Netdeen Pty Ltd t/as GJ Gardner Homes v Lindfield NSW Pty Ltd

[2025] NSWCA 196

Court of Appeal

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Netdeen Pty Ltd t/as GJ Gardner Homes v Lindfield NSW Pty Ltd [2025] NSWCA 196

Hearing dates:

7 to 9 May 2025, further submissions on 28 July and 4 August 2025

Date of orders:

28 August 2025

Decision date:

28 August 2025

Before:

Stern JA; Ball JA; Griffiths AJA

Decision:

(1) The appeal be allowed in part.

(2) The orders dated 17 October 2024 be set aside.

(3) Direct that there be a retrial limited to determining:

(a) whether the Board breached cl 4.7 of the Master Franchise Agreement dated 1 July 2014 by its decision dated 20 July 2023 not to renew the Master Franchise Agreement; and

(b) the quantum of any damages to be awarded if that breach is established.

(4) Within 21 days hereof, the parties should seek to agree costs and any other necessary orders. If agreement cannot be reached, each party should within that time file and serve an outline of written submissions not exceeding 10 pages in length in support of their respective positions.

(5) Final orders will be made on the papers and without a further hearing.

Catchwords:

CONTRACTS — master franchise agreement — renewal clause — construction of clause permitting franchisor to decline renewal of agreement — where franchisor declined request for renewal by master franchisee — whether decision to decline renewal properly made — whether franchisor had to consider best interests of master franchisee in declining renewal — whether non-renewal decision based on grounds “honestly and reasonably held” — findings by primary judge inadequate — inadequate findings unable to be cured on appeal — retrial necessary

CONTRACTS — repudiation — whether master franchisee repudiated agreement by establishing competitor business after franchisor refused renewal — no repudiation

CONSUMER LAW — statutory unconscionable conduct under s 21 of the Australian Consumer Law — non-renewal alleged to be unconscionable — finding of unconscionable conduct by primary judge — where finding of unconscionable conduct necessarily reliant on correct construction of non-renewal clause — where primary judge erroneously construed non-renewal clause — where success on argument that renewal was improperly refused would give rise to same relief as success on unconscionable conduct — no utility in remitting issue

EVIDENCE — expert evidence — admission of expert reports — valuation evidence — where expert relied on reports from industry bodies in drafting expert valuation report — reports of industry bodies admissible under s 60 of the Evidence Act 1995 (NSW) — reliance on industry reports permissible in circumstances — no error in admitting expert reports

DAMAGES — quantum of damages — valuation methodology — where primary judge criticised valuation evidence at a high level but did not identify specific errors in approach taken by expert — approach that should be taken in complex damages calculations that depend on multiple assumptions — finding on damages cannot be supported — error established — question of damages to be remitted in retrial

Legislation Cited:

Competition and Consumer Act 2010 (Cth), Sch 2 - Australian Consumer Law, ss 21, 22

Competition and Consumer (Industry Codes—Franchising) Regulations 2014 (Cth), Sch 1

Evidence Act 1995 (NSW), ss 55, 56, 59, 60, 76, 79, 135

Retail Leases Act 1994 (NSW), s 62B

Supreme Court Act 1970 (NSW), s 74A

Uniform Civil Procedure Rules 2005 (NSW), r 51.53

Cases Cited:

Adani Abbot Point Terminal Pty Ltd v Lake Vermont Resources Pty Ltd [2021] QCA 187; 399 ALR 302

AHG WA (2015) Pty Ltd v Mercedes-Benz Australia/Pacific Pty Ltd (2023) 303 FCR 479; [2023] FCA 1022

AHG WA (2015) Pty Ltd v Mercedes-Benz Australia/Pacific Pty Ltd [2025] FCAFC 86

Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349

Bodney v Bennell (2008) 167 FCR 84; [2008] FCAFC 63

Burger King Corp v Hungry Jack's Pty Ltd (2001) 69 NSWLR 558; [2001] NSWCA 187

Cambridge v Anastasopoulos [2012] NSWCA 405

Carr v JA Berriman Pty Ltd (1953) 89 CLR 327; [1953] HCA 31

Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184

Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588; [2011] HCA 21

Fink v Fink (1946) 74 CLR 127; [1946] HCA 54

Fox v Percy (2003) 214 CLR 118; [2003] HCA 22

Fuller v Avichem Pty Ltd (t/as Adkins Building & Hardware) [2019] NSWCA 305

Ipstar Australia Pty Ltd v APS Satellite Pty Ltd [2018] NSWCA 15; 356 ALR 440

Jenyns v Public Curator (Qld) (1953) 90 CLR 113; [1953] HCA 2

Johnson v Perez (1988) 166 CLR 351; [1988] HCA 64

Lee v Lee (2019) 266 CLR 129; [2019] HCA 28

Lindfield NSW Pty Ltd v Netdeen Pty Ltd t/as GJ Gardner Homes [2024] NSWSC 937

Lindfield NSW Pty Ltd v Netdeen Pty Ltd trading as GJ Gardner Homes (No 2) [2024] NSWSC 982

Lindfield NSW Pty Ltd v Netdeen Pty Ltd t/as G.J. Gardner Homes (No 3) [2024] NSWSC 1305

Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305

Mal Owen Consulting Pty Ltd v Ashcroft (2018) 97 NSWLR 1163; [2018] NSWCA 135

Malone v Queensland (No 3) [2022] FCA 827

NSW Rifle Association Inc v Commonwealth [2012] NSWSC 818; 293 ALR 158

Pittmore Pty Ltd v Chan (2020) 104 NSWLR 62; [2020] NSWCA 344

Productivity Partners Pty Ltd (t/as Captain Cook College) v AustralianCompetition and Consumer Commission [2024] HCA 27; 419 ALR 30

PT Ltd v Spuds Surf Chatswood Pty Ltd [2013] NSWCA 446

Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234

Saltalamacchia v Zamagias [2024] NSWCA 184

Searle v Commonwealth of Australia (2019) 100 NSWLR 55; [2019] NSWCA 127

Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4

Stirling v Maitland (1864) 5 B & S 840; 122 ER 1043

The J&P Marlow (No 2) Pty Ltd v Hayes (2023) 112 NSWLR 29; [2023] NSWCA 117

Tok v Rashazar [2025] NSWCA 94

Wardle v Agricultural and Rural Finance Pty Ltd; Agricultural and Rural Finance Pty Limited v Brakatselos [2012] NSWCA 107

Warren v Coombes (1979) 142 CLR 531; [1979] HCA 9

Warringah Shire Council v Pittwater Provisional Council (1992) 26 NSWLR 491

Texts Cited:

Hodge M Malek, Phipson on Evidence (20th ed, 2024, Sweet & Maxwell)

Category:

Principal judgment

Parties:

Netdeen Pty Ltd trading as GJ Gardner Homes (Appellant)
Lindfield NSW Pty Ltd (Respondent)

Representation:

Counsel:
S Couper KC and JV Gooley (Appellant)
NC Hutley SC, TD Castle SC and D Levi (Respondent)

Solicitors:
Thomson Geer (Appellant)
Addisons (Respondent)

File Number(s):

2024/00392632

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court

Jurisdiction:

Equity – Commercial List

Citation:

[2024] NSWSC 937;

[2024] NSWSC 982;

[2024] NSWSC 1305

Date of Decision:

01 August 2024

Before:

Elkaim AJ

File Number(s):

2023/237902

HEADNOTE

[This headnote is not to be read as part of the judgment]

The appellant, Netdeen Pty Ltd (trading as GJ Gardner Homes) (Netdeen), carried on a homebuilding business through a master franchise model. The structure had three layers, comprising Netdeen as Franchisor; a second tier with entities called Master Franchisees; and a third tier involving Sub‑Franchisees, being small residential building firms using the banner of GJ Gardner Homes and who were supported by their Master Franchisee.

On 1 July 2014, Netdeen entered into a Master Franchise Agreement (MFA), with the respondent, Lindfield NSW Pty Ltd (Lindfield) as Master Franchisee operating in NSW and the ACT. The MFA was for a term of 10 years, with a right to renew for a further 10 years on the terms of Netdeen’s then current Master Franchise Agreement. Clause 4.7 of the MFA permitted Netdeen to refuse Lindfield’s request to renew the MFA, upon grounds, honestly and reasonably held, that renewal of the Master Franchise “would not be in the best interests of the Franchisor and other G J Gardner Homes Master Franchisees and/or Sub-Franchisees”.

In November 2019, on Netdeen’s instructions, their solicitors commissioned the reports of two experts in the franchising industry to review the GJ Gardner Group structure and operations. Both reports recommended that Netdeen exit from the master franchising model and move to a direct model (de-mastering). Subsequently, in May 2020, Netdeen’s Chief Operating Officer was asked to prepare a report identifying recommendations for Netdeen (the COO report). From that time, Netdeen took various steps towards de-mastering, including attempting (unsuccessfully) to negotiate early termination of the MFA with Lindfield, and commissioning further reports from the same franchising experts.

On 3 July 2023, Lindfield gave Netdeen a renewal notice under cl 4.3 of the MFA exercising its option to renew the MFA for a period of 10 years. Three days later, Netdeen sent Lindfield what was described as the “current Master Franchise Agreement”. Having circulated the COO report to the Netdeen Board, on 20 July 2023 Netdeen convened a special Board meeting for the purpose of considering Lindfield’s exercise of the option to renew the MFA. On 24 July 2023, Netdeen sent a letter to Lindfield confirming that the outcome of the Board meeting was to refuse to renew the MFA.

Lindfield commenced these proceedings on 26 July 2023, claiming that Netdeen improperly exercised its right to refuse renewal of the MFA under cl 4.7 because its refusal was driven by its desire to move to a direct model, and that the decision to refuse renewal amounted to unconscionable conduct in contravention of the Australian Consumer Law (ACL).

In November 2023, Mr Hope, the controlling mind of Lindfield, formed a new building group, Wattle Court. Two former GJ Gardner Homes Sub-Franchisees ceased being GJ Gardner Homes Sub-Franchisees and commenced trading as Wattle Court franchisees. On 27 May 2024, Netdeen served a notice of termination of the MFA on Lindfield and took an assignment of the various franchise agreements between Lindfield and the Sub-Franchisees.

The primary judge held that there was an implied term in the MFA to the effect that Netdeen was required to consider the best interests of Master Franchisees, i.e. Lindfield, in exercising its rights under cl 4.7. As Netdeen did not suggest it had taken Lindfield’s best interests into account on the decision not to renew the MFA, the primary judge concluded that it necessarily followed that Lindfield succeeded in establishing liability. His Honour further found that Netdeen had deceived Mr Hope into believing that renewal was a real possibility when it was not, and that Netdeen’s conduct in all the circumstances amounted to unconscionable conduct in contravention of s 21 the ACL. His Honour awarded Lindfield damages of $20 million in respect of both claims.

Netdeen challenged both findings on liability on appeal. Additionally, Netdeen contended that the primary judge erred by: finding Netdeen breached cl 4.6 of the MFA by offering renewal terms on terms other than the then current master franchising agreement; not finding that Mr Hope’s establishment of Wattle Court amounted to repudiation of the MFA; admitting the expert valuation reports of Mr Potter (an expert Chartered Accountant retained by Lindfield); and in his assessment of damages.

