Carson franchisee. At time of trial, he had eight franchises in Victoria. At time of trial, he also conducted an accounting and tax practice, separate from Winchcombe Carson. That practice had eight offices in Victoria.
The Foxeden Agency Agreement
In 1996 Hawksworth neither had a Winchcombe Carson office in Mildura nor any role with an IOOF branch in Mildura. In May that year, Wood told Hawksworth that IOOF was going to close eight non-viable branches in the Building Society network. Hawksworth expressed interest in taking over the Mildura branch, provided that he owned ‘the franchise’. Discussions followed in the course of which on 11 November 1996 Wood (it would seem) provided Hawksworth a draft agency agreement.
The judge found that the discussions had resulted in Hawksworth and Wood (on behalf of IOOF) on or about 18 November 1996 reaching agreement as follows:
(1) From a date to be agreed the operation of the Mildura branch be transferred to Hawksworth or his nominee;
(2) Hawksworth or his nominee was to assume the liabilities of the branch and be paid commissions to be agreed in return for acting as IOOF’s agent for the purpose of accepting deposits from customers for their Building Society accounts, permitting customers to withdraw funds, accepting applications for loans and selling IOOF products;
(3) Hawksworth or his nominee would have exclusive access to the customers and the customer lists of the branch, and IOOF would not compete in the provision of financial services to those customers;
(4) For the duration of the agreement, Hawksworth or his nominee would ‘own’ the business conducted by the branch and, subject to IOOF’s approval, he would have the right to sell the business and exclusive access to its client base.
Hawksworth described the arrangement as a ‘franchise’; Wood accepted that description. Wood said, as the learned judge below recorded, that to his mind the proposed arrangement was quite different from the ordinary form of agency agreement which some branches had entered into with IOOF. An agent simply referred business to IOOF and received a commission in return. It did not have access to, or ownership of, any customer base.
Although his Honour concluded that agreement had been reached as at 18 November 1996, some important matters - including commissions, duration and termination - had not yet been agreed.
Hawksworth refused to sign the draft agency agreement as it did not represent what he had agreed. Among other things, it provided that the agreement could be terminated without cause by either party on 60 days’ written notice. The judge found that Hawksworth never agreed to that term, considering that it was far too short a period. So also was the term as to duration unacceptable.
Certain other terms in the draft agreement, in particular rates of commission at the commencement, were the subject of ongoing discussion. In these discussions Hawksworth asked Wood when he could expect to receive a draft franchise agreement which reflected the agreement reached in November. He was advised that a draft was being prepared for consideration prior to his taking over the branch.
In January 1997 Foxeden was incorporated. It was to be the vehicle for the Mildura ‘franchise’ and Hawksworth so advised Wood. Also in January 1997 Hawksworth conducted a ‘due diligence’ of the Mildura branch. In early 1997 Hawksworth received a new draft agency agreement from Wood. Among other things, the agreement referred to the arrangement as an agency and not a franchise. It also contained the same term for termination on 60 days’ notice as had the November draft.
Hawksworth did not sign this draft agreement. On his account, it did not reflect the agreement reached in November. As to the 60 day period of notice, Wood said that Hawksworth did not agree on it because termination clauses were not discussed.[5]
[5]Liability judgment, [155].
Eventually the date for the transfer of the Mildura branch was fixed for 28 May 1997. Wood confirmed that date in a memorandum dated 9 May 1997, to which he attached ‘a draft franchise agreement as a basis for further discussion about other matters that need to be included’.[6] Among other provisions, the draft agreement contained a clause dealing with remuneration, and the same termination clause as the earlier drafts. Again Hawksworth did not sign the agreement as it did not reflect the agreement which he considered had been reached. The judge noted that Hawksworth did not immediately complain, however, about the termination clause, or about the remuneration clause.
[6]Liability judgment, [345].
Foxeden took over the running of the business on 28 May 1997. The judge found that Hawksworth did not agree to the 60 day notice clause. He also considered that, in light of his experience with Taylor on this point in March 1997 (to which reference is made below), Wood would not have pressed the clause. The judge found that Wood and Hawksworth were content to leave the term concerning termination unresolved, Wood until he was able to obtain legal assistance in drafting a comprehensive franchise agreement, and Hawksworth who expected the agreement would be terminable ‘on some notice’. Rejecting rival submissions that Foxeden’s rights were unlimited as to time or, on the other hand, that the agreement was terminable at will, the judge found that the parties intended that the agreement be terminable on notice and that there was an implied term that the agreement could be terminated on reasonable notice.[7]
[7]Liability judgment, [348].
An issue remaining unresolved when Foxeden took over the branch was the rate of commission payable by IOOF in respect of loans. Whilst the judge accepted Wood’s evidence that agreement on a formula for such commission had not been reached by the time he left IOOF in August 1997, IOOF’s position (stated in July 1997 and September 1998) was that it was prepared to pay commission at the rate of 0.25 per cent on loans written at the branch after 28 May 1997. The judge found that the agreement included an obligation to pay such commission.
A further matter which was unresolved as at 28 May 2007, and which continued unresolved, was the production by IOOF of a franchise agreement. For at least 12 months from about June 1997 Foxeden requested the document, to which IOOF would reply that it was being prepared or was being reviewed by the legal department. There was evidence that an agreement was prepared in August 1997 but that it was not signed by Foxeden; indeed it was not clear that it had been sent to Foxeden.
Termination? Breach of the Foxeden Agreement?
Then, in August 1998 IOOF sent Foxeden an agency agreement for signing. An agreement in the same general form was sent to Taylor on 13 August. Clause 12.2 of the agreement provided that either party might terminate the agreement by giving 60 days’ written notice. Foxeden did not execute the agreement.
On 3 March 1999, it was announced publicly that Bendigo Bank would be taking over the IOOF Building Society branch network. This was Hawksworth’s first knowledge of the takeover. Hawksworth gave evidence that, having heard nothing further, in April or May 1999 he contacted Vicki Pearce of IOOF. She advised him that Foxeden’s ownership of the Mildura branch would be taken into account when the sale occurred. Ms Pearce, in a supplementary witness statement, agreed that she had had a telephone conversation with Hawksworth in about March 1999. On her account, she told him that ‘his agency would be taken into account’ when the sale to Bendigo Bank took place.
On 20 April 1999 Foxeden received a circular from Bendigo Bank referring to the purchase by the Bank of the IOOF branches. It listed Frankston and Mildura as branches to be merged with existing Bendigo Bank branches. Hawksworth agreed in evidence that by then he knew that the IOOF Mildura branch was to be merged into the existing Bendigo Bank branch by 30 June.
Led by the events affecting them, Hawksworth and Taylor instructed solicitors, Feingold Partners Pty Ltd, who on 3 May 1999 wrote to IOOF requesting a detailed explanation of what was intended to occur in relation to their franchises, and the timetable, so that full, proper and reasonable negotiations in relation to their rights and entitlements could be undertaken for the benefit of all parties. IOOF did not respond to the letter.
On 12 May 1999 Hawksworth met Dennis Bice of Bendigo Bank. In their conversation, as to which there were some differences in their accounts, Bice told Hawksworth that the Mildura agency would be closed down.
On 30 June 1999, without notice, the telephone lines for the Mildura branch were disconnected and all branch customers were electronically transferred to Bendigo Bank at premises nearby. The customers of the Mildura branch had previously been advised by IOOF and Bendigo Bank that all future banking would be with the latter.
A Bendigo Bank agency was offered to Foxeden, but not accepted as customer contact had been lost.
In these circumstances IOOF submitted that the public announcement on 3 March, or the circular on 20 April, or Bice’s advice on 12 May, constituted valid notice of termination of the agreement because the agreement only required 60 days’ notice of termination. Thus it denied having breached the agreement.[8] The judge rejected the submission, for reasons which he developed in dealing with the Taylor case. He concluded that there was to be implied into the agreement a term requiring that reasonable notice of termination be given; and that the reasonable period of notice, looking at the situation as at 30 June 1999, would have been one year.
[8]Except if the only notice was that allegedly given by Bice on 12 May – and then any breach would have been of small moment.
What we have thus far said sets the scene for resolution of the liability issues as between IOOF and Foxeden. The issue of damages was, as we have said, the subject of a separate judgment. We will presently defer reference to the issues agitated in that connection.
Taylor
The Taylor Agency Agreement
Mr Taylor was in self-employment in the financial planning industry from 1985. Towards the end of 1990 he and a partner began to operate a financial planning business in Frankston under authority from Winchcombe Carson. His partner retired in 1991. In the same year, Mr Taylor moved his business into an office located within IOOF’s Frankston branch office. At the outset, he was the only financial planner or non-branch person to have an office in the branch. He occupied office space rent free. This arrangement continued for about four years. Then he began to pay a nominal rent. When IOOF employed a financial planner at the branch, customers with less than $150,000 to invest were dealt with by the employee financial planner. Customers with a greater sum to invest were referred to Mr Taylor.
In January 1996 the manager of IOOF’s Frankston branch told Mr Taylor that IOOF was intending to close the branch from 1 March 1996 because it was unprofitable. Mr and Mrs Taylor saw this as an opportunity to conduct the financial planning business and the IOOF business in tandem. There would be ability to cross-sell, this meaning that the overall business would grow, adding to goodwill.
Mr Taylor spoke to Wood about him taking over the branch. Discussions ensued and resulted, the judge found, in an agreement being concluded not long after 8 February 1996 between Taylor and Wood that the operation of the branch be transferred to Taylor. IOOF would pay certain operating expenses and Taylor would be paid certain commissions for acting as IOOF’s agent for the conduct of customers’ accounts and selling other IOOF products. It was also agreed that Taylor would have exclusive access to the customers and the customer lists of the branch and that IOOF not compete in the provision of financial services to those customers. It was also agreed that Taylor would ‘own’ the existing and new customer base of the branch and that this would form part of their goodwill. As to this concept of ‘owning’ customers, the judge considered that this meant that for the duration of the agreement Taylor would have exclusive access to the customers and the customer list of the branch, instead of IOOF.
The judge said it was difficult to decide what, if anything, was discussed or agreed at this stage as to the duration and termination of the agreement. He concluded that, although the parties contemplated a long-term agreement, specific attention had not been given to the related questions of duration and termination without cause. Nevertheless, on 4 March 1996 Taylor commenced operating the Frankston branch.
