Jones v Greer
[2005] QSC 56
•22 March 2005
SUPREME COURT OF QUEENSLAND
CITATION:
Jones v Greer and Ors [2005] QSC 056
PARTIES:
MATTHEW JONES
(plaintiff)
v
DALE GREER
(first defendant)
JULIE GREER
(second defendant)
DIANE and ALBERT HACKFOORT
(third defendants)FILE NO/S:
S10637 of 2002
DIVISION:
Trial Division
PROCEEDING:
Hearing
ORIGINATING COURT:
Supreme Court at Brisbane
DELIVERED ON:
22 March 2005
DELIVERED AT:
Brisbane
HEARING DATE:
3 and 4 March 2005
JUDGE:
McMurdo J
ORDERS:
1. The claim is dismissed
2. The counter-claim is dismissedCATCHWORDS:
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – IMPLIED TERMS – TERMS ESSENTIAL TO ENABLE PERFORMANCE – contract for lease of gymnasium “business” and equipment – whether an implied term to return the “business” on expiry of agreement
EQUITY – GENERAL PRINCIPLES – FIDUCIARY OBLIGATIONS – GENERAL PRINCIPLES – where contract allowed operation of gymnasium for defendants’ benefit – whether fiduciary relationship
INTELLECTUAL PROPERTY – OTHER MATTERS – CONFIDENTIAL INFORMATION – WHAT CONSTITUTIES AND GENERALLY – names and details of members of gymnasium given to defendants pursuant to contract to lease “business” – whether duty of confidence to return information and not to misappropriate for defendants’ own benefit
DAMAGES – GENERAL PRINCIPLES – DIFFICULTY IN ASSESSING DAMAGES – damages calculated by reference to accountant’s report of value of business at a prescribed date – where accountant not provided with current financial statements – whether assessment accurate
BP Refinery (Western Port) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266, applied
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, appliedCOUNSEL:
B Cronin for the plaintiff
First defendant appeared on his own behalfSOLICITORS:
Johnsons for the plaintiff
First defendant appeared on his own behalf
McMURDO J: For some years prior to November 2000, the plaintiff, Mr Jones, operated the business of a gymnasium at rented premises at Barkly Highway, Mt Isa. For most of that time he lived in Mt Isa, at some time after August 1999, he moved to the Gold Coast and employed a manager of the business. One of his customers at the gymnasium was the first defendant, Mr Greer, and in late 2000 he and Mr Greer began to discuss the prospect of Mr Greer’s taking over the operation of the gymnasium. The discussions resulted in a written contract between Mr Jones and the first and second defendants, Mr and Mrs Greer. Put broadly, that provided for Mr and Mrs Greer to conduct the gymnasium business for a “period of no less than 19 months” and for the profits to be theirs, in consideration of their paying to Mr Jones $1,000.00 per month for the use of the equipment and paying all of the expenses of the business, including the rental payable under Mr Jones’ lease of the premises. It gave the Greers an option to purchase the business for $120,000.00.
In May 2002, Mr and Mrs Greer ceased to conduct the gymnasium in those premises and opened another gymnasium, under the same name, at Miles Street, Mt Isa. Mr Jones claims that the Greers have breached a number of implied terms of the agreement although he claims no relief for the enforcement of the contract or damages for its breach. Instead he claims that the Greers have breached what he alleges was their fiduciary duty in relation to the business which they took over from him. He also complains that they have misused confidential information upon their leaving the Barkly Highway premises. He originally claimed orders whereby the Greers would account to him for any profits earned at Miles Street and would transfer to him the business of that gymnasium, including the lease of its premises. Indeed he joined as third defendants the lessors, seeking an order against them that they, together with Mr and Mrs Greer, take all necessary steps to have the leasehold transferred to him.
Since the commencement of these proceedings, Mr and Mrs Greer have ceased to operate from Miles Street. Mr Greer now conducts a similar business in Airlie Beach under a different name. The plaintiff’s claim is now a monetary claim only. He claims that he should be compensated for the value of “the business” as at 30 June 2002. There is no longer a claim against the third defendants.
The second defendant, Mrs Greer, was not present at the trial. Mr Greer represented himself and announced his appearance also as her representative. There is evidence that he and Mrs Greer are at least estranged. I asked him to provide some evidence of his authority to represent her but none was forthcoming. I did not allow him to represent her.