The Court Held (Stern JA, Ball JA and Griffiths AJA) allowing the appeal in part and ordering a retrial to determine whether cl 4.7 had been breached and the quantum of damages to be awarded if breach is established:

As to the proper construction of cl 4.7:

(1) The primary judge’s construction of cl 4.7 was erroneous. Further, neither party’s construction of cl 4.7 was wholly correct. Properly construed, cl 4.7 requires three things. First, that Netdeen form an opinion that renewal would not be in the best interests of Netdeen in its capacity as Franchisor and other GJ Gardner Homes Master Franchisees and/or Sub-Franchisees for the reasons set out in cl 4.7. Secondly, that the opinion be based on “grounds” that are honestly and reasonably held by the entity making the decision to refuse renewal, here the Netdeen Board. Thirdly, that those grounds are the substantial reason for the refusal to renew. Provided those requirements are met, Netdeen was entitled to refuse renewal: [66]-[69].

The J&P Marlow (No 2) Pty Ltd v Joseph Hayes [2023] NSWCA 117; Stirling v Maitland (1864) 5 B & S 840; 122 ER 1043, considered. Carr v JA Berriman Pty Ltd (1953) 89 CLR 327; [1953] HCA 31; NSW Rifle Association Inc v Commonwealth [2012] NSWSC 818; 293 ALR 158, cited.

(2) The primary judge did not make clear findings on whether Netdeen had discharged its onus of proving that the substantial reason for non-renewal was Lindfield’s performance rather than its desire to implement the de-mastering policy. Those findings could not be made on appeal because they depended, among other things, on whether the evidence of the directors of Netdeen should be accepted on the issue, and the primary judge’s findings on that question were inconclusive. Accordingly, there would need to be a retrial on that issue: [78]-[80].

As to whether the primary judge erred in finding that Netdeen breached cl 4.6:

(3) The primary judge did not err in finding that cl 4.6 had been breached. The terms of the “then current MFA” given by Netdeen to Lindfield were never truly operative and could not properly be described as a “current” Master Franchise Agreement. That is so because when the parties entered into the new Master Franchise Agreement for Victoria/Tasmania (which was said by Lindfield to be the then current form of the agreement) they also entered into a deed of relinquishment of that agreement. In addition, the agreement sent to Lindfield contained terms that were substantially different from the terms of that agreement: [97]-[98].

As to statutory unconscionable conduct:

(4) If Lindfield succeeded in its claim that Netdeen had breached cl 4.7 of the MFA, the unconscionability claim added nothing because the damages claimed in respect of both causes of action were the same. On the other hand, if the true position was that Netdeen was entitled to refuse renewal because it had satisfied the requirements of cl 4.7, given the primary judge’s finding that Netdeen did not make a final decision whether to renew or not until the Board meeting on 20 July 2023, the unconscionability claim must fail. Accordingly, there was no utility in remitting the unconscionability claim: [111]-[122], [153], [233].

Pittmore Pty Ltd v Chan (2020) 104 NSWLR 62; [2020] NSWCA 344, cited.

As to whether Lindfield repudiated the MFA by establishing Wattle Court:

(5) Lindfield did not repudiate the MFA by Mr Hope establishing Wattle Court. Mr Hope set up Wattle Court after he had sought to exercise the renewal option in the MFA and after Netdeen had refused renewal. By that time, any loss arising from Netdeen’s breach of cl 4.7 of the MFA (if there was one) had crystallised: [161]-[162].

As to damages and the admissibility of Mr Potter’s expert reports:

(6) The primary judge was correct to admit Mr Potter’s reports. There was no requirement that to be admissible an expert’s report must be based on admissible evidence. The selection of appropriate data to rely on and the way in which that data was to be used in projecting Lindfield’s future cash flows fell within Mr Potter’s expertise: [202]-[215], [209]-[212].

Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588; [2011] HCA 21; Bodney v Bennell (2008) 167 FCR 84; [2008] FCAFC 63, considered. Malone v Queensland (No 3) [2022] FCA 827; Makita(Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305; Cambridge v Anastasopoulos [2012] NSWCA 405, cited.

(7) The primary judge erred in his assessment of damages. The primary judge’s observation that Mr Potter’s methodology and some conclusions were “certainly open to criticism” does not shed any light on which aspects of Mr Potter’s report were open to such criticisms. The primary judge did not conduct any analysis as to the implications of the (unspecified) respects in which he appeared to have found that Mr Potter’s methodology and conclusions were open to criticism. Consequently, it is not possible to form any view on the significance of those criticisms, if any, for Mr Potter’s valuation. In circumstances where the primary judge made no attempt to articulate the correct integers that were in contest, his finding regarding the quantum of damages cannot stand: [215]-[217].

Fink v Fink (1946) 74 CLR 127; Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4; Mal Owen Consulting Pty Ltd v Ashcroft (2018) 97 NSWLR 1163; [2018] NSWCA 135; Searle v Commonwealth of Australia (2019) 100 NSWLR 55; [2019] NSWCA 127, cited.

TABLE OF CONTENTS

HEADNOTE

TABLE OF CONTENTS

JUDGMENT

Background

The primary judgments

Construction of cl 4.7 of the MFA

Breach of cl 4.7 of the MFA

Statutory unconscionability

Wattle Court

Damages and Mr Potter’s reports

Issue 1: The proper construction of cl 4.7 of the MFA

Issue 2: Did the primary judge find that Netdeen refused to renew the MFA upon grounds which it honestly and reasonably held that it was not in the best interests of Netdeen and the Sub-Franchisees to renew the MFA and if not, should this court make that finding?

Issue 3: Non-compliance with cl 4.6 and provision of the “then current standard Master Franchise Agreement”

Issue 4: ACL unconscionable conduct

Issue 5: The Wattle Court Homes venture

Issue 6: Damages and admissibility of the Potter reports

Admissibility of Mr Potter’s two expert reports

Quantification of Lindfield’s loss

Issue 7: Should any aspect of the matter be remitted?

Conclusion

JUDGMENT

1. THE COURT: The central issue in this appeal is whether the appellant, Netdeen Pty Ltd trading as GJ Gardner Homes (Netdeen), the Franchisor under a national home building franchise known as GJ Gardner Homes, was entitled to refuse to renew a Master Franchise for New South Wales and the Australian Capital Territory granted to the respondent, Lindfield NSW Pty Ltd (Lindfield), under a Master Franchise Agreement entered into on 1 July 2014 (MFA). Related issues arise as to whether the primary judge erred in his findings as to unconscionability, repudiation of the MFA, the admissibility of expert valuation reports of Mr Michael Potter (an expert chartered accountant retained by Lindfield) and in the assessment of damages. The primary judge, Elkaim AJ, found that in refusing to renew the Master Franchise Netdeen was in breach of the MFA and acted unconscionably contrary to s 21 of the Australian Consumer Law (ACL), being Sch 2 of the Competition and Consumer Act 2010 (Cth), and awarded Lindfield damages of $20 million and costs.

2. The appeal stems from three judgments by the primary judge. They are reported as Lindfield NSW Pty Ltd v Netdeen Pty Ltd t/as GJ Gardner Homes [2024] NSWSC 937 (PJ1); Lindfield NSW Pty Ltd v Netdeen Pty Ltd trading as GJ Gardner Homes (No 2) [2024] NSWSC 982 (PJ2) and Lindfield NSW Pty Ltd v Netdeen Pty Ltd t/as G.J. Gardner Homes (No 3) [2024] NSWSC 1305 (PJ3). In the first of those judgments, the primary judge permitted Netdeen to amend its pleading so as to raise an alternative claim for damages arising from the termination of the MFA. The second judgment dealt with the admissibility of Mr Potter’s reports. The third judgment dealt substantively with Lindfield’s claims against Netdeen. It is the key judgment for the purposes of this appeal.

3. The notice of appeal raises no less than 41 grounds of appeal. The amended notice of contention is also extensive. The hearing of the appeal occupied three days.

4. The issues on appeal fall broadly into the following categories:

1. The proper construction of cl 4.7 of the MFA, which places limits on the right of renewal.

2. The findings the primary judge made, or failed to make, concerning whether the requirements of cl 4.7 of the MFA were satisfied by Netdeen, and whether findings on that issue can be made on appeal.

3. Whether the primary judge erred in finding that Netdeen breached cl 4.6 of the MFA by offering renewal terms on something other than the then current master franchising agreement.

4. Whether Netdeen acted unconscionably in breach of s 21 of the ACL, whether for the reasons relied upon by the primary judge or as contended in the amended notice of contention.

1. Whether the primary judge erred in failing to find that Lindfield repudiated the MFA by reason of its involvement in establishing a rival business to the one carried on by GJ Gardner Homes through a company known as Wattle Court Homes Pty Ltd (Wattle Court) and thereby lost the right to renew the MFA.

2. Whether the primary judge erred in admitting Mr Potter’s reports into evidence.

3. Whether the primary judge erred in his Honour’s assessment of damages and, if so, whether his Honour’s assessment can be sustained having regard to the matters relied upon in the amended notice of contention.

5. We have structured our judgment by reference to these issues, considering the individual grounds of appeal and contentions within this structure.

6. For the reasons set out below, the appeal must be allowed and the matter remitted to a judge of the Supreme Court to determine the following limited issues:

1. whether the refusal by Netdeen to renew the MFA was a decision made on grounds, honestly and reasonably held, that renewal of the Master Franchise would not be in the best interests of both Netdeen and Sub-Franchisees as required by cl 4.7 of the MFA, properly construed; and

2. the quantum of damages in the event that the claim that Netdeen breached cl 4.7 of the MFA is established on the retrial.

Background

7. In 1995 Netdeen was incorporated as part of the structure for the franchising of the business that became known as GJ Gardner Homes previously set up by Mr Greg Gardner. The structure had three layers, comprising Netdeen as Franchisor; a second tier with entities called Master Franchisees; and a third tier involving Sub-Franchisees, being small residential building firms using the banner of GJ Gardner Homes and who were supported by their Master Franchisee.

8. Lindfield and Netdeen first entered into a master franchise agreement in November 2005. It covered the combined areas of NSW and ACT and was for a term of 10 years.

9. Prior to entering into the MFA, there were some negotiations between the parties. In particular, after a draft of the MFA was provided to Lindfield on 3 April 2014, Mr Matthew Hope of Lindfield responded by email to Mr Peter Love of Netdeen saying:

“The first point to discuss will be the fact that there is no further renewal term in the renewal agreement???

Im [sic] not sure why this has been done as when I first signed the documents with Darren I was told that renewals are always done as a rolling 10 + 10 agreement. A rolling renewal has always been done with franchisees.

I am not going to waste any more time on this with valuers, banks and lawyers if you expect me to take on a debt for 10 years and once I finally have it paid off that I will have no business to continue.”

10. In a further email on 3 April 2014 from Mr Hope to Mr Darren Wallis of Netdeen, Mr Hope said:

“I can’t understand why a renewal term would not be included. This doesn’t give you any extra security and only serves to piss off the people making money for you. If you ever wanted to terminate me it would be based on performance and there are enough clauses in the agreement to do this. Having no renewal term just gives me no motivation to stay with the business. The other point is that it completely devalues the master franchise as the length of the agreement and renewal are the only things that have any value! The process I am going through of dealing with banks and valuers has only confirmed this.