Then, on 8 July 1996, IOOF sent Mr Taylor a draft agency agreement which by cl VI(a) provided that ‘The agency hereby appointed shall be terminated at the expiration of not less than sixty (60) days’ written notice given by either party to the other at any time’. It is otherwise sufficient to note of the draft that it appointed Taylor to act as IOOF’s agent in Frankston and contained provisions as to the respective obligations of Taylor and IOOF, remuneration and other matters. Wood described the draft as an early attempt to formulate a franchise agreement. But it was not satisfactory to the Taylors and they would not sign it. It was silent on the matter of the rights of Taylor to access and use the branch customer lists, it did not contain certain other matters, and termination on 60 days’ notice was not acceptable. Later in 1996 the parties agreed to alter the rates of commission.
The next and critical step was that in March 1997 Wood proposed to the Taylors the signing of ‘an interim agreement as a forerunner to the final form of a franchise agreement’.[9] This was a response to pressure from IOOF’s internal auditors for a signed agreement. Accordingly on 13 March 1997 Wood met with the Taylors and provided them with an Agency Agreement, which he requested them to sign, and a letter which confirmed that:
·The Agency Agreement to be signed is to be treated as a fore-runner of a formal Franchise Agreement which will be completed as soon as practicable.
·As part of the Franchise Agreement process, we will renegotiate at this time your contribution to rental costs, and the amounts to be set-off against new business development.
The agreement included the same cl VI(a), providing for termination, as was contained in the earlier draft.
[9]Liability judgment, [281].
Mr Wood requested, as he said had been agreed, urgent return by fax of a copy of the agreement duly signed.
Mr Taylor then negotiated and agreed on all matters except cl VI(a). On 21 March 1997 Wood sent a memorandum to Mr Taylor stating that he had:
… basically agreed to all your requests without question, however at this time I am not prepared to delete clause VI(a) under Duration and Termination. To do so would be commercially irresponsible, from both the view of IOOF as franchisor and yourself as franchisee, as I firmly believe both parties need the protection of a ‘get-out’ clause, and should not sign an agreement that removes this completely.
However, I agree that the 60 day period is also too short, again from both parties viewpoint.
Accordingly I commit to negotiation of this clause in the forthcoming franchise agreement, with a view to extending the period to a mutually acceptable one.
As you now have either my agreement, or commitment to negotiate, on all matters you have raised, I would appreciate your execution of the agency agreement as a matter of urgency.
In a conversation between 21 and 24 March 1997 concerning the length of the termination period, MrTaylor told Wood that 60 days would not be sufficient time in which to make alternative arrangements and to find another institution to hold customers’ deposits and loans in place of IOOF, and that he needed at least 12 months plus the original 60 days. Wood stated to MrTaylor that that was not an unreasonable request.
In these circumstances, on 24 March 1997 Mr and Mrs Taylor signed the agency agreement in the form of the draft provided on 13 March 1997. Mr Taylor forwarded a copy with a facsimile in which he referred to his conversation with Wood and confirmed the details, viz:
You indicated that the original agency agreements were merely two pages long, or were compiled peace [sic] meal and require revamping.
1.Clause 1.(a) – This clause will not give rise to any agreement being terminated.
2.Clause 1.(j) – This clause will also not give rise to any agreement being terminated and is currently difficult to define.
3.Clause VI(a) – You have agreed to negotiate this clause and consider a period of 60 days after 12 months’ notice is not unreasonable.
Mr and Mrs Taylor gave evidence that they believed that the agency agreement was a temporary or interim agreement and not legally binding. On the other hand, Wood gave evidence that he believed that the March 1997 agreement contained the terms negotiated by the parties, that he understood the agreement bound the parties and that it could be terminated on 60 days’ notice. The judge did not accept the evidence of the Taylors that they considered the signed agreement did not bind them or have legal effect, even as an interim agreement. He found that they understood the significance of signing the agreement. He found:
… therefore, that the Agency Agreement signed by the Taylors on 24 March 1997 became part of the agreement between the Taylors and Mr Wood, purportedly on behalf of IOOF. As counsel for the defendants pointed out, in the Taylors’ Claim itself it was pleaded that the terms of the initial agreement as varied continued to operate ‘except where expressly inconsistent with’ the terms of the Agency Agreement. Thus, I consider that the relationship between the Taylors and IOOF became one which could be terminated by either party on the giving of 60 days’ notice in writing.[10]
[10]Liability judgment, [284].
It is convenient at this point to note that, for reasons discussed below and which IOOF submits are erroneous, the judge concluded that IOOF was estopped from relying upon cl VI(a) which allowed for termination on 60 days’ notice.
Proceeding with the chronology, on 20 July 1998 Mr Taylor wrote to MsPearce at IOOF referring to the awaited formal franchise agreement which ‘would not provide less benefits than the agency agreement’ and ‘would extend the cancellation period to 60 days after the expiration of 12 months’. He stated that he was looking forward to receiving ‘the Franchise agreement in the short term and resolving other issues mentioned’. As to what he meant by ‘60 days after the expiration of 12 months’, Mr Taylor deposed that what he had agreed with Wood was that a period of 12 months plus 60 days would not be unreasonable. However, as the judge observed, that was not what the letter said.
Breach of the Taylor Agreement?
The response was unexpected. On 13 August 1998, IOOF’s corporate solicitor wrote to Mr and Mrs Taylor giving 60 days’ notice of termination of the Agency Agreement dated 24 March 1997 pursuant to cl VI(a). The letter noted the reference to a new agreement in IOOF’s 13 March letter, and enclosed a new agency agreement for their consideration. This agreement contained many more terms than the March agreement but, relevantly, cl 12.2 provided that the agreement was terminable by either party by giving 60 days’ written notice. Ms Pearce agreed in cross-examination that the purpose of the notice was to get the Taylors (and other agents) out of their agreements, and into a new agreement prepared by a Mr Regan.
Mrs Taylor contacted Ms Pearce about this agreement. She was told that IOOF wanted to re-negotiate the existing agreement. After further communications, Mr Taylor wrote to IOOF on 5 October 1998 noting that IOOF was ‘not prepared to honour agreements and understandings entered into’, that the new agreement was not a franchise agreement and that he looked forward to receiving as soon as practicable a final franchise agreement containing the previously agreed terms. That followed a letter faxed to Mr Taylor by Ms Pearce on 2 September 1998 in which she stated, inter alia, that –
Consideration put by a third party for what they deem as goodwill of your business is of no concern to IOOF. Accordingly we do not accept the claim that IOOF customers form part of your business and we will not recognize value or be bound by any contract you may enter into with another party.
In a conversation with Ms Pearce on 8 October, Mr and Mrs Taylor stated that IOOF could not terminate the agreement as it had done. Ms Pearce responded by a letter dated 12 October 1998 stating:
As we discussed on Thursday 8 October, 1998 there are still outstanding issues to be resolved in regard to the new agreement between IOOF and yourself.
The expired agreement will therefore continue for 30 days, from the date of this letter, expiring once again on 11 November 1998. Please note that Clause VI(a) will not be applicable for the extension of this agreement.
We will contact you in regard to the finalisation of the new agency agreement during the next couple of weeks.
Please contact me if you have any queries.
On 13 November 1998 Mr Taylor sent a facsimile to MsPearce seeking confirmation that IOOF would cancel all termination notices with a view to re-visiting the issues in the next year. On 30 November he sent her another facsimile requesting a timeframe for the resolution of a number of outstanding items, including the new proposed agreement and cancellation of termination. MsPearce responded by a letter dated 1 December 1998, expressed in the same terms as her 12 October letter save that this time it was stated that the expired agreement would continue to operate until 31 January 1999. By a separate memorandum sent with the letter MsPearce responded to Mr Taylor’s 5 October letter. She stated that IOOF would not enter into a franchise agreement, saying:
We said that we would enter into a franchise agreement but we have entered into an agency agreement. IOOF wants an agency agreement set up with all of their agents – we are not proceeding down the franchise route.
She stated also that ‘we do not accept the claim that IOOF customers form part of your business …’. She further stated, concerning the period of notice of termination, that ‘the current terms and conditions are in place until 31 January 1999, as per our attached letter’.
Mr Taylor said that in December 1998 he heard a rumour that IOOF was considering selling the Building Society network to Bendigo Bank. At a meeting with IOOF representatives on 21 January 1999, at which relocation of the Frankston branch was discussed (in view of pending building works at the shopping centre where the branch was located), and at which Mr Taylor raised the possible sale to Bendigo Bank, Turner told Mr and Mrs Taylor that a due diligence was being conducted. The parties discussed relocation of the branch office and deferred consideration of what the sale would mean to the Taylors. Agreement was reached as to the cost of renting new premises, but in the end the Taylors purchased their own office space. It was fitted out at IOOF’s expense. The Taylors moved into the new premises in February 1999.
On 3 March 1999 the sale of IOOF to Bendigo Bank was announced to the public by a media release. We have already referred briefly to what it said. Later we must refer to its content in more detail.
On 3 May 1999 Feingold Partners sent the letter to IOOF to which we have earlier referred.
On 4 May 1999 Mr Taylor sent a facsimile to Turner expressing concern that the Building Society appeared to have been sold and that the Taylors’ interest had not been addressed.
On 5 May 1999, before IOOF had responded (as was apparently intended), Dennis Bice of Bendigo Bank spoke to Mr Taylor at the Frankston branch and advised that the agency would be closed down.
On 26 May 1999 Mr Taylor and Hawksworth met with IOOF and Winchcombe Carson personnel.
On 27 May 1999 Bendigo Bank sent Mr Taylor a Bendigo Bank Agency Agreement for him to review and sign. He refused to sign it lest it compromise his claim against IOOF. Mrs Taylor would not sign for other reasons.
On 30 June 1999, without notice, all Frankston branch customers were electronically transferred to the nearest Bendigo Bank branch. Until that time the Taylors had continued to conduct the business of the Frankston branch. Effectively, however, their ability to do so came to an end on 30 June 1999.
In concluding his judgment concerning Taylor, the judge stated that:
… it was a term of the agreement that it could be terminated without cause by either party on 60 days’ notice in writing. However, IOOF is estopped from relying upon or seeking to enforce that term. Instead, it became a term of the agreement that it could be terminated without cause by either party on reasonable notice.[11]
[11]Liability judgment, [366].
That left for determination the issue of breach of the agreement and damages. As to breach, the judge first rejected a submission of IOOF that it had validly terminated the agreement by any of a number of documents or by a conversation upon which it relied. Of this, more later. We leave also until later the damages issues which arose on the appeal.
Liability Issues
The respective grounds of appeal attack certain of the findings in the judgments both as to liability and damages. With respect to liability, the essential points of IOOF’s submission may be summarised this way:
Foxeden-
(a) An Agency Agreement was concluded in May 1997, and not on 18 November 1996 as found by the judge.
