MW Group (Brisbane) Pty Ltd v MW Group Pte Ltd
[2011] QDC 62
•29 April 2011
DISTRICT COURT OF QUEENSLAND
CITATION:
MW Group (Brisbane) Pty Ltd v MW Group Pte Ltd [2011] QDC 62
PARTIES:
MW GROUP (BRISBANE) PTY LTD
(First plaintiff)AND
ROBERT KIM WILMOT
(Second plaintiff)AND
MW GROUP PTE LTD
(First defendant)AND
MARK WHEELER
(Second defendant)FILE NO/S:
BD906/05
DIVISION:
PROCEEDING:
Trial
ORIGINATING COURT:
District Court, Brisbane
DELIVERED ON:
29 April 2011
DELIVERED AT:
Brisbane
HEARING DATE:
12, 13 August 2010
JUDGE:
McGill DCJ
ORDER:
Declare that the joint venture agreement between the second plaintiff and the first defendant and the franchise agreements between the first plaintiff and the first defendant were mutually abandoned and discharged. Counterclaim dismissed. Adjourned for submissions as to the form of a money judgment, and as to costs.
CATCHWORDS:
CONTRACT – Consideration – failure of – payment for supply of equipment – none supplied over long period of time – total failure of consideration
CONTRACT – Abandonment – joint venture and franchise agreement – neither party cooperating in steps to carry contracts forward – nothing done for years – contracts abandoned
RESTITUTION – Monies paid – payments by one party to joint venture agreement to set up business contemplated by agreement – agreement abandoned – other party liable to contribute to wasted payments
COUNSEL:
M.P. Van der Walt for the plaintiffs
S. Cooper for the defendants
SOLICITORS:
Frews Solicitors for the plaintiffs
Holding Redlich for the defendants (for the trial)
The first defendant operates a business in Singapore testing and certifying measuring equipment: p 76. It was founded in 1992 by the second defendant, and among the testing and certifying work undertaken by the business was the testing and certifying of pressure gauges used by divers including commercial divers. The second plaintiff was working as a commercial diver in South-East Asia and as a result was aware of this aspect of the first defendant’s business: p 16. He had heard of the second defendant but met him for the first time at a barbeque in February 2002 in Singapore: p 17. Ultimately, as a result of that meeting the first plaintiff was incorporated in Queensland, and subsequently it entered into a franchise agreement with the first defendant dated 21 May 2003: Exhibit 3.
It was contemplated that the first plaintiff would operate the franchise business in south-east Queensland. In fact the business was never set up. By this action, the plaintiffs claim, broadly speaking, to recover money paid by the second plaintiff to the defendants in connection with the proposed business, money spent in attempting to set up the business, and damages for the opportunity cost to the second plaintiff because for a period he was not working as a commercial diver. The defendants dispute any such liability to the plaintiffs. The first defendant is effectively controlled by the second defendant,[1] who is also an equal shareholder in the first plaintiff. In the circumstances I shall for convenience refer to the second plaintiff as “the plaintiff” and the second defendant as “the defendant”, the first plaintiff as “the plaintiff company” and the first defendant as “the defendant company”.
[1]I so find, since he and his wife own all the shares (p 17), and he is the managing director (p 16), although for some reason this was denied in the defence para 5(b), and in evidence: p 16.
Much of the history of the dealings between the parties emerges from various documents put in evidence. Each of the plaintiff and the defendant gave evidence, and they were the only witnesses, apart from brief evidence from the defendant’s wife. They spoke about various conversations or things that they had done, and there was some conflict in their evidence. It is convenient to go through the history of the matter, identifying the relevant conflicts.
Background
They agreed that they met at a barbeque, and that there was discussion about the possibility of franchising the business: p 17, p 76. The defendant denied that he said anything to the plaintiff about the financial success of his company, or about the financial performance that a franchisee could expect: p 77. On the other hand, the plaintiff said that he was told that the defendant was making good money out of the business, had an expensive car and a motor cycle, his business was doing well, and anyone who took on a franchise would have his support and would be doing reasonably well: p 17. He said that, had he not been told these things, he would not have been interested in the possibility of becoming involved in a franchise: p 40.
The plaintiff said that he subsequently went to the defendant’s laboratory and was shown the equipment and how it worked, and was invited to attend a presentation at a yacht club if he was interested in the franchise: p 18. The defendant agreed with this: p 30. It was common ground that there was a presentation for potential franchisees at the yacht club and that a PowerPoint presentation was made. According to the defendant a copy of that presentation was Exhibit 5, Tab 1: p 77. The plaintiff said that what was presented was something like that, but that there were some differences between what was presented and that version: p 18.[2] The differences included the absence of any reference to the sum of $500,000[3] being required for testing two physical values, or reference to the method of financing a joint venture, which are set out in two of the slides in that document: p 19, p 42.
[2]I infer that Exhibit 5, Tab 1 was disclosed by the defendants. Unfortunately the pages are not numbered.
[3]All references to money are in Singaporean dollars unless the contrary is stated.
The defendant said the figure of $500,000 was mentioned, but as the amount spent setting up the defendant company to test two physical values, and that because of the work already done in developing procedures, the franchisee would be able to set up for a third of that cost: p 78. The plaintiff said that at the meeting he was told that the amount he would have to pay for the franchise was $150,000, broken down into $25,000 for training, $90,000 for equipment and $35,000 for setting up costs or working capital: p 18.[4] He only had $150,000, and so asked on several occasions and was told that that was what he would have to put into the business: p 20.
[4]The defendant denied that he said such a thing: p 78.
The defendant said he received an application for a franchise dated 5 March 2002 from the plaintiff: p 78, Exhibit 5, Tab 2, apparently the printout of a document completed on a computer. The plaintiff did not have any clear recollection of it, but admitted that he had completed it: p 43. The application refers to the plaintiff having available funds of $A70,000 in Australia and $US25,000 in Singapore, and a house in Australia worth $A170,000 which could be mortgaged for finance.
Letter of intent
A letter of intent dated 20 March 2002 was executed by the plaintiff and the defendant on behalf of the defendant company: Exhibit 1. The letter foreshadowed a franchise or joint venture agreement between the plaintiff and the defendant company. The document provided that the defendant company would provide training to the plaintiff in certain areas of expertise, and that the plaintiff would undertake that training and would pay $25,000 to a Singaporean legal practice which would hold that sum as a stakeholder, and would pay a further sum of $25,000 upon completion of each of five modules of training, those sums to be “paid to the entity that operates the franchise or is set up further to the joint venture and shall be credited as the capital of Wilmot, who shall give credit of an equivalent sum to [the defendant company] as equity or capital, in respect of transfer of software, know-how, systems and intellectual property given further to this agreement.” If no franchise or joint venture were entered into within 18 months, then the money paid was to be divided between the plaintiff and the defendant company. In fact, the plaintiff had paid $25,000 before executing the document, and subsequently paid a further $20,000 in September 2002 and $80,000 in October 2002, all to the law practice: p 20. Between August 2002 and April 2003 the plaintiff attended a good deal of training, and received some certification which, however, was only applicable in Singapore.[5]
[5]Statement of claim para 14, defence para 12(d), plaintiff p 22-3, defendant p 79.
Moving forward
In July 2002 the plaintiff came to south-east Queensland for two weeks, principally to find a place to live and a school for his daughter, but while here he identified premises at Caloundra which he photographed (Exhibit 7) as possible premises for use by the plaintiff company: p 21. He said, however, that the defendant rejected the premises as being too far away from Brisbane: p 22. He also may have made contact with some local solicitors, who were thereafter involved in the incorporation of the plaintiff company, and drafting documents. Instructions for this came initially from the defendant, in early February 2003: Exhibit 4, email 1.