Whenever I have terminated or removed a franchise it has been based on performance and not on the time of renewal. I would guess this would also be the same for you when you have removed master franchises. Therefore having no renewal has no upside for you, but a huge downside for me.

I am trying to take on a large amount of debt to buy out Mickey which will take 10 years to pay off. Having no renewal means I will pay it off and will be without a business at all. I am making a big commitment to you, Greg and the brand and would hope that this would be reflected in the agreement, but at the moment it is not.”

11. By email of 4 April 2014 Mr Wallis responded to Mr Hope explaining that:

“Franchise and Master agreements have a term plus a renewal term, that is standard. So the agreement you were sent would have just been our standard master franchise agreement, which if it is a renewal, does not as standard, contain a further renewal term. Obviously we can then discuss any terms of the agreement that might be peculiar to your situation.

Especially given your situation with buying out a partner at time of renewal, then a further renewal term is something we certain [sic] talk about.”

12. The MFA was entered into on 1 July 2014. Relevantly, it includes the following terms.

13. By way of definition, in the MFA, Netdeen is the Franchisor, Lindfield is the Master Franchisee, and Sub-Franchisee means:

“an entity or person who has entered into a Franchise Agreement with the Master Franchisee for the operation of a Franchise within the Master Franchise Area.”

14. The Master Franchise means “the business of [Lindfield] conducted under [the MFA]”. The Franchise Network is defined as “the G J Gardner Homes businesses in their entirety including those of the Franchisor, Master Franchisee and all Sub-Franchisees”.

15. The business is defined as the “G J Gardner Homes master franchise business”. Consistent with this, Recital A states:

“The Franchisor carries on the Business, being the business of acting as Franchisor for G J Gardner Homes Master Franchisees and Franchisees who undertake house building throughout Queensland, New South Wales, Victoria, Tasmania, Western Australia, the Northern Territory and elsewhere.”

16. Under the heading PART 4 TERM, the MFA provides:

“4.1 (Term of Master Franchise) This agreement is for a Term as specified in Item 3 of the Schedule [10 years] provided however that the Agreement shall terminate on the date on which all Franchise Agreements [agreements between the Master Franchisor and Sub-Franchisees: Part 1 and cl 5.5] granted pursuant to this agreement have expired or have been terminated, unless it is earlier terminated under Part 14 whichever is the earliest in time to occur.

4.2 (Renewal Term of Master Franchise) Provided that the Master Franchisee shall have duly complied with all its obligations under this and any related agreements and shall have taken all actions reasonably necessary to ensure that the Master Franchise conforms to the then current image of a G J Gardner Homes Master Franchise, the Master Franchisee shall, subject to Parts 4.6 and 4.7, have an option to renew the Master Franchise for the additional term set out in Item 4 of the Schedule upon the terms and conditions of the Franchisor's then current standard Master Franchise Agreement.

4.3 (Mode of Exercise) The option granted by Part 4.2 shall be exercised by the Master Franchisee giving written notice to the Franchisor of such exercise no more than twelve calendar months and not less than six calendar months prior to the expiration of the Term, time being of the essence.

…

4.6 (Effect of then Current Standard Terms on Option)

(a)    The Master Franchisee acknowledges that, at the time of exercise of the option granted by Part 4.2, the Franchisor's then current standard Master Franchise Agreement and related agreements may contain provisions materially different from those of this and related agreements. Upon the due exercise of the option for renewal, the Franchisor shall forthwith forward to the Master Franchisee and the Guarantor copies of the Franchisor's then current Master Franchise Agreement and any other related agreements then used by the Franchisor in granting G J Gardner Homes master franchises together with the then current form of Franchise Agreement and any other related agreements then used by the Franchisor in granting GJ Gardner Homes franchises.

(b)    If the terms and conditions (other than any condition relating to an option for renewal) contained in such copies are not materially different from those of this and the related agreements and/or the current form of franchise agreement and related agreements, then the Parties shall execute agreements in the form forwarded by the Franchisor (save that this Part 4, other than Part 4.1 shall be excluded).

(c)    If the terms and conditions (other than any condition relating to an option for renewal) contained in such copies are materially different from those of this and the related agreements and/or the current form of franchise agreement and related agreements, the Master Franchisee and the Guarantor (if any) may, within twenty-one (21) days of receiving such copies by written notice to the Franchisor, accept or reject such terms and conditions (other than those relating an option for renewal) and in default of such notice the Master Franchisee and the Guarantor as the case may be shall be deemed to have accepted the same.

(d)    If either the Master Franchisee or the Guarantor rejects such terms and conditions under paragraph 4.6(c) then, unless the Parties within a further twenty-one (21) days after giving notice of rejection reach agreement as to the terms of renewal of the Master Franchise, the exercise of the option shall be deemed to be withdrawn and of no further effect.

(e)    If both the Master Franchisee and the Guarantor accept such terms and conditions under paragraph 4.6(c) or the Parties agree to other terms and conditions under paragraph 4.6 (d), then the Parties shall execute agreements in the form forwarded by the Franchisor (save that this Part 4 or equivalent option for renewal shall be excluded) or in the form agreed as the case may be.

4.7 (Franchisor's Rights) Notwithstanding that the Master Franchisee may be otherwise entitled to exercise the option for renewal, the Franchisor may, by written notice to the Master Franchisee within 21 days after receiving notice under Part 4.3, refuse to renew the Master Franchise upon grounds, honestly and reasonably held, that renewal of the Master Franchise would not be in the best interests of the Franchisor and other G J Gardner Homes Master Franchisees and/or Sub-Franchisees. Without limitation as to other matters that may reasonably [sic] taken into account in determining whether such grounds are reasonable, regard may be had to the Master Franchisee's -

(a)    percentage of market share to date;

(b)    ability to service Franchisee to date;

(c)    demonstrated skill and performance to date;

(d)    ability to achieve the targets set out in the Development Schedule;

(e)    demonstrated support or lack thereof for the Franchisor, its Directors and officers, the Franchisor's business as a whole and the Franchise Network.”

17. Under the heading PART 14 DEFAULT AND TERMINATION, cl 14.6 provides that the effect of termination or expiration of the MFA includes that:

“(b)    if requested by the Franchisor, the Master Franchisee shall immediately transfer to the Franchisor the Master Franchisee’s rights under those Franchise Agreements nominated by the Franchisor and upon effective assignment, the Franchisor shall assume the obligations of the Master Franchisee under those agreements arising after the date of assignment;”

18. Under the heading PART 24 TRANSITIONAL, cl 24.1 provides that

“24.1 (Franchise Agreements to continue) Upon the termination or sooner expiration of this Agreement, the Master Franchisee’s rights and obligations in respect of existing Sub-Licences shall at that time cease and those rights and obligations shall, at the election of the Franchisor be assigned to and vest in the Franchisor (or its nominee) absolutely and the Master Franchisee shall do all acts, matters or things as shall be required by the Franchisor to acknowledge and accept this assignment …”

19. In December 2019, Netdeen received advice from its solicitors, Thomson Geer, that it was necessary to review the GJ Gardner Group structure and operations, noting that growth of market share, profitability, opportunities for franchisees to grow and more franchisees to join had fallen well behind targets agreed in the past with the Master Franchisees and the Sub-Franchisees. In response, on Netdeen’s instructions, Thomson Geer commissioned and received reports from Mr Jason Gehrke and Mr David Campbell, both experts in the franchising industry. These reports were in evidence before the primary judge and Lindfield made no request to cross-examine either expert. Broadly, both experts recommended that Netdeen exit from master franchising (referred to in this judgment as “de-mastering”).

20. Following this, a meeting took place on 17 November 2020 between Netdeen and Master Franchisees, including Lindfield. At this meeting Netdeen provided a summary of the advice it had received as to the benefits of de-mastering. Shortly after this meeting, Mr Hope of Lindfield sent an email to Mr Chris Thornton, copied to Mr Trent Gardner (both of Netdeen) setting out his objections to any de-mastering.

21. In May 2020, Mr Thornton, Chief Operating Officer of Netdeen, was asked to prepare a report identifying recommendations for Netdeen (the COO report). The primary judge found, and this finding itself is not challenged, that Netdeen’s intention thereafter was to move to a direct model operation: PJ3[74]–[75].

22. In July 2021 Netdeen and the Victorian/Tasmanian master franchisee entered into a new master franchise agreement which was either immediately, or almost immediately, relinquished such that Victoria and Tasmania were de-mastered.

23. In 2021–2022 there were negotiations between Netdeen and Lindfield for the early termination of the MFA. Despite various figures being offered by Netdeen as part of this negotiation, ultimately, no agreement was reached.

24. In 2022 Netdeen commissioned further reports from Mr Campbell and Mr Gehrke, which were provided in July 2023. Mr Gehrke’s opinion in his July 2023 report, extracted by the primary judge at PJ3[71], included:

“Based on the information provided, there is sufficient evidence of improvement across a number of metrics for which quantitative or anecdotal data is available, or for which there is work in progress, for me to believe that the individual franchisees are now better-off overall by having a direct relationship with the franchisor, rather than a master franchisee. Equally, based on the information provided, I have seen nothing to convince me that franchisees are in any way worse-off as a result of this direct relationship.

I remain of the opinion that master franchising in the Australian domestic market is no longer of benefit to the G.J. Gardner Homes brand or individual franchisees, and is a barrier to high levels of network performance. I encourage ongoing monitoring of the performance metrics considered in this further supplementary report as a way of gaining valuable insights into further opportunities for brand and network improvement in future.”

25. Mr Campbell’s opinion in his July 2023 report, extracted by the primary judge at PJ3[72], included:

“From industry analysis and my extensive experience, the Master Franchise model in this brand is now not fit for purpose and will (if not already) begin to have declining benefits through fragmentation of purpose as the Master Franchisees move into maturity/succession planning.

The financial modelling provided in my First Report and reproduce[d] earlier in this report clearly established the logic and rationale to consider an alternate franchise support structure.

The recommendation to move to a straight-line franchise structure is the only viable alternative if the franchise concept is to be retained.

The restructure has clearly demonstrable benefits for the Franchisor and current/future Sub-franchisees.

…

It is imperative that now this transition has commenced it needs to be fully completed in order to allow the full benefits to commence flowing to the brand, franchisor, sub franchisees and the clients of G.J. Gardner Homes.”

26. On 3 July 2023, Lindfield gave Netdeen a renewal notice under cl 4.3 of the MFA exercising its option to renew the MFA for a period of 10 years.

27. On 6 July 2023, Netdeen sent Lindfield what was described as the “current Master Franchise Agreement” purportedly in accordance with cl 4.6(a) of the MFA.