The Contract
Mr Jones sues on the basis of terms which he argues are necessarily implied in a written contract. He does not claim that the contract was partly oral. It is common ground that the contract was contained in a one page document dated 29 November 2000. On its face, it is a contract between Mr Jones and Mr and Mrs Greer. Mr Greer argues that Mr and Mrs Jones conducted the business in partnership at the time of this contract, but it is not clear what is said to follow from that. I accept the evidence of Mr and Mrs Jones that Mr Jones alone was the proprietor of the business. The evidence which is relied upon by Mr Greer is that the business name, which was “Oasis Fitness”, was registered in favour of both Mr and Mrs Jones. Mrs Jones says that she has no idea how that occurred. Other documentary evidence shows Mr Jones as the only proprietor. There is the lease of the premises to him alone. The takings from the business were paid to a bank account in his name and the income of the business was declared in his tax return. And there is the fact that he is shown as the party contracting with Mr and Mrs Greer. Although Mrs Jones signed that document she did so expressly as a witness.
The contract document was in these terms:
“This agreement is entered into on this 29th day of November 2000 by and between MW Jones and Dale and Julia Greer.
In consideration of the mutual promise set forth herein, MW Jones and Dale & Julia Greer agree to the following:
1. As of December 1st, 2000, the above-mentioned individuals, Dale & Julia Greer, agree to commence the running of Oasis Fitness on a sub-lease basis from its current owner, MW Jones for a period of no less than 19 months (July 2002). MW Jones agrees that of the above date, all monies collected in the daily running of Oasis Fitness shall be collected by Dale and Julia Greer for the use in the running of Oasis Fitness or as they see fit. As of December 10, 2000, all monies collected from monthly debit schemes will be re-directed to a nominated account provided by Dale & Julia Greer.
2. For a monthly sum of $1000.00, Mr/s. Greer will have sole use of all equipment located at Oasis Fitness (list attached), in an “as-is” condition basis, with any repairs, maintenance or replacements being their responsibility. This amount will be paid no later than the 10th of each month via a direct debit process into a nominated account.
3. As of the above mentioned date, D&J Greer agree to accept all out-goings from the business including rent for the premises, electricity, telephone, staff wages and any other costs incurred in the course of running Oasis Fitness, until such time as this contract expires.
4. At any time, D & J Greer may purchase the gym and all its equipment for a total price of $120,000.00, less any monies already paid through this leasing process.
5. Any outstanding accounts occurring prior to December 1st, 2000 shall be paid by MW Jones, including electricity, phone and staff wages. At this time, all security deposits currently held under the Oasis Fitness name shall be returned.
If any part of this agreement is held unenforceable for any reason, the remaining portions of this agreement shall remain in force and effect, and shall be carried out in a manner, which is consistent with the intention of both parties.”
The period of 19 months for this agreement (clause 1) coincided with the remaining term of Mr Jones’ lease of the premises at Barkly Highway. It was a lease for five years from 1 July 1997. Each period expired at the end of June 2002. Mr Jones had a right of renewal exercisable by a notice given at least one month prior to the expiry of the original term. Although the period of the agreement was expressed to be “no less than 19 months”, it was an agreement for a period of 19 months. Mr Jones was not obliged to renew his lease and nor were the Greers obliged to continue to operate the gymnasium if he did. By providing for a period of “no less than 19 months” the parties have expressed a further period as a possibility rather than as an obligation or entitlement.
Events after the Contract
Mr and Mrs Greer commenced to operate the business from December 2000. At their request, Mr Jones caused the registered business name and the telephone number to be transferred to them. They duly paid the Mt Isa Rotary Club, which was the lessor of the premises, the rental and other amounts payable from time to time. They paid Mr Jones the sum of $1,000.00 per month according to the contract.
At no time did they purport to exercise their option to purchase the business. Instead, in April 2002, they had their accountants make an offer to purchase the equipment for $50,000.00 with a settlement date of 1 July 2002.
On some date in May 2002, the Greers left the Barkly Highway premises and opened another gymnasium at Miles Street. They took Mr Jones’ equipment and used it for the next six months, continuing to pay Mr Jones $1000.00 per month. They continued to press Mr Jones to accept their offer of $50,000.00 for it. They had their accountants write to Mr Jones on 1 July 2002, to again put that offer. There was some misunderstanding in that Mr Jones had faxed a letter accepting the offer on 27 June 2002. Mr Jones replied on 5 July 2002 saying that he had indeed accepted the offer more than two months earlier. He wrote that until the $50,000.00 was paid, the defendants should continue to pay $1,000.00 per month for the equipment. Mr Jones showed no intention of going back into the business of a gymnasium either at Barkly Highway or otherwise. He had not exercised his option to renew his lease. He was then living at Oxenford near the Gold Coast.