The plaintiff company was incorporated on 26 February 2003. At about the same time contact was made with a branch of the Bank of Queensland, and the defendant had some discussions about commercial facilities: p 80. In connection with this, on 28 February he sent a “business plan” to the bank: Exhibit 5, Tab 4.[6] That plan referred to the “Brisbane operation” as being in leased premises, with plant and equipment having a value of $100,000, and four staff. An estimated balance sheet as of June 2003 showed cash on hand (with the law practice in Singapore) of $150,000, and further amounts totalling some $48,000 including $17,000 of “other debtors”. It also showed fixed assets of plant and equipment of $100,000, office equipment of $15,000, renovations of $10,000, motor vehicle of $20,000, and intellectual property of $150,000, so the total assets came to just under half a million dollars. There was reference to long-term liabilities in respect of plant and machinery and the motor vehicle of about $105,000, “other creditors” of about $71,000, and shareholders equity was said to be $150,000 for the plaintiff and the same amount for the defendant company.
[6]Another copy is Exhibit 22.
This draft balance sheet is a curious document, if only because it assumes that the $150,000 from the plaintiff was to stay with the stakeholder and not be used for acquiring equipment, or for any other purpose, the other assets being apparently to be funded with borrowed money or by not paying creditors. In fact, however, the money paid to the law practice, which was only ever $125,000, was released to the defendant company in response to a letter from the plaintiff dated 20 March 2003, which stated that “the funds shall be used for the purchase of plant and equipment and working capital for” the plaintiff company: Exhibit 5, Tab 6. In the meantime, the bank on 12 March 2003 sent an application for finance to be completed by the plaintiff, which he completed and returned by facsimile of the same date: Exhibit 5, Tab 5.[7] This sought $A150,000 overdraft and $A100,000 hire purchase facility for plant and equipment for the plaintiff company. The security offered was a mortgage over the plaintiff’s property, and guarantees from the plaintiff and the defendants.
[7]Foreshadowed in an email to the defendant on 10 March: Exhibit 4, email 31.
The plaintiff was in Singapore proceeding with his training until about April 2003.[8] During this time there were some discussion between the plaintiff and the defendant about equipment which would be required for the new business. According to the defendant, there were discussions about expanding the scope of the business, so that it could measure more than two physical values,[9] which would require additional equipment, and both of them were agreeable to this, and the plaintiff also agreed to release the money held under the letter of intent: p 81. According to the defendant the particular equipment to be purchased was discussed with the plaintiff and he agreed to its purchase, with the equipment to be sent to Singapore.[10]
[8]The defendant said he was trained in seven physical values: p 79. See also p 82.
[9]He accepted that the original idea was to measure only two: p 24.
[10]I do not accept that the only obligation was to deliver it to Singapore. It was no use to the plaintiff company there, and the bank would provide finance only on goods already in Australia, which the parties knew in early May 2003: Exhibit 4, emails 36, 38.
On 28 March 2003 a bank officer sent an email to the defendant advising of in principle approval of an overdraft facility of $100,000 and a lease facility of $50,000 (presumably both Australian dollars) to the plaintiff company, subject to various conditions including a guarantee by the defendants: Exhibit 5, Tab 7. The plaintiff denied that he was aware of the conditional approval from the bank, or that there was any subsequent agreement for extra funds to be used to purchase equipment so that more than two physical values could be measured: pp 49-50. He said he was told by the defendant that at least $200,000 was required for equipment, but that this did not involve any additional contribution by him, as the plaintiff company would get finance for this: p 24. The plaintiff agreed that there was a proposal to order more equipment once finance was organised: p 51. I find that the initiative in expanding the scope of the proposed business, obtaining finance, and ordering equipment came from the defendant but that the plaintiff agreed to it.
On 7 April 2003 the defendant sent by facsimile to the bank officer a four-page document with the letterhead of the defendant company listing a number of items of equipment at various prices totalling $A160,867.29: Exhibit 4, emails 2, 3. The document was described as “purchase order no. MW1523” and dated 3 April 2003, and addressed to “Customer: Bank of Queensland” with the address of the relevant branch.[11] It was described, however, in an email to the plaintiff on 7 April 2003 as an invoice. This would be consistent with the defendant company offering to sell the equipment listed in the document to the bank so that it could be the subject of finance by way of lease or hire purchase agreement between the bank and the plaintiff company. The defendant said (p 83) that a purchase order was placed by the defendant company with another company in Thailand dated 9 April 2003 for nine items which correspond to the first nine items in the invoice to the bank, on the same day a purchase order was sent to an English company for five items which correspond to the next five items on the invoice to the bank, and the defendant company received a tax invoice from a company in Singapore for four items which correspond to the next four items on the invoice to the bank,[12] and two invoices dated 7 July 2003 from another Singapore company, one for six items which appear to match Item 20 in the invoice to the bank and a separate item for transport.[13] The defendant each of these was agreed to by the plaintiff before it was ordered.
[11]The document is part of Exhibit 4, email 2, by which it was sent to the plaintiff. Email 3 includes an email from the defendant advising it was faxed to the bank.
[12]The invoice is dated 22 May 2003 and marked as “goods purchased for export”. These documents are at Exhibit 5, Tab 8.
[13]These last two are addressed to the plaintiff at his address at Caloundra. Copies of these documents are Exhibit 5, Tab 8. At one point the defendant suggested that this equipment had been purchased by the plaintiff and brought by him to Australia: p 34.
The plaintiff came to Australia in April 2003.[14] He looked around for a suitable van, and found one available for $A19,000: Exhibit 4, emails 5, 6. He paid a deposit of $A4,000 in the name of the company, and the van was financed. He paid instalments of $A1,283.46 before the van was repossessed and sold by the financier, leaving a balance owing of $A5,751, which he also paid: Exhibit 9. He therefore spent $A11,034.46 directly on the van. He also renewed its registration at a cost of $A634.80 (Exhibit 12) and it was insured at a cost of $A784.91 (Exhibit 11), but the insurance was covered by the finance: Exhibit 9. The plaintiff also purchased (in Singapore: p 30) computers and related equipment, at a total cost of $1,762.70 and paid internet expenses of $A27.22 per month: Exhibit 13.
[14]Plaintiff p 23. He may have been there by 5 April, when he obtained an email address: Exhibit 4, email 1.
By 13 April the plaintiff had also received an account from the solicitors: Exhibit 4, email 7. That day he asked what the floor area was of the defendant’s office, because he was looking for office space: email 8. There is no evidence of any reply. The plaintiff said that he took photographs of various potential office premises in April and May 2003: p 22, Exhibit 8. On 4 May 2003 the plaintiff sent an email seeking $A10,000 of company money so that he could start paying bills, and provided his personal bank account details: Exhibit 4, email 12. On 5 May the defendant sent an email to the bank chasing up their finance: Exhibit 4, email 32.[15] On 6 May 2003 another email was sent seeking funds, and, presumably in response, amounts of $6,000 were transferred on 7 May 2003 and 16 May 2003 from the defendant company to the account of the plaintiff: Exhibit 5, Tabs 9, 10. These were the equivalent of a little over $A5,000 each.
[15]The bank advised the defendant of a couple of requirements for documents on 7 May: Exhibit 4, email 34.
