Martin v Kellie & Anor No. DCCIV-02-385

MARTIN v KELLIE & ANOR
[2003] SADC 168
Judge Bright
Civil

The first defendant is Chief Executive Officer of the second, which trades as a barter or exchange facility. Members join the second defendant and are then able to trade with each other in “barter dollars”. The defendants sell franchises to promote the business. Franchisees get a proportion of the transaction fees charged to members for each trade and also get a proportion of membership fees. The defendant company is but one of a number of companies in Australia which trade in this field.
The Franchise Agreement is lengthy, detailed and complex. Of particular interest, the agreement obliges a franchisee to work diligently and not to engage in activities conflicting with the interests of the franchisor. Clause 15 deals with the power of the franchisor to terminate the agreement in various circumstances. Some circumstances give rise to a right to determine the contract without notice. In other circumstances, notice to remedy a breach must be given. If that notice is not complied with the contract can be terminated.
The plaintiff, with others, agreed to purchase two franchises to operate in defined areas to the south and south west of Adelaide. He seems to have been enthusiastic. He operated out of the second defendant’s main premises and was in constant contact with the first. He assumed the responsibility of Trade Manager. There is dispute about whether he was paid for that. He became dissatisfied with aspects of the way the first defendant managed the business. He was not afraid to push his views.
After about two years the plaintiff was courted by a competitor. The plaintiff eventually decided to leave the defendants and to set up operations in South Australia for the competitor. The plaintiff’s investigations of and negotiations with the competitor came to a head in June 2001.
At that time the first defendant and his wife were in New South Wales and, later, in New Zealand. Rumours that the plaintiff might be departing came to the notice of the first defendant. He was in regular contact with his office and learned that the plaintiff had left and was believed to be setting up in competition in premises not far from those of the second defendant.
The plaintiff faxed a letter to the first defendant in the following terms:
“28-06-2001

I have taken the break and have considered my future, for my sanity and harmony in the work place at Tradebart for me, the staff and your family members it is time for me to go.
I will pursue my career with another Trade Exchange but will work with Tradebart as a preferred option.
I have no intent to harm Tradebart and trust any issues that may arise from my departure can be quickly resolved, I certainly have not the time nor patience to pursue the Winton Morrison line.
I will be returning to Adelaide on July 2^nd and contact you then Jim.”
This was received on, or about, its date of 28 June 2001. On 29 June 2001, the defendants terminated the franchises in which the plaintiff was involved, by letter in the following terms (Tradebanc is a competitor):
“We hereby advise that your Franchise is terminated forthwith under Clause 15.3 of the Franchise Agreement.
Colin Martin has voluntarily abandoned the Franchise business or the Franchise relationship commenced with Tradebanc.
In the event that it is not valid to terminate the Franchise forthwith we now enclose Notice of Intention to Terminate (the Notice) dated 29 June 2001 under
(a)
Clause 15.2 of the Franchisee agreement.

Reasonable notice is required which is considered to be 30 days under this clause and it is not possible to cure the breaches. We will send you another notice in 30 days as it will be our intention to terminate the agreement forthwith at the end of 30 days.
(b)
Clause 15 of the Franchise Agreement.

Please note that unless you cure the various breaches (which may not be curable and can only be overcome by us accepting your breaches) we will send another notice prior to 30 days, for service of the notice upon you, as it will be the intention to terminate the agreement forthwith at the end of the 30 days.
In the event of termination of agreement, you will not be relieved of your obligation to make payment of monies which you owe and we further reserve our right to claim damages against you for your breaches.
If you do not wish to continue to be a franchisee, then we invite an immediate and urgent discussion with yourself with a view to there being a mutual termination of the agreement. If there is to be such a termination, then the appropriate financial adjustments will have to be agreed and there will be an ongoing confidentiality agreement requirement upon yourself.
Any such mutual termination will have its terms and conditions appropriately recorded.
Yours sincerely
JW Kellie