(b) The May 1997 Agreement included the cl VI(a) provision for termination. The judge should have found that Hawksworth agreed to that provision. Alternatively, the like 60 day period of notice of termination should have been implied.
(c) Alternatively, the judge erred in finding that a reasonable period of notice was 12 months; a lesser period was appropriate.
(d) The judge erred in finding that IOOF breached its contractual obligation to give notice of termination of the agreement when it electronically transferred its Mildura branch customers to the Bendigo Bank branch on 30 June 1999 without prior notice to Foxeden. The judge should have found that notice was given by means of the public notice of the sale of 3 March 1999, or by Bendigo Bank’s circular of 20 April 1999, or by Bice’s advice on 12 May 1999. Further, contrary to the judge’s finding, notice did not have to be in writing. In consequence, if the period of notice was 60 days, no breach occurred if notice was given on 3 March 1999 or 20 April 1999. If notice was not given on those dates but was given on 12 May 1999, the period in respect of which damages ought to have been awarded was significantly reduced.
Taylor –
(a)The judge erred in finding that IOOF was estopped from relying on cl VI(a).
(b)The judge erred in finding that to make good the assumption on which the estoppel was based, it was appropriate to treat the agreement as if there was an implied term that it could be terminated on reasonable notice, and in holding that a period of one year was reasonable notice of termination. Rather, the judge should have found that the agreement was terminable on 60 days’ notice as provided by cl VI(a), or at will, or if on reasonable notice then on notice that was 60 days or near thereto.
(c)The judge erred in finding that IOOF breached its contractual obligation to give notice of termination of the agreement when it electronically transferred its Frankston branch customers to the nearest Bendigo Bank branch on 30 June 1999 without prior notice to the Taylors. The judge should have found as follows: If cl VI(a) remained enforceable, the 13 August 1998 notice of termination was sufficient. If an estoppel precluded reliance on cl VI(a) and a termination term was to be implied, notice was given in accordance with any such term that IOOF contends ought to have been implied. The notice was constituted by the public notice of the sale on 3 March 1999 or Bice’s advice on 5 May 1999. Further, contrary to the judge’s finding, notice did not have to be in writing. The consequence was that if the period of notice was 60 days, no breach occurred if notice was given on 13 August 1998 or 3 March 1999. If notice was not given on those dates but was given on 5 May 1999 the period in respect of which damages ought to have been awarded was significantly reduced.
Resolution of Foxeden Liability Issues
When was the Agreement Made?
The learned trial judge found, as we have said, that agreement was concluded in November 1996. At that stage, however, Hawksworth and Wood had not agreed upon a number of matters – a transfer date, rates of fees and commissions (at least in respect of loans), the duration of agreement, and the means of termination. It is also the fact - though in view of his Honour’s finding it is not decisive - that Foxeden had not then been incorporated.
According to IOOF’s submission, it ought be concluded that agreement was reached shortly before 28 May 1997, the date on which Foxeden took over operation of the Mildura branch. It ought further be concluded that the agreement was in the terms of the ‘draft franchise agreement’ sent to Hawksworth by Wood, attached to a memorandum dated 9 May 1997
Counsel did not argue, we add, that no agreement had been reached. That is so although the draft agreement was said by Wood in his memorandum to be ‘a basis for further discussions about other matters which need to be included’; and despite Wood also stating that ‘obviously we need to work through this document and once we have agreed on its content, formalise the franchise document through our respective solicitors’. Rather, as we have said, counsel relied upon the May 1997 draft which, by clause VIII(a), fixed a 60 day without cause termination period.
The submissions for Foxeden essentially focused upon a denial that Hawksworth ever agreed to a 60 day termination period. The parties, counsel submitted, ‘drifted into an agreement’[12] without ever agreeing upon a termination provision, in which case implication of a term of reasonable notice was proper.[13] The submission was at odds with the pleading in the Amended Statement of Claim that an agreement was made ‘in or about November 1996’. That is so although the statement of claim pleaded details of the alleged agreement and provided particulars that called in aid documents which came into existence, and conversations which took place, in the period November 1996 to May 1997.
[12]Cf Husain & Ors v O & S Holdings (Vic) Pty Ltd [2005] VSCA 269 [51] (Nettle JA).
[13]Ibid [55]-[57].
Subject to one argument advanced for IOOF, the debate as to when agreement was concluded – it not being in issue that agreement was concluded – was essentially a sterile one. His Honour in substance concluded, and we respectfully agree, that the parties entered into an agreement which was partly in writing and partly oral. He concluded also that no agreement had been reached in respect of IOOF’s insertion of a 60 day termination clause into various draft agreements sent by Wood to Hawksworth;[14] for which reason the agreement which was reached was silent as to without cause termination.
[14]Drafts were sent in July 1996, November 1996 and May 1997.
Even as at May 1997, as Wood acknowledged in his memorandum of 9 May, not every term of the agreement had been agreed. The draft agreement sent under cover of the 9 May memorandum provided some justification for that acknowledgment. Not even Foxeden’s name as a party to the agreement was stated at the outset of the document; and no date, other than ‘1996’, was stated for its commencement. Further, the draft made provision for employee transfers on 28 May 1997, but a sub-lease was to date from 2 December 1996 – likewise shop fittings and office equipment. Further still, there was no provision for the duration of the agreement.
For all that, it seems to be common ground that by May 1997 more had been agreed between the parties than was the case in November 1996; and by then Hawksworth had completed his ‘due diligence’ enquiries. In the event, the better view seems to us to be that agreement was reached in May 1997, such agreement incorporating the draft document sent to Hawksworth on 9 May 1997 so far as he accepted its contents; and that the agreement otherwise contained matters which had been orally agreed. In respect of the former (the draft document), his Honour found that Hawksworth did not accept clause VIII(a). In respect of the latter (what had been orally agreed), the learned trial judge made findings, with which we respectfully agree, as to what had and what had not been agreed.
Implying a Term that Reasonable Notice of Termination be Given
Counsel for IOOF submitted that a 60 day notice period had been agreed, because the draft document of May 1997 constituted the agreement between the parties. But if that was not so, then at least the 60 day notice provision represented what the parties must have agreed. So, if a term was to be implied, it must be a term requiring 60 days’ notice. That period had been stated in every draft; Wood thought it had been agreed; Wood had only recently resisted attempts to remove it in respect of the Taylor agreement; and it could hardly be said that an implied term that reasonable notice be given was ‘so obvious it goes without saying’.[15]
[15]Citing Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 347 (Mason J).
Counsel for Foxeden submitted, to the contrary, that the learned trial judge had correctly concluded that Hawksworth had never agreed to a 60 day notice period. In view of the financial commitment which Foxeden was undertaking, such a term would have made no sense. Absent actual agreement, the substantial choice was between an agreement unlimited as to time and the implication of a term dealing with notice.[16] IOOF’s argument that a term should be implied permitting termination on 60 days’ notice made no sense where, as the judge found, such a proposal had been made by Wood and had not been accepted by Hawksworth, leaving the issue unresolved.
[16]Neither party argued for the former, although counsel for Hawkswoth had done so at trial.
In our opinion, the submissions advanced by counsel for Foxeden were correct, and the learned judge was right to imply a term that reasonable notice of termination was required. His Honour’s findings, with which we agree, were to the effect that the draft agreement May 1997 was not the single repository of the agreement between the parties, and that in respect of notice it did not represent their agreement. It would make no sense, in the circumstances, to imply a term as to notice which replicated a term not accepted by one party. In circumstances where no term had been agreed but the objective circumstances demanded a conclusion that the parties did not intend to enter into an agreement unlimited in time, and where support was lacking for a conclusion that the agreement was terminable at will, implication of a term requiring reasonable notice of termination was both available and appropriate.
Challenge to the Period of Reasonable Notice
Counsel for IOOF submitted that, if this Court concluded that the learned trial judge had rightly held that a term should be implied into the Foxeden agreement that reasonable notice of termination[17] must be given, the judge had nevertheless erred by fixing a notice period of 12 months. For reasons which we have explained, we consider that his Honour was correct to imply such a term into the Foxeden agreement. Whilst we later conclude that he erred in implying such a term into the Taylor agreement, we also conclude that determination of a reasonable period of notice was relevant to determining the Taylors’ entitlement to compensation. In the event, the appellant’s challenge to the period of notice which his Honour determined was appropriate does arise in each case. For the moment, we focus upon the relevant principles, and their application in the Foxeden matter.
[17]In a ‘without cause’ situation. We will not keep repeating it.
Counsel for IOOF did not submit that the learned judge had misdirected himself as to the correct approach in fixing the appropriate period of notice. Neither did he contend that his Honour could be seen to have brought irrelevant matters to account, or that any relevant matter had evidently been ignored. Correctly allowing that the answer to the question admits of imprecision, and that a trial judge must be given a degree of latitude, counsel submitted, simply, that in both the Foxeden and Taylor matters a period of 12 months’ notice was ‘outside the range’. Invited by the Court to state what the range was, he essayed[18] a range of 60 to 120 days.
[18]This pertained to the Taylor agreement, but counsel drew no distinction between that agreement and the Foxeden agreement.
Counsel for Foxeden submitted, to the contrary, that the period fixed upon by his Honour was unexceptional. He pointed to Foxeden’s assumption of branch operating costs, the expectation of the parties that the relationship would be long-term, and evidence that financial planning can take a long time to convert customer connection into business.
In our opinion, focusing only upon the Foxeden matter at this stage, the judge’s conclusion should be upheld. To explain that conclusion, we begin with what his Honour did.
The issue of reasonable notice – including its duration – was dealt with as part of the trial of liability issues. Those issues, by order, were heard and determined before damages issues were agitated. In the event, although expert evidence might well have been relevant to issues falling for consideration in determination of the length of the notice period, no such evidence was adduced by either party.
Next, there was evidence before his Honour as to the genesis of the agreement; the nature of the tasks assumed by Foxeden; the commitments which Foxeden made in order to undertake those tasks; when those commitments were made; and whether any expenditure or effort which was made should be accounted extraordinary. There was also evidence bearing on the time which would reasonably be needed to give some return on investment – bearing in mind the fact that, as the parties knew, the Mildura branch was unprofitable when Foxeden began to conduct it.
