RPR Maintenance Pty Ltd v Marmax Investments Pty Ltd - [2014] FCA 409

FEDERAL COURT OF AUSTRALIA
RPR Maintenance Pty Ltd v Marmax Investments Pty Ltd [2014] FCA 409

Citation: RPR Maintenance Pty Ltd v Marmax Investments Pty Ltd [2014] FCA 409

Parties: RPR MAINTENANCE PTY LTD ACN 003 610 231 v MARMAX INVESTMENTS PTY LTD ACN 001 147 511 and SPANLINE WEATHERSTRONG BUILDING SYSTEMS PTY LTD ACN 002 968 087

File number(s): NSD 804 of 2012

Judge(s): GRIFFITHS J

Date of judgment:
Corrigendum:

29 April 2014

22 May 2014

Catchwords:
TRADE AND COMMERCE – restraint of trade – reasonableness of restraint in the context of franchise agreements – duration of restraint

CONTRACTS – alleged breaches of express and implied terms – interpretation of multiple agreements relating to franchises and sale of business – scope of clauses imposing obligations on a franchisor to ensure franchisee’s exclusive franchise territory – whether exclusivity provisions breached by franchisor – scope of clauses restricting franchisees from conducting franchise in each other’s exclusive territory in sub-franchise and sale of business agreements – whether exclusive territory provisions breached by franchisees –whether exercise of option under franchise agreement valid – whether franchise agreement terminated effectively – whether sub-franchise agreement terminated on entry into direct franchise agreement – whether franchisor unreasonably withheld consent to franchisee transferring franchise business – effect of purported unilateral variations to franchise agreements – whether agreements contained implied terms of good faith and fair dealing – whether agreements contained implied term that parties will do all things necessary to provide the other party with benefit of the agreement – whether implied terms breached

CONSUMER LAW – unconscionability – whether unconscionable for franchisor to permit a franchisee to impinge on the exclusive territory of another franchisee where franchisor had obligations to ensure exclusive territory of each franchisee and where the franchisor knew this would result in the breach of another agreement between the franchisees

EVIDENCE – parol evidence rule – exception where patent ambiguity in a contract – application of Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337

RELIEF – declaratory relief – specific performance – injunctive relief restraining reliance on improper termination notice – damages

Legislation: Australian Consumer Law
Corporations Act 2001 (Cth)
Federal Court Rules 2011 (Cth)
Local Government Act 1919 (NSW)
Restraint of Trade Act 1976 (NSW)
Trade Practices (Industry Codes-Franchising) Regulations 1998 (Cth)
Trade Practices Act 1974 (Cth)

Cases cited: Allstate Life Insurance Co v ANZ Banking Group Ltd (1995) 58 FCR 26
Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288
Attorney General v Blake [2001] 1 AC 268
Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99
Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Ltd (2000) 104 FCR 253; [2000] FCA 1365
Blomley v Ryan (1956) 99 CLR 362 at 415
British Reinforced Concrete Engineering Co Ltd v Schelff [1921] 2 Ch 563
Buckley v Tutty (1971) 125 CLR 353
Burger King Corporation v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447
Connors Brothers Ltd v Connors [1940] All ER 179
Creamoata v Rice Equalization Association Ltd (1953) 89 CLR 286
Far Horizons Pty Ltd v McDonalds Australia Ltd [2000] VSC 310
Franklins Pty Ltd v Metcash Trading Pty Ltd (2009) 264 ALR 15
Giblin v Murdoch 1979 SLT (Sh Ct) 5
Haviv Holdings Pty Ltd v Howards Storage World Pty Ltd (2009) 254 ALR 273; [2009] FCA 242
Hope v Bathurst City Council (1979) 144 CLR 1
Hospitality Group Pty Ltd v Australian Rugby Union Limited (2001) 110 FCR 157
Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) 110 FCR 157
Hurley v McDonalds Australia Ltd (2000) ATPR 41-741; [1999] FCA 1728
IRAF Pty Ltd v Graham [1982] 1 NSWLR 419
KA & C Smith Pty Ltd v Ward (1998) 45 NSWLR 702
LG Thorne & Co Ltd v Thomas Borthwick & Funds (Australasia) Ltd (1955) SR (NSW) 81
Lindner v Murdock’s Garage (1950) 83 CLR 628
Lockhart v GM Holden Ltd [2008] QSC 257
Mackay v Dick (1881) App Cas 251
McHugh v Australian Jockey Club Limited [2014] FCAFC 45
Meridian Retail Pty Ltd v Australian Unity Retail Network Pty Ltd [2006] VSC 223
Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 297
National Association of Local Government Officers v Bolton Corporation [1943] AC 166
Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535
North Western Salt Co Ltd v Electrolytic Alkali Co Ltd [1914] AC 461
Northern Territory v Mengel (1995) 185 CLR 307
RPR Maintenance Pty Ltd v Marmax Investments Pty Ltd [2012] FCA 681
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
Tonto Home Loans Australia Pty Ltd v Tavares (2011) 15 BPR 29,699; [2011] NSWCA 389
Town Investments Ltd v Department of Environment [1978] AC 359
Video Ezy International Pty Ltd v Sedema Pty Ltd [2014] NSWSC 143

Date of hearing: 24-28 March 2014, 2 April 2014

Date of last submissions: 2 April 2014

Place: Sydney

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 320

Counsel for the Applicant: Ms K Rees SC

Solicitor for the Applicant: Newhouse & Arnold Solicitors

Counsel for the First Respondent:
Mr T J Rickard

Solicitor for the First Respondent:
Martin & Holmes Legal

Counsel for the Second Respondent:
Mr M P Cleary

Solicitor for the Second Respondent:
Elliot & Sochacki Lawyers

FEDERAL COURT OF AUSTRALIA

CORRIGENDUM

1.   In paragraph 273, replace the reference to “Spanline’s” with “Marmax’s” and replace  the reference to “Spanline” on line 4 with “Marmax”.

I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Griffiths.