Managing Director

Tradebart Ltd

encl.”
I note the references in that letter to Clause 15.3 of the Franchise agreement and the claim that the plaintiff “has voluntarily abandoned” the business. For a franchisee to do that is ground for immediate termination of the agreement. I do not stay to decide the plaintiff’s claim that, as he was only one of the franchisees, the agreement could not be summarily terminated. If so, there would appear to be grounds to give notice, relying on a change in the partnership between franchisees without approval, as referred to in Clause 15.2.2. There may have been other matters in respect of which notice could be given. Hence the reference to giving notice in the event that there is no ground for instant termination.
When he returned to his office on 26 or 27 June 2001, it was reported to the first defendant by staff that a question had arisen in relation to a customer who had dealt with the plaintiff, a Mr Clark. That customer had refused to become a member of the trade exchange run by the defendants, but had made certain deals directly with the plaintiff. Some $8,000 was deposited to the credit of an account owned by the plaintiff.
In the view of the first defendant, it should have been deposited to a separate account in the name of the customer. He said that, not only was it the procedure of the trade exchange, but also that it was usual business procedure. I do not need to make a firm finding as to whether this was so. The plaintiff disputes it. It sounded correct to me. Of more importance, I find that that was what the first defendant honestly believed after his initial investigations. He suspected the plaintiff of fraud and reported the matter to the authorities. Fraud is another ground for instant termination of the franchise agreement. In the end, after investigation, police took no action. Whether or not there was fraud is unresolved. The plaintiff denies it. The first defendant still believes there was.
Within 48 hours of his return, the first defendant also became aware of problems with two other customers’ accounts. It was alleged that promised deals had not been paid for or bartered away. These took some time to sort out. The first defendant says that, eventually, the second defendant had to reach commercial settlements in relation to them; they cost money. I find that the first defendant reasonably and honestly believed that there were discrepancies in each of the three accounts I have discussed.
The first defendant found, in the plaintiff’s desk, a torn up draft of a letter of resignation, clearly indicating that it had been submitted to the Chief Executive Officer of Tradebanc. It was dated 8 June 2001. It suggested that the plaintiff’s departure was by no means unplanned. The plaintiff says that he did not finally decide to leave until later, which may be so.
It happened that, as a result of barter deals, some customers built up substantial credits in barter dollars, which they were unable to spend easily. Other members, presumably, were not selling what they wanted to buy. The plaintiff, the first defendant, and a Mr Skelton formed a company with the aim of carrying out a building development in which other members would supply services or goods for barter dollars. Those customers unable to spend their barter dollars could use them to buy an interest in the development, perhaps by buying units. By the time the plaintiff left, the scheme had not got very far. It was expected to be a year or so before it would be complete. In fact, it never proceeded. A number of members had been approached and had expressed preliminary interest in the scheme.
On his return, the first defendant could not find any record of who had expressed such interest. Mr Skelton did not know. The plaintiff should have had records. In evidence, the plaintiff claimed that there had been a list on a whiteboard in the office. Such a list may have existed – but, if it did, it had been erased. Later a sheet of paper was located with a list of names which may, or may not, have been a list of interested customers. Even so, that is not clear.
So, the first defendant, as Chief Executive Officer of the second defendant, had reason to believe, and did believe that:
a) the plaintiff had abandoned the franchise,
b)the plaintiff had gone to set up business in direct competition for a competitor,
c)that the plaintiff’s new office was only a short distance away,
d)that there might be fraud,
e)that there were discrepancies in the plaintiff ’s accounts,
f)he was not certain which customers were interested in the building project, or on what basis.
In these circumstances the first defendant wrote and circulated to the 407 members of the exchange the following letter:
“Dear Member 2 July 2001
SA Update
Trade Coordination
We are appointing additional coordinators to service you better as we expect trade volume to increase with present projects that are in train in South Australia and to increase our level of service.
Please be advised that an Adelaide franchisee, ie Colin Martin, has been terminated due to non-performance and breach of contract. He is no longer a representative of Tradebart or any of our associated companies.
There have been certain difficulties and any member who has found discrepancies or wishes to inform any former Tradebart representative contacts you offering services or products similar to Tradebarts’ business model, I urge you to use caution and contact us urgently for advice if needed. Tradebart in no way supports or is affiliated with any other trade exchange system in Adelaide and South Australia.
Building Projects
These are on the verge of happening and members will be able to purchase these units on 30% Trade with a total price expected of $110,000 to $120,000. Many traders have registered their desire to purchase one. However due to Colin Martin’s incomplete records we are not sure that we have recorded the details of all of the purchasers. Please check your registration with Rose Willis one of our Adelaide office coordinators.
International Business
Our Barternet trading opportunities have been strengthened with the addition of more Barternet affiliations in South America and Europe including Eastern Europe.
We are to finalise in the near future recripical (sic) trading relationship with 2 other large United States groups of trade exchange that will give more opportunities to Trade.
Our New Zealand Business continues to grow and they are wanting more business from our Australian traders (an our overseas affiliates) They are especially looking for trades to use their excellent travel and leisure facilities especially in the South Island prime holiday destination of Queenstown and Wanaka.
Yours sincerely
Jim Kelly