It appears that his Honour was directed to some relevant authority. So, he noted, correctly, that ‘the reasonableness of the period of notice depends upon the circumstances existing when the notice is given’,[19] which in the case of Foxeden meant when notice should have been given. Further, his Honour set out this passage from the reasons for judgment of McHugh JA (as his Honour then was) in Crawford Fitting Co & Ors v Sydney Valve and Fittings Pty Ltd & Anor:[20]
The chief purpose of a notice for a reasonable period, therefore, is to enable the parties to bring to an end in an orderly way a relationship which, ex hypothesi, has existed for a reasonable period so that they will have a reasonable opportunity to enter into alternative arrangements and to wind up matters which arise out of their relationship. Matters to be wound up will include carrying out existing commitments, bringing current negotiations to fruition, and, where appropriate, obtaining the fruits of any extraordinary expenditure or effort carried out within the scope of the agreement. The line between ordinary recurrent expenditure and effort and extraordinary expenditure and effort will not always be easy to draw. But in general it will be determined by what the parties would reasonably have contemplated was extraordinary effort or expenditure.
Counsel, in this Court, accepted that the passage was a correct statement of principle.
[19]Liability judgment [315], citing Crawford Fitting Co & Ors v Sydney Valve and Fittings Pty Ltd & Anor (1988) 14 NSWLR 438, 444D (McHugh JA).
[20](1988) 14 NSWLR 438, 448.
Then his Honour said this:
What then was reasonable notice to terminate the agreement with Foxeden in June 1999? By that time, the agreement had been in existence for just over two years. Under the agreement, Foxeden had agreed to take over an excessive lease payment and to meet substantial other expense. [Counsel for Foxeden] submitted that three years' notice was reasonable. He relied on Mr Hawksworth's evidence that five years was the minimum period of time he would have considered to warrant incurring the burden of operating the branch. In my opinion, despite the heavy initial expenditure which Foxeden committed itself to and the relatively short period which had elapsed since Foxeden commenced operating the Mildura branch, a longer period of notice than I have found the Taylors were entitled to is not required. In all the circumstances, bearing in mind the nature of the relationship between Foxeden and IOOF which was being brought to an end without default on the part of Foxeden, I consider that a period of one year would have been reasonable notice of termination to Foxeden at the end of June 1999.[21]
[21]Liability judgment [348], [361].
Finally concerning the course of events at trial, we make this observation: it seems that in each case fairly short argument was addressed to the issue now under consideration. Counsel for the respondents appears to have made ‘a bid’ in each instance; and (at least in the case of the Taylor agreement) counsel for the appellant to some extent demurred.
We turn to the function of this Court when considering the attack upon the conclusions reached by the learned trial judge. The issue was addressed by counsel for the respondents, who first of all focused upon the nature of the task engaged in by the trial judge. In that connection he referred to this passage in the reasons for judgment of Hansen J in The Wine Company Pty Ltd v The Wine Company Pty Ltd[22] -
It has been observed time and again that what is a reasonable time is a question of fact. As Brooking J said in Alivar v Calandra & Co Pty Ltd (Unreported, 29 February 1988 at 19) it ‘is a matter about which opinions will probably differ substantially …’.
[22]Unreported, 16 May 1996, p 13.
Counsel also referred to a passage in the reasons for judgment of the Full Court of the Federal Court in Energy World Corporation Ltd v Maurice Hayes & Associates Pty Ltd.[23] That case raised, inter alia, a question as to the length of the period of reasonable notice in a contract for the provision of services by an individual who was engaged through a contract made with his corporate alter ego.
[23](2007) 239 ALR 457 (Moore, Tamberlin and Gyles JJ).
In Energy World, the trial judge had made a positive finding that Mr Hayes had been equipped with sufficient information to understand that the likely duration of his contract beyond the actual day of termination was not long. The Full Court said that -
The positive finding of the primary judge set out above is persuasive. The determination of a reasonable period of notice is very much a question of fact.
and
The question of reasonable notice of termination of the 2001 agreement is very much tied up with the nature of that agreement in general which was considered by the primary judge. The factors relied upon by the consultant are amongst the factors which might merit consideration but they are certainly not mandatory.[24]
[24]Ibid 464, [33].
It being clear that the question of length of reasonable notice is a question of fact, upon which minds might substantially differ, we turn to the appellate function.
In Crawford Fitting, one party had given the others six months’ notice of termination of agreements. It was held at first instance that the reasonable period of notice should have been two years. By a majority, an appeal succeeded. The giving of six months’ notice was held to be reasonable.
McHugh JA delivered the main judgment for the majority. He concluded that the trial judge had – or may have – reasoned wrongly in principle. But he said that the question remained ‘whether six months was sufficient’.[25] His ultimate conclusion was that -
Although the matter [was] near the borderline … the [appellants] have failed to prove that the notice given by the [respondent] was unreasonable.[26]
That looks like a determination of the issue as on a general appeal, though probably allowing the assessment of the trial judge considerable latitude.
[25](1988) 14 NSWLR 438, 451.
[26]Ibid 453.
Clarke JA, dissenting, said that he was –
not persuaded that [the trial judge] erred in holding that the appellant was in breach of contract in purporting to terminate upon the expiry of only six months’ notice.[27]
His Honour tended, however, to the view that the period of notice fixed by the trial judge was too long. But, his opinion as to the appropriate period being a minority one, there was –
little point in … fixing on a precise period.[28]
Again, his Honour not having discerned specific error, his apparent willingness to substitute a different period for that fixed by the trial judge suggests reconsideration of a finding of fact in the course of general appellate review.
[27]Ibid 459.
[28]Ibid 459.
Counsel for the respondents relied upon Macauslane v Fisher & Paykel Finance Pty Ltd,[29] which concerned the term of an employment contract and the fixing of a period of reasonable notice in that connection. The Queensland Court of Appeal seems to have concluded - although the leading judgment, of Holmes J, was not expressed unequivocally - that a decision as to what constitutes reasonable notice involves the exercise of a judicial discretion, which could only be disturbed on appeal by application of the principles enunciated in House v The King.[30]
[29][2003] 1 Qd R 503, Court of Appeal (McMurdo P, White and Holmes JJ).
[30](1936) 55 CLR 499, 505.
Holmes J[31] said this:
[31]With whom McMurdo P and White J agreed.
[Counsel for the employer] argued that what constituted a reasonable period of notice was a question of fact which permitted only one answer, rather than a question of discretion requiring the application of House v The King principles. I have considerable difficulty in accepting that the determination of what is reasonable can be reduced to a calculation admitting of only one correct answer. It seems to me that the exercise is more akin to that which was the subject of appeal in Norbis v Norbis. The trial judge in the Family Court in that case had to determine what was ‘just and equitable’, taking into account factors prescribed by statute, for the purpose of making an order as to property interests. In the judgment of Mason and Deane JJ in the High Court the order was described as:
‘ … discretionary because it depends upon the application of a very general standard – what is “just and equitable” – which calls for an overall assessment in the light of the [relevant statutory] factors … each of which in turn calls for an assessment of circumstances. Because these assessments call for value judgments in respect of which there is room for reasonable differences of opinion, no particular opinion being uniquely right, the making of the order involves the exercise of a judicial discretion. The contrast is with an order the making of which is dictated by the application of a fixed rule to the facts on which its operation depends.’
and
Whether one characterises the process undertaken by the trial judge as exercise of discretion or fact-finding, one concludes, inevitably, that there is not a unique correct answer, and that what is reasonable must cover a range of possibilities. A view taken in this court that a finding as to the length of the relevant period, while within the range of what was reasonable, fell towards the side of generosity or, for that matter, of frugality, should not of itself lead to interference with the award:
‘if the questions involved lend themselves to differences of opinion which, within a given range, are legitimate and reasonable answers to the questions, it would be wrong to allow a court to appeal to set aside a judgment at the first instance merely because there exists just such a difference of opinion between the judges on appeal and the judge at the first instance [Norbis v Norbis] (1986) 161 CLR 513 at 518.’
White J addressed the point in her concurring judgment. She said –
I agree with [Holmes J] that deciding what constitutes reasonable notice of termination of employment is a question for the exercise of a discretion. As Starke J noted in Opera House Investment Pty Ltd v Devon Buildings Pty Ltd ‘Reasonable is a relative term.’
The cases and/or authorities are replete with ‘lists’ of key considerations from which the court will make the decision. The cases clearly reveal some factors will assume greater significance than others. In selecting and weighing the various circumstances in a wrongful dismissal case a judge is required to do so judicially and a decision arrived at may only be disturbed on appeal by the application of well-established principles.
So far as we can see, the approach that the determination of what is reasonable notice involves the exercise of a judicial discretion has been accepted (as it must have been) by a single judge of the Queensland Supreme Court,[32] but has not otherwise been considered by a court of the Commonwealth.
[32]Taske v Occupational & Medical Innovations Ltd [2007] QSC 118, [148] (Moynilan J); and see also [2007] QSC 147, [21].
We have read, but unrewardingly for present purposes, certain appellate decisions referred to by McHugh JA in Crawford Fittings. Neither Winter Garden Theatre (London) Ltd v Millenium Productions Ltd[33] nor Australian Blue Metal Ltd v Hughes& Ors[34] had cause to address the issue now under consideration.
[33][1948] AC 173.
[34][1963] AC 74.
We consider, in the end, that it is unnecessary in this case to resolve the question whether the approach suggested by Macauslane is consistent with the approach implicit in Crawford Fittings – a question pertinent to determining what approach this Court should take. For it seems to us that the likely alternative to the Macauslane approach is to equate a determination of a period of reasonable notice with an assessment of damages in a personal injuries case by a judge sitting alone – as to which see Miller v Jennings,[35] Precision Plastics Pty Ltd v Demir,[36] Gamser v The Nominal Defendant,[37] and Rogers v Nationwide News Pty Ltd.[38]
[35](1954) 92 CLR 190, 195-196 (Dixon CJ and Kitto J).
[36](1975) 132 CLR 362, 369 (Gibbs J).
[37](1977) 136 CLR 145, 148-149 (Gibbs J), 159 (Aickin J).
[38](2003) 216 CLR 327, 348-349, [62]-[66], (Hayne J).
In Miller, Dixon CJ and Kitto J said this:
Where, however, the award is that of the judge alone, the appeal is by way of rehearing on damages as on all other issues, but as there is generally so much room for individual choice so that the assessment of damages is more likely an exercise of discretion than an ordinary act of decision, the appellate court is particularly slow to reverse the trial judge on a question of the amount of damages.
and
It is difficult to lay down any precise rule which will cover all cases, but a good general guide is given by Greer LJ in Flint v Lovell. In effect the court, before it interferes with an award of damages, should be satisfied that the judge has acted on a wrong principle of law, or has misapprehended the facts, or has for these or other reasons made a wholly erroneous estimate of the damage suffered. It is not enough that there is a balance of opinion or preference. The scale must go down heavily against the figure attacked if the appellate court is to interfere, whether on the ground of excess or insufficiency.