28. On 14 July 2023, Mr Thornton circulated the COO report to Netdeen’s Board, being Messrs Greg Gardner, Trent Gardner and Darren Wallis. This was described as setting out “factors which the Board may consider in making its decision on renewal … and the relevant supporting evidence”. A draft of the COO report had been sent to Thomson Geer and some changes had been made responding to their comments: PJ3[121]–[124]. Mr Thornton’s conclusion in the COO report was:

“6.7 Given the conclusions in paragraphs 6.2 to 6.6 of this paper, I believe that it is in the best interests of the Franchisor and the Sub-franchisees that the Master Franchise Agreement not be renewed. In particular, I believe that the Sub-franchisees will benefit from the increased access to support, training and national uniformity which NextEraEnergy would provide, if it was appointed to act as the Franchisor for NSW/ACT Sub-franchisees in a Direct Model. This benefit would far outweigh the support which the Master Franchisee has indicated (by comment and conduct) that it is willing or able (taking into account the Teamlnvest issue) to provide.

6.8 Given Mr Hope's disparagement of the G.J. Gardner Homes brand and non-compliance with the national marketing strategy (Annexure N), it is also likely that other Master Franchisees (in particular, South Australia) could benefit from a non-renewal of the Master Franchise Agreement. This would reduce the risk of those other Master Franchisee's operations suffering reputational harm and increase the benefit of a national marketing strategy.

6.9 Given all of the available data, my opinion and experience, it is recommended that the Master Franchise Agreement not be renewed.”

29. As the primary judge noted, partly as a consequence of an unchallenged evidentiary ruling, at trial there was no challenge to the correctness of any fact stated in the COO report: PJ3[129].

30. On 20 July 2023, Netdeen convened a special Board meeting for the purpose of considering Lindfield’s exercise of the option to renew the MFA. The COO report was before the Board for the purpose of the meeting, and three reports from Mr Gehrke and two reports from Mr Campbell were annexed to this report. Mr Thornton also attended the meeting and spoke to the COO report.

31. There is no minute of the meeting. However, approximately 10 minutes after its conclusion Mr Thornton sent an email to Mr Tony Conaghan at Thomson Geer. This included that the meeting went from 8.04 am until approximately 9.15 am and that:

“•   Trent then described the events over recent years that have led to this choice: the lack progress towards the growth goal(s), the appointment in 2019 by TG Law [Thomson Geer] of two independent franchising experts to review the G.J. franchise with particular attention to the Master model, the communication of the outcomes of that to Masters in 2020, the subsequent offer and acceptance of a new MFA for VIC/TAS in 2021, the request by Matt Hope for a [sic] an offer. The expert Valuation of the NSW & WA Masters and subsequent offer at ~$7.5M. The rejection of that offer and a second offer of ~$14M, accepted by the Colour Capital board subject to paperwork, subsequently rejected. Matt's angry flare-up at a social event in 2022 directed at Darren, after which there was a third offer made by the Franchisor, also rejected. Then there was Matt's interviews to national media, and a federal court claim subsequently withdrawn in 2023.

•   Chris T took the papers as read, then referred to the Collated Report. He spent about 20 minutes referring to the key points for consideration including the sources and background, compliance with the MFA, further considerations the Board may have (as suggested in the MFA), the relative merits of the direct model for G.J. Gardner, the issue of Teamlnvest, financial & investment consequences, the experience of the transition to direct franchising so far, and the specified person.

•   Chris T concluded by repeating the Board Priorities and how the resolutions may support or detract from them.

•   Darren asked whether we could yet prove the relative superior performance of network growth under the direct model and there was further discussion. Chris T asserted that we had superior resourcing, marketing, management practices and that the pipeline was giving cause for confidence even if final FAs were not showing yet. He said we could certainly be confident to do no worse than the Masters (including NSW & WA) over the past decade. Trent concurred.

•   There was discussion around whether there remained any further opportunities to reach a negotiated settlement, as the consensus was that there would be legal action in the event of non-renewal. …

…

•   After substantial discussion, Trent invited the Executive to express a view in support of renewal or non‑renewal. Pat, Chris P, and Conrad all supported non-renewal (Chris T having recommended this in the Collated Report).

•   Then the directors voted and Trent said he would be looking for a unanimous decision if non-renewal were to be the chosen resolution. Greg Gardner, then Darren, then Trent all voted in favour of non-renewal.

•   It was agreed that Trent would engage TG Law to draft a communication to Matt Hope.”

32. On 24 July 2023, Netdeen sent a letter (erroneously dated 20 July 2023) to Lindfield confirming that the outcome of the Board meeting was to refuse to renew the MFA “in accordance with its rights under part 4” of the MFA.

33. These proceedings were commenced on 26 July 2023.

34. In November 2023, Mr Hope formed a new building group, Wattle Court. Two former GJ Gardner Homes Sub-Franchisees ceased being GJ Gardner Homes Sub-Franchisees and commenced trading as Wattle Court franchisees.

35. On 27 May 2024, Netdeen served a notice of termination of the MFA on Lindfield and took an assignment of the various franchise agreements between Lindfield and the Sub-Franchisees.

The primary judgments

Construction of cl 4.7 of the MFA

36. The first key finding of the primary judge in PJ3 concerned the construction of cl 4.7 of the MFA. His Honour held, at PJ3[51], that cl 4.7 contained an implied term to the effect that cl 4.7 “necessitates the consideration of the best interests of the Master Franchisee”, i.e. Lindfield. As this construction is not supported by either party on appeal it is unnecessary to say anything more about it (or grounds 1 to 3 of Netdeen’s notice of appeal).

Breach of cl 4.7 of the MFA

37. As Netdeen did not suggest that it had taken Lindfield’s best interests into account on the decision not to renew the MFA, the primary judge stated that it necessarily followed that Lindfield succeeded in establishing liability. Notwithstanding this, against the possibility that his construction might on appeal be found to be wrong, the primary judge went on to consider the question of breach on the assumption that Netdeen had succeeded in its contentions as to construction.

38. Noting Lindfield’s claim that both the Board meeting and the COO report merely rubber-stamped a predetermined decision to de-master, the primary judge summarised the evidence given by Netdeen’s witnesses on this issue. In doing so, his Honour said that the focus of the Board’s consideration was not on the interests of the Master Franchisee but only on the interests of Netdeen and the Sub-Franchisees.

39. His Honour then assessed the evidence of Messrs Thornton, Wallis, Trent Gardner and Greg Gardner concerning the critical Board meeting. With respect to Mr Wallis’s evidence, the primary judge refused to accept Mr Wallis’s evidence that his support for the decision to refuse renewal of the MFA was not because of his own personal interest in obtaining an increased profit flow that would come from removing Lindfield: see PJ3[151]. His Honour also noted that, although both Mr Wallis and Mr Thornton went out of their way to emphasise the genuineness of the task before the Board, he considered that there was a concentration on the interests of Netdeen’s own business, which did not include Lindfield’s best interests: see PJ3[155]. (It is difficult to understand why the primary judge made those observations at PJ3[155] as well as similar observations at PJ3[147(4)], [153] and [165] given the context of this part of his Honour’s reasoning, which was said at PJ3[137] and in the heading to that section of the judgment (preceding PJ3[58]), to be predicated on an assumption that Netdeen’s construction of cl 4.7 was correct.)

40. At PJ3[160], the primary judge said that he was “not overly impressed by the performance of both Mr Wallis and Mr Thornton in the witness box”. He added:

“160 … I think they were both evasive, and sometimes misleading, and endeavoured to paint a picture of concern for Mr Hope playing a part in their decision, when in reality the decision was one purely of business efficacy. Mr Wallis was particularly adept at avoiding what often should have been a simple answer to a direct question.

161 It follows that I agree with the plaintiff’s submission concerning the credit of Mr Wallis and Mr Thornton and I disagree with the defendant’s submission that they ’gave clear, cogent and honest evidence.’”

41. His Honour found that Mr Greg Gardner “really had little memory of the meeting”: PJ3[166]. As to Mr Trent Gardner’s evidence, at PJ3[171], the primary judge set out Mr Gardner’s affidavit evidence for not supporting renewal (the reference to “Chris’ report” is a reference to the COO report):

“In my opinion, and as suggested in Chris’ report, we need to invest in support to ensure our Franchise Owners are profitable and successful and so that they see more value in the brand, and demonstrate to the Franchise Owners the opportunities they have to be able to grow. In the short term we may not be as profitable as the Masters, but we will have a stronger and more profitable business in the longer term, and without the additional support we have a greater risk of losing sub-franchisees. As identified in the Chris’ Report including by the experts, the master franchises were underinvesting in support and the value of the franchise at all levels wasn’t as strong as it should have been. This will create more value for everyone.”

42. The primary judge noted at PJ3[174] that Netdeen’s evidence was targeted to “create a picture of compliance with cl 4.7, at least to the extent of [Netdeen’s] construction of that clause” and that this also affected the contents of the COO report.

43. The primary judge said that he was “not as critical of Mr Greg Gardner and Mr Trent Gardner although there were aspects of their evidence where I think they endeavoured to withhold the truth from the court”: PJ3[175]. Ultimately, the primary judge’s conclusions as to the basis upon which Netdeen decided not to renew the MFA are found in the following paragraphs:

“176   At the core of my findings on credit is an acceptance by me that de-mastering became a policy of the defendant, probably from about 2019, and then dictated its attitude to renewal and its behaviour in respect of creating an apparent justification for the failure to renew the plaintiff’s MFA.

177   However, I would find it very difficult, against the evidence of four of the persons at the meeting, to conclude, as requested by the plaintiff, that the COO report and the meeting were part of an elaborate disguise of an already made decision.

178   I am satisfied that the decision to not renew the MFA had been made before the special board meeting, however I do not think I can go so far as to say that the meeting was an entire ‘fake’ in which no decision was made.

179   This brings me back to Mr Couper’s words, which I have quoted above, but will repeat here:

’That one cannot have any views of any sort prior to the decision actually having to be made. In fact, it's put more strongly than that in the case which is unpleaded but advanced. If I have a view, then if I make a decision based on that view, the decision must be based on a pretext. Again, that, with respect, is completely irrational.’

180   I think I can refine my conclusions to the current question to these three propositions:

(1)   I am unable to conclude that the board meeting did not involve a genuine discussion about the question of renewal, notwithstanding that Mr Thornton and the board members all came to the meeting with predetermined views that there should not be a renewal. In other words I cannot exclude the possibility that minds might have changed at the board meeting as a result of discussion.

(2)   The COO report was designed to give a foundation for non-renewal, perhaps as much as a defence to expected legal proceedings as a genuine discussion of the relevant factors.

(3)   The interests of the plaintiff were secondary to the financial interests of the defendant and, although to a lesser extent, the interests of the Sub-franchisees.

181    These conclusions are reached on the premise that the question being discussed assumes the defendant’s construction of cl 4.7 is correct.”

Statutory unconscionability

44. The primary judge accepted at PJ3[198] that a finding of unconscionable conduct under s 21 of the ACL did not depend on a finding of breach of contract (citing Adani Abbot Point Terminal Pty Ltd v Lake Vermont Resources Pty Ltd [2021] QCA 187; 399 ALR 302 at [79]). However, his Honour also remarked that he “would find such a finding difficult to reach if I had found in favour of [Netdeen’s] construction of cl 4.7”: PJ3[199].