On 14 May 2003 the defendant sent the plaintiff an email, which the plaintiff annotated and returned: Exhibit 4, email 14. The plaintiff pressed for more money to be sent down to fund operations since the finance facility from the bank had not come through, and the defendant offered several reasons for being hesitant about sending funds down, at least one of which, that the account details provided were for the personal account of the plaintiff, ought to have been overcome easily if there was a company account with the bank available to receive a transfer.[16] On 14 May 2003 the defendant sent an email to the plaintiff recommending that he stretch payments to creditors, and urging him to begin marketing the business: Exhibit 18. It includes a statement: “Please do not say ‘premises, equipment, accreditation and sales’.” Such an approach strikes me as a sensible one; there is no point in marketing a service if one has no capacity to provide the service to a customer if the marketing does produce one. The plaintiff’s response indicated that he felt under considerable personal financial pressure at that time: Exhibit 18. These emails show that the relationship was breaking down as early as May 2003, and that the first indications of failure to cooperate came from the defendant.
[16]There was no company account at this time: p 52.
Franchise documentation
A number of documents dated 21 May 2003 were executed. The first was an agreement between the plaintiff and the defendant company for the formation and management of the plaintiff company: Exhibit 2. It provided that each would obtain 150,000 shares at a par value of $S1 each, to be subscribed, in the case of the plaintiff, “in cash and for consideration other than cash, namely plant and equipment provided by” the plaintiff, and in the case of the defendant company, “in cash and for consideration other than cash, namely licence to use necessary technology and software currently owned by” the defendant company.[17] This provides no indication as to who was to provide what actual cash. Clause 10 provided that, subject to a special resolution at a general meeting of the company authorising a decision on obtaining any additional financing which may be required by the company, any additional financing when required was to be on terms agreed by all shareholders, to be procured wherever possible without any additional security or guarantee of being provided by the shareholders. Subject to that, any additional finance would be procured first by way of overdraft and financing of fixed assets from banks and financial institutions: Clause 10.1. Clause 10.2 provided that if any support from the shareholders was unavoidable, such support would be given by the plaintiff and the defendant company “for sums not exceeding $S100,000 in total”. This is somewhat curious in circumstances where approval in principle for finance totalling $A200,000 had already been obtained. The agreement was said to constitute the entire agreement between the parties and supersede all prior oral or written agreements or understandings with regard to the subject matter: Clause 20.3.1. It therefore superseded the letter of intent.
[17]Curiously, it is admitted on the pleadings that the shares in the plaintiff company are in fact held, 150,000 by the plaintiff and 150,000 by the defendant: statement of claim paras 1(d), 5(d); defence paras 1, 5(c); and see plaintiff p 24.
The franchise documentation consisted of six separate documents: Exhibit 3. There was a franchisor disclosure document said to be pursuant to the Trade Practices (Industry Codes – Franchising) Regulation 1998, a Master Franchise agreement between the defendant company as franchisor and the plaintiff company as franchisee, a Franchise Territory Development Area Agreement between the same companies, a Franchise Confidentiality Agreement between the same companies, a Franchise Purchase Agreement between the same companies, and a Deed of Guarantee between the plaintiff and the defendant company, by which the plaintiff agreed to procure the observance and performance by the plaintiff company of its obligations under the agreements to the defendant company, and to indemnify the franchisor from any breach or non-observance or non-performance of the obligations of the franchisee.[18]
[18]It seems therefore that the document was strictly speaking an indemnity rather than a guarantee, although no claim under the document was advanced by the counterclaim.
By the master franchise agreement the defendant company granted the plaintiff company the right to carry on the business at and within the location within the territory for the term under the permitted name in accordance with the method and in accordance with the manual, all of which were defined under the agreement. The manual was defined in Clause 2.20 as the defendant company’s standard operating manual as updated from time to time consisting of serial number MW000-009. By Clause 5.10, the franchisor was “to supply to the franchisee prior to the commencement date of the business the equipment and other items specified in the manual and/or the minimum package at the prices and hire purchase prices specified in the manual.”[19] Under Clause 5.30 the defendant company’s obligations included keeping the manual up to date. Under Clause 5.31 it was to deliver “the software” and install it prior to the commencement date. The commencement date was defined in Clause 2.3 as 1 May 2003, a date which had already passed at the time the agreement was executed. The defendant company was also to supply by the commencement date certain software (Clause 5.31), and to arrange certain insurance including a comprehensive block policy to cover the franchisee: Clause 5.18.
[19]The term minimum package was defined in Clause 2.23 by reference to staff levels, a definition which in this context is meaningless. Although the plaintiff agreed he received a copy of this manual (p 48, and see defendant p 79), there was no evidence as to equipment and other items specified in it.
The plaintiff company, as franchisee, agreed to pay to the franchisor the initial fee, defined as $S25,000, which fee was to cover initial training, initial advertising, supply of equipment and other matters specified in that manual.[20] There is no evidence that this payment was ever made, or that the plaintiff company ever had the funds to make it. The agreement contained a great many obligations on the part of the plaintiff company,[21] but these are the clauses which appear to be particularly relevant. By Clause 9.17 the agreement together with the supplementary agreements were said to contain the whole agreement between the parties “and it has not relied upon any oral or written representations made to it by the franchisor or its employees or agents and has made its own independent investigations into all matters relevant to the business.” The agreement was also said to supersede any prior agreement between the parties: Clause 9.18.
[20]“or that part of the minimum package stipulated in Clause 2.23 of this agreement”, again in this context meaningless.
[21]Extending even to a promise not to permit any slot machines on or around the location of the business, without the authorisation in writing of the defendant company: Clause 6.60.
The franchise territory development area agreement provided for additional outlets within the territory and is irrelevant to this action. The franchise confidentiality agreement provided for the franchisor to disclose to the franchisee confidential information relevant to applications for finance by the franchisee, and restricted the use that the franchisee could make of the information. The franchise purchase agreement provided for the franchisee to search diligently for suitable premises to form the location, and for the franchisor to use its best endeavours to cooperate with and assist the franchisee to find suitable premises to form the location. Clause 3.2 provided:
“In the event that such premises are not found prior to the location date to repay to the franchisee, within 14 days of written demand from the franchisee, the initial fee in accordance with Clause 5.2 herein.”
The agreement further provided that it would expire on the “location date”, a term defined at three months from the date of the agreement, i.e., 21 August 2003: Clause 2.1. If no suitable premises for the location had been found by that date, either party could terminate the franchise agreement by serving written notice on the other, whereupon the initial fee would be immediately repaid to the franchisee less 25% and the reasonable costs of the franchisor incurred in searching for and assessing premises for the location: Clause 5.2. The document was executed despite the obvious inconsistency between Clause 3.2 and Clause 5.2.
The disclosure document provided in Clause 13, Payments, that the franchisor required a pre-payment of moneys by the franchisee as an act of good faith and to demonstrate genuine intention; the moneys “are for the purchase of equipment used in the franchise business and is to be held by the franchisor’s lawyers in Singapore.” The range of costs to start operating were said to be $A10,000 for real property, $A125,000 for equipment, fixtures, fixed assets, construction, remodelling, leasehold improvements and decorating costs, and $A25,000 for additional funds including working capital, all of which were said to have been “paid to franchisor, due 31 March 2003, non-refundable”.
Subsequent events
On 28 May 2005 a bundle of documentation sent by the bank was received by the defendants for execution: Exhibit 5, Tab 11. There were two guarantees, one by the defendant and one by the defendant company, each of the liability of the plaintiff company. There was also an agreement in relation to the business overdraft: Exhibit 20. The defendant signed the agreement and his guarantee, and the guarantee by the defendant company was signed by the defendant and another person apparently his wife, who certified that they were the proper officers. In addition, each of them as shareholders consented to the guarantee by the company. The executed documents were sent back to the bank the same day: Tab 12. The plaintiff claimed that the way in which the documents were executed did not meet the requirements of the bank.[22] I have not seen any covering letter from the bank setting out how the documents were to be executed, so there is no evidence as to whether the defendant in executing the documents did not follow the bank’s instructions. The defendant denied that he was told by the bank that there was any problem with the execution (p 10), and there was no evidence on this point from the bank. At this stage, relevant documents had not been signed by the plaintiff.