Chairman”
The first sentence of the third paragraph does not make sense. It appears that some words were omitted. While one can guess what was intended, the letter went out in the form reproduced above.
The plaintiff claims that this letter defamed him. I will come to the pleading in a moment. The plaintiff represented himself in court and summarised his complaint. He says it is clear that the sections headed “Trade Coordination” and “Building Projects” were precipitated by, and refer to him which, in a general sense, is true. He says that the words “has been terminated due to non-performance and breach of contract” infer that, during his work for the second defendant generally, he did not perform. The references to “certain difficulties” and “discrepancies” suggest dishonesty, as does the claim that he kept “incomplete records”.
While that may give the general sense of his grievance, he is, of course, bound by the meanings pleaded. I now set out paragraph 5 of his particulars of claim:
“5.In their natural and ordinary meaning the said words meant and were understood to mean:-
5.1    That the plaintiff’s engagement with Tradebart and his franchise agreement with Tradebart had been terminated due to the plaintiff’s non-performance and breach of contract.
5.2    That the plaintiff had been guilty of breach of contract with Tradebart.
5.3    That the plaintiff had failed to perform either in his role and activities with Tradebart and or as an operator of a franchise agreement with Tradebart.
5.4    That the plaintiff was dishonest.
5.5    That the plaintiff had been guilty of financial irregularities in his dealings with Tradebart.
5.6    That the plaintiff had been guilty of theft or serious breach of financial duty towards Tradebart.
5.7    That the plaintiff failed to properly maintain records.
5.8    That the plaintiff was not a fit and proper person with whom to conduct business in South Australia.”
The defendants admit 5.2, but otherwise deny the alleged meanings.
I find that the meaning claimed in 5.1 is the ordinary meaning of the words used, indeed it repeats them. However, I do not find that “non-performance” as used in the letter means non-performance generally throughout the period of his association with the second defendant. In my view the phrase “non performance and breach of contract” means non performance of contract and breach of contract, rather than (a) general non performance, plus (b) breach of contract. Insofar as those words mean that the plaintiff, by resigning, was no longer performing his duties under the contract and was in breach of it, they are true. The plaintiff claimed that he terminated the agreement by his resignation and that the suggestion that the defendant’s terminated it carries the inference of termination for misconduct and is not true. I find that the purported resignation was not in compliance with any part of the franchise agreements – he could not properly terminate them in that way. By leaving, he entitled the defendants to terminate them – and they did. I will refer later to this and other matters in the context of qualified privilege.
5.3 I generally accept the meaning pleaded. I find that it is true that the plaintiff had ceased to perform as required. Again it is claimed that failure to perform suggests non-performance more general than the ultimate fact of leaving. I doubt that, but will return to it.
5.4 None of the words used in isolation state that the plaintiff was dishonest. Taken as a whole, I can see that a reasonable, but suspicious reader might read between the lines and infer dishonesty. I will return to this.
5.5 and 5.6 give rise to the same answer.
Paragraph 5.7 alleges failure to maintain records. The meaning is clear. I find that that is true – the plaintiff did not properly maintain records. He did not keep proper records of those who expressed interest in the building project. At the least, the first defendant believed that records of Mr Clark’s dealings were not properly recorded, in that they were within the plaintiff’s own account, rather than in a separate account in the name of Mr Clark, or his business. The plaintiff says he was always able and willing to supply oral information – but that is beside the point.
5.8 I do not accept that the letter conveys the meaning that the plaintiff was not a fit and proper person to conduct business in SA. It suggests he has gone to a competitor and that customers should be aware of that. That is true. It is really a re-statement of the previously pleaded meanings.
On hearing that the plaintiff had gone to a competitor, the defendants were entitled to take all legal steps to preserve their business. There was a clear community of interest with the members of the exchange to inform them of the plaintiff’s departure and to discuss the preservation of members’ interests. The plaintiff was well known to members and would have been seen as a prominent member and trade manager.