45. The primary judge relied upon his earlier findings in relation to the basis of Netdeen’s decision not to renew the MFA: PJ3[211] (summarised above). His Honour also made the following additional findings:

1. By May 2020, Netdeen had made the decision to de-master, which “could not co-exist with renewal of [Lindfield’s] MFA”. Netdeen nevertheless "allowed the plaintiff to believe … that renewal was a real possibility", such that Lindfield "continued to work towards renewal": PJ3[212].

2. Netdeen’s wariness of litigation "infected the manipulation of at least one file note and the preparation of the COO report", which was constructed "to be a justification of the defendant's intended position to reject the application for renewal": PJ3[213].

3. Even if there had been genuine consideration of the question of renewal application at the Board meeting, the formal decision was nevertheless made “against a background of an already resolved course” and “was a decision of ratification rather than a start from a ‘blank page’”: PJ3[214].

4. As part of "the strategy to defeat any entitlement to renewal, the defendant provided the plaintiff with a current contract (pursuant to cl 4.6), which was so untenable and unattractive to a Master Franchisee, that it would render any renewal unworkable": PJ3[215]. Earlier, at PJ3[100], the primary judge described the document as a “smokescreen” and later at PJ3[128], the primary judge found that this was “essentially a device to persuade, if not force, the Master Franchisee to terminate the MFA”.

46. His Honour’s ultimate conclusions as to ACL unconscionable conduct were then stated at PJ3[216]-[217] (emphasis added):

“The defendant had resolved to maximise its profits. That was reasonable. What was not reasonable, and instead was sharp practice, was deceiving Mr Hope, and therefore the plaintiff, into believing that renewal was a real possibility to be decided in accordance with cl 4.7. This point is also behind my observation above, that a finding of unconscionability may be inconsistent with a finding that the defendant's construction of cl 4.7 was correct.

More precisely, in terms of s 22 of the ACL, I am satisfied that the defendant did not act in good faith in rejecting the plaintiff's application to renew the MFA, that rejection being a culmination of a course of conduct to conceal its true intentions (to not renew the MFA) from the plaintiff, and at the same time allowing the plaintiff to believe renewal was a viable possibility.”

Wattle Court

47. The primary judge’s assessment and determination of issues relating to Mr Hope’s establishment of Wattle Court are set out at PJ3[272]-[298]. His Honour assessed Mr Hope’s evidence regarding the venture, noting that he explained that he started Wattle Court and tried to attract franchisees to cover the contingency that Lindfield would not renew the MFA. The primary judge described at PJ3[282] why he regarded Wattle Court as reflecting adversely on Mr Hope’s credit. Although the primary judge said that it was reasonable for Mr Hope to look for a new venture, he thought “that Mr Hope was perhaps being a little underhand in his approaches to the defendant’s Sub-franchisees”. Despite this single reservation concerning Mr Hope’s evidence, the primary judge made plain at PJ3[283] that, where there was a conflict between Mr Hope’s evidence and that of Mr Wallis and Mr Thornton, he had such a poor impression of those two latter witnesses that his reservations concerning Mr Hope “have no practical effect”.

48. As to Netdeen’s claim that Mr Hope’s conduct in respect of Wattle Court amounted to a repudiation of the MFA between December 2023 and 27 May 2024, the primary judge identified the following difficulties:

1. the evidence concerning Wattle Court, at least after 27 May 2024, was restricted to Mr Hope’s credit: PJ3[288]; and

2. more importantly, Netdeen was in breach of the MFA well before 27 May 2024, which entitled Lindfield to damages.

49. The primary judge added that, if his findings on breach of contract and ACL unconscionable conduct were correct, no issue of termination and repudiation arose. But, if repudiation was a valid issue, his Honour would have concluded that the repudiation was by Netdeen and accepted by Lindfield: PJ3[290].

Damages and Mr Potter’s reports

50. As noted above, the primary judge’s reasons for refusing Netdeen’s objections to the admissibility of Mr Potter’s two reports are set out in PJ2. In brief, these reasons were as follows:

1. His Honour did not accept Netdeen’s complaint (relying upon case law such as Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305 at [85]) that the data relied upon by Mr Potter from published reports by the Master Builders Australia (MBA), Housing Industry Association (HIA) and Australian Bureau of Statistics (ABS) were not reliable. His Honour said at PJ2[10] that he could take judicial notice of the fact that MBA and HIA reports were well-known in the building industry and were also used by Netdeen itself.

2. Although there was no independent evidence to say that the HIA, MBA and ABS material had been independently scrutinised and found to be reliable, such evidence was not necessary and would involve “an unnecessary waste of time and costs”: PJ2[12].

3. Having regard to the established use of the data, including by Netdeen, Lindfield could rely upon Mr Potter’s use of the material and treat them as assumptions from which calculations might be made: PJ2[13].

4. In circumstances where Mr Potter could use the data, the primary judge agreed with Netdeen’s expert (Mr Andrew Ross) that “the calculations were mechanical” and Mr Potter had appropriate expertise to carry out those calculations: PJ2[14].

5. Although the primary judge saw a good deal of weight in Netdeen’s complaint that figures for 2024 should not have been used to estimate the loss from 2030 to 2034 and Mr Potter should have extended the HIA forecasts which went up to 2029, the opportunity to cross-examine Mr Potter was sufficient: PJ2[15].

6. As to Netdeen’s complaint regarding averaging, namely that Mr Potter had impermissibly used data for NSW generally and not figures derived from each Sub-Franchisee, the point could again be dealt with in cross‑examination: PJ2[16].

51. Having admitted Mr Potter’s two reports into evidence, the primary judge explained in PJ3[246]-[258] how Lindfield’s damages should be quantified, relying on the evidence of both Mr Potter and Mr Ross. In summary (for a fuller discussion see [174]ff below), the primary judge adopted a valuation figure of $20 million, seemingly by taking three steps. First, he found that Mr Potter’s methodology and some conclusions “are certainly open to criticism”: PJ3[240]. Secondly, assuming that Mr Potter’s opinion had flaws, he determined that “a proper and reliable basis to fill the deficiencies” was evidence given in cross-examination by Mr Ross: PJ3[246]. In this regard, the primary judge interpreted Mr Ross’s evidence in cross-examination as having “suggested that there was a simpler and alternative method of valuing the business”, being the “multiples” approach referred to in Mr Ross’s report at [7.7.8]: PJ3[248]. The primary judge then said that, during his oral evidence in answer to questions from the primary judge, Mr Ross had given a “valuation of at least $20 million” on the basis of this approach: PJ3[250]. Thirdly, the primary judge described the $20 million figure (derived as set out above) as not very different to the figure of $19.6 million which could be achieved by using Mr Potter’s revised cash flows together with a discount rate of 20% which Mr Ross had described as appropriate: PJ3[251]. The primary judge then said that the $20 million figure involved something of a “rounding off” of Mr Potter’s low valuation figure of $23.7 million and said that if Mr Potter had applied “enough of a discount, as suggested by Mr Ross” then the $20 million figure was appropriate: PJ3[257]-[259].

Issue 1: The proper construction of cl 4.7 of the MFA

52. The bulk of the hearing of the appeal was directed to Issues 1 and 2.

53. On appeal and by way of amended notice of contention Netdeen and Lindfield advance competing constructions of cl 4.7 of the MFA.

54. Netdeen contends that, having regard to its terms, all that cl 4.7 substantively requires for Netdeen to be entitled to refuse to renew the Master Franchise is that Netdeen do so upon grounds, honestly and reasonably held, that renewal would not be in the best interests of itself and, either or both, other GJ Gardner Homes Master Franchisees (which, whilst not defined in the MFA, would be taken to mean master franchisees of Netdeen other than Lindfield) or Sub‑Franchisees. It contends that, in this context, there is no difficulty with it refusing to renew Lindfield’s Master Franchise in the context of an overarching policy of de-mastering, provided that the decision was properly based upon grounds, honestly and reasonably held, that renewal was not in its best interests and was also not in the best interests of Sub-Franchisees. In this regard, when considering whether renewal is against the Sub-Franchisees’ best interests, Netdeen can properly have regard, as an alternative to renewal of Lindfield’s Master Franchise, to a de-mastered structure, involving a direct franchise relationship between Netdeen and the Sub-Franchisees with no replacement master franchisee.

55. Netdeen says that this flows from the language of cl 4.7 and is also supported by the contractual context. In particular, Netdeen points to cll 14.6 and 24.1 (set out above at [17]-[18]) which, it says, necessarily entail that non-renewal of a Master Franchise may well result in there being a direct relationship between Netdeen and the Sub-Franchisees. In this contractual context, where the terms of the MFA provide for the transfer of the franchise agreements to the Franchisor, Netdeen says it is artificial and inconsistent with the MFA as a whole to require that the relevant consideration of the best interests of Sub-Franchisees for the purpose of cl 4.7 be on the assumption that the existing Master Franchisee (here Lindfield) will be replaced by another Master Franchisee. Instead, they say, one choice under cl 4.7 when considering whether to refuse renewal, is de-mastering.

56. It follows, Netdeen says, that it would be an error to construe the MFA as if its purpose was to ensure that there was a master franchise system in place during the 20 year period covered by the MFA and any renewal. It says that Lindfield’s contention to the contrary involves reading words into the MFA that are simply not there or adding an implied term to the MFA.

52. Netdeen further relies upon the words “[w]ithout limitation as to other matters that may reasonably be taken into account …” preceding the list of matters to which regard may be had when making a decision to refuse renewal under cl 4.7. It says that this shows that the matters there itemised at (a) to (e) are “expressly not the end of the story”.

53. To the extent that Lindfield relies, in its contentions, upon the fact that the right of renewal was objectively known by both parties to be significant to Lindfield’s entry into the MFA, and that the right to renew was introduced following negotiations, Netdeen submits that it is necessary to have regard to what terms were ultimately agreed. More particularly, Netdeen says, the right of renewal under cl 4.2 of the MFA was made subject to Netdeen’s discretion under cl 4.7 to refuse renewal and the negotiations cannot require that cl 4.7 is read other than in accordance with its terms. Further, Netdeen says, Lindfield’s own case is that it made pre-tax profit of more than $24 million in the first 10 year term of the MFA, thus this is not a case where it would have been envisaged by the parties that a second 10 year term was essential for Lindfield to recoup its investment.

54. Lindfield contends that, as a matter of grammatical construction, cl 4.7 requires Netdeen to have regard either to the best interests of all of the Franchisors, the other Master Franchisees and the Sub-Franchisees or, as senior counsel for Lindfield put it, in the interests of the system as a whole or, alternatively, to the best interests of the Sub-Franchisees alone. As to the latter, however, Lindfield submits that that alternative (being that non-renewal is based upon consideration of the best interests of the Sub-Franchisees alone) is unavailable in any case in which Netdeen determines that it is not in its best interests to renew the MFA. In such a case, it submits, the decision will necessarily be based upon the best interests of Netdeen and can never be characterised as a decision based solely on the interests of the Sub-Franchisees. Thus, in any case where renewal is considered to be against the interests of Netdeen, it is only authorised by cl 4.7 if Netdeen honestly and reasonably considers that renewal is not in the interests of the system as a whole.

55. Lindfield says that this construction is appropriate from a commercial point of view because a right to deprive it of the benefit of an option which was central to the parties’ bargain should not be expansively construed.