[22]This was first made by email on 23 June 2003: Exhibit 5, Tab 15, p 106.
In the meantime, the plaintiff took a job working as a commercial diver, because he needed the money: p 28. He advised the defendant on 30 May 2003 that he had to leave for Thailand urgently: Exhibit 4, email 18. On 2 June a follow up email explained that he should be back in Australia in a few weeks by which time the finance may be through: email 19. In reply the defendant advised the same day that he had been told by the bank officer that the documentation was awaiting the plaintiff’s signature and that the finance could not be processed until he returned to Australia to sign the documents: email 20. The plaintiff’s response was that he could not spend the money offshore either: email 21. The solicitor obtained confirmation that there was no deadline for the documents to be executed and the bank was informed the plaintiff would execute the documents upon his return: email 22, by which the defendant was informed of this, without any suggestion that there was anything defective in the execution of documents by the defendants.
On 11 June 2003 the plaintiff sent the defendant an email[23] with various complaints; one was about an absence of interest on the money held by the Singaporean law practice, and another was about what was said to be a change in the cost of establishing the business, and that the defendant had changed what had been agreed about the equipment purchase, that the equipment be sent direct to Australia. The email alleged that the defendant had cheated the plaintiff, and that he had “moved the goalposts so many times now I feel as though you have misled me right from the start.” The plaintiff said he would not be putting any more money into the business or signing for any more money for the business, on the basis that that was “not that we agreed on.” When cross-examined about this email, the plaintiff said that he was extremely upset with the way things were going and going through a lot of stress: p 56. He asked to see the invoices from the manufacturer and receipts.[24] The defendant responded with a request for details of when and how they could discuss the matter: email 23. There was also a reference to mediation, which prompted the hostile response that the mediator would be the defendant’s lawyer: Exhibit 5, Tab 15 p 102. It appears that by this time the plaintiff had become disillusioned with the defendant and the proposed business.
[23]Exhibit 5, Tab 15; it is also in Exhibit 4.
[24]No receipts were ever produced, even at the trial.
On 19 June 2003 the plaintiff sent the defendant an email: “Just walked through the door. Call the house phone today between 9.00-10.00 your time.”: Exhibit 5, Tab 15. The defendant said that on that day he had a telephone conversation with the plaintiff, during which the plaintiff said that he did not want to set up in Brisbane: p 86. There was then some conversation about whether he would set up somewhere else, perhaps Thailand, and the defendant said he told the plaintiff to organise the finance and we would continue. He said that in response he telephoned the bank and explained that he was not happy being a guarantor in the circumstances where the plaintiff did not want to set up the office in Brisbane: p 86.[25] The plaintiff’s wife gave evidence that she was present during this phone call because the telephone was on speaker phone, and what she could recall about the conversation was that at one stage the plaintiff was very upset, he was ranting and then saying that he did not want to set up the franchise in Brisbane: p 52. The plaintiff said that he had no recollection of such conversation and denied that he had said that he did not want to set up the franchise in Brisbane: p 57.
[25]He followed that up with an email to the same effect: Exhibit 5, Tab 15.
The next day the plaintiff met the local solicitor, who as a result sent the defendant an email that day: Exhibit 4, email 24. He said that the plaintiff “confirmed his wishes to move back to Thailand to be with family. Notwithstanding this, I am instructed to propose that rather than immediately sever ties with MW Group and move back to Thailand, Bob is prepared to continue with setting up the franchise business in Australia with a view to transferring his interest in the business once it is up and running.” It seems to me that essentially this email confirms the defendant’s version of events. The email indicated that the plaintiff at that stage was not enthusiastic about establishing the business in Brisbane, but was willing to go ahead with it. The defendant said in the witness box that as a result of this email “it seems as though the business is back on track again”: p 87. The plaintiff denied that he was told by the solicitor that if he abandoned the business in Brisbane that there might be claims against him from the defendants: p 57; but see p 36.
Later on 20 June 2003 the plaintiff sent an email[26] to the defendant which said that the lawyer “has recommended to continue with the business as it is set up already. I have said to him I will open up for six months which will give you enough time to find someone else to take over the business. You should cancel as much of the equipment as you can (don’t say you can’t, because orders get cancelled all the time …). Don’t know where you will find someone to come up with $A83,000 to buy my share and to take on a $A100,000 plus equipment debt. I will have to go overseas from time to time within the next six months … .” The defendant said that that email was a complete contradiction to the email sent by the lawyer, and it was a breach of the joint venture agreement and franchise agreement: p 87. On the contrary, it strikes me as entirely consistent with the previous email, although there is the additional suggestion that the plaintiff would at times not be available to run the business over that period. It does not depart from the basic proposition in the earlier email, that the business would be set up and operated until it could be sold.
[26]This email is one of the documents in Exhibit 5, Tab 15, a page marked 105. It is also part of email 25 in Exhibit 4.
The request to cancel as much of the equipment as possible was simply a request, and a reasonable enough request in circumstances where the plaintiff was no longer an enthusiastic participant in the process, and where, importantly, the defendants were no longer willing to provide the guarantees necessary for the bank to lend the money necessary to purchase all the equipment referred to in the earlier email from the defendant.[27] The plaintiff said that he had in mind that the equipment for which funds were being borrowed be cancelled: p 58. That was not made clear in the email, but it was not inconsistent with the terms of the agreements between the parties and the position adopted by the defendants for the plaintiff to wish to confine the scope of the franchise business to what had been originally agreed.
[27]That is, covered by the documents in Exhibit 5, Tab 8.
On 23 June 2003 the plaintiff sent the defendant a further email advising that he had seen the bank officer and was told that the banking file had been put away, and there was the reference to the execution being defective because the defendant’s wife had witnessed some of the documents.[28] The plaintiff proposed that as there was no finance “I think we should cancel everything.” He made various proposals for abandoning the arrangement between the parties, which included that he receive a refund of $100,000. Later the same day there was a follow up email wanting to know the defendant’s intentions,[29] to which the defendant eventually responded:[30]
“We received an email from Paul Davis about your intentions, and we have responded with several phone calls today with regard to our position. Rather than answer two emails we have chosen to answer one, namely Paul Davis. Please liaise with Paul so we can arrive at some conclusion on all matters.”
[28]Part of Exhibit 5, Tab 15, numbered 106; also Exhibit 4, email 42.
[29]Part of Exhibit 5, Tab 15, p 109, running onto the next page.
[30]Exhibit 5, Tab 15, p 109. At this point the defendant effectively stopped communicating with the plaintiff: p 4.
There was no email of this date from the solicitor in evidence, or any explanation as to its contents, nor any evidence about what position was made clear in the phone calls. In an email to a solicitor dated 24 June 2003, the defendant confirmed that he was not going to be guarantor for the plaintiff in Brisbane, stating that this was because the plaintiff did not want to operate there, he had wanted all the equipment cancelled, and had stated that he would be away from time to time, which was said to be totally unacceptable: Exhibit 5, Tab 15, p 110. The email expressed concern that the defendants “have ordered more equipment than the funds left with us.” The defendant proposed to continue talking to the solicitor but would not have any further contact with the plaintiff himself; nevertheless, he claimed to be ready and willing to open a facility in Brisbane.
On 25 June 2003 the plaintiff sent an email to the defendant advising that he had asked the bank to approve the overdraft account, presumably just the overdraft, and saying that unless that was approved “you will have to send down the $S62,000” to the plaintiff company’s bank account “which is money left over from the physical valve (pressure) equipment to obtain an office and set up the company.”: Exhibit 5, Tab 16. It does not appear that there was any response to this from the defendant.