That statement closely equated appellate review of an award of personal injuries damages made by a judge sitting alone with appellate review of an exercise of judicial discretion; but in terms did not go quite so far.[39] It is the approach which, assuming the issue to be open, we prefer. Nonetheless, at least ordinarily, and in this case in any event, appellate review of a conclusion as to the reasonable period of notice would seem unlikely to lead to a different result depending upon whether the House v The King test or the assessment of damages test was applied.
[39]But compare Rogers v Nationwide News Pty Ltd (2003) 216 CLR 327, 348 [62] (Hayne J).
We cannot conclude that the period of notice which his Honour fixed was definitely erroneous. There is no signpost of specific error. The considerations which his Honour mentioned, relevant as at 30 June 1999, to our mind well justified him fixing the reasonable notice period at 12 months. He could only act upon the evidence which was before him.[40]
[40]See [70]-[71] above.
Breach of Implied term of Reasonable Notice?
As we have said earlier, IOOF submitted at trial that the obligation to give notice was satisfied by one or more of: (1) the public announcement made on 3 March 1999 that Bendigo Bank would be taking over the IOOF Building Society branch network; (2) a circular from Bendigo Bank, received by Hawksworth on 20 April 1999, in which the Bank listed the Mildura branch as one which was to be merged with an existing bank branch; (3) advice allegedly given Hawksworth by Bice of Bendigo Bank that the Mildura agency would be closed down.
The learned judge dealt with the issue, with respect to Foxeden, by referring to what he had already said about the public announcement and the Bendigo Bank circular in connection with the Taylor matter. He added:
Also, the conversation in which Mr Bice told Mr Hawksworth that ‘the Mildura agency would be closed down’ was not notice of termination of the agreement, but a statement of intent by Bendigo Bank regarding the future of the Mildura branch.[41]
[41]Liability judgment [360].
In the passage in his reasons pertaining to Taylor which dealt with the public announcement and the circular, his Honour said:
The defendants then seek to rely on either the public announcement of the sale of IOOF to Bendigo Bank made on 3 March 1999, or on a circular dated 20 April 1999 sent by the Bendigo Bank to all IOOF staff which they allege the Taylors received on or about 22 April 1999. I consider that neither of these documents could constitute valid notice of termination. General announcements to the world at large do not satisfy the requirement to notify the other party to the contract of its termination. Further, there was no necessary reason for the sale to Bendigo Bank to cause the agreement with the Taylors to be terminated. Thus, whilst the media release announcing the sale on 3 March 1999 stated ‘that it is expected that the IOOF branch network will be converted to Bendigo Bank branches in July 1999’, this did not necessarily mean that the agreement with the Taylors could not continue in some form or other with the Taylors running the Bendigo Bank branch in Frankston as a franchise operation. The same reasoning applies to the information conveyed by the 20 April circular. … Finally, although the documents relied on by the defendants were in writing, neither was notice from IOOF of its intention to terminate the agreement.[42]
[42]Liability judgment [311].
His Honour also said:
I therefore consider that IOOF has not been able to show that it gave valid notice of termination in accordance with the requirements of clause VI(a) of the Agency Agreement, even if that clause were applicable. … In my opinion, all of the reasons for each of the alleged notices of termination not being valid are equally applicable to a requirement to give reasonable notice, with the possible exception that the notice be in writing. However, I see no reason why the same formality should not be required in the case of the implied term as was contained in the express term.[43]
[43]Ibid [313].
We conclude[44] that in the case of the Taylor agreement it was not a question of implying a term as to notice. Nonetheless, the conclusion which we last cited could be applied to the Foxeden situation.
[44][134]-[135] below.
In this Court, counsel for IOOF submitted that the judge had erred in concluding that the public announcement and the circular were not notice of termination because the information which they conveyed was given to the world at large and because they did not necessarily imply that the agency would be terminated. According to the submission, the former was not a proper basis for rejecting the notice, whilst the latter was contradicted by the facts – as was demonstrated by Hawksworth seeking legal advice. Then, as to what Bice told Hawksworth on 12 May 1999, ‘there could be no conclusion other than that the agreement between IOOF and Foxeden was terminated’.
For Foxeden, counsel submitted that the learned trial judge’s reasons were sound. The public announcement was just that - an announcement to the world at large. It made no mention of Foxeden. The prospective sale did not necessarily mean that the agreement with Foxeden would be terminated. The circular carried the situation no further. The statement by Bice was oral, not in writing. It was, as the judge said, a statement of intention. Bice was not shown to have had authority to bind IOOF. The solicitors’ letter did not show that Foxeden accepted that it had been given notice of termination.
In our opinion, the learned judge was correct in holding that none of the three communications relied upon by IOOF constituted notice of termination.
The public announcement, headed ‘Media Release’, took the form of an extended advertisement of the merits of IOOF and Bendigo Bank, and of the desirability of their ‘working alliance’, which was said to involve the sale of IOOF’s ‘Building Society for $20 million cash plus 3.7 million ordinary shares in Bendigo Bank’.[45] It is noted that ‘the two companies will now proceed to formal contracts and will seek appropriate regulatory approvals as soon as possible.’ So hurdles had to be jumped before the agreement, however it might affect Foxeden, was consummated. Continuing in that vein, the release said that it was ‘expected that the IOOF branch network will be converted to Bendigo Bank branches in July 1999’. But what that expectation might mean to Foxeden was left undescribed.
[45]In fact, a share sale agreement was executed on 5 March 1999 by which IOOF’s shares were sold to Bendigo Bank, conditionally, for about $14.8 million plus 3.7 million Bendigo Bank shares. There was also provision for excluded assets – two properties which were to be transferred to the IOOF holding company by IOOF for a consideration of $4.5 million in one instance.
The circular was not sent to Foxeden. It was described as an ‘Open memo to all IOOF Building Society Branch Staff’. It was concerned with the ‘employment prospects’ for IOOF staff with the Bendigo Bank. It stated, in that context, that a number of branches, including Mildura, would be ‘merged into the existing Bendigo Bank branches’. It stated also that ‘all these relocations or rebrandings will be effected from June when we convert IOOF accounts to Bendigo’. It concluded by telling staff that ‘ we will keep you informed as more information comes to hand’.
By no stretch of the imagination, in our view, did this constitute notice of termination of the agreement between IOOF and Foxeden. It was not addressed to Foxeden. It apparent purpose was to relieve staff concerns. It said nothing about implications of the ‘merger’ of branches for the Foxeden agreement.
The solicitors’ letter of 3 May 1999[46] sent on behalf of Foxeden and the Taylors expressed the uncertainty which had been created. Thus:
We are instructed that certain arrangements have been entered into by IOOF with Bendigo Bank in circumstances which may suggest that our clients’ entitlements in relation to their franchises may be affected.
We further understand that at some time, still to be determined and advised to our clients, the goodwill in the IOOF Building Society franchises at Frankston and Mildura is intended to be transferred and re-identified in the name of Bendigo Bank.
You will appreciate that these matters, without full and complete consultation with our clients, would cause them considerable concern and despite ongoing dialogue and enquiry to date no formal advice, time table or details of what is intended to take place taking into account our clients’ rights and entitlements has been provided.
Our clients wish us to formally request of you a detailed explanation of what is intended to occur in relation to our clients’ franchises and the time table for same so that full, proper and reasonable negotiations in relation to our clients’ rights and entitlements can be undertaken for the benefit of all parties.– all parties
[46]See [22] above.
We mention finally Bice’s conversation with Hawksworth in early May 1999. It was not notice of termination of the agreement; it was not notice given by IOOF; it was not shown to have been made by a person authorised by IOOF; and it was not notice in writing.
In the event, the learned judge was correct, in our respectful opinion, to hold that IOOF breached its agreement with Foxeden on 30 June 1999 by repudiating the agreement without having given Foxeden any notice of termination.
Resolution of Taylor issues
Estoppel
Before referring to the reasoning by which the judge found the estoppel, and the submissions to this Court, it is necessary to refer to the pleadings on the point.
The statement of claim alleged that, in about February 1996, the Taylors and IOOF agreed on the Taylors taking over the conduct of the Frankston branch. A raft of terms were alleged, one of which was that IOOF would not terminate or in any way modify the rights of the Taylors under the agreement without the Taylors’ consent or without reasonable notice to them. For present purposes it is not necessary to refer to the other terms. It was then alleged that on about 4 March 1996 the Taylors began operating the business. It was alleged that in about September 1996 the agreement was varied in respect of certain matters. Then, by paragraph 10, it was alleged that on about 24 March 1997:
… the Taylors and IOOF, in consideration of formalising the arrangements between the parties for the performance of the Agency Functions and providing further incentives for the growth of the Business to the mutual benefit of the Taylors and IOOF, entered into a further agreement (‘the Agency Agreement’) as follows:
(a)except where expressly inconsistent with the terms set out below the terms of the Agreement as varied by the Variation continued to operate;
…
(h)the terms of the Agency Agreement could be terminated by either party on the giving of no less than sixty days’ written notice to the other party;
(i)the Agency Agreement would be a forerunner to a ‘Franchise Agreement’ between IOOF and the Taylors on terms which would contain at least the same benefits to the Taylors as the Agency Agreement.
There then followed the plea of estoppel, viz:
10AThe Taylors entered into the Agency Agreement relying upon representations made by Mr Wood on behalf of IOOF that:
(a)it was only an interim agreement until the Franchise Agreement was documented;
(b)the Franchise Agreement was in the course of preparation by IOOF;
(c)the terms of the Agreement would be the subject of the Franchise Agreement; and
(d)IOOF would negotiate the terms in Clause VI(a), including as to the period of notice and that a period of 12 months and 60 days was not unreasonable.
[Particulars were provided].
10BAs a result, IOOF is estopped from seeking to rely upon or enforcing the agency Agreement and in particular Clause VI(a) thereof.
It was then alleged, by paragraph 11, that by its 13 August 1998 letter IOOF gave the Taylors 60 days’ notice of termination of the agency agreement; and, by paragraph 12, that the parties agreed to extend the date of termination indefinitely. From this point the statement of claim referred to subsequent events and alleged breach of the agreement (being the initial agreement as varied and the March 1997 agency agreement), and that loss and damage had been suffered.