Associate:

Dated:       22 May 2014

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION  NSD 804 of 2012

BETWEEN:
RPR MAINTENANCE PTY LTD ACN 003 610 231
Applicant

AND:
MARMAX INVESTMENTS PTY LTD ACN 001 147 511
First Respondent

SPANLINE WEATHERSTRONG BUILDING SYSTEMS PTY LTD ACN 002 968 087
Second Respondent

JUDGE:

GRIFFITHS J

DATE OF ORDER:

29 APRIL 2014

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:
1.The parties are to seek to agree final orders which give effect to these reasons, including as to costs, within 14 days hereof.
2.If the parties are unable to reach agreement within 14 days hereof they should each file and serve within that time a written outline of submissions of no more than 8 pages in length setting out their proposed orders and supporting submissions. The parties are to indicate in their outline whether a further oral hearing is required before final orders can be made or whether they can be made on the papers.

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 804 of 2012

BETWEEN:
RPR MAINTENANCE PTY LTD ACN 003 610 231
Applicant

AND:
MARMAX INVESTMENTS PTY LTD ACN 001 147 511
First Respondent

SPANLINE WEATHERSTRONG BUILDING SYSTEMS PTY LTD ACN 002 968 087
Second Respondent

JUDGE:

GRIFFITHS J

DATE:

29 APRIL 2014

PLACE:

SYDNEY

Table of Contents

Introduction........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [1]

Summary of contractual agreements........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [6]

(a)      The first and second RPR franchise agreements........ ........ ........ ........ ........ ........ [7]

The asserted option........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [26]

(b)      Sub-franchise agreement between RPR, Spanline and Marmax........ ........ ....... [35]

(c)     Sale of RPR’s Illawarra business to Marmax........ ........ ........ ........ ........ ........ ...... [48]

(d)     Transfer of Business and Loan Agreement between RPR and Marmax........ .... [49]

(e)      The Byrnes buy into Marmax........ ........ ........ ........ ........ ........ ........ ........ ........ .... [62]

(f)      Marmax franchise agreement with Spanline........ ........ ........ ........ ........ ........ ..... [63]

The facts surrounding the alleged breaches of contract........ ........ ........ ........ ........ ........ ... [74]

2009........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [79]

2010........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [109]

2011........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [120]

The mediation/meeting in December 2011........ ........ ........ ........ ........ ........ ........ ........ ...... [123]

2012........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [140]

Exercise of asserted option........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [153]

Purported termination of the second RPR franchise agreement........ ........ ........ ........ ....... [156]

RPR’s proposed sale of its business........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [158]

Misleading or deceptive conduct........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [160]

Unconscionable conduct........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [163]

Damages........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [166]

The cross-claim........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [171]

Consideration........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [175]

(a)     The central issue of construction........ ........ ........ ........ ........ ........ ........ ........ ........ [176]

(b)      Implied terms and alleged breaches........ ........ ........ ........ ........ ........ ........ ........ ... [202]

(c)      Did Spanline perform its contractual obligations to RPR in respect of its exclusive franchise territory?........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [216]

(d)     Lawfulness of Spanline’s ‘side deal’ with Marmax........ ........ ........ ........ ........ .. [224]

(e)     Did Spanline induce Marmax to breach the TBLA?........ ........ ........ ........ ........ .. [228]

(f)      The option issue........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [243]

(g)      Was the second RPR franchise agreement validly terminated?........ ........ ........ [249]

(h)     The proposed transfer to the Smiths and the reasonableness of Spanline’s conduct........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [251]

(i)       Unconscionability........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [255]

(j)       Misleading or deceptive conduct........ ........ ........ ........ ........ ........ ........ ........ ....... [261]

(k)      RPR’s remedies against Spanline........ ........ ........ ........ ........ ........ ........ ........ ...... [262]

(l)      Issues relating to the sub-franchise agreement........ ........ ........ ........ ........ ........ ... [275]

(m)     Issues relating to the TBLA........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [289]

(n)      RPR’s remedies against Marmax........ ........ ........ ........ ........ ........ ........ ........ ....... [311]

(o)     How are damages to be assessed?........ ........ ........ ........ ........ ........ ........ ........ ...... [317]

Conclusion........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [320]
REASONS FOR JUDGMENT
Introduction