On 1 August 2002 the Greers wrote to Mr Jones saying that they had not been able to raise the finance to pay the agreed $50,000.00 for the equipment. They proposed that they pay a lump sum of $20,000.00 and continue the monthly payments of $1,000.00 in reduction of agreed sum of $50,000.00. This proposal was overtaken by a letter from the solicitors for Mr Jones addressed to the Greers’ accountant, dated 20 August 2002. It referred to the letters by which the Greers had offered to purchase the equipment, but not to the letters by which recorded Mr Jones’ acceptance. It is necessary to set out this letter to explain the plaintiff’s case. The solicitors wrote as follows:
“It is obvious … that your clients are under the misapprehension that they in some way have proprietary rights with respect to the business of Oasis Fitness. If that is so it is simply incorrect. Your clients under the terms of an agreement with our clients of 29 November 2000 leased the business from our clients until July of this year. Since that time they have “held over” under the terms of that agreement. The equipment and the business belongs to our client.
If your clients allege otherwise then they will have misappropriated to their own benefit the following:
(a) confidential information with respect to the business and in particular the details of clients of the business;
(b) the clients of the business;
(c) telephone number etc relating to the business; and
(d) the goodwill of the business (including the business name).
… Your clients had the opportunity to purchase the business (including the plant and equipment) for a total price of $120,000.00 less the amount of rent paid during the leasing process. If your clients do not wish to avail themselves of that opportunity then arrangements need to be put in place for the return to our clients of their business in its entirety.
Should your clients take any steps to open a business in direct competition with the business they operate by agreement with our clients that action would result in our clients also seeking injunctive relief and/or damages as clearly any ability on your clients’ part to take that action would be clearly referable to confidential information received by them whilst conducting our clients’ business and a misappropriation of our clients’ goodwill through your clients association with the successful business established by our clients.”
Some further correspondence was exchanged between the Greers and Mr Jones’ solicitor, in which the Greers referred to the fax dated 27 June 2002 by which Mr Jones had accepted their offer for the equipment. The solicitors’ response was to write on 22 August 2002 that “the offer made by our client related to the gym equipment only. The moneys were not paid by 1 July 2002 and our client withdraws the acceptance of that offer. The offer did not relate to the good will of the business and you failed to respond by 1 July. The matter was then at an end.”
After some further correspondence, solicitors acting for the Greers wrote to Mr Jones’ solicitors on 19 November 2002 saying that the Greers gave “notice of termination of the lease for the gym equipment the subject of the agreement dated 29 November 2000, effective immediately” and asking for advice as to what Mr Jones would do to collect the equipment. They said that the Greers would be incurring storage fees if it was not collected within a month. On the following day Mr Jones’ solicitors responded saying that “the agreement is at an end” and demanding “the return of our clients’ other chattels and choses in action” which were said to be:
“(a) confidential information of the business including confidential information during the period your clients have operated our client’s business pursuant to the agreement;
(b) leasehold on the premises from which the business is now operated; and
(c) the business name.”
They also demanded that the Greers agree not to operate a similar business within Mt Isa for a period of two years. Legal proceedings were threatened if those demands were not met within 24 hours.
The Greers had continued to pay $1,000.00 up to and including the month of November 2002, after which, I find, they ceased to use the equipment and placed it in storage. They have a counter-claim for the cost of that storage which is pleaded at an initial cost of $880.00 plus $300.00 per week. According to the evidence the equipment is still in storage. Mr Greer offered no evidence to substantiate those amounts. He said that the cost of the storage to date had been about $4,000.00 to $5,000.00 which I understand to be a description of what he has paid and what he said was being claimed from the Greers in the Magistrate’s Court. He has provided no documents to support that counter-claim and I am not prepared to accept what seems at best to be some broad and not so careful estimate of the storage cost. It was open to him to properly prove that cost. Ultimately, he did not make any submission to the effect that this or any other component of the counterclaim should be upheld. His submissions were addressed only to the defence of Mr Jones’ claim.
Subsequently, the Greers left the Miles Street premises. Mr Greer asserted that this was effectively caused by their landlords being joined as defendants in these proceedings, but it is not necessary to consider that. As I have said, the departure from the Miles Street premises has put paid to the claims for delivery up of what Mr Jones through his solicitors had claimed represented “the business” which the Greers had been “holding over”.
The Accounting Evidence
The various causes of action alleged by Mr Jones ultimately involve a claim for the same amount, which is $76,807.00. That is the amount attributed by a chartered accountant, Mr Scott, to the value of “the business known as Oasis Fitness on or around 1 July 2002”. It was reached by capitalising what were assessed as future maintainable earnings at the rate of 30 per cent. A factor which Mr Scott expressed as relevant in selecting that rate was “that the business’ lease had expired as at 1 July 2002”. It seems then that the “business” which Mr Scott was valuing was not one necessarily to be conducted at the Barkly Highway premises.