By their defence the defendants, in summary, admitted the existence of ‘an’ (initial) agreement but differed as to the terms; admitted that the agreement was varied but did not admit all of the allegations made by Taylor in that connection; admitted that on 24 March 1997 the varied agreement as specified in the defence was ‘wholly replaced by an agency agreement’, the terms of which were contained in the written agreement of that date; and denied the allegations in paragraph 10(a) of the statement of claim. As to the plea of estoppel in paragraphs 10A and 10B, the defence simply denied the allegations.
It was in the context of these pleadings, and the circumstances to which we have earlier referred, that the judge concluded that IOOF was estopped from relying on cl VI(a). It is now convenient to refer to the reasoning by which he reached that conclusion.
Following the passage in his judgment cited at [38] above, the judge considered and rejected the defendants’ submission that the March 1997 agency agreement was ‘whole and complete’ and represented the full extent of the agreement between the parties at that date.[47] The submission, he concluded, ignored the fact that at the time of signing the agreement the parties recognised that important matters remained to be agreed and that a formal franchise agreement setting out the full extent of their agreement was to be prepared as soon as possible.
[47]Liability judgment, [285].
The judge then considered the Taylors’ submission that IOOF was estopped from relying upon or enforcing cl VI(a) of the agency agreement.
He commenced by stating that:
[291]… Mr Taylor only reluctantly agreed to accept clVI(a) to remain in the document to be signed, expressly relying on Mr Wood’s stated ‘agreement or commitment to negotiate’ this matter which he agreed was ‘too short’ from ‘both parties viewpoint’ and his oral indication, according to Mr Taylor’s account of the conversation, that he considered a period of 12 months and 60 days was ‘not unreasonable’. In the course of the same negotiations, Mr Wood also represented that the signed document would only be an interim agreement until the comprehensive franchise agreement was drafted. [Counsel for the Taylors] submitted that, as the Taylors relied on these representations to their detriment, IOOF was estopped from relying upon or enforcing clVI(a) of the Agency Agreement.
[292]In my opinion, the Taylors did suffer detriment by signing the Agency Agreement on 24 March 1997.
The judge then explained the way in which the Taylors had suffered detriment. If cl VI(a) had not been a term of the agreement, there would have been no express agreement on duration of the relationship or whether it could be terminated and with what period of notice. The submission for Taylor had been that in that situation their right was unlimited as to time, whilst the defendants had submitted that the agreement could have been terminated at will. Referring to the judgment of McHugh JA in Crawford Fitting Co v Sydney Valve and Fittings Pty Ltd,[48] the judge considered that the parties intended the agreement to be terminable on notice, and not that it be unlimited as to time or terminable at will. Hence, in the circumstances and given the nature of the relationship between the parties:
[293]… there was an implied term that the agreement could be terminated on reasonable notice … Thus by signing the Agency Agreement in reliance on the promise to negotiate a longer period of notice, the Taylors substituted a period of 60 days’ notice for a period of reasonable notice. It is most unlikely, in my opinion, that reasonable notice would have been 60 days or less.
[48](1988) 14 NSWLR 438, 444.
Having thus identified the detriment suffered by the Taylors in entering into the March 1997 agreement, the judge continued:
[294]It is unnecessary to consider whether Mr Wood’s failure to produce a draft of the formal Franchise Agreement or to negotiate an extension of the 60 day period of notice within a short space of time after March 1997 or at all before his departure in August 1997, would have given rise to an estoppel. This is because I am quite satisfied that there was a change of policy within IOOF at some time in 1998, probably in about August, and that it was decided that, whatever Mr Wood had said or promised, the Building Society would not be proceeding with what had become known as the ‘franchise agreement’ with the Taylors.
[295]Whether or not the relationship between the Taylors and IOOF is correctly described as a franchise is not strictly relevant. What is important is what was actually agreed between the parties, whatever label is given to the relationship. However, what the detailed examinations of the dealings between the Taylors and the Building Society and the internal discussions within the IOOF Group show is that the relationship was seen as something more than a mere agency and that over time it came to be described as ‘a franchise’.
[296]It is clear from the exchange of correspondence in 1998 between Mr Taylor and Ms Pearce that IOOF had changed its policy towards the Taylors. Indeed, in an uncharacteristically frank statement, Ms Pearce summed up the new approach when she said in her letter of 1 December 1998 that IOOF had said it would enter into a franchise agreement but that it was no longer proceeding down that route and it wanted to enter into a new agency agreement with all of its agents. This last statement was a reference to the draft Agency Agreement sent to the Taylors by Ms Sugimoto on 13 August 1998. Ms Pearce said that she was told of this change of policy by either Mr Regan or Mr Turner.
[297][Counsel for the defendants] argued that the sending of the draft Agency Agreement in August 1998 was the taking of the step promised by Mr Wood. I do not agree. Not only does the document not contain any provisions dealing with ‘franchise’ matters such as exclusive access to customers and customer lists, it also can not constitute a genuine attempt to renegotiate the ‘too short’ period of 60 days’ notice because it simply repeats that provision. More importantly, the sending of the draft Agency Agreement was not, I find, an attempt by IOOF to meet the promise made by Mr Wood. Rather, it was done as part of the implementation of the new IOOF policy to renege on the idea of entering into franchise agreements and to put all agents (whether or not they were previously considered franchisees) on the same basis. Further, as [counsel for the defendants] fairly pointed out, the commission structure in the draft Agency Agreement bore no resemblance to that actually agreed with the Taylors. On no view, therefore, could the sending of that document be seen as a start of the promised negotiation of the final form of the comprehensive franchise agreement.
[298]Therefore, on the critical question of whether there was any, and if so what, term of the agreement between the Taylors and IOOF with respect to termination, I conclude that there was a term, as from 24 March 1997, that the agreement could be terminated by either party without cause on 60 days’ notice in writing. However, I also conclude that IOOF is estopped from relying upon or enforcing that term. In the circumstances, I further conclude that the result is that in order to make good the assumption on which the estoppel is based the matter should proceed on the footing that once again there is an implied term that the agreement could be terminated on reasonable notice.
Counsel for IOOF submitted that, rather than find an estoppel as he did, the judge should have found that:
(a)the Taylors assumed that at some future time after March 1997 they and IOOF would negotiate a new or varied agreement, and would negotiate for a longer period of notice;
(b)until such negotiation occurred and produced a different agreement, the existing Agency Agreement was binding and it was not unconscionable to enforce it or any part of it, including terminating the agreement pursuant to cl VI(a);
(c)the outcome of any such negotiation was wholly speculative and dependent upon the prevailing circumstances at the time of such negotiation;
(d)there was no evidence upon which it could be concluded that the failure to negotiate a further agreement or longer notice period by August 1998 was due to any unconscionable conduct on the part of IOOF;
(e)the Taylors expected the issue of notice to be dealt with by contract and it was inappropriate in that circumstance to apply an estoppel at all;
(f)alternatively, an estoppel that prevented reliance upon the express contractual term, and substituting ‘reasonable notice’, was not justified as a means of meeting whatever the equity was that arose – because of the speculative nature of the promise and the time that elapsed there was no justification in constraining the operation of the written contract at all.
Ms Murone, IOOF’s expert witness, gave evidence that the likely average investment amount would have been only $18000. Counsel criticised that evidence. He submitted that she had based her figure solely upon the average amount held in term deposit accounts, and that she had not allowed for any other available funds – whether held in savings accounts or otherwise.
Compensation for the Lost Chance to Negotiate Compensation in Lieu of Notice
Counsel for IOOF did not submit, in the end, that damages for the lost chance of negotiating compensation in lieu of notice would necessarily be too remote. But he contended that, if such damages were assessed by reference to their ransom or nuisance value, then they would be too remote. So, if damages had been assessed by reference to what IOOF might have had to pay to get Foxeden to leave so that it could take up Bendigo Bank’s generous offer, such damages would have been too remote. In any event, counsel submitted, the evidence did not show that Hawksworth (or Taylor) understood the ransom or nuisance value of making life difficult for IOOF as at mid 1999.
Other than that, counsel submitted, as we understood it, that the judge had overestimated damages under this alternative head because he had been influenced by his assessment of damages on the other basis. The latter assessment had taken account - wrongly, as counsel contended - of unusual steps which his Honour accepted Foxeden would have taken had the breach not occurred.
Counsel for Foxeden submitted that the judge would not have been at fault had he assessed damages for loss of the opportunity to negotiate compensation in lieu of notice by having regard to the fact that in ‘the first half of 1999 there was an irresistible commercial incentive for the building society to be sold to Bendigo Bank’. But his Honour had not in fact done so. Counsel further submitted that the other basis upon which his Honour had assessed damages was fault-free.
Resolution of the Appeal Against the Foxeden Damages Award
Net Loss of Building Society Commissions 1999/2000
This was the first aspect of grounds 21 and 22; but it was not addressed in argument. We do not understand it to have been a live issue on the appeal. But if it was, we consider that there was nothing to it. The learned judge carefully analysed past performance data. Taking a conservative approach, he determined likely lost building society commissions for the 1999/2000 year at $103,500. That was very close to the figure of $101,000 advanced for IOOF, and was then subject to a small reduction to account for anticipated funds’ transference to financial planning products. He thus arrived at lost commission of about $99,000.
Then there were savings in expenses. These were assessed by his Honour at $56,250, an amount close to the estimate advanced for IOOF. These two amounts, of anticipated building society commissions and savings in expenses, were used by his Honour in his final assessment of damages. In our opinion they withstand any attack mounted on them.
Loss of Financial Planning Income 1999/2000
His Honour assessed loss of financial planning income for the year 1999/2000 at $150,000. He assumed a rate of increase in such income which IOOF disputed. Despite the criticisms of his Honour’s analysis, we are not persuaded that it was unsound. The financial planning income deriving from the Mildura branch operation had increased substantially from one year to another. Although a number of the perceived best or better prospects had been approached, the evidence was clear that time is needed to build up the necessary trust and confidence to convert building society depositors into financial planning clients.
So, if it mattered, we would accept his Honour’s assessment of lost financial planning income for 1999/2000. But it does not matter, because his Honour discarded the amount assessed in favour of assessment of the lost chance of earning financial planning income over time, and that assessment was in a larger amount.
We agree that the amount assessed was rightly discarded. We have already concluded that the approach to assessing damages which his Honour adopted did not fail for remoteness. We also conclude, see below, that damages thus assessed considerably exceeded the judge’s assessment of loss of financial planning income for 1999/2000.
The Lost Chance of Earning Financial Planning Income Over Time
Respecting his Honour’s conclusion that the value of Foxeden’s lost chance of earning financial planning income over time was 385,320, IOOF’s attack, as we have noted, focused upon the number of prospecting interviews that would have been conducted, the conversion rate of interviewees into clients, and the average investment amount.