These proceedings relate to a long running dispute involving the applicant (RPR), who since 2001 has been a franchisee of the second respondent (Spanline), Spanline and another Spanline franchisee (Marmax). RPR seeks relief against both Spanline and Marmax. Through a national network of franchises and sub-franchises, Spanline designs, manufactures and sells home extensions or additions to both homebuilders and professional builders. These extensions or additions include patios, roof awnings or covered verandas, glass and screened enclosures and carports.
The core of the dispute relates to RPR’s claims that Marmax has sold and installed Spanline products to customers who are located within RPR’s franchise territory and not Marmax’s. RPR also complains that Spanline has breached their franchise agreement – in particular the provisions relating to the exclusivity of its franchise territory – by not taking appropriate action against Marmax to protect RPR’s exclusivity. RPR separately claims that Spanline induced Marmax to breach a sale of business agreement between Marmax and RPR. There are additional issues between RPR and Spanline relating to RPR’s purported exercise of an option to renew its franchise agreement with Spanline, Spanline’s actions in purporting to terminate that franchise agreement and Spanline’s response to RPR’s attempt to transfer its franchise. RPR also alleges misleading or deceptive conduct by Spanline under s 52 of the Trade Practices Act 1974 (Cth) (the TPA) and s 18 of the Australian Consumer Law (the ACL).
RPR separately alleges that Marmax’s conduct has breached agreements between those two parties.
Marmax has filed a cross-claim against RPR which alleges that RPR has encroached upon Marmax’s exclusive franchise area by selling and installing Spanline products to customers within its territory.
RPR relies on various causes of action, including breaches of various contracts, misleading or deceptive conduct, and unconscionability. It seeks damages, declaratory relief and specific performance. RPR argues that it has taken reasonable steps to mitigate its losses. Marmax seeks damages in respect of its cross-claim against RPR.
Summary of contractual agreements
In view of the large number of contractual agreements which figure in the proceeding, it is convenient to summarise them at the outset and to set out the key relevant provisions. One of the central issues in the proceeding is the identification of the particular activities which are covered by the exclusivity provisions of the various agreements. That issue ultimately turns on the proper construction of relevant provisions of the agreements. The relevant agreements, which I will shortly deal with in turn, are:
(a)the first and second RPR franchise agreements with Spanline;
(b)the sub-franchise agreement between RPR, Marmax and Spanline;
(c)the Transfer of Business and Loan Agreement between RPR and Marmax; and
(d)the Marmax franchise agreements with Spanline.
(a) The first and second RPR franchise agreements
In January 2001, RPR entered into a franchise agreement with Spanline covering the South Coast of New South Wales; a subsequent franchise agreement was entered into by those parties in August 2009 (the first and second RPR franchise agreements respectively). Both agreements were accompanied by disclosure documents. It is common ground between RPR and Spanline that the disclosure documents form part of the relevant franchise agreements respectively. There are many similarities between the first and second RPR franchise agreements and their disclosure documents, but there are also some differences. To avoid duplication, I will focus primarily on the second RPR franchise agreement and will note any relevant differences between it and the first RPR franchise agreement.
In March 2009, Spanline sent RPR a proposed new franchise agreement for execution, together with a disclosure document (as required by the Trade Practices (Industry Codes-Franchising) Regulations 1998 (Cth) (the Regulations)). The disclosure document described the franchised business as “the building of additions and improvements to residential and commercial buildings”. RPR relies on this description as reinforcing its contention that it was not the sale of Spanline products alone but also in combination with their installation which formed part of the Spanline franchise. Clause 8 of the disclosure document stated in part:
The franchise is exclusive for the franchised territory. No other Spanline franchisee may operate a business that is substantially the same as the franchised business in that territory. The Franchisor or an associate of the Franchisor may not operate a business nor establish other franchises that are substantially the same as the franchise in that territory.
The Franchisee may not operate a business that is substantially the same as the franchised business outside the territory.
The Franchisor may not change the territory without the consent of the Franchisee. …
Clause 10 of the disclosure document dealt with the supply of goods or services by a franchisee. Clause 10 (a) relevantly stated:
(a) Restrictions on the goods or services that the Franchisee may supply.
The Spanline products sold and installed by a Franchisee to a customer must be made and installed by the Franchisee in accordance with the Spanline manuals and comply with the Spanline Mastalink Codes. This enables the Franchisee to give a Spanline warranty for the products.
Clause 11 of the disclosure document dealt with sites or territories. It stated:
SITES OR TERRITORIES
The choice of the site for the retail franchised business made by the Franchisee must be in a prominent location for retailing business within the territory. The Franchisee may have separate manufacturing premises. The Franchisor will provide assistance and advice based on its experience.
Clause 15 of the disclosure document stated that the franchisor’s obligations were set out in the attached proposed franchise agreement and added that:
… The Franchisor’s obligations include the granting to the Franchisee of an exclusive franchise to conduct the franchised business in the territory…
Clause 17 of the disclosure document summarised other conditions which were set out in the proposed second RPR franchise agreement. Clause 17(a), which Spanline says is also relevant in identifying the activities which are the subject of RPR’s asserted exclusivity, stated:
(a)The Spanline Retail Franchise Agreement provides for conduct of the business of retail sale and the installation of the Products to existing residential dwellings for consumers by the Franchisee under this Agreement. The wholesale of the Products are (sic) prohibited without the prior written approval of the Franchisor: see clauses 2.1 and 6.4 Franchise Agreement. The Franchisee agrees that Franchisor may grant a commercial or industrial franchise for the Territory.