56. Irrespective of whether the Court accepts its “grammatical construction”, Lindfield’s overarching contention is that the MFA as a whole is predicated upon the continuation of master franchising. Thus, it says, the “Business” is defined in Part 1 of the MFA as “the GJ Gardner Homes Master Franchise business”, that business is repeatedly referenced in the recitals to the MFA, and the entitlement to renew under cl 4.2 and the provisions of cl 4.6 are all predicated upon a continuing master franchising business. It follows, Lindfield submits, that cl 4.7 does not authorise non-renewal in effect to bring down the structure of master franchising as that would be a purpose antithetical to the structure and aim of the contract. Senior counsel for Lindfield agreed that this was an “analogous point” to that in Stirling v Maitland (1864) 5 B & S 840; 122 ER 1043.

57. In support of its construction, Lindfield points to the fact that the renewal term was added to the MFA after negotiations between Mr Hope from Lindfield and Mr Wallis from Netdeen, as reflected in the 3 April 2014 emails set out at [9] and [10] above. It also relied upon the fact that Netdeen’s guiding philosophy was to help Master Franchisees build valuable, saleable businesses, a principle that remained in place until at least 2019, and that on unspecified occasions Mr Greg Gardner had told Mr Hope that “the master franchisees would always have a business to sell”.

58. We do not wholly accept either party’s contentions as to construction.

59. The starting point is Lindfield’s proposed construction that a decision under cl 4.7 must be based either on the interests of the system as a whole or Sub‑Franchisees alone. That construction finds no support in the language of cl 4.7. Nor is there any basis upon which we would strain the language of cl 4.7 to so construe it. It is natural to read the first connective (the “and”) as the primary one. Clause 4.7 confers a discretion on Netdeen. It makes little sense to interpret that discretion as requiring it to ignore its own interests in certain circumstances and not others, which would be the result of the construction advanced by Lindfield. It makes greater commercial sense to interpret the clause consistently with the natural reading of the language, that is, as conferring a discretion on Netdeen to refuse renewal where that would not be in its own best interests and would not be in the best interests of at least one of other Master Franchisees and Sub-Franchisees.

60. Thus, as Netdeen contends, cl 4.7 is complied with provided its requirements are met by reference to what is not in the best interests, relevantly here, of each of Netdeen and the Sub-Franchisees.

61. In our view, properly construed, cl 4.7 requires three things. First, that Netdeen form an opinion that renewal would not be in the best interests of Netdeen in its capacity as Franchisor and other GJ Gardner Homes Master Franchisees and/or Sub-Franchisees. Secondly, that the opinion be based on “grounds” that are honestly and reasonably held by the entity making the decision to refuse renewal, here the Netdeen Board. Thirdly, that those grounds are the substantial reason for the refusal to renew.

62. Provided that these three requirements are met, it matters not that the opinion as to the best interests of Netdeen and, relevantly, the Sub-Franchisees is formed in a context where Netdeen is considering two potential alternatives, being on the one hand renewal of the Master Franchise and, on the other hand, a de-mastered structure. This is particularly so given that, under cl 24.1 of the MFA, the consequence of non-renewal in the absence of any election by Netdeen to transfer the Sub-Franchises to another master franchisee would be, in effect, a direct contract between Netdeen and the Sub-Franchisee. But the grounds must be as stated in cl 4.7.

63. In addition to the explicit limitations circumscribing Netdeen’s power under cl 4.7, there is an important question whether, in forming the necessary opinion about the best interests of Netdeen and, relevantly, the Sub-Franchisees, for the purpose of cl 4.7 of the MFA, Netdeen was required to have regard only to matters arising from Lindfield’s performance in its role as Master Franchisee under the MFA. Although the factors set out in cl 4.7(a)-(e) are matters which “may” be taken into account, and cl 4.7 expressly states that the listed matters do not limit other matters that may reasonably be taken into account, the inclusion of those sub-paragraphs suggests that the parties intended that non-renewal under cl 4.7 should be based upon the manner in which Netdeen performed as Master Franchisee under the MFA and the impact of this upon the interests of Netdeen and, relevantly, the Sub-Franchisees. Those metrics of performance are manifestly not limited to the matters listed at cl 4.7 (a)-(e) and would include, for example, any disparagement or undermining by Lindfield of the GJ Gardner Homes brand. Moreover, it is not necessary that Netdeen reach the opinion that Lindfield underperformed as Master Franchisee, as the requirements of cl 4.7 may be satisfied if Netdeen holds the necessary opinion that having regard to relevant metrics of Lindfield’s performance under the MFA, the interests of both it and Sub-Franchisees will be better served by non‑renewal (such that renewal is against the best interests of both). But Netdeen could not properly form the opinion required under cl 4.7 of the MFA in reliance upon matters unrelated to the performance of Lindfield under the MFA.

64. That is not to say that, on its proper construction, the de-mastering policy was entirely irrelevant to cl 4.7. For example, if the Board honestly and reasonably believed that there were grounds which justified a conclusion that Lindfield’s performance as Master Franchisee was such to warrant non-renewal having regard to the best interests of Netdeen and, relevantly, the Sub-Franchisees, it would be open to the Board to refuse the renewal and give effect to the de-mastering policy.

65. Our construction of cl 4.7 is consistent also with the object and purpose of the MFA as disclosed by the terms of the MFA as a whole. We are mindful of the need for caution in attributing a commercial purpose to a contract: The J&P Marlow (No 2) Pty Ltd v Hayes (2023) 112 NSWLR 29; [2023] NSWCA 117 at [76]–[80] (Bell CJ in dissent). However, having regard to the MFA as a whole, it is apparent that its object and purpose was to provide for Lindfield to undertake the role of Master Franchisee against the backdrop of the Business, defined (as set out above) as a master franchise business. The discretion under cl 4.7 of the MFA should not be interpreted as permitting Netdeen to refuse renewal for a substantial purpose that is extraneous to that purpose (see Carr v JA Berriman Pty Ltd (1953) 89 CLR 327 at 346-347; [1953] HCA 31 per Fullagar J (Williams, Webb and Kitto JJ agreeing); NSW Rifle Association Inc v Commonwealth [2012] NSWSC 818; 293 ALR 158 at [126] per White J).

66. Construing cl 4.7 in that way is also consistent, at least by way of analogy, with the principle established in Stirling v Maitland at 1043, where Cockburn CJ said:

I look on the law to be that, if a party enters into an arrangement which can only take effect by the continuance of a certain existing state of circumstances, there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances, under which alone the arrangement can be operative.

72. Ultimately, however, this principle (to the extent that it applies) adds little to what would follow on the proper construction of cl 4.7, that we have set out above. If Netdeen exercised its discretion substantially for the purpose of putting an end to the state of affairs under which the MFA could operate rather than because it believed that it would be in its best interests and those of Sub‑Franchisees not to renew the MFA having regard to Lindfield’s performance, it would breach the obligation of renewal because the exception in cl 4.7 would not apply. As will shortly be developed, however, the primary judge did not make clear findings on these fundamental questions.

73. For completeness, it might be noted that on the issue of breach of cl 4.7 of the MFA, neither party relied upon any implied duty to exercise contractual power in good faith or reasonably as discussed in cases such as Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234; Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 and Burger King Corporation v Hungry Jack's Pty Ltd (2001) 69 NSWLR 558; [2001] NSWCA 187.

74. In the circumstances, grounds 1 to 4 should be upheld, albeit that our construction of cl 4.7 of the MFA differs somewhat from that advanced by Netdeen in submissions, and ground 1(a) of the amended notice of contention should be rejected.

Issue 2: Did the primary judge find that Netdeen refused to renew the MFA upon grounds which it honestly and reasonably held that it was not in the best interests of Netdeen and the Sub-Franchisees to renew the MFA and if not, should this court make that finding?

75. Netdeen contends that at PJ3[180(3)] the primary judge effectively found that Netdeen’s decision not to renew the MFA was honestly based on renewal not being in the best interests of both Netdeen and the Sub-Franchisees. They contend, further, that the unchallenged findings in the COO report, and the unchallenged reports of Mr Gehrke and Mr Campbell annexed thereto, provide a reasonable basis for that view, such that this Court should find that Netdeen’s decision to refuse to renew the MFA complied with cl 4.7. These matters are raised in grounds 5 and 6 of the notice of appeal.

76. By contrast, Lindfield says that the primary judge made no such findings, and that at trial Netdeen failed to discharge its onus of proof. It contends, moreover, that the evidence accepted by the primary judge does not support Netdeen’s contention that it had grounds, honestly and reasonably held, that renewal would not be in the best interests of the Sub-Franchisees. In this regard, they place reliance upon the primary judge’s credit findings as regards Mr Wallis and his Honour’s finding that Mr Greg Gardner had no recollection of the Board meeting at which the decision was taken (see above at [41]) and upon the email sent by Mr Thornton to Mr Conaghan very shortly after the Board meeting on 20 July 2023 which, Lindfield says, goes no higher than that, under a direct franchise model, “we could certainly be confident to do no worse than the Masters (including NSW & WA) over the past decade” (see above at [31]).

77. Lindfield adds that the COO report does not “say much about the Sub‑Franchisee’s interests, that they would benefit” and that it qualifies its observations about benefits to Sub-Franchisees with the words “Whilst difficult to quantify”. Lindfield contends, further, that the primary judge ought to have found that the Board meeting on 20 July 2023 did not involve a genuine consideration of the questions under cl 4.7 and that the COO report was neither a genuine and fair assessment of the factors relevant to the decision whether or not to refuse to renew the MFA, nor was it a comprehensive and detailed analysis of matters relevant to that decision. These matters were raised in grounds 1(b) and 4 of the amended notice of contention.

78. The primary judge’s findings on these matters are opaque. They do not address the central point whether, if construed as Netdeen contended, the decision to refuse to renew the MFA complied with the requirements of cl 4.7 of the MFA. Contrary to Netdeen’s submission, PJ3[180(3)] cannot be read as a finding that the decision was made on grounds that renewal would not be in the best interests of the Sub-Franchisees. The finding appears to be a finding that the Board, in its consideration of whether to refuse renewal of the MFA, placed the financial interests of Netdeen and to a lesser extent the interests of Sub‑Franchisees ahead of those of Lindfield. But that is not a finding that the Board concluded that it was not in the best interests of Sub-Franchisees to renew the MFA. And it is certainly not a finding on the question posed by cl 4.7 as properly construed.

79. Nor, contrary to Lindfield’s submission, should the primary judge be found to have rejected Netdeen’s contention that the evidence it relied upon did satisfy the requirements of cl 4.7 of the MFA. Rather, the unfortunate conclusion we are driven to is that the primary judge failed to resolve the factual issue whether Netdeen had satisfied its onus of proving that the requirements of cl 4.7 were satisfied.