On 26 June the plaintiff sent an email, seeking an “ETA of the dead weight testers, company computers, your software/technology etc will arrive in Australia.” He said he would need the original invoice from the manufacturer and a purchase receipt for customs and taxation.[31] The defendant said that he did not think the equipment had arrived in Singapore by 26 June, and that work had to be done to prepare the equipment and software for use in the business before they were despatched to Brisbane: p 3. On 27 June the plaintiff sent a further email, about arrangements he was making to pay solicitors’ costs personally: Exhibit 4, email 28. On 28 June he advised that he would be going to Brisbane to look at office premises with an agent and that he hoped to open up the office very soon: Exhibit 5, Tab 18.
[31]Exhibit 5, Tab 17.
Thereafter it seems that nothing happened in order to take the business forward in Brisbane. From the plaintiff’s point of view, there was no point in identifying particular premises in circumstances where he could not commit to a lease because he had no funds available for lease payments: p 61. The defendant said that he was not in a position to despatch any equipment to Brisbane to enable the franchise business to operate until leased premises had been secured by the plaintiff company: p 3. As well as that, he regarded the plaintiff’s behaviour as erratic, and so he did not reply to emails from him after 23 June, although he had some limited communication with the local solicitor: p 4. For example, on 8 July 2003 he sent two emails to the solicitor: Exhibit 5, Tab 19. On the same day, the local solicitor advised that in the circumstances he believed that there as a potential conflict of interest and asked if the defendants objected to his continuing to act for the plaintiff.[32] The reply on 12 July 2003, from the defendant’s solicitor, was that there was no objection, and information was sought as to the plaintiff’s intentions. On 14 July the local solicitor advised that the plaintiff was offshore, but would relay instructions as soon as they were to hand. The defendant responded by advising an email address at which the plaintiff could be contacted. Ultimately the plaintiff’s solicitor sought that the defendant execute an agreement nullifying the previous agreements, which the defendant refused to do: p 4.
[32]Exhibit 5, Tab 20, which also includes the next three emails.
There was an email from the local solicitor to the defendant dated 8 August 2003 advising that the company had been unable to find suitable premises to form the location in accordance with the finance purchase agreement, and that the plaintiff believed that it was in the best interests of the plaintiff company to terminate the master franchise agreement: Exhibit 15. A company resolution resolving to terminate the franchise agreement was forwarded, with a request that it be signed. The defendant denied any recollection of having seen this email: p 5. Finally, on 15 September 2003 the defendant’s solicitor wrote to the plaintiff’s solicitor asserting that the plaintiff had wrongfully and unilaterally repudiated the joint venture agreement and had indicated that he did not wish to continue with the franchise agreement: Exhibit 16.
The letter asserted that under Clause 3 of the agreement the plaintiff was to provide $150,000 worth of plant and equipment. That was not correct: Clause 3 of Exhibit 2 provided for the plaintiff to subscribe for 150,000 shares “in cash or … plant and equipment provided by Wilmot.” It was said that $125,000 had been deposited towards the purchase of plant and equipment, and noted that two amounts of $6,000 had been “returned”. The letter alleged that the defendants had placed orders for equipment having a total price of $91,732.45, being the equipment referred to in the purchase orders dated 9 April 2003 to a company in Thailand and a company in England referred to earlier, and had paid three invoices totalling $31,894.20 in respect of plant and equipment “ordered for and on behalf of Mr Wilmot.” These were the invoices referred to earlier, one dated 22 May 2003 addressed to the defendant company for $29,708, and two dated 7 July 2003 addressed to the plaintiff, one for a number of items of equipment and one apparently for the cost of shipping an item identified only by a product code which does not appear on the other invoice from Singapore to “KL”, and for shipping another item identified by a product code which does appear on the other invoice “KL – Sing”. It was said to follow that the defendants had paid or placed purchase orders in the sum of $123,606.65, which was said to lead to the conclusion that the plaintiff owed the sum of $37,000 pursuant to Clause 3. Even if the whole amount of $113,000 had been applied to the purchase of that equipment, that would only leave a balance of $10,606.65 outstanding. There was a further letter of demand from the plaintiff’s solicitors on 8 December 2003: Exhibit 17. There is no evidence that anything else was done; this action was commenced in 2005.
Credibility
I was not particularly impressed by either party in the witness box. Each at times seemed to be somewhat evasive when being asked difficult questions, and at one point the responses of the defendant were so unsatisfactory that I had to speak to him about them: p 20. It also seems to me that there were aspects of the evidence of each of the parties which were inconsistent with the contemporaneous documents. For example, the plaintiff’s denial that he had a conversation with the defendant on 19 June 2003 seems to me to be inconsistent with emails of around that date, including emails from the plaintiff and from the local solicitor. The latter email is consistent with the proposition that the plaintiff had lost his enthusiasm for setting up the franchise in Brisbane, which would be consistent with the evidence of the defendant (and his wife, though I think that that of itself is of little value in circumstances where she was in court during the defendant’s evidence and particularly his cross-examination) that the conversation occurred and what was said during that conversation. I suspect, however, that there was rather more to the conversation than was given in evidence. I also think that the plaintiff was not being frank in some of the things he said by way of explanation about some emails at about this time.
On the other hand, the defendant’s responses when questioned about his emails of 19 June 2003 to the bank officer asking her to “cancel all facilities between MW Group and Robert Wilmot with effect of today” (p 13), and in relation to an email he sent his solicitor on 24 June 2003 which said “we are not going to be guarantors for Bob in Brisbane” (p 12), which he claimed did not represent his firm intention at that time, were also obviously unsatisfactory. He was evasive about who controlled the defendant company: p 16. He denied that he said at the meeting in Singapore that the plaintiff would only need $150,000 to set up the franchise in Brisbane: p 24,[33] but documents referred to that figure more than once. The letter of intent in March 2002 specified a total payment of $150,000 if the plaintiff completed five modules of training. Another early document from the defendant with a sum of money in it was the franchise business plan emailed on 17 April 2003, the balance sheet of which provided for $150,000 as the amount of the plaintiff’s shareholders equity, and referred to $150,000 as the cash at hand with the Singaporean law firm. Notwithstanding other curious features of this document, that in my view provides clear confirmation that at that stage the intention was that the plaintiff would provide $150,000. Ultimately, the joint venture agreement also provided for the plaintiff to subscribe for 150,000 $S1 shares.[34] There are other documents around which contain other figures, but these three are clear corroboration of the plaintiff’s statement that he was told that that was the amount that he was to put in. His statement that that was all he had at the time also has the ring of truth about it, and has the support of the figures in the application form, Exhibit 5, Tab 2, which indicate that the plaintiff did not have more than that amount.
[33]See also defence para 8(c)(i), which was not what the defendant said in evidence: p 26.
[34]Clause 10 also made it clear that the original intention was that no extra money be borrowed, and that any additional borrowings were to be by the company to be formed, not the plaintiff.
Overall, therefore, I am quite wary about the reliability as a witness of each of the parties. I am therefore not prepared to resolve conflicts of evidence simply on the basis of accepting the evidence of one party rather than the other in respect of all matters. Rather, I propose to resolve conflicts on a case by case basis, largely on the basis of which version is more consistent with the contemporaneous documents, or which appears more plausible in the light of my understanding of the whole history of events.