With one qualification, the proposed franchise agreement which was attached to the disclosure document was in substantially the same terms as the second RPR franchise agreement which was ultimately executed by the parties in August 2009 (although dated 23 March 2009). The qualification relates to the duration of the agreement and the related issue as to whether or not there was an option, matters which I will deal with below.
Clause 2.1 of the second RPR franchise agreement is an important provision. It relevantly stated:
The Franchisor grants to the Franchisee an exclusive Franchise to conduct the Franchised Business within the granted Spanline Franchise area and also provides the rights to manufacture and wholesale and/or supply of (sic) Spanline patented products to other Spanline Franchises throughout New South Wales...
The phrase “granted Spanline Franchise area” was not defined. However, the “Territory” was defined in cl 1.23 to mean the territory specified in Item 6 of the First Schedule. That item defined the Territory as “South Coast Area as per attached hatched map”. The attached map was as follows:
As might be expected, having regard to Marmax’s franchise area in the Illawarra as at 2009, that map excised that territory (understandably, the position is different with the first RPR franchise agreement which was granted prior to Marmax becoming a sub-franchisee of RPR in respect of the Illawarra area).
Importantly, the phrase “Franchised Business” was defined in cl 1.8 of the second RPR franchise agreement as meaning “the business of retail sale and the installation of the Products to existing residential dwellings for consumers conducted by the Franchisee under this Agreement in the Territory”. “Products” was defined as meaning “the Spanline Home Addition Products specified in Manuals, Spanline Mastalink Codes and Spanline Warranty” (cl 1.16).
RPR contends that this means that it can only sell Spanline products (as defined) to retail customers where the product is also being installed within its exclusive territory. Furthermore, it contends that a similar constraint applies to Marmax under the Marmax franchise agreement.
It might also be noted that the first RPR franchise agreement contained a differently worded cl 2.1, a differently worded definition of “Franchised Business” and, for the reason given in [16] above, a different map showing RPR’s franchise territory. Clause 2.1 of that agreement stated:
The Franchisor grants to the Franchisee an exclusive Franchise to conduct the Franchised Business in the Territory for the Term in consideration of payment by the Franchisee to the Franchisor the Franchise Fee and the other Payments on the terms of this Agreement.
And in cl 1.7 of the first RPR franchise agreement, “Franchised Business” was defined as meaning “the business of retail sale, installation and trade wholesales conducted by the Franchisee under this Agreement”.
Clauses 2.2 and 2.3 of the second RPR franchise agreement were in the following terms:
The Franchise will commence on the Commencement Date and terminate on the Termination Date or earlier termination under clause 13. The Franchisee must not conduct the Franchised Business until this Agreement has been duly signed by all parties and the Franchisee has paid to the Franchisor the Franchise Fee and any other payments due on the commencement of this Agreement.
On the expiration of the Term and provided that the Franchisee is not in breach nor default of any provision of this Agreement, the Term will be automatically renewed for a period as the Franchisor and Franchisee may agree and provided that the parties enter into a new franchise agreement in the form and with the terms and conditions used by the Franchisor at the time of renewal except with the same terms and details in the First Schedule to this Agreement.
The phrases “Term” and “Termination Date” were defined in cll 1.21 and 1.22 of the second RPR franchise agreement as the term of years and date respectively specified in Item 7 of the First Schedule which is set out in [28] below.
Clause 5 of the second RPR franchise agreement dealt with the business premises from which RPR is obliged to conduct the Franchised Business. Spanline contends that this clause is relevant to the central issue of construction concerning the scope of RPR’s asserted exclusivity. Clause 5 stated:
5 Business Premises
5.1The Franchisee must conduct the Franchised Business from the Business Premises and must not relocate the Franchised Business to other or additional premises without the prior written consent of the Franchisor.
5.2The Franchisee must establish and maintain a display centre at the Franchised Business Premises or at another location within the Territory approved by the Franchisor based on its experience.
5.3The Franchisee must maintain the Franchised Business Premises in a clean and good business like state and condition and may not allow any pets or animals in the premises or centre.
5.4The Franchisee must perform all its obligations under the lease of the Franchised Business Premises and display centre and must notify the Franchisor in writing of any claim or demand by the Lessor to take possession, terminate the lease or sue for unpaid rent or other moneys. The Franchisee must obtain and give to the Franchisor a written landlord waiver in relation to any property of the Franchisor located at the Business Premises.
5.5The Franchisee must maintain the Franchised Business Premises and display centre as required by the Spanline Mastalink Codes in consultation with the Franchisor.
It is convenient at this point to set out several other clauses in the second RPR franchise agreement which Spanline contends are also relevant to the central issue of construction:
6 Franchisee’s Obligations
6. The Franchisee must:
…
6.14not trade the Franchised Business or any similar business outside the Territory nor trade any similar business within the Territory;
…
6.16keep open the Franchised Business Premises for such business hours as are necessary to successfully conduct the business as determined and agreed with the Franchisor and observe and perform all relevant legal requirements in respect of the Franchised Business Premises;
6.17ensure that the Manager is in physical daily control and management of the Franchised Business, annual holidays and normal leave excepted;
…
6.20.2ensure that all displays are to be developed in keeping with the Corporate Image Guidelines set by the Franchisor. All plans and drawings of proposed displays are to be submitted for prior approval by the Franchisor. Layouts and colour schemes must not be altered without prior permission;
…
Clause 16 dealt with the transfer of the franchise. It is relevant to RPR’s claim that Spanline has unreasonably withheld its consent to RPR transferring its franchise. Clause 16 relevantly stated:
16 Transfer
16.1The franchisee must not transfer, assign, Sub-Franchise, sell, mortgage nor charge the whole or any part of the Franchised Business nor the benefit of this Agreement without the prior written consent of the Franchisor which consent shall not be unreasonably withheld.
…
16.3The Franchisor will not unreasonably withhold its consent to a proposed transfer, sale or Sub-Franchise if the following conditions are met to the Franchisor’s satisfaction:
…
16.3.2the proposed transferee or Sub-Franchisee is shown to be financially and business wise capable of performing its obligations under this or a similar franchise agreement and complies with the Franchisor’s requirement for a franchisee,
…
(Emphasis in original).
The asserted option
On 7 July 2009, RPR’s solicitors wrote to Spanline regarding the then proposed second RPR franchise agreement and raised various matters, which included the following observations concerning an option to renew the agreement:
Clause 2.3The provision does not specify the option period. Our client seeks to have a five (5) year term inserted.
On 8 July 2009, Spanline replied:
Clause 2.3Clause 2.3 remains unchanged in text but it is acceptable by the Franchisor to include for an option of five (5) years and so has been amended in the First Schedule Item 7 The Term to read 5 years plus option 5 years.
Spanline supplied a replacement First Schedule to the proposed second RPR franchise agreement as follows (change underlined):

ITEM 7

THE TERM

COMMENCEMENT DATE

TERMINATION DATE

5 years plus option 5 years

23 March 2009

22 March 2014

On 14 August 2009, RPR’s solicitors sent Spanline an executed franchise agreement, with the new First Schedule inserted as instructed.
Marmax objected to the admissibility of the letters dated 7 and 8 July 2009 on the basis that they offend the parol evidence rule. I deal with that objection in [245] below.
RPR contends that the second RPR franchise agreement, as amended by Spanline, contains an impossible inconsistency because:
(a)by cl 2.1 of the agreement, Spanline granted RPR a franchise “for the Term”, now defined as “5 years plus option 5 years”; but
(b)cl 2.2 provided that the franchise would commence on the Commencement Date and “terminate on the Termination Date”, being 22 March 2014.
RPR submits that the second RPR franchise agreement had an initial term of 5 years commencing on 23 March 2009 and ending on 22 March 2014 with an option for a further term of 5 years commencing on 23 March 2014 and ending on 22 March 2019.
Alternatively, it says that cl 2.3 provided that the franchise agreement would automatically renew “for a period as the Franchisor and Franchisee may agree”. By the exchange of correspondence between RPR’s solicitors and Spanline described in [26] and [27] above, RPR and Spanline did in fact agree to the 5 year option. RPR adds that the agreement that the option would be 5 years was consistent with the requirement that any new franchise agreement would contain the same terms and details in the First Schedule in any event (which referred to a Term of 5 years).
Spanline submits that cl 2.3 does not contain an option because the terms are uncertain. It further contends that there is no collateral agreement granting an option.
(b) Sub-franchise agreement between RPR, Spanline and Marmax
In 2003, RPR obtained Spanline’s consent to sell part of its franchised territory, being the Illawarra territory, to Marmax. The principals of Marmax were, at that time, Anthony and David Gualdi. Negotiations with the Gualdis were protracted.
On 9 October 2003, RPR, Spanline and Marmax entered into a sub-franchise agreement relating to the Illawarra territory while negotiations continued for the sale of the business in that territory to Marmax (the sub-franchise agreement). The sub-franchise agreement contained the following relevant definitions (emphasis in original):
“Franchised Business” means the business of retail sale, installation and trade wholesales conducted by the Franchisee under this Agreement (cl 1.8);
“Manuals” include the operation manuals specified in the Second Schedule and the Spanline Weatherstrong Building Systems and related knowhow, manuals, specifications, designs, products and systems as changed from time to time and all copies (cl 1.12);
“Products” means the products specified in Manuals and Spanline Warranty (cl 1.15);
“Term” means the term of years specified in Item 6 of the First Schedule (cl 1.18);
“Termination Date” means the date specified in Item 6 of the First Schedule (cl 1.19); and
“Territory” means the Territory specified in Item 5 of the First Schedule (cl 1.20).
It is to be noted that the definition of “Franchised Business” was expressed differently in the second RPR franchise agreement (see [17] above) and the sub-franchise agreement, the significance of which will be discussed below.
Item 5 of the First Schedule of the sub-franchise agreement defined “The Territory” as: “ILLAWARRA AREA AS PER ATTACHED HATCHED MAP”. In fact, two maps were attached to the sub-franchise agreement. The first, which is not hatched, was as follows:
The handwriting on the right-hand side of the map is that of Mr Richard Marron. Marmax does not dispute that those words appeared on the map in the sub-franchise agreement when it was executed. Mr Marron is a director of RPR. The other director is his wife, Ms Paula Marron.
The second attached map, which is hatched, was as follows:
Although there was no direct evidence that the handwriting on this map is also that of Mr Marron, Marmax did not contest the proposition that this appears to be the case, nor did it contest the proposition that the handwriting appeared on the second map when the sub-franchise agreement was executed.
Item 6 of the First Schedule of the sub-franchise agreement was as follows:

ITEM 6

THE TERM

COMMENCEMENT

TERMINATION DATE

5 years

September 2003

September 2008

Clauses 2.1 and 2.2 of the sub-franchise agreement stated (emphasis added):
The Franchisor [RPR] grants to the Franchisee [Marmax] an exclusive sub-franchise to conduct the Franchised Business in the Territory [Illawarra] for the Term [5 years] in consideration of payment by the Franchisee to the Franchisor of the Franchise Fee [nil] and the other Payments on the terms of this Agreement.
The sub-franchise will commence on the Commencement Date and terminate on the Termination Date or earlier termination under clause 13.
Clause 6.5 stated that Marmax must:
not sell by retail sale the Products separately but only as part of a service to install the Products
This clause may need to be taken into account in giving effect to the definition of “Franchised Business”, which is set out in [36] above. RPR contends that Marmax was only entitled to sell and install Spanline products as defined within the Illawarra territory.
Clause 6.12 stated that Marmax must:
not trade the Franchised Business or any similar business outside the Territory (emphasis added).
As will emerge below, the parties are not agreed on the construction of the word “trade” in this clause, which is part of their broader dispute concerning the nature of the activities covered by the relevant exclusivity provisions.
(c) Sale of RPR’s Illawarra business to Marmax
On a date on or after 18 November 2004, Marmax, RPR, the Gualdis and Mr Marron entered into a Deed of Termination which:
(a)terminated all previous draft agreements for the sale of part of “Spanline South Coast” to Marmax;
(b)obliged Marmax and the Gualdis to enter into a Transfer of Business and Loan Agreement and Deed of Guarantee with RPR and Mr Marron within 7 days of receiving the executed Deed of Termination; and
(c)affirmed the sub-franchise agreement.
(d) Transfer of Business and Loan Agreement between RPR and Marmax
Soon afterwards, RPR and Marmax entered into a Transfer of Business and Loan Agreement under which RPR sold the Business to Marmax for $296,367.41 (the TBLA). What was sold was not the Illawarra franchise, but the “Spanline-Illawarra” business, including its business name, landline, fax, mobile numbers, email address, domain name and equipment. One of the issues in the proceeding is whether the sub-franchise agreement remained on foot and continued to operate in conjunction with the subsequently executed Marmax franchise agreement, see [278]-[280] below.
The TBLA contained restraint obligations on both RPR as vendor and Marmax as purchaser. Clause 3.8 stated:
3.8 Vendor’s Restraint obligations
Except as permitted by clause 3.10, the Vendor must not, and must ensure that each of its Affiliates does not, during each restraint period in the Illawarra Franchise Area:
(a)promote, participate in, finance, operate or engage in (whether on its own account or in partnership or by joint-venture); or
(b)be concerned or interested (directly or indirectly, or through any interposed body corporate, trust, principal, agent, shareholder, beneficiary, or as an independent contractor, consultant or in any other capacity) in,
any of the Restrained Businesses.
Clause 3.9 of the TBLA contained a restraint clause on Marmax in the following terms:
Except as permitted by 3.10, the Purchaser must not, and must ensure that each of its affiliates does not, during each restraint period in the South Coast Franchise Area:
(a)promote, participate in, finance, operate or engage in (whether on its own account or in partnership or by joint-venture); or
(b)be concerned or interested (directly or indirectly, or through any interposed body corporate, trust, principal, agent, shareholder, beneficiary, or as an independent contractor, consultant or in any other capacity) in,
any of the Restrained Businesses.
In construing both those restraint provisions, it is relevant to note that cl 1(1) defined “Restrained Business” to mean a business or operation:
(i)similar to the Spanline franchise business such as the Business; or
(ii)competitive with the Spanline franchise business such as the Business; or
(iii)supplying similar products and services to the Spanline franchise businesses such as the Business.
“Business” was then defined in cl 1(1) of the TBLA as meaning “the business of the Vendor set out in Schedule 1, which the Purchaser has had possession of since the Adjustment Date”. The “Adjustment Date” was defined in cl 1(1) as 1 July 2003. Schedule 1 provided particulars of the sale of business and included such matters as the business name (“Spanline-Illawarra”), premises, contact numbers and described the type of business as “Spanline Illawarra Home Additions”.
The definition clause in the TBLA (cl 1(1)) defined “Restraint Period” to mean each of the following separate periods:
(i)       10 years from the Adjustment Date;
(ii)      5 years from the Adjustment Date;
(iii)     2 years from the Adjustment Date;
(iv)     1 year from the Adjustment Date.
Thus the periods within which the restraints were to operate were a series of cascading dates within the range of 10 years to 1 year. The evident intention of providing cascading dates was to cover the contingency of longer periods being found to be void as in restraint of trade.
Clause 3.10 described an exception to the restraint obligations imposed by cll 3.8 and 3.9 in the following terms:
3.10 Permitted involvement
Clauses 3.8 and 3.9 do not prevent either party, together with any of its Affiliates, being the holders in aggregate of less than five per cent (5%) of the issued shares or units of a body corporate or unit trust listed on a stock market of Australian Stock Exchange Limited.
A separate restraint was imposed on RPR by cl 3.11, which dealt specifically with soliciting RPR’s existing customers within the Illawarra territory and which Marmax says is relevant to the central issue of construction. Clause 3.11(a) stated:
3.11 Vendor’s Non-interference
On and from the Completion Date, the Vendor must not, and must ensure that each of its affiliates does not, during each restraint period:
(a)solicit, canvas or secure the custom of a person who is at the Completion Date, or was within 1 year before the Adjustment Date, a customer of the Business or the Vendor in connection with the Business;
…
Clause 3.13 dealt with the topic of “Reasonableness of restraint” and was in the following terms:
The Vendor agrees that each of the restraint obligations imposed by clauses 3.8 and 3.11 are reasonable in its extent (sic) (as to all of duration, geographical area and restrained conduct) having regard to the interests of each party to this Agreement and extends no further (in any respect) that is (sic) reasonably necessary and is solely to protect the Purchaser as Purchaser of the Business in respect of the goodwill of the Business.
There was no equivalent provision in the TBLA which recorded Marmax’s agreement to the reasonableness of the restraint obligation imposed on it by cl 3.9, a matter which it emphasises in seeking to have this provision declared void as a restraint of trade.