Mr Scott was provided with financial records for the business which had been conducted by Mr Jones for the three years ending on 30 June 1999. From that information he was expected to value a business not as at 1999, but as at 30 June 2002, and a business which was by then conducted from different premises. By his use of the expenditure for the three years to June 1999, he has assumed that the rental at any other premises would be comparable.
Mr Scott was no doubt doing the best that he could with the information available to him. The absence of financial information as to the business operated by the Greers at Barkly Highway is explained by the fact that the Greers have not disclosed those records to the plaintiff. Nevertheless, I am not persuaded that I should accept Mr Scott’s valuation. It is based on figures which were three years out of date. It does not address the value of the business as conducted by the Greers at Miles Street, which may have had a different cost. Further, the plaintiff did not provide to Mr Scott any information of his own trading from July 1999 until the handover on 1 December 2000. The absence of that information was explained by Mr Jones by reference to some flooding under his house where he had kept his records. Some records may have been lost, but Mr Jones’ tax return for the 2001 year was still available, and was tendered but only after Mr Scott gave his evidence. For the year to 30 June 2001, during which he operated the gymnasium for the first five months, the return shows a gross income of $42,433.00 against total expenses of $100,045.00, resulting in a net loss of $57,612.00. He explained this by saying that the New Year period is the most profitable. Yet his bank statements for January 2000 show receipts of only about $10,000.00 for that month. He agreed that his income from the business was banked to that account. It seems likely that the future maintainable earnings of the business as at the date of handover to the Greers, 1 December 2000, was substantially lower than that which Mr Scott has calculated. Because the Greers did not disclose their records, I would be prepared to infer that they would show earnings of at least those of the gymnasium as at their beginning to operate the business. But Mr Jones has not proved to my satisfaction what they were, and there is the further difficulty that the business being valued is the new one situated at Miles Street.
For these reasons, I am not persuaded to accept Mr Scott’s valuation. Ultimately however, that does not affect the result, because there are other reasons why this claim should fail.
The Alleged Implied Terms
Paragraph 5 of the Statement of Claim alleges implied terms to the effect that:
“(a) if the first and second defendants elected to purchase the business according to the option, that they would notify the plaintiff accordingly;
(b) the agreement was terminable by either party at any time after 30 June 2002; and
(c) the option would expire when the agreement expired.
(d) upon the expiration of the option the Defendants would return and re-convey to the Plaintiff the business including the confidential information, the goodwill, the business name, the equipment and other items of personalty associated with the business and the new information.”
By paragraph 6, it is alleged that the terms must be implied to provide business efficacy to the contract.
The implied term is pleaded by reference to what is described as “the confidential information” and the “new information”. The confidential information is pleaded as “certain confidential information … acquired by the plaintiff in the course of operating the business up until 1 December 2000 including the names and other personal details of clients and financial information”. The new information is pleaded as “the names and personal details of new clients acquired by the Greers in the course of operating this gymnasium”. As to the so-called confidential information, the real complaint is not that the Greers failed to “return and re-convey” that information to Mr Jones, but that they have used it in their new gymnasium. As this was information originally given to the Greers by Mr Jones himself, it is not at all clear why Mr Jones would have needed the benefit of an implied term that the information was to be communicated back to him.
In the relief claimed in the Further Amended Statement of Claim, there is no claim for damages for breach of contract. In particular, the plaintiff does not claim that he has suffered a loss from the Greers’ “not returning and re-conveying” the things described in paragraph 5(d). Had he made such a claim, at least one difficulty for him would have been in showing any loss, in the circumstance that he had failed to renew his lease and that he had no intention of re-opening a gymnasium, at least in Mt Isa.
Rather, what the plaintiff’s case attempts to do, is to prove that by the operation of these implied terms, the Greers became subject not only to contractual but also to equitable obligations, and in particular a fiduciary duty.
It may be accepted that each of the terms pleaded in (a), (b) and (c) was a term either upon the proper interpretation of the express terms or as a term to be necessarily implied. However, I do not accept that there was a term as alleged in paragraph (d).