The defendants submitted that the plaintiff’s evidence about the $150,000 was not supported by the PowerPoint presentation in evidence. The difficulty is that that document is not shown objectively to have been in existence in that form at the relevant time. All that the document proves is that at some point there was a PowerPoint in existence that referred to other figures. The proposition that what was shown to the plaintiff was the PowerPoint presentation in the form in which it exists in Exhibit 5 depends entirely on the defendant’s evidence. The argument that the actual set up costs depended on the location at which the new business was set up is also not persuasive, since the crucial cost associated with the establishment of the franchise was the purchase of the necessary equipment, something of which the defendant ought to have been aware. The cost of things like renting premises and purchasing a vehicle depend very much on how much money one wants to spend. No doubt a business presents better if it has expensive premises and an expensive delivery vehicle, but if the business is being sold on the basis of its technical skill it can presumably operate satisfactorily out of pretty basic premises, and with (at least initially) a cheap second-hand van. In respect of matters of this nature, a business can be set up to a budget, so long as the budget is not wholly unrealistic.
There is also the consideration that the original proposal was that the cost of equipment would be $90,000. There was no evidence that that figure was unrealistic for what was originally proposed, as the defendant admitted (p 24), that the business would operate by reference to only two physical values. There was not even evidence from the defendant that what the plaintiff said was originally proposed was not in fact workable. That the defendants claimed to have spent more than this amount on equipment is another matter; that was said to have occurred in the context where there as a proposal to increase the scope of the business, which involved additional equipment.
Analysis
If one looks at the various agreements, the letter of intent provided for $25,000 to be paid to the law practice and additional sums of $25,000 upon the defendant company certifying that each of the five modules identified in paragraph 3(a)(i)-(v) were completed. The evidence is conflicting as to just what modules were completed, and there is no evidence of any “certifying” by the defendant company. The total amount payable under Clause 5 is therefore not proved, and the defendant has not shown that there was any breach by the plaintiff of the obligation under Clause 5. It appears that a concluded agreement satisfying Clause 2 was ultimately established, and on the face of it therefore the law practice was to pay the amount paid by the plaintiff under Clause 5 to the entity that operated the franchisor or was set up further to the joint venture, to be credited as the capital of the plaintiff. That did not happen. It does appear, however, that the plaintiff did agree to the balance held by the law practice being released to the defendant company to be used by equipment prior to the time when the joint venture agreement was entered into.
Until the money was paid out of the law practice that money was held by that practice as stakeholder. Although the plaintiff company had been incorporated well before this time there was no joint venture agreement entered into at the time the money was paid out, so Clause 6(a) of the letter of intent had not been activated. It follows, however, from that clause that the money was held by the stakeholder on behalf of the plaintiff at that time. Accordingly it was the plaintiff’s money that was released to the defendant company.
The first issue in dispute on the pleadings was as to representations alleged to have been made by the defendant to the plaintiff at the barbeque in February 2002. There are no confirmatory documents about this, but I prefer the evidence of the plaintiff; one would expect that the defendant who was interested in obtaining people to franchise his business would have been saying positive things about it, of the kind referred to by the plaintiff. It is unlikely that the plaintiff would have shown any interest in the project unless something of this nature had been said. I therefore find that the representations in paragraph 7 were made. Paragraph 8 alleged representations at the defendant’s office and at the yacht club. There was no evidence of relevant representations at the office, but I accept the plaintiff’s evidence as to what was said by the defendant at the yacht club, essentially for the reasons referred to earlier. I also accept that these representations were made with the intention of inducing the plaintiff to enter into the letter of intent and the later agreements; that was their obvious purpose.
There is I think no precise evidence as to the date of payment of the first $25,000 to the law practice, but I accept that it was prior to the date on which the letter of intent was signed, which was 20 March 2002. This sum was paid pursuant to Clause 5 of the letter of intent. An agreement satisfying Clause 2 of the letter of intent was concluded on or about 21 May 2003 with the execution of the joint venture agreement. The $25,000, and indeed the balance of the money paid to the law practice of $100,000, were paid to the defendant company on the authorisation of the plaintiff on or soon after 20 March 2003, to be used for the purchase of plant and equipment and working capital for the plaintiff company: Exhibit 5, Tab 6. Some of that money, $12,000, was subsequently made available to the plaintiff for use as working capital of the plaintiff company.
The next issue which arises is whether the defendant company did use the balance of the funds, or any of them, to purchase equipment for the plaintiff company. The only evidence of this is the evidence of the defendant, and the documents referred to earlier. So far as those documents relate to purchase orders, there is no documentary evidence that those orders were ever placed or accepted, or that the equipment ordered was ever delivered or paid for.[35] So far as those documents consist of invoices, there is no such evidence that those amounts charged were paid for or the equipment delivered. There is one entry in one of the invoices to which I have referred which does not appear to be consistent with the claim that the invoices relate to the acquisition of equipment for the plaintiff company. The defendants were able to produce documentation relating to the transfer of funds to the plaintiff in 2003, and it ought to have been possible to produce documentation demonstrating that this money had in fact been spent on the acquisition of machinery if that were the case. But no documents later than 7 July 2003 were produced, and there is no objective or reliable evidence that any such machinery was ever purchased. In the circumstances I am not prepared to find that either the defendant or the defendant company did ever purchase any machinery for the plaintiff company. It was alleged in the alternative that any machinery purchased was not delivered. It is beyond dispute that no machinery was delivered to the plaintiff company.
[35]Although the defendant nominated a twelve-week delivery time (p 35), the letter of 15 September 2003, Exhibit 16, implies that the goods had not been paid for, and therefore presumably not delivered, when it was sent.
It was alleged in paragraph 11 of the statement of claim that there was an oral agreement in March 2002 incorporating the representations in paragraphs 7 and 8 of the statement of claim. That oral agreement was denied by the defendants and I am not persuaded that any such oral agreement was made. It was not supported by any evidence from the plaintiff. It was effectively admitted on the pleadings that the plaintiff undertook training between 15 August 2002 and 28 September 2002, and 20 October 2002 to 27 December 2002, and 7 March 2003 to 2 April 2003; the defendant also alleged that there was some training in April 2003.[36] I accept that during this period the plaintiff did not follow his usual employment as a senior mixed gas diving supervisor and as a result lost income, and that in that employment he commonly earned of the order of $US300 per day: p 16. However, I am not persuaded that the plaintiff would have earned that amount for each and every day that was devoted to training had he not been undertaking that training.
[36]Statement of claim para 14, defence para 12(d) which purports to be responsive to an allegation paragraph 13 of the statement of claim.
It was alleged that the failure to deliver equipment “to Wilmot” was a breach of the oral agreement or the letter of intent; I am not persuaded that there was any oral agreement, and there is nothing in the letter of intent to that effect, though no doubt there was an agreement in March 2003 about the purchase of equipment for the plaintiff company: that was the effect of the defendant’s evidence, and that there was some such agreement appeared to be conceded in cross-examination by the plaintiff: p 48. It is also consistent with Exhibit 5, Tab 6. Relevantly, it was an agreement that the money released by the plaintiff would be used for the supply of equipment to the plaintiff company. That has not occurred, and the defendant company is as a consequence in breach of that agreement.
It was alleged in the alternative that by reason of the failure to deliver equipment there has been a total failure of consideration. One issue is what effect the training that was provided to the plaintiff has on this. The letter of intent contemplated that if a joint venture agreement was not entered into, the defendant company would be entitled to retain some money, presumably as compensation for providing the training. On the other hand, the joint venture agreement was entered into, and in those circumstances the money ought to have been made available to the plaintiff company to be credited as the capital of the plaintiff. That did not occur because of the agreement after the incorporation of the plaintiff company but before the joint venture agreement was signed that the money be released for the purchase of equipment. In the circumstances, therefore, I do not think that the provision of training means that there has not been a total failure of consideration.