80. Moreover, contrary to the parties’ contentions, this Court cannot reach any conclusion as to whether or not Netdeen honestly made the decision not to renew the MFA on the grounds set out in cl 4.7 of the MFA. Nor can it reach a conclusion as to whether or not there were reasonable grounds for that decision. These are matters that necessarily turn upon the primary judge’s assessment of the evidence as a whole, including the oral evidence. That assessment is complicated here by the somewhat opaque credit findings made by the primary judge, which leave unclear whether or not the evidence of Mr Wallis and Mr Thornton as to the discussion at the Board meeting on 20 July 2023 was rejected in its entirety, and what the primary judge made of Mr Trent Gardner’s evidence. Whilst the primary judge’s acceptance of Lindfield’s submission as to the credit of these witnesses, at PJ3[161] (see above at [40]) might suggest that the primary judge rejected Mr Wallis and Mr Thornton’s evidence unless corroborated, the primary judge’s conclusion at PJ3[180(1)] (see above at [43]) suggests a more qualified position. It is also not clear to what extent the primary judge found that the evidence of Mr Trent Gardner corroborated Mr Wallis and Mr Thornton’s evidence.

81. The task of determining whether or not a contractual power has been exercised for an impermissible purpose by a multi-member body such as the Board may be challenging. As Kirby P observed in Warringah Shire Council v Pittwater Provisional Council (1992) 26 NSWLR 491 at 509 (in the different context of judicial review on the ground of impermissible purpose in the exercise of a statutory power by a local government council) (Clarke JA agreeing):

In the nature of human affairs, it is rare that individuals, still less corporations such as local government authorities, act as they do exclusively for a particular purpose. It is of the nature of human motivation (and still more, if it can be ascertained, the motivation of corporations governed and directed by numerous individuals) that their purposes are complex and multifarious. From this truism a controversy has arisen as to the extent to which an illicit, irrelevant or impermissible purpose for the exercise of statutory powers will render that exercise beyond power, with the serious consequences that follow. …

82. Kirby P added that, where a decision-maker is a collective body, “discerning its intentions, purposes and motives will necessarily be more problematical” because of the evidentiary difficulties, particularly where there is no document which formally records the reasons for the impugned decision.

83. Those practical and evidentiary difficulties may present themselves here, particularly where there is no minute of the Board’s meeting on 20 July 2023 and there is evidently no clear documentary statement of the Board’s reasons for its non-renewal decision. In those circumstances, the focus on remittal is likely to be on the evidence of individual Board members as to their recollections of their reasons for not renewing Lindfield’s MFA. Undoubtedly, the contents of the COO report will also be significant.

84. We add that we accept Lindfield’s contention that Netdeen bore the onus of proof of the matters which must be satisfied to justify a refusal to renew under cl 4.7 of the MFA. This is not simply because Netdeen pleaded in its second further amended commercial list response (SFACLR) that Netdeen honestly and reasonably believed that renewal was not in the best interests of the Sub-Franchisees. It is primarily because, under the MFA, these were matters that had to be established if Lindfield’s right of renewal under the MFA was to be qualified by Netdeen having a right to refuse renewal. Consistent with the analysis of Campbell JA in Wardle v Agricultural and Rural Finance Pty Ltd; Agricultural and Rural Finance Pty Limited v Brakatselos [2012] NSWCA 107 at [252], the onus of proving those matters thus fell on Netdeen.

85. It follows that ground 5 of the notice of appeal should be rejected but we are unable to make the findings required to determine ground 6 of the notice of appeal or ground 1(b) or (d) of the amended notice of contention.

86. To the extent that Lindfield contends in grounds 3 and 4 of its amended notice of contention that this Court should make findings as to the conduct and motivations of key individuals at Netdeen, we reject those contentions. We are not in a position to make the findings sought, particularly given the matters we have already discussed. Findings on matters of key significance to a complex commercial claim, where there is a lack of clarity about the primary judge’s ultimate approach to the evidence of witnesses about whom he made adverse credibility findings, should not be made by selective recourse to some, but not all, of the primary judge’s reasoning.

206. That approach was applied by this Court in Cambridge v Anastasopoulos [2012] NSWCA 405. That case relevantly concerned the value of a motorboat. In finding that expert evidence given by the witness Captain Kysil was inadmissible, Meagher JA (Barrett JA and Sackville AJA agreeing) said at [40]:

“In cross-examination, Captain Kysil said that he had searched a number of websites to inform himself about the Donzi motorboat. That he did so was consistent with his having no relevant training, study or experience to express a view about the correct description of the vessel or as to its rarity. He explained that his conclusion that the vessel "may be rare" was due in part to the fact that the "information [he] received off the Internet was insufficient to give ... a more fulsome research background on the boat because there was insufficient evidence of the type of boat I was looking for" (Black 580). Captain Kysil did not identify or adopt as correct any information obtained from any particular website. Nor was it suggested or established that any of the websites to which he referred were sources of information which experienced valuers of Donzi motorboats treated as reliable and used when forming opinions as to value: as to the possible admissibility of such information, see English Exporters (London) Ltd v Eldonwall Ltd [1973] Ch 415 at 420; PQ v Australian Red Cross Society [1992] 1 VR 19 at 34-36; R v Fazio (1997) 69 SASR 54 at 63-64; Woods v Director of Public Prosecutions [2008] WASCA 188; 38 WAR 217 at [55]-[58]; Bodney v Bennell [2008] FCAFC 63; 167 FCR 84 at [92]-[93].”

See also Fuller v Avichem Pty Ltd (t/as Adkins Building & Hardware) [2019] NSWCA 305 at [89] (Payne JA, White JA agreeing).

207. It may be accepted that the reports from the MBA and HIA were hearsay and were inadmissible to prove the truth of the data they contained. However, the question was not whether the reports from the MBA and HIA were admissible. Rather, it was whether Mr Potter’s evidence was admissible because he relied on those reports. For the reasons given, they were. What made the reports from the MBA and HIA admissible was that they were part of the material relied on by Mr Potter to form his expert opinion, with the result that they were admissible under s 60 of the Evidence Act (see Malone v Queensland (No 3) [2022] FCA 827 at [58] per O’Bryan J).

208. It was not disputed that the valuation of the cash flows of a business is an area of specialised knowledge that Mr Potter had. In considering whether the opinion expressed by Mr Potter was based wholly or substantially on that specialised knowledge, it is important to bear in mind what Mr Potter did. Mr Potter was required to value the future cash flows that Lindfield would derive from the MFA had it been renewed for a period of 10 years. In order to value those cash flows, Mr Potter selected a particular valuation methodology that required him to reach conclusions about the likely size of the market for home building in various geographic areas. In order to do that, he identified what he considered to be the most relevant publicly available data and derived predicted increases (or decreases) in the size of the market over time using those data. The adjustments he made did not depend on his own knowledge of the relevant markets but rather on the adjustments that he thought were appropriate having regard to the different industry data and the fact that the industry data only covered some of the years in question.

209. In essence, then, Mr Potter relevantly did the following:

1. He selected the appropriate valuation methodology.

2. He selected the appropriate industry data to rely on.

3. He decided how to use that data and how to extrapolate from the data he had to derive figures for the 10 years.

4. He performed the necessary calculations.

210. The tasks referred to in (1) and (4) were plainly within Mr Potter’s specialised knowledge. Although perhaps not as obvious, the same is true of the tasks referred to in (2) and (3).

211. In the case of (2), it is to be expected that a valuer would have general knowledge of the sources of publicly available data, or how to go about finding the sources of publicly available data, relevant to general business activity, such as information about interest rates, inflation, employment and economic growth. Housing construction is such an important area of economic activity, that the same is true of it. Mr Potter gave unchallenged evidence that he had done “a number of analyses and reports in [the house building] industry” and that the reports that he identified were “widely used”. The same reports were used by Mr Ross; and it was not suggested that there were more reliable industry data.

212. As to (3), those tasks involved a combination of what might be thought of as common sense – for example, averaging the figures obtained from the HIA and MBA reports – together with specialised knowledge concerning appropriate projections that can be made from historical and industry data. They did not depend on detailed knowledge of the house building industry as such but on expert accounting and valuation knowledge on what conclusions can reasonably be drawn from industry specific data. They are the types of tasks undertaken by valuers both in projecting the future income of a business and selecting an appropriate discount rate.

213. It follows that the primary judge was correct to admit Mr Potter’s reports. It is unnecessary, therefore, to consider what the position would be in relation to Mr Ross’s report or the evidence he gave if Mr Potter’s primary report had not been admitted.

Quantification of Lindfield’s loss

214. The relevant principles are well established when dealing with a case such as the present involving assessing damages for the loss of a valuable commercial opportunity, namely a further renewal of the MFA for 10 years. They are identified in familiar cases, such as Fink v Fink (1946) 74 CLR 127; [1946] HCA 54; Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4; Mal Owen Consulting Pty Ltd v Ashcroft (2018) 97 NSWLR 1163; [2018] NSWCA 135 at [100]-[101] per Barrett AJA; and Searle v Commonwealth of Australia (2019) 100 NSWLR 55; [2019] NSWCA 127 at [206] where Bell P said:

“It is not essential for a trial judge assessing damages for loss of a chance to nominate a particular percentage of probability to be attributed to the prospect of the chance being realised, and to insist on this would be prone to artificiality. A global approach not requiring the specification of particular percentages or degrees of probability or possibility was endorsed as acceptable by this Court in Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473; [1999] NSWCA 323 at [147]. In [Malec v JC Hutton Pty Ltd (1990) 169 LR 638; [1990] HCA 20] at 640, Brennan and Dawson JJ said:

‘… we think it undesirable for damages to be assessed on the footing of an evaluation expressed as a percentage. Damages need not be assessed by first determining an award on the footing that the hypothetical situation would have occurred and then discounting the award by a selected percentage. Damages founded on hypothetical evaluations defy precise calculation.’”

215. Netdeen’s challenge to the primary judge’s method of assessment of damages targeted his Honour’s reliance upon the evidence of Mr Ross as to the “multiples approach”, and the figure of $20 million which he said could be achieved on that approach, in circumstances in which the primary judge made a finding that Mr Potter’s methodology and some conclusions to be “certainly open to criticism”. But the primary judge did not conduct any analysis as to the implications of the (unspecified) respects in which he appeared to have found that Mr Potter’s methodology and conclusions were open to criticism.

216. We agree that the primary judge erred in the approach that he took.

217. The starting point is that the primary judge did not identify the respects in which Mr Potter’s methodology and conclusions were “open to criticism”. Consequently, it is not possible to form any view on the significance of those criticisms, if any, for Mr Potter’s valuation. In this regard, it is worth observing that Netdeen’s criticisms of Mr Potter’s methodology and conclusions were many, covering matters such as discount rate, rates of change and the choice of figures for rates of change which had no objective basis, rates of increase, use of averages, adjustments used, and averaging of data between franchises. Faced with criticisms of those types, it would be usual for a trial judge to consider whether the criticisms went to the reliability of the report as a whole, with the result that the conclusions of the report could not be accepted, or whether they went to individual integers of a complex calculation, in which case we would have expected that the primary judge would express a view on each of the integers in contest so that following delivery of the judgment further calculations could be performed to arrive at an appropriate figure for damages if liability had been established. It is not generally appropriate for a trial judge in a case where the assessment of damages is complicated to conclude that a plaintiff has failed to prove its damages because the trial judge has determined that some of the inputs used in calculations performed by the expert or experts on which the plaintiff relies were incorrect when the trial judge is in a position to form a view on the correct inputs that should be used in those calculations.