It is argued that the term alleged in paragraph (d) satisfies each of the criteria identified in BP Refinery (Western Port) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 283. In my view it fails to satisfy at least the criterion that it was necessary to give business efficacy to the contract. In essence, this contract was to provide the Greers with the gymnasium premises and its equipment for a term of at least 19 months, and in return, the Greers were to pay $1,000.00 per month for the lease of the equipment and to relieve Mr Jones of the burden of any expense in connection with this gymnasium. Mr Jones’ lease had that period of 19 months still to run and so logically the life of the contract was expressed as the same period. Absent this implied term, Mr Jones could go back into the premises, had he wished, by renewing his lease, and he could have retaken possession of his equipment because it was his property and the Greers were entitled to it only during the life of the contract. It might have been beneficial to Mr Jones to have had a term whereby the Greers had to then give him information about their then customers, or a term which prevented or impeded their starting up a gymnasium somewhere else in the town. But this contract was effective without such a term, and its implication was “not so obvious that it goes without saying”.
Moreover, according to this alleged term, the Greers were obliged to provide him with the confidential information, the new information and with the goodwill of this gymnasium regardless of whether Mr Jones was willing or able to go back into the business. Such a term hardly seems to be reasonable and equitable, necessary to make the contract effective, so obvious that it goes without saying or indeed capable of clear expression. For Mr Jones it was argued that there would be a benefit to him in having a list of customers although he would not have a gymnasium, because he could somehow commercially exploit that information. There is no evidence that this would have been a substantial benefit within Mt Isa. But in any case such a benefit seems quite remote from the essence of this contract and what was necessary for its efficacy.
In my conclusion, there was no implied term as alleged in paragraph 5(d) of the Further Amended Statement of Claim, or at least one which would impose obligations upon the Greers where Mr Jones had not renewed his lease or was not otherwise willing and able to go back into possession of the gymnasium at Barkly Highway.
Mr Jones pleads that the Greers “had a fiduciary obligation to the Plaintiff, as owner of the business, to act in the interests of or to the advantage of the Plaintiff, and not in their own interest or to their own advantage, concerning the confidential information, the new information, the equipment and the goodwill of the business.” In other words, they were obliged to prefer his interests to theirs, and not to act so that the two might be in conflict. Yet this is in a context where by the contract they were allowed to operate the gymnasium entirely on their own account. The relationship between the parties was defined by their contract, according to the terms of which the Greers had not undertaken or agreed to act for on behalf of or in the interests of Mr Jones. In Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96-97, Mason J described an undertaking or agreement to act for or on behalf of or in the interests of another person as a critical element of a fiduciary duty. “The distinguishing characteristic of a fiduciary relationship is that its essence, or purpose, is to serve exclusively the interests of a person or group of persons; or, to put it negatively, it is a relationship in which the parties are not each free to pursue their separate interests”: Meagher Gummow & Lehane’s Equity Doctrines and Remedies (4th Edition) at [5-005].
As to the claims for the protection of confidential information, it is again necessary to look to the relationship of the parties upon which they agreed by their contract. “Where there is a contract then it is to the contract that the court should look to see from express words or necessary implication what the obligations of the parties are and the introduction of equitable concepts should be resisted”: Meagher Gummow & Lehane at [41-020]. Absent the implication of the term in paragraph 5(d), there is no basis for the alleged duty of confidence and it is difficult to see why Mr Jones should need the protection of equity in respect of any information in the circumstance where, by his own choice, he had decided not to again be the proprietor of a gymnasium in Mt Isa. At least in that circumstance, I cannot see how the Greers were conscience bound to provide him with the information and to deny themselves the benefit of it.
It follows that there is no basis shown for the ultimate relief sought, which is that the Greers should pay to Mr Jones the value of “the business” as at 30 June 2002. I should also mention that there was a further case pleaded by Mr Jones to the effect that the Greers had misrepresented that they were the owners of his business, as a result of which Mr Jones was said to have “suffered loss and damage to the goodwill of the business”. Ultimately, that case was not pursued in the evidence or argument. In any event, there is nothing to suggest that there was such a misrepresentation or that Mr Jones has suffered because of it.
For these reasons the plaintiff’s claim against Mr and Mrs Greer should be dismissed. I turn then to the counter-claim. I have rejected already one component of it, which is a claim for the cost of storing Mr Jones’ equipment. The other component of the counter-claim is a claim for damages for deceit. The alleged representations are not clearly pleaded, but they are said to have been false in that Mr Jones did not “own the equipment which he purported to sell” and that he was in arrears of his rent under his lease with the Rotary Club. There is then simply a claim for $16,000.00 as damages for deceit. There is no evidence to support any loss in consequence of the alleged falsity of those matters. If Mr Jones was in arrears this is not shown to have caused the Greers any loss. And as they did not ultimately buy his equipment, the allegation of fraud in relation to its ownership goes nowhere. The counter-claim must also be dismissed.
I shall hear parties as to costs.
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