Another issue relates to the $12,000 which was provided as working capital. It seems to me reasonable that an allowance should be made for that amount, not as part of the consideration for which the payment was made, but as a partial refund of the amount paid for that consideration, which has wholly failed. The amount recoverable, therefore, is $113,000. That payment as made by the plaintiff, so it is the plaintiff who is entitled to recover, but it seems to me that the payment was made to the defendant company, so it is the defendant company that is liable to the plaintiff. With regard to the breach of the oral agreement, it is difficult to know how to quantify any loss suffered by the plaintiff as damages for that breach. If the equipment had been purchased and delivered to the plaintiff company, this would not have provided any direct benefit to the plaintiff, although no doubt it would have meant that the shares that he held in the plaintiff company would have been more valuable; they are certainly not worth anything at the moment. It is, however, impossible to say how much more valuable they would have been. The plaintiff has therefore not proved a loss in the conventional way, but damages for breach of contract can be allowed in respect of wasted expenditure.[37] In these circumstances, the amount of $113,000 is also recoverable as damages for breach of contract.
[37]The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 81.
Claims in respect of the franchise agreements
It was alleged that the defendant company was in breach of the master franchise agreement in failing to supply the equipment and other items specified in the manual prior to the commencement date of the business, or indeed at all, as promised in Clause 5.10 of the agreement. It was also alleged that the defendant company was in breach of Clause 5.3.2 of the joint venture agreement, by which it promised to sell all equipment and systems to the company for a total consideration to be agreed. There was no meaningful response to this allegation in paragraph 26, or otherwise in the defence, and the defendant company was obviously in breach of these terms. The defendant company also breached its obligations to provide software,[38] and to arrange insurance.[39]
[38]Clause 5.31: plaintiff p 31, defendant p 22.
[39]Clause 5.18: defendant p 21.
Under the franchise purchase agreement there were two provisions dealing with the situation where suitable premises to form the location for the franchise business were not found prior to 21 August 2003. The only defence advanced in respect of this claim was that the plaintiff company located premises and registered those as the business address: para 28. Those were not suitable premises for carrying on the franchise business, and did not satisfy the requirements of this agreement.[40] I accept that in fact suitable premises for the business were not found prior to that date. In those circumstances the defendant company was obliged under Clause 3.2 to repay the initial fee, and obliged under Clause 5.2 to repay the initial fee less 25% and reasonable costs and expenses incurred in searching for and assessing premises for the location. There was no evidence that the defendant company incurred any costs and expenses in searching for and assessing premises, so on the face of it the difference between the clauses is that under the latter the defendant company is entitled to retain 25% of the “initial fee”, the figure of $25,000[41] which was payable on the signing of the agreement.[42] However, it does not appear that the plaintiff company ever paid the initial fee to the defendant company.
[40]This was just the address of the plaintiff’s house: plaintiff p 25.
[41]Master franchise agreement Clause 2.16.
[42]Master franchise agreement Clause 2.2.6.1.
I have not seen any evidence of such payment, no such payment is alleged and admitted in the pleadings, and I have not even seen passing reference to it in any of the other material put in evidence. It may be that notionally part of the money released from the Singaporean law practice to the defendant company was then applied to putting the plaintiff company in funds (as part of the subscription of capital by the plaintiff) which was then treated as being immediately repaid to the defendant company as payment of the initial fee. However, there was no evidence of that, and it would have been a partial defence to the plaintiff’s claim against the defendant company to recover the balance of the money paid by him. In those circumstances I proceed on the basis that the initial fee was never paid.
Accordingly, the defendant company cannot be under any obligation to repay it, under Clause 3.2, or to repay 75% of it under Clause 5.2 of the franchise purchase agreement. However, if I were wrong about this and the initial fee had in fact been paid, those clauses would operate. That would give rise to the question of what to do about the inconsistency. Courts strive to avoid an interpretation of a contract which would produce a direct inconsistency, but I cannot see any basis upon which these two clauses can be reconciled. There is, however, this difference. Clause 5.2 required written notice by one party to the other to terminate the franchise agreement, and that never occurred. On the other hand, Clause 3.2 requires only a demand from the franchisee for the recovery of the initial fee. The claim in this proceeding would be a sufficient demand, and accordingly, if the initial fee had been paid, it would be recoverable by the plaintiff company from the defendant company under Clause 3.2 of the franchise purchase agreement.
The plaintiff company never commenced the business contemplated by the franchise agreements and the joint venture agreement. The defendants allege that this was because the plaintiff refused to work in the business, threatened to walk away from the arrangements entered into and refused to sign documents required by the Bank of Queensland to secure finance.[43] I am not prepared to find that the plaintiff failed or refused to work in the business: at worst, the plaintiff indicated that there would be periods when he would not be available to work in the business, but on the face of it the plaintiff was not refusing to work for the business any other time, and in any case, it was not shown that at any time there was ever any “work” required for the business which the plaintiff ought to have carried out but had not.
[43]In fact, by the time he attended the bank after returning to Australia, the deal with the bank was dead because the defendants had cancelled their guarantees: plaintiff p 32.
The truth is that the business never got to the stage where there was any work for the plaintiff to do, other than work in connection with setting up the business. Most of that he did do. He was involved to some extent in registering the company, he located a van, and he made at least some attempts to locate suitable premises, though he was understandably reluctant for the plaintiff company to enter into any commitments by way of lease (for which no doubt any landlord would have required personal guarantees from the plaintiff and the defendant) in the absence of a clear source of funds to pay for the rent.[44] The plaintiff in fact never had that, because no money to meet those costs was made available to the plaintiff company, and because the plaintiff company was unable to borrow money, in circumstances where the parties were not prepared to provide the necessary guarantees.
[44]To have done so may well have been in breach of his obligations as a director under the Corporations Act. The defendant accepted that it would be imprudent to enter into a lease without finance: p 43. It would have been at least that.
Although the defendants did execute guarantee documents and returned them to the bank (and I am not prepared to find that the execution of those documents was defective as far as the bank was concerned), on 19 June 2003, the defendants effectively cancelled those guarantees, and there is no evidence that at any stage thereafter they reinstated them in a way satisfactory to the bank. The position really is that no money was available to the plaintiff company on loan because none of the other parties were prepared to offer the support necessary for the plaintiff company to borrow money.
As for the question of threatening to walk away from the arrangements entered into, it may be that the telephone call on 19 June amounted to a repudiation by the plaintiff of the joint venture agreement, but that repudiation was not accepted, and the defendant’s attitude was that the email from the solicitor meant that the agreements were continuing. On its face, that was what it said. The defendant’s position was that it was the subsequent email from the plaintiff which amounted to repudiation of the agreement, but the further email in my view plainly did not do that. It was in my opinion consistent with the solicitor’s email, and I think the true position was that the defendant simply used that email as an excuse to keep the money and do nothing. That is certainly what in fact happened. The defendants thereafter did nothing to carry forward the franchise agreement, or any arrangement for the supply of equipment, the defendant as a director of the plaintiff company did nothing to carry on the business of the plaintiff company (p 45),[45] and for all practical purposes the agreements between the parties were abandoned.
[45]His answer at p 45 line 13 seems inconsistent with his evidence at p 3 line 16.
That in my opinion is the true characterisation of the situation. Although the defendants went through the motions of asserting that the agreements were on foot, they did nothing with a view to carrying them out. Without cooperation from the defendants, it was not possible for the plaintiff company to do anything by way of carrying on the business, nor for the plaintiff to carry on the plaintiff company. The plaintiff company had no funds to carry on the business because the defendants did not make available the balance of the money which had been released by the plaintiff to the defendant company, and the defendant company failed to comply with the obligations in Clause 10 of the joint venture agreement, which provided that any additional financial support was to be provided by both parties equally; in these circumstances, there was no obligation on the plaintiff separately to borrow money to support the plaintiff company. In the circumstances the protestations by the defendants that the agreements were still on foot and that they were proposing to comply with them, or willing to comply with them, were little more than a sham.