RPR contends that Marmax’s obligation to RPR to only conduct the Spanline franchise in the Illawarra territory was not restricted to the restraint imposed by cl 3.9. It contends that Marmax’s obligations under franchise agreements with RPR or Spanline also form part of its obligations to RPR. Hence it contends that:
(a)the TBLA referred to RPR’s franchise agreement with Spanline, and RPR’s sub-franchise agreement with Marmax;
(b)a franchise agreement was said to have been attached to the TBLA;
(c)cl 11 of the TBLA provided (emphasis added):
[RPR] agrees that [Marmax] may enter into a Franchise Agreement with Spanline for the Illawarra Franchise Area without the consent of [RPR] and:
(a)if required by [Marmax], [RPR] shall agree in writing to terminate the Sub Franchise Agreement …; and
(b)if required by [Marmax], [RPR] shall confirm in writing that it relinquishes any rights or entitlements it held under the Spanline franchise and arising from any agreement with Spanline in respect of the Illawarra Franchise Area.
(d)the parties expected that Marmax would enter into a franchise agreement with Spanline directly which would impose territorial restrictions on Marmax’s activities.
RPR submits that it was a term of the TBLA that Marmax would operate the Spanline franchise in the Illawarra territory in accordance with Marmax’s obligations under its franchise agreements with RPR or Spanline and, in particular, that it would not conduct the Spanline franchise outside the Illawarra territory.
(e) The Byrnes buy into Marmax
Shortly after entry into these agreements, the Gualdis experienced financial difficulties. Marmax’s construction manager at the time was Glenn Byrne. In February 2005, Mr Byrne’s wife Margaret purchased Anthony Gualdi’s shares (50%) in Marmax. Mr and Mrs Byrne met with Mr Anthony Way, who was and remains the managing director of Spanline, who said that he wanted to have a franchise agreement directly between Spanline and Marmax.
(f) Marmax franchise agreement with Spanline
On 19 February 2005, Spanline, Marmax, David Gualdi and Mrs Byrne entered into a franchise agreement for the Illawarra territory (the Marmax franchise agreement). The terms were substantially similar to the sub-franchise agreement (including cll 2.1 and 2.2). Clause 6 specified Marmax’s obligations as franchisee. Clause 6.4 (which is broadly equivalent to cl 6.5 in the sub-franchise agreement) stated that Marmax must:
not wholesale any Spanline Products, nor market, sell, supply or construct Spanline Products to non retail or wholesale customers without the prior written discretionary approval of [Spanline]
Clause 6.8 stated that Marmax must:
not sell by retail sale or wholesale the Products separately but only as part of a service to install the Products
It is also notable that the definition in cl 1.9 of the Marmax franchise agreement of “Franchised Business” (which is in identical terms to cl 1.9 of the second RPR franchise agreement) is different from the comparable definition in the sub-franchise agreement, being (with changes marked to show the differences in the Marmax franchise agreement):
the business of retail sale, and the installation of the Products to existing residential dwellings for consumers ~~and trade wholesales~~ conducted by the Franchisee under this Agreement in the Territory
Clause 6.15 of the Marmax franchise agreement stated that Marmax must:
not trade the Franchised Business or any similar business outside the Territory nor trade any similar business within the Territory.
“Products” was defined to mean “the Spanline Home Addition Products specified in Manuals, Spanline Mastalink Codes and Spanline Warranty” (cl 1.17). “Territory” was defined as the territory specified in Item 5 of the First Schedule. Item 5 then defined Territory as: “ILLAWARRA AREA AS PER ATTACHED HATCHED MAP”. As with the sub-franchise agreement, there were two maps which were attached. They were also the same two maps as were attached to the sub-franchise agreement (as set out in [38] and [40] above), except that in the Marmax franchise agreement:
(a)the maps were in reverse order to how they appeared in the sub-franchise agreement; and
(b)although Mr Marron’s handwriting appears on the non-hatched map, the handwriting which appears on the hatched map set out in [40] above does not appear on the otherwise identical map which was attached to the Marmax franchise agreement.
Having regard to these matters, RPR contends that the Marmax franchise agreement made it clearer that Marmax was only entitled to sell and install Spanline products within the Illawarra territory.
In April 2006, Mrs Byrne acquired David Gualdi’s remaining 50% share in Marmax. On 11 April 2006, Spanline entered into another franchise agreement with Marmax and Mrs Byrne (as guarantor). Its terms were relevantly identical to the previous Marmax franchise agreement dated February 2005.
Marmax entered into two subsequent franchise agreements with Spanline in February 2007 and March 2012 respectively. Although there are some differences between these agreements, Marmax does not suggest that the differences have any material bearing on the proceeding. It is convenient therefore to continue to refer to the Marmax franchise agreement as defined above.
By late 2007, Marmax began doing jobs for customers who lived in RPR’s territory. In the 12 month period from September 2007 to September 2008, Marmax made sales of $55,515 to customers in RPR’s territory. RPR contends that these sales were in breach of Marmax’s obligations to RPR under both the sub-franchise agreement and the TBLA.
RPR and Marmax dispute when the sub-franchise agreement came to an end. RPR says that this occurred in September 2008 in accordance with the express terms of the agreement. Clause 2.2 of the sub-franchise agreement provided that the sub-franchise would terminate on the Termination Date (September 2008) “or earlier termination under clause 13”. Clause 13 provided for termination by either party on notice or in the event of breach. RPR says that neither party sought to terminate at any earlier point in time under cl 13.
Marmax contends that the sub-franchise agreement came to an end earlier, in February 2005, when Marmax entered into the Marmax franchise agreement directly with Spanline.
The facts surrounding the alleged breaches of contract
As noted above, both RPR and Marmax accuse each other of having engaged in activities which were in breach of the other’s exclusive franchise territory. RPR also alleges that Spanline breached its franchise agreements with RPR by not taking appropriate steps in response to RPR’s complaints concerning Marmax’s extra-territorial activities and, in particular, its claims that Marmax was doing jobs for customers who lived in RPR’s exclusive territory. A central question in the proceeding is whether, assuming that the alleged activities are found to have occurred, they constituted conduct which was covered by the exclusivity provisions in the relevant agreements.