His Honour undertook a task which was evidently difficult. It did not admit of any certain answer. He was confronted by a ‘welter of figures’ which he thoroughly and carefully analysed. He also had the opportunity of seeing each of Hawksworth and Mr Taylor give evidence. Whatever he thought about the reliability of some of their evidence, he was able to assess their ability to ‘sell a product’. Each of them had proven to be quite successful in that activity over a period of time.[86] His Honour clearly exposed his reasoning to his intermediate conclusions and to his final conclusion. His task was such that an appellate court should give, as it has been said, considerable latitude to the conclusion which he reached. The exemplary manner in which his Honour carried out his task emphasises why that should be so in the particular case.
[86]In Hawksworth’s case, we mean generally, rather than specifically at Mildura.
His Honour accepted that Foxeden, given appropriate notice of termination, would have much increased its attempts to obtain financial planning clients – though not to the extent of which Hawksworth gave evidence. In our respectful opinion, that conclusion is unimpeachable. The only question is whether the number of ‘prospecting interviews’ was set too high. In our opinion it was not. It represented only 25 per cent of the Mildura branch customers who had not been interviewed as at 30 June 1999. It was not too high only because Foxeden had sought to interview the ‘best prospects’ in the two years of the Mildura operation.
We turn to his Honour’s estimate that 60 per cent of the interviewees would have been converted into financial planning clients. His Honour referred to this as a ‘clearly accepted standard success rate’. But whether or not it was an industry standard, it far exceeded Foxeden’s success rate at Mildura – which was something between 12 and 20 per cent (it depended upon the precise number of persons who had been interviewed). It is also true that the low success rate at Mildura had been achieved despite attention being focused upon the best (or better) prospects. On the other hand, Foxeden had only been involved in running the Mildura office for two years as at June 1999, and so the opportunity, said to be important, of building up trust and confidence with depositors had not yet fully developed. Further, the conversion rate took no account of ‘referrals’ - that is, additional clients who might have been obtained by referral from financial planning clients who were IOOF depositors. His Honour accepted[87] that ‘much of a financial planner’s business comes from such word of mouth referrals and [I] have taken it into account in reaching my figures’. But, as against that, from 1 July 1999 IOOF and Bendigo Bank in joint venture were conducting a financial planning service; and so Foxeden’s attempts to secure financial planning clients would have faced very direct opposition. That competition would have been emphasised as the years passed, and as Foxeden’s immediate relationship with IOOF depositors dimmed.
[87]Damages judgment [105].
For reasons previously stated we do not lightly reach a conclusion which differs from that reached by his Honour. But, taking into account all the matters which we have mentioned, we consider that it was wrong to assume a success rate exceeding 30 per cent.
We turn to the attack upon his Honour’s conclusion as to the average amount likely to have been invested. The only question is whether the multiple of three which his Honour adopted was, as IOOF contended, ‘pure guesswork’ – or at least against the weight of evidence. We do not accept the criticisms which were made.
There was evidence which permitted a conclusion that the amounts likely to be invested were a substantial multiple upon amounts deposited in building society accounts. There was also evidence as to the average amount placed for investment up to June 1999 by those (relatively wealthy) depositors who had become financial planning clients, and as to average amounts placed for investment, both in 1999 and in later years, by clients at other Hawksworth operations. The amounts in each instance considerably exceeded the average investment amount settled upon by his Honour.
It is true that his Honour built into his calculations an interview rate which was greater than in the case of IOOF customers whose deposits were at the higher end than he assumed in the case of other IOOF customers. That had the effect of increasing the average investment amount at which he arrived. But this approach was quite logical. No doubt Foxeden would have concentrated its efforts primarily on those persons whose deposits were at the higher end; and those persons, on the face of it, had more scope to invest in financial planning.
The criticism that his Honour failed to take into account, sufficiently or at all, the fact that the success rate which he assumed brought in depositors with only a very small amount to invest – and thus that the average investment amount at which he arrived was too great – was an argument at the margin. Assume a success rate of 30, not 60, per cent, and the criticism becomes more marginal again – particularly since it could reasonably be assumed that it would be the persons with the very smallest amounts deposited who would be the most improbable financial planning clients.
We add this, for the sake of completeness. The criticisms made by Foxeden’s counsel of the methodology adopted by IOOF’s expert in calculating the likely average investment amount were in our opinion powerful.
His Honour adopted an overall discount rate of 35 per cent, of which about 20-25 per cent was a discount for contingencies particularly related to the assumptions which he had made with respect to the lost opportunity of obtaining financial planning income over time, and about 10-15 per cent was to account for present value. Counsel for Foxeden submitted that if, inter alia, the assumed success rate was reduced, the former should also be reduced. There was force to that submission, but it does not cause us to conclude that the overall discount rate adopted by his Honour should be adjusted. His Honour’s reasoning[88] shows the necessary imprecision of the task, and that the rate ultimately adopted was itself a compromise of competing considerations.
[88]Damages judgment [116]-[118].
Damages for the Lost Chance to Negotiate Compensation in Lieu of Notice
Neither party suggested, assuming that this head of damages was available, that it could yield a higher amount than that arrived at by an accumulation of net lost building society commissions and damages for the lost chance of obtaining financial planning commission over time. That common position was consistent with his Honour’s conclusion. It is unnecessary to do more than say that we agree with his Honour’s conclusion that the amount of damages which would be awarded on such a claim would be less than the amount assessed by reference to lost building society commissions and the lost chance of obtaining financial planning income over time. That is so although, for reasons explained, we consider that his Honour assessed the latter at too large an amount.
Conclusion
In the event, we would substitute, in his Honour’s analysis, an assumed success rate of 30 per cent, but otherwise act upon the integers which he adopted. That would have the effect of halving the amount to be allowed for damages representing the lost chance of earning financial planning income over time. The calculation would be as follows:
Interviews 353
New clients 106
Average Investment $ 48,800
Additional Funds Invested Over 7 years $5,172,800
Lost Up Front Commission $ 155,184
Lost Trailing Commission $ 141,217
Total: $ 296,401
After 35 per cent discount $ 192,661
We would therefore assess Foxeden’s damages as follows:
Loss of Building Society Commissions $ 98,915
Less Savings $ 56,250
Total: $ 42,665
Lost Chance of Obtaining Financial Planning
Income Over Time $ 192,661
Total: $ 235,326
To that sum should be added statutory interest.
Compensation – Taylor
The learned judge concluded, and we agree, that Taylor was entitled to compensation. The fact that our reasoning differs somewhat from the way in which his Honour reasoned to his conclusion makes no difference. In that connection we refer to what we said at [161] above.
In the event, it is convenient (which is not to say that it is accurate) to refer to ‘damages’ rather than compensation when dealing with the attacks upon the award which his Honour made in favour of Taylor.
After trial of the damages issues, the learned trial judge gave judgment for Taylor in an amount of $405,100 plus statutory interest of $271,230. There were two components to the assessment:
(1) Loss of building society commission which would have been received in the one year’s period of notice: $62,675.
(2) Loss of the chance of earning financial planning income over time: $392,425.[89]
[89]Damages judgment [157].
Allowing for savings of expenses in an amount of $50,000 these items were combined to produce the judgment sum – which was higher than the $400,000 assessed by his Honour to be the value of the lost opportunity to negotiate compensation for agreeing to waive the period of notice.
IOOF’s notice of appeal raised, by grounds 14-30, the same five broad issues as were raised by the Foxeden damages appeal.[90] But, as in the Foxeden matter, three issues only were agitated, the third in a limited way; that is –
[90]See grounds 14-32 in the Foxeden Notice of Appeal.
(1) The damage respecting loss of financial planning income was too remote.
(2) The evidence did not support the ingredients used in the calculations.
(3) Damages should not have been awarded for the lost chance to negotiate compensation in lieu of notice – or at least in the sum assessed.
The issues thus identified by counsel for IOOF said nothing about the contention, raised by paragraphs 19 and 20 of the Notice of Appeal, that the judge had erred in his finding as to the quantum of building society commissions lost in 1999/2000. That is so although the written outline of submissions did address that issue. But then again, a number of issues raised by the Notice of Appeal, and even in the written submissions, were not ultimately pursued. In the event, out of abundance of caution, we shall say a little about the particular matter.
Of the three issues identified by counsel, the first depended upon the same arguments as IOOF raised in the Foxeden matter. We have rejected them and have explained why. We will not repeat what we have said.
In assessing damages, his Honour concluded that Taylor lost building society commissions and financial planning commissions in the year 1991/2000 in a total amount of $136,135. Within that total were anticipated building society commissions of $62,675 and anticipated financial planning income of $568,800, from which were deducted savings in expenses of $50,000 and actual income received of $445,310. The anticipated financial planning commissions of $568,800 represented an approximate year on year increase of about 30 per cent.
IOOF challenged his Honour’s conclusion as to the likely increase in the amount of financial planning commissions which would have eventuated in the 1999/2000 year. The challenge was this: that his Honour made the estimate in the absence of a clear trend, and in any event by reference to Taylor’s total financial planning business, rather than by reference to likely growth only through IOOF customers.
As with Foxeden, in the end nothing turns on it, because his Honour did not use the particular amount in his assessment of damages. Rather, as with Foxeden, he assessed the value of Taylor’s lost chance of obtaining financial planning income over time.
In making the assessment last-mentioned, his Honour concluded that Taylor would have conducted about 388 prospecting interviews which would have been converted – at a 60 per cent success rate – into 233 new financial planning clients investing an average of $45,220.[91] Using a 3 per cent up-front commission and a 0.39 per cent trailing commission over a seven year average period of investment, his Honour calculated lost earnings at $603,728, which he then discounted by 35 per cent so as to yield a figure of $392,425.
[91]Damages judgment [98], [99]-[106], [110]-[112].
With respect to that assessment, IOOF initially attacked his Honour’s findings as to the number of prospecting interviews, the likely success rate, and the average likely investment amount. But in submissions in reply, counsel for IOOF specifically stated that no challenge was made in respect of the matter last-mentioned. We will only say, in the circumstances, that had it been pursued, we should have rejected it.
Concerning the first of those matters, IOOF noted that his Honour had concluded that 388 interviews would be held out of a total number of 1292 depositors. That is, some 30 per cent of the depositors would have been interviewed. But, in the three and a quarter years that Taylor had operated the Frankston branch, only about 300 depositors – the ‘best prospects’ – had been interviewed. The figure of 388, counsel submitted, was thus out of proportion with historical reality.