218. At PJ3[251], the primary judge seems to have placed some reliance upon the fact that what he interpreted to be Mr Ross’s valuation of Lindfield’s lost opportunity of at least $20 million was not “very different” from the figure of $19.6 million achieved by applying Mr Ross’s discount rate of 20% to Mr Potter’s revised cash flows. Given that, as set out above, the flaws in Mr Potter’s approach identified by Netdeen went well beyond the discount rate he used, there was no reliable basis for the primary judge’s adoption of the figure of $19.6 million. In particular, the primary judge does not suggest that the discount rate was the only matter in Mr Potter’s report that was “open to criticism” and what the primary judge describes as “Mr Potter’s revised cash flows” were the subject of the multiple criticisms by Netdeen set out above.

219. The next important aspect of the evidence as to quantum is that both Mr Potter and Mr Ross said in their reports that the Discounted Cash Flow method of valuation was the most suitable, or appropriate, method of valuation in the circumstances. Mr Ross described that choice of methodology as “uncontroversial”. Neither resiled from this position. Although Mr Ross was critical of some aspects of Mr Potter’s estimate of future cash flows, he did not criticise the fact that Mr Potter had used the Discounted Cash Flow method to value the estimate of future cash flows over the 10 year period from July 2023.

220. Consistent with this, Mr Ross did not suggest that the multiples approach was an appropriate method of valuing the loss to Lindfield. The primary judge erred in interpreting either his report or his oral evidence as suggesting that he considered that that approach was a proper valuation methodology to use to value any lost opportunity to Lindfield. In finding that Mr Ross had adopted a multiples approach, the primary judge at PJ3[248] and [254] referred to Mr Ross’s report at [7.7.8]. In that paragraph Mr Ross said:

“In my opinion, this derived discount rate is still too low, in that it does not yet take into account any risk unrelated to the specific variables it relies upon. Based on my experience as a valuer, in my opinion a sensible discount rate for a business like that of Lindfield’s would be in the range of 20% to 25% (which relates, in broad terms, to a cash flow multiple of between 4.0 and 5.0 times, ignoring growth). On that basis, the requisite specific risk premium would be in the range of 3.8% to 8.8%.”

221. This paragraph is found in part 7 of Mr Ross’s report, where he sets out his criticism of the discount rate used by Mr Potter in his Discounted Cash Flow methodology. Mr Ross had made the point he makes at [7.7.8] earlier in his report at [2.6.2(g)], again setting out why he considered that Mr Potter had erred in his selection of the discount rate. Significantly, Mr Ross was not in these paragraphs advocating a multiples approach to valuation. He was simply referring to the cash flow multiple in the context of identifying his suggested discount rate to be used in a Discounted Cash Flow valuation methodology, which was determined having regard to a range of factors such as the risk free rate, market risk premium, beta, size premium and specific risk premium (see Mr Ross’s report at [2.6.2]).

222. It was put to Mr Ross in cross-examination that the multiples approach was “a different way of valuing a business and its cash flows”. He replied:

“It’s different to a DCF [Discounted Cash Flow] approach, yes.”

223. There was then the following interchange:

“Q. And the other alternative is to apply a cash flow multiple to the known earnings figure for the business; correct?

A. Your Honour, as a crosscheck of the – of the sense of reasonableness of Mr Potter’s outcomes – which in my view is an important process – yes, one way of doing that is to use another second, different valuation approach, and this approach, a multiples approach.”

224. Mr Ross, in the subsequent cross-examination, agreed that mathematically a discount rate of 20% equated to a multiple of 5, and a discount rate of 25% equated to a multiple of 4, and he agreed that a multiple of 4-5, ignoring growth, was appropriate for Lindfield’s business. He also agreed that another way of valuing Lindfield’s business would be to apply a multiple if it was possible to identify the reported or actual profit of the business for the most recent 12months. He agreed that that methodology could be used to “arrive at a value for the business” and that if you made an assumption that the EBIT figure was $4 million and multiplied it by his multiple of 5 (which Mr Ross said was at the bottom of the range) then “it could be” that that valuation would be $20 million.

225. What is significant, however, is that Mr Ross did not suggest that this was the appropriate method of providing a reliable valuation of the lost opportunity in the circumstances. His evidence was that this was a valuation methodology that could be used as a cross-check. That evidence had to be considered against the backdrop that both Mr Potter and Mr Ross considered that the appropriate methodology to use was the Discounted Cash Flow methodology. It was not put to Mr Ross (or Mr Potter for that matter) that an alternative reliable method of valuing Lindfield’s lost opportunity was the multiples approach. And the questioning of Mr Ross, which did not seek to challenge his description of this methodology as a cross-check, must be understood in that context. Having regard to this, the primary judge erred in interpreting Mr Ross’s evidence as supporting the multiples approach as providing an appropriate and reliable method of valuing Lindfield’s lost opportunity, or, as having “concede[d] a valuation for the term of the renewal”: PJ3[257].

226. If, as appears to be the case, the primary judge considered there to be flaws in Mr Potter’s methodology and some of his conclusions, then (in particular having regard to the common position of Mr Potter and Mr Ross that a Discounted Cash Flow methodology was the appropriate and most suitable method of valuation to use) the primary judge should have assessed the significance of those flaws and whether they undermined Mr Potter’s conclusion as to the proper valuation of Lindfield’s lost opportunity. If necessary, the primary judge could have directed that Mr Potter provide updated calculations based upon a correct methodology or conclusions. But in a claim of this value and complexity it was not appropriate to reach a conclusion as to valuation based upon Mr Ross’s oral evidence and [7.7.8] of Mr Ross’s report.

227. For completeness, we add it is difficult to accept Netdeen’s criticisms of the primary judge’s conclusion regarding the assumption Mr Potter made as to the number of Sub-Franchisees in circumstances where, in its SFACLR, Netdeen admitted that there were approximately 34 Sub-Franchisees in NSW and the ACT, as well as also admitting that Lindfield earned an annual net profit before tax of $4 million: see PJ3[237].

228. Netdeen identifies a further problem with the primary judge’s use of the multiples approach, which is that the primary judge erroneously applied a pre-tax (or EBIT) profit figure in applying the multiples approach. For the following reasons, this complaint is upheld:

1. In response to questions from the primary judge, Mr Potter confirmed that the figure of $4 million which he had used as Lindfield’s average annual income over the period 2013-2023 (as set out in table 3 of his report dated 3 May 2024) was based on earnings before income taxation, i.e. EBIT.

2. In its SFACLR, Netdeen admitted Lindfield’s pleading that Lindfield earned an “annual net profit (EBIT) … of approximately $4m”.

3. The terms of these pleadings were likely to create confusion, because they elide or equate the concepts of “annual net profit” with EBIT.

4. Even greater confusion was created by Lindfield’s cross-examination of Mr Ross. In the course of being cross-examined on the multiples approach, Mr Ross was asked by Mr Castle SC to confirm that the profit figure used by him in that approach would be at “the after tax level”. The transcript records Mr Ross as giving no verbal reply to that proposition. A series of questions were then put to Mr Ross which elided the distinction between profit based on an EBIT figure and after-tax profit. This is most tellingly demonstrated in the following exchange (emphasis added):

“Q. … … if we have an earnings multiple of 6.7, a million dollars profit, no growth, the profit being an EBIT figure after tax, valuation of the business of $6.7 million. That’s how this works, isn’t it?

A. Yes.”

5. We consider that the question and answer were both misguided because of the elision of two fundamentally different concepts, being earnings before interest and tax (EBIT) and earnings after tax. The primary judge appears to have acted upon this elision in using the $4 million EBIT figure in assessing and applying Mr Ross’s multiples approach: see PJ3[249]-[250]. His Honour made no allowance for income taxation on Lindfield’s earnings. This was in error. It is inconsistent with the use of after-tax figures under the DCF methodology in circumstances where a central purpose of referring to the multiples approach was to compare the two valuation methodologies.

Issue 7: Should any aspect of the matter be remitted?

229. As noted above, Netdeen urged the Court to exercise its power under s 75A(10) of the Supreme Court Act 1970 (NSW) to make findings which ought to have been given or made or which the nature of the case requires as an alternative to ordering a retrial.

230. There are good reasons for the Court being reluctant to order a retrial (see Saltalamacchia v Zamagias [2024] NSWCA 184 at [3] per Payne and Kirk JJA). That reluctance is reflected in r 51.53(1) of the Uniform Civil Procedure Rules (2005) (NSW), which provides that the Court must not make such an order unless it appears to the Court that some substantial wrong or miscarriage has been occasioned.

231. It should be acknowledged, of course, that in accordance with binding authority, an appellate court is generally in as good a position as a trial judge “to decide on the proper inference to be drawn from facts which are undisputed or which having been disputed, are established by the findings of the trial judge” (see Warren v Coombes (1979) 142 CLR 531 at 551; [1979] HCA 9). The position is different, however, if factual findings are likely to have been affected by the trial judge’s impressions concerning the credibility and reliability of witnesses where the trial judge has the advantage of seeing and hearing them giving their evidence. There is also the added complication of the obscurity associated with the primary judge’s ultimate approach to the evidence of witnesses about whom he made adverse credibility findings.

229. The general principle is also subject to other exceptions, as acknowledged in Saltalamacchia at [6]. A retrial was ordered in that case on the issue of liability where there were two competing versions of events and the contest fell to be determined solely by conclusions on reliability and credit. In circumstances where the primary judge’s only conclusion was affected by error, the Court considered that it was not in a position to make such findings itself. The Court said that a substantial wrong or miscarriage had been occasioned because the respondent had not been given a full and fair determination of his case on the evidence and this Court was not in the position to rectify that omission.

230. Having regard to the errors we have identified above concerning the proper construction of cl 4.7 and damages, we consider that substantial wrongs have been occasioned which, regrettably, require the following aspects of the case to be remitted for retrial by a different judge:

1. whether Netdeen has met its onus to establish that the conditions for the exercise of the right of refusal in cl 4.7 of the MFA, on its proper construction, are satisfied; and

2. the quantification of damages.

234. There is no utility in remitting the issue of ACL unconscionable conduct. For the reasons we have given, that claim could only succeed (if at all) if Lindfield succeeds in its claim based on a breach of cl 4.7 of the MFA. However, if the latter claim succeeds, the ACL unconscionable conduct claim adds nothing to it.

Conclusion

235. For all these reasons, the following orders will be made:

1. The appeal be allowed in part.

2. The orders dated 17 October 2024 be set aside.

3. Direct that there be a retrial limited to determining:

1. whether the Board breached cl 4.7 of the Master Franchise Agreement dated 1 July 2014 by its decision dated 20 July 2023 not to renew the Master Franchise Agreement; and

2. the quantum of any damages to be awarded if that breach is established.

4. Within 21 days hereof, the parties should seek to agree costs and any other necessary orders. If agreement cannot be reached, each party should within that time file and serve an outline of written submissions not exceeding 10 pages in length in support of their respective positions.

5. Final orders will be made on the papers and without a further hearing.

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Amendments

28 August 2025 - Headnote amended to correct numbering and insert missing comma

Decision last updated: 28 August 2025