It is convenient to summarise the background facts which underpin the complaints of breach of contract raised by both RPR and Marmax against each other (and by RPR against Spanline) by reference to events which occurred in 2009, 2010, 2011 and 2012. These facts are substantially based on contemporaneous business records, but it is also necessary to make findings of fact based on the evidence given by various witnesses in the proceeding. Putting to one side for the moment the parties’ expert evidence, which all related to damages, the lay evidence was given by the following witnesses.
RPR adduced evidence from Ms Paula Marron. No point was taken arising from the fact that Mr Marron did not give evidence because of some personal health issues. Ms Marron was cross-examined. RPR also called Mr Peter Smith who, together with his wife, are prospective purchasers of RPR. Mr Smith was cross-examined.
Marmax relied upon evidence given by Mr and Mrs Byrne. Mr Byrne was cross-examined, but Mrs Byrne was not required for cross-examination. It also relied upon the evidence given by various customers. Some, but not all, of the customers were cross-examined. I ruled that, having regard to r 29.09(3) of the Federal Court Rules 2011 (Cth), Marmax could not rely on various affidavits of other customers who were required for cross-examination but did not present themselves at Court.
Spanline relied on the evidence of two of its most senior executives, namely Mr Anthony Way (the managing director) and Ms Lisa Oakley (the general manager). Both were cross-examined.
2009
In early June 2009, Mr David Gualdi (who previously worked for Marmax and had by then recently transferred to RPR) told RPR that Marmax was doing jobs in RPR’s territory. By letter dated 1 June 2009, Mr Marron wrote to Mr Way at Spanline and drew his attention to what he had been told by Mr Gualdi. It appears that this was the first time RPR complained to Spanline about Marmax’s activities. Mr Marron made the following points in his letter:
(a)business leads for RPR were dramatically down;
(b)he believed that Marmax was mainly selling to customers in Gerroa and in the Southern Highlands;
(c)it was difficult for RPR to prove Marmax’s actions;
(d)RPR was losing work and money as a result of Marmax’s actions and it wanted to “sort this out without the need for a trip to court”;
(e)he believed that Marmax’s actions were in breach of the contractual regime; and
(f)RPR’s territorial rights were an extremely valuable part of its business.
By a letter dated 10 June 2009, Ms Marron wrote separately to Mr Way and complained that Marmax was selling to customers in RPR’s franchise area, including to customers who lived in the Southern Highlands. Ms Marron identified 5 jobs which she alleged Marmax had undertaken in RPR’s exclusive franchise area and she provided photocopies of 5 contracts relating to those jobs. She also complained about other jobs being done in RPR’s territory by Marmax where RPR had received no “courtesy call” from Marmax. I accept that this was a reference to an undocumented practice regarding referrals which is described in more detail in [95] below. Ms Marron asserted that RPR had sent all leads to Spanline Illawarra involving customers from that territory who approached RPR in Nowra. Ms Marron also enclosed a photograph of a Spanline Illawarra sign which she said was displayed outside a job being done by Marmax at a residence in Mittagong. She claimed that Mr Gualdi had told her that, while he was working for Marmax, the owners of Marmax instructed him that if anyone came into Marmax’s Albion Park showroom who lived within RPR’s franchise territory, Marmax could do their job. Ms Marron wrote:
There has been a definite breach of Franchise Agreement (sic) and the sales agreement…. [T]here needs to be an outcome.In effect they have stolen from us and I believe compensation is due They have also denied work for our builders (sic).
By letter dated 25 June 2009, Mr Way replied to RPR’s complaints. He expressed his disappointment upon reading the allegation that Marmax had infringed its agreement with RPR and he referred to “possible breaches” of the Marmax franchise agreement. Mr Way gave an express assurance to RPR “that we will fully investigate the matter” and he advised that Spanline’s general manager, Ms Lisa Oakley, would be responsible for managing the investigation process. Mr Way also recommended that, as an interim measure, RPR should use the 1300 number in advertising to ensure that potential inquiries were directed to the Nowra/South Coast area.
In a letter dated 7 July 2009, RPR’s solicitors wrote to Spanline requiring that it “take immediate action to cause Marmax Pty Ltd to cease carrying out work within [RPR’s] territory and cease doing any acts whereby they accept work orders for the area within [RPR’s] territory”. The letter also requested that Spanline carry out an immediate audit of Marmax’s work to determine the extent to which it was in breach of its franchise agreement and to pass that information onto RPR. On the same day, RPR’s solicitors wrote to Marmax demanding that it immediately desist from carrying out any work within RPR’s franchise territory and requiring Marmax to provide details of all the work Marmax had done in RPR’s territory.
By a letter dated 8 July 2009, Ms Oakley wrote to Marmax advising of Ms Marron’s complaint and enclosing the material she had provided to Spanline in support of the complaint. Ms Oakley stated that the alleged breaches were seen by Spanline as “a serious matter” and that Spanline, as franchisor, would undertake any process and/or action that was deemed appropriate to determine whether there had been any franchise territory breaches and, if so, their extent. Marmax was instructed immediately to cease any breaches of franchise territory agreements and it was asked to provide a response to the complaint within 14 days.
In a letter dated 13 July 2009, Ms Oakley explained to RPR’s solicitors that, while RPR’s complaint was being investigated, Spanline did not consider an audit of Marmax to be appropriate. Mr Way also gave evidence under cross-examination as to why he did not think that an audit was appropriate. He said that Spanline would not look at Marmax’s business records until it had information from the Byrnes about the allegations.
Some of Marmax’s business information was stored on a database called SMARTS, which was kept by Spanline. The SMARTS database stored information about sales which was entered into the database by Spanline’s franchisees. Franchisees apparently used the SMARTS database as a convenient sales recording system. Mr Way gave evidence to the effect that franchisees were only expected to enter into the SMARTS database jobs which involved Spanline products. Mr Byrne and Ms Marron also gave some evidence about the SMARTS database, which I will deal with below.