We turn to the issue of the success rate. Counsel for IOOF submitted that the 60 per cent success rate had not been accepted by his client. In any event, it was at odds with Taylor’s historical performance, which was about a 28 per cent conversion of interviewees into clients. This was - as the expert called for Taylor, Professor McMaster - had said, well below the average. Further, most of the term deposits had matured at least once in the preceding three years. So Mr Taylor had already had an opportunity to solicit clients for his financial planning business. Further again, Taylor had operated its financial planning business in the Frankston branch for nine years in all. There had thus been every opportunity for it to obtain financial planning clients. Further still, from 1 July 1999 it would have had to compete with the Bendigo Bank/IOOF joint venture financial planning business.
Counsel for Taylor submitted that there was no error in the judge’s assessment of building society commissions for 1999/2000. His Honour had sufficiently allowed for the effect of some account holders putting funds into financial planning products.[92]
[92]This was a criticism of his Honour’s approach made in IOOF’s written outline.
As to his Honour’s assessment of lost financial planning income in the same period, counsel submitted that IOOF’s attack rested on Ms Murone’s approach, which was flawed. In particular, she had asserted that term deposits were the potential pool of new financial planning clients. This excluded those IOOF clients who had substantial amounts in savings accounts. At Frankston, about 8.4 per cent of the clients had about 71.5 per cent of the total funds deposited in savings accounts. In the event, counsel submitted, the increase in financial planning income postulated by his Honour was reasonable.
Concerning the challenged integers in his Honour’s assessment of the value of the lost opportunity to obtain financial planning income over time, counsel submitted that –
· Any decrease in the number of depositors converted to clients was likely to have meant a greater average investment amount.
· Any decrease in the number of prospecting interviews or new clients meant that the discount rate should be reduced, the uncertainties being the less.
· The judge had been correct to find that in the postulated circumstances Taylor would have made greater efforts to obtain new clients, beginning with prospecting interviews. Reference to history did not tell the whole story.
· In fact, the financial planning commission earned by Taylor had increased a great deal in the three year period that Taylor had been operating the Frankston branch.
· IOOF’s calculations made no allowance for referrals; or for the fact that Mr Taylor, on his account, had negotiated with a local solicitor who banked his trust money with IOOF to offer financial planning services to the solicitor’s clients, and expected to generate further business in this way.
· IOOF’s submission made no allowance for the build-up of trust and confidence over time, this leading to a likely ability to ’harvest’ the IOOF customer base.
· The 233 new clients would have represented only 18 per cent of the IOOF customers who were not already financial planning clients as at 30 June 1999.
· The evidence of Ms Murone with respect to the likely number of new clients and the average amount likely to have been invested by them was flawed for the reasons advanced in the Foxeden matter.
We should finally mention argument addressed to the third issue raised by IOOF – that is, the judge’s assessment of damages on the basis of the lost opportunity of negotiating compensation in lieu of notice. It is enough to say that it followed the pattern of argument in the Foxeden matter.
Resolution of Appeal against the Taylor Damages Award
Net Loss of Building Society Commissions 1999/2000
IOOF mounted a faint challenge, as we have explained, to his Honour’s estimate of lost building society commissions. In our opinion, his Honour’s conclusion was well-supportable; likewise his estimate of expenses saved.
Loss of Financial Planning Income 1999/2000
We have already explained that his Honour’s assessment of lost financial planning income for 1999/2000 was not ultimately brought to account in his assessment of Taylor’s damages. Further, on the view which we have taken about IOOF’s remoteness argument, the amount assessed is not relevant to the damages award. But for the sake of completeness we should say that in our opinion his Honour’s conclusion was unremarkable. Acknowledging evidentiary difficulties, he concluded that Taylor’s financial planning income, derived from IOOF customers, was likely to have grown by 30 per cent in 1999/2000. The strongest arguments against that conclusion are that Taylor had already had nine years working out of IOOF’s Frankston office, having thus had time to build up necessary trust and confidence; that approaches had already been made to the best prospects; and that Taylor relied on growth in the Taylor business generally to make out its asserted likely growth in business derived from IOOF customers.
It is true that Taylor had a certain relationship with IOOF customers for nine years or so. But it only ran the Frankston branch, and had access to customer lists, for about three years. We would not conclude that the maturation time necessary to convert depositors into financial planning clients was exhausted as at 30 June 2009, although it should be accepted that Taylor had made approaches to the perceived ‘best prospects’ by that time. Finally, we do not consider that the growth generally in Taylor’s business was irrelevant. For one thing, it supported other evidence that there was at the time a growing community interest in financial planning. There seems no reason why IOOF depositors should have been immune from that growing interest, except in the case of very small depositors.
The Lost Chance of Earning Financial Planning Income Over Time
In connection with the Foxeden matter, we have already noted the difficult task which his Honour undertook, and why it is that conclusions which he reached should not lightly be disturbed.[93] The same considerations apply in Taylor’s case.
[93][207] above.
In our opinion, his Honour was correct to conclude that Taylor was likely, had it been given adequate notice of termination, to have much increased its attempts to obtain financial planning clients from amongst the IOOF customers. The question is whether his Honour’s estimate of 388 prospecting interviews was too great. In our opinion, for the reasons which follow, it was not.
First, his Honour gave a clear and cogent explanation how he arrived at the figure. Thus
At Frankston, there were 1,047 savings accounts, including those with a negative balance, with less than $2,000 invested. The average amount in the savings accounts with a positive balance was only $3,094. In my opinion, these figures indicated that it was probable that many of the customers at each of the two branches would not have had the funds to warrant them being considered as potential financial planning clients.[94]
and
… it seems to me that realistically the maximum number of ‘prospecting interviews’ which would have been obtained by Mr Ken Taylor and his son, Greg Taylor, at the Frankston branch in the notice period and the five subsequent years would have been about 388. I have calculated this figure by taking 30% of the 1,292 depositors who were not already financial planning clients. The reduction of 904, or 70% is my best estimate of the number of depositors at Frankston who were either not sufficiently wealthy to justify using the services of a financial planner, or for some other reason were not a suitable target for conversion, or were not interested in receiving financial advice, or were already financial advice from other sources, or simply did not want to attend a ‘prospecting interview’ with Mr Ken Taylor or Mr Greg Taylor. I have used a slightly higher percentage in the case of the Frankston branch compared with the Mildura branch because Mr Ken Taylor’s connection with potential clients should have been stronger than Mr Hawksworth’s given that Mr Taylor had been full time rather than part time at the Frankston branch and that he had been there over a longer period. Again, it should be noted that my reduction of 904 is below the number of building society customers who had less than $2000 in their savings account or term deposit. Thus, I have recognised to some extent that even some of these customers were potential financial planning clients.[95]
[94]Damages judgment [86].
[95]Damages judgment [98].
Second, for the reason which we stated a little earlier, we do not accept IOOF’s argument that Taylor’s attempt to obtain financial planning clients from amongst IOOF depositors had, in effect, already run its course.
Third, the mere fact that the figure selected by his Honour postulated an increase in activity does not tell against its validity. The hypothetical situation involved new and different circumstances.
Fourth, the way in which IOOF’s expert witness approached the matter took out of the reckoning a pool of IOOF depositors who were potential interviewees.
We turn to his Honour’s assessment of the success rate. In our respectful opinion it was much too optimistic. We consider that 30 per cent ought be substituted.
It should immediately be noted that Taylor’s circumstances were not identical to Foxeden’s. It is not a question of saying that what is good for Foxeden is good enough for Taylor. Rather, different circumstances tell in different ways in the overall assessment of the two cases. The relevant circumstances in the case of Taylor, as we see it, are as follows:
First, Taylor’s historical success rate over a three year period was about 30 per cent. That was considerably higher than Foxeden’s success rate over a shorter period; but it was only half the success rate which his Honour adopted; and that, despite attention being paid to the ‘best prospects’.
Second, Taylor’s success rate was achieved against the background of its presence in the IOOF Frankston branch for a number of years before Taylor began to run the branch. Although it should not be concluded that by 30 June 1999 Taylor had fully built up the necessary trust and confidence to convert depositors to clients, or had fully exploited the customer lists, we consider that its higher success rate was probably a more accurate portrayal of what was reasonably achievable than was Foxeden’s lower success rate.
Third, we consider that IOOF made a fair point in respect of the Frankston term depositors – that is, that their deposits had, in most cases, matured at least once in the period that Taylor had been running the branch; in which circumstances Taylor had already had an opportunity to solicit those depositors for its financial planning business.
Fourth, as from 1 July 1999 Taylor would have been in competition with the financial planning entity conducted as a joint venture by Bendigo Bank and IOOF. As with Foxeden, that competition, logically, was likely to have been more difficult for Taylor as time passed and as Taylor’s immediate relationship with IOOF depositors faded.
Fifth, and telling in a contrary direction, his Honour stated that he had built ‘referrals’ into his figures. This must mean that he built some allowance for this factor into his assessment of the number of new clients. Possibly, because of the evidence given by Taylor of his arrangement with the local solicitor, the referral factor should be accounted more important with Taylor than with Foxeden.
We must finally make mention of the discount rate. For the reasons which we stated in respect of the Foxeden matter, we reject the submission for Taylor that the discount rate used by his Honour should be reduced.
Damages for the Lost Chance to Negotiate Compensation in Lieu of Notice
We repeat the conclusion which we expressed in the Foxeden matter.[96]
[96][217] above.
Conclusion
We would substitute an assumed success rate of 30 per cent but would otherwise respectfully adopt the other integers which his Honour concluded were appropriate. That would have the effect of halving the amount to be allowed for damages representing the lost chance of Taylor earning financial planning income over time. The calculation (ignoring cents) would be as follows:
Interviews 388
New Clients (say) 117
Average Investment $ 45,220
Additional funds invested over seven years $5,290,740
Lost Up-front Commission $ 158,722
Lost Trailing Commission $ 144,437
Total: $ 303,159
Total After 35 per cent Discount $ 197,053
We would therefore assess Taylor’s damages as follows:
Loss of Building Society Commissions $ 62,675
Less Savings $ 50,000
$ 12,675
Lost Chance of Obtaining Financial
Planning Income Over Time $ 197,053
Total: $ 209,728
To that sum should be added statutory interest.
Orders
We would allow each appeal in part, so as to substitute for the damages awards made by the learned trial judge damages in favour of Foxeden in an amount of $235,326 plus statutory interest, and in favour of Taylor in an amount of $209,728 plus statutory interest.
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