The same applies to the undertaking offered in the course of the trial to deliver the equipment said to have been purchased: p 6, Exhibit 21. I do not believe any equipment has been purchased; I am not prepared to accept that a pile of equipment was purchased in 2003 and has been sitting untouched in a corner in Singapore ever since: p 8-9. In the circumstances, I am prepared to make a declaration that the franchise agreements and the joint venture agreement have been discharged by mutual abandonment.
That leaves two remaining issues in relation to the claim. The first is whether the plaintiff is entitled to recover damages in respect of loss of income during the period when he was undergoing training. I think it is sufficient for me to say that I am unable to understand that there is any proper basis upon which such damages would be recoverable from either defendant. The plaintiff undertook that training voluntarily on the basis that the business would be set up, and the difficulties which arose, arose later. This was an opportunity cost which would have been incurred in any event, even if the later difficulties had not arisen. No relevant breach of any contract with the plaintiff for which such damages would be recoverable was identified. In any event, I would not be prepared to award $US300 per day for each and every day of the training, and there was no evidence as to the frequency with which the plaintiff earned money at that rate when he was working, or as to any work which he failed to undertake because he was undergoing training. In respect of this claim, apart from anything else, the plaintiff has failed to prove his case.
The other matter was the costs incurred by the plaintiff personally in setting up the proposed business of the plaintiff company. In circumstances where the business has failed, and where it is by no means clear that either shareholder ever provided any consideration for his shares, in my opinion the defendant company is under an equitable obligation to contribute equally to these costs. It may be that the defendant is also under an obligation as a shareholder in the plaintiff company to contribute equally to these costs, but such a claim was not advanced in the current proceeding, nor does it I think necessarily arise on the basis of the facts pleaded and proved. The claim advanced against the defendant company in respect of these costs is on the basis of damages, but I consider that a more appropriate basis is simply that they were payments made in respect of common obligations so that there is an equitable (or restitutionary) right to contribution in circumstances where the plaintiff has paid more than his share, and where the payments were made with a view to setting up a business relationship contemplated by a joint venture agreement which the parties have in fact abandoned.
The plaintiff put in evidence accounts for a mobile phone service in the name of the plaintiff company, for which $A467.00 was paid, for April, May and June 2003, his home phone accounts for the same period, which totalled $A229.90, and fuel vouchers for $A88.55: Exhibit 14. There is, however, no evidence as to the extent of personal use covered by these. No doubt some would have been for the business, but I expect not much, particularly from mid-June, and I will allow $A250. He also paid the local solicitor $A5,944.91, which covered the bill for uncorporating the plaintiff company and the bill for the joint venture and franchise documents: Exhibit 10. I will allow internet costs for three months, $A81.66. I find that the amount of expense incurred by the plaintiff to establish the business of the plaintiff company was $S1,762.70 plus $A17,845.83.[46] Accordingly, the defendant company is liable to contribute half that amount, $S881.35 and $A8,922.91.
[46]Van costs, Exhibit 9 $11,034.46; Exhibit 12 $634.80; computers, Exhibit 13 $S1,762.70; internet costs $81.66; telephone and petrol $250; legal fees $5,844.91. The money “returned” to him is not to be deducted because credit for that has been given earlier, so when it was spent it was his money.
Counterclaim
Although in submissions the counterclaim was not pressed, there are some additional factual allegations in the counterclaim with which I should deal. Paragraph 12 alleged that the value of the training provided to the plaintiff was $75,000; there was no evidence to support this allegation and it has not been proved. Paragraph 13 of the defence alleged a “conversation” but does not allege that any legal consequence came from that conversation; accordingly it is irrelevant. In any case, I am not persuaded that the initiative for the expansion of the scope of the business in April 2003 came from the plaintiff.[47] Paragraph 16 alleged the existence of an implied term, which I am not prepared to imply because the obligations of the plaintiff under the joint venture agreement are provided for expressly in that agreement, in Clause 5.3.1, and bearing in mind the provisions in Clause 20.3.1 of the agreement that the agreement constitutes the entire agreement between the parties. In any case, there is no particular reason why there should be a specific obligation on the plaintiff in the terms pleaded.
[47]The evidence of both parties was that the initiative came from the defendant: plaintiff p 24; defendant p 81.
Paragraph 18 of the counterclaim alleged that the plaintiff’s principle place of business was at an address which was the plaintiff’s home address. That was the registered office of the plaintiff company, but I do not accept that it was a place of business of the company or that the company in fact ever carried on business at that place. I am not prepared to find that there was an implied term as alleged in paragraph 21 of the counterclaim, because the obligations of the plaintiff company were set out expressly in the various franchise agreements, and because the implication of such a term is inconsistent with the express provisions of the franchise purchase agreement which contemplated that in certain circumstances the new business in Brisbane might in fact not be established.
With regard to the allegations in paragraph 22, it is common ground that a total $125,000 was paid to the Singaporean law firm; there is no evidence that the payments were made on the specific dates alleged in this paragraph. I accept that $12,000 was returned by the defendant company to the plaintiff in May 2003. Paragraph 24 alleged that the defendant company ordered[48] the equipment referred to in the purchase orders referred to earlier, and paragraph 24 alleged that the defendant paid the invoices referred to earlier. These were not admitted and for the reasons given earlier I am not prepared to find that this occurred. I accept that the plaintiff company failed to secure finance and without that finance, or the payment to the plaintiff company of some of the money released to the defendant company, it was not possible to establish the business in Brisbane, but I am not persuaded that this involved any breach of contract on the part of the plaintiffs. The defendants have not shown any breach of Clause 5.3.1 of the joint venture agreement, and Clause 3.4 of the franchise agreement is a recital.
[48]Curiously it was not alleged that this equipment was in fact purchased and paid for by the defendant company.
I have made findings about what correspondence was sent and its effect. I am not prepared to find that at the time of that correspondence the defendants wished to continue with the franchise agreements and the joint venture agreement; in my view, on the contrary, by that time the defendants were not interested in pursuing either of those agreements, and those agreements have been abandoned. I am not persuaded that the allegations in paragraph 32 are made out; I am not persuaded that the defendants ever devoted considerable, or any significant, time, energy or resources to the joint venture agreement or the franchise agreement. No loss has been proved by either defendant, and insofar as the counterclaim seeks damages for breach of contract against the plaintiffs it fails.
The counterclaim also seeks to recover the cost of the training from the plaintiff. That training was provided in accordance with a letter of intent, and there is no evidence the plaintiff failed to comply with his obligations under the letter of intent. That letter of intent provided specific compensation would be payable for the training but only in certain circumstances, and those circumstances did not arise.[49] In those circumstances, where there was an express agreement dealing with the issue of compensation which is inconsistent with what would otherwise be the ordinary expectation, that a service was to be paid for, there is no entitlement to remuneration for that service.[50] That part of the counterclaim also fails.
[49]More precisely, it provided that compensation would be payable if something like the joint venture agreement was not entered into, but the joint venture agreement was entered into. It is irrelevant that it was later abandoned.
[50]That agreement was later superseded by the joint venture agreement, but that also provided no obligation to pay for the training, and this does not affect the validity of my reasoning.
Conclusion
I declare that the joint venture agreement and the franchise agreements were mutually abandoned and discharged, and am prepared to order that the defendant company pay the plaintiff $S113,881.35 and $A8,922.91. The counterclaim is dismissed.
I shall publish these reasons and invite further submissions as to the form of the judgment, in particular whether judgment is to be given in Singaporean dollars, or whether I am to convert to Australian dollars on the date of judgment, and as to the question of interest, particularly whether interest rates applicable over the relevant period in Singapore should be used in respect of that part of the claim which is in Singaporean dollars. I shall also receive submissions in relation to costs.
0
1
0