In my view, there was a qualified privilege in all the circumstances, entitling the first defendant to write as he did, provided he did so without malice, honestly believing that what he said was true. I have found that what was said was, substantially, true. I deal now with those aspects where I have reservations.
On 5.1, I noted that a possible meaning asserted was of general non-performance. I reject any claim that it means the plaintiff never performed. If it means that there were defects in his performance apart from the simple fact of his leaving, that is probably true – no employee is perfect. At the time of writing the letter, the first defendant honestly believed the things I set out in paragraph 14. He was not actuated by malice, but by the need to protect the interests of the defendants and of the members. The same applies to 5.3.
5.4 is the most significant allegation. Insofar as the letter conveyed the claim that the plaintiff was dishonest, I find that that was the honest belief of the first defendant. I allowed fairly extensive cross-examination about the steps the first defendant took to investigate, in particular, the account of Mr Clark. I wished to learn whether the belief that there had been fraud had been so hastily arrived at as to evidence malice. In my view, it is not apparent that he was so hasty. The facts relating to the account, as they emerged, did not change – and have not changed. On those facts, the first defendant still believes there was fraud (and the plaintiff denies it).
I note that the letter does not allege fraud. It is far more circumspectly worded. It does not appear that the first defendant misused the opportunity to score a cheap shot. I am far from sure that its ordinary meaning is that the plaintiff was dishonest. But, if that is so, I find that that view was published honestly and without malice on an occasion of qualified privilege.
5.5, financial irregularities. This seems a less serious meaning than that alleged in 5.4. In my view, the account of Mr Clark did contain financial irregularities. But, if it did not, I find that the first defendant honestly believed that it did. I take the word “irregularities” to have a more sinister flavour than, say, “errors”. Again, there is no direct statement to that effect. If it is a fair inference, again I find that the first defendant honestly believed it and published his letter without malice on an occasion of qualified privilege.
5.6 must have the same answer.
5.7 is, literally, true. Written records of customers who expressed interest in the building project were not kept. In that context it was entirely reasonable for the first defendant to check with the members whether their details should be recorded. At the least, it was reasonable for the first defendant to believe, as he did, that records were incomplete. The plaintiff argued that it was not reasonable to circulate this question to all members. A telephone call to him would have sufficed. I cannot agree. In all the circumstances it would not have been possible for the first defendant to rely on what he might have been told. Errors could easily have occurred. I do not know what, if any, records the plaintiff took with him. I assume his answers to any such questions would only have come from memory. I do not conclude that circulation to the members of a request to confirm details was evidence of malice.

The plaintiff argued that the building project was in such an early stage that a combination of a note in his diary, perhaps a written scrap of paper, and the whiteboard were sufficient records. I do not agree. Of more importance, I find that the first defendant honestly believed that the records kept by the plaintiff were insufficient and that, in publishing that assertion, he did so without malice on an occasion of qualified privilege.
Finally, I note that no evidence of actual loss was tendered. I understand that the attempt to set up in competition failed. The plaintiff told me that he was subjected to 17 injunctions. If so, I assume that those injunctions lawfully put him out of business. If so, it would seem probable that no specific financial loss was attributable to the alleged libel. The plaintiff spoke of his legal costs in relation to the injunctions – they are not damages claimable here.
In case I am in error, I note that, if all the matters alleged in paragraph 5 or 6 of the particulars of claim had been proven, I would have awarded $50,000. I do not propose to attempt to subdivide that into damage attributable to each separate allegation.
I would not have awarded aggravated damages.
In the result, the claim is dismissed

[2003] SADC 168

1 December 2003