Mr Way said that, around this time, he arranged for one of his staff to do a search of the SMARTS database but “nothing that we could see at that stage looked suspicious”. In my view this is an unsatisfactory and unreasonable assessment of the position, in circumstances where the database indicated that Marmax had done 13 jobs in RPR’s territory at that time, the majority of which were unknown to RPR (it is evident that while a franchisee can access the SMARTS database in respect of its own data, it cannot access data relating to other franchisees). In contrast, Spanline had full access to all the data in the SMARTS database.
An important meeting took place in mid-July 2009 between Mr Way and the Byrnes. The purpose of the meeting was to discuss RPR’s complaints about Marmax’s activities. Mr Way accepted the Byrnes’ response to those complaints which, in broad terms, was to the effect that the jobs in question either involved no Spanline products; were referrals from friends, employees or past customers; or involved customers who had called into Marmax’s Albion Park showroom and were unwilling to travel to RPR’s showroom in Nowra. During that meeting, the Byrnes complained to Mr Way about RPR doing jobs in Marmax’s territory. I will deal with this complaint, together with other matters raised by Marmax against RPR, in the section below dealing with the cross-claim.
In his evidence in the proceeding, Mr Way acknowledged in cross-examination that “the complete extent” of Spanline’s investigation of RPR’s complaints up to this point was simply to ask the Byrnes for an explanation. As noted above, Mr Way also says that he initially caused a search to be carried out of Marmax’s data on the SMARTS database, but he did nothing about the information revealed by that search, notwithstanding that he said that he was aware of the information. That information suggested that Marmax may have undertaken many more jobs in RPR’s territory about which RPR was presumably unaware. Mr Way also acknowledged that he did not discuss these other possible breaches with the Byrnes.
Mr Way also acknowledged in cross-examination that, during the course of his meeting with the Byrnes, he gave them what he described as “conditional permission” for Marmax to do work outside the Marmax franchise territory and within RPR’s franchise territory. He described that permission as requiring Marmax to first tell a customer who approached Marmax about doing a job in RPR’s territory that the customer lived outside Marmax’s franchise territory, to then broadly describe the franchise territories to the customer, and if the customer then said that they were unwilling to drive to Nowra or have RPR do their job, Marmax had Spanline’s permission to service the lead. Mr Way acknowledged that he did not require the Byrnes to notify RPR of any lead they received from a customer from RPR’s territory. He said that he viewed that as “a matter between franchisees”. Mr Byrne agreed under cross-examination that the permission did not require him to tell customers that Marmax could pass on their details to Nowra.
RPR contends that a finding should be made that it was unlikely that Mr Way attached any conditions to his permission. Although it is true that there is no reference to any such conditions in subsequent correspondence between Marmax and Spanline and that the customers who gave evidence make no reference to being told the significance of them coming from outside Marmax’s territory, I am not prepared to disbelieve this aspect of Mr Way’s evidence. I found some aspects of his evidence to be troubling, not the least being his views concerning the adequacy of Spanline’s investigation of RPR’s complaints and his initial reluctance to accept that the permission he gave to Marmax must have had the potential to have an adverse effect on RPR’s business. At times he also gave unresponsive answers to questions which he perceived to be harmful to Spanline’s case. For example, on several occasions during his cross-examination Mr Way sought to deflect or deny the proposition that the permission which he had granted to the Byrnes would have a detrimental impact upon RPR because it meant that Marmax would carry out work in RPR’s franchise territory. I accept RPR’s submission that, although Mr Way ultimately accepted the proposition, which I consider to be irrefutable, he did so begrudgingly.
I was also left with an abiding impression that, while Mr Way genuinely hoped to resolve the differences between RPR and Marmax, he had a seriously inadequate appreciation of RPR’s contractual rights and Spanline’s legal obligations. Generally, however, I found him to be a truthful witness.
Mr Way accepted in cross-examination that he never informed RPR at the time that he had granted Marmax permission to carry out jobs in RPR’s franchise territory. In my view this constituted a serious lapse of judgment on his part. Nor did he set up any procedures to monitor Marmax’s activities by reference to the details of jobs they were doing which they entered into the SMARTS database. This omission, together with other aspects of his interaction with the Byrnes and the Marrons over the relevant periods, demonstrates to my satisfaction that Mr Way’s management of the dispute strongly favoured the interests of the Byrnes at the expense of the Marrons.
It may comfortably be inferred that Mr Way’s reason for favouring the Byrnes was because he considered that this was in Spanline’s best commercial interests. When it was squarely put to Mr Way that he gave the permission because he wanted to ensure that Spanline secured as many sales as it could, he responded by saying that that was “partly right”. In my view, that was the primary, if not the only, reason why he gave the permission. Moreover, it is clear that Mr Way allowed this consideration of maximising Spanline’s revenue to outweigh the need for Spanline to honour its contractual and legal obligations to RPR and to enforce the Marmax franchise agreement.

By letter dated 17 July 2009, which was apparently sent after their meeting with Mr Way, the Byrnes wrote to him and set out their formal response to each of the 5 jobs the subject of Ms Marron’s complaint (which they had also discussed with Mr Way at the meeting). Their explanation was along the lines of what they had told Mr Way during that meeting. And although they made no direct response to the complaint about the Marmax sign in Mittagong, the Byrnes denied any breach of advertising in the South Coast area. They said that they advertised with WIN television but they had no control over the fact that its television coverage extended to the South Coast.
By letter dated 17 September 2009, Mr Way advised RPR of the results of Spanline’s investigation of its complaint. After describing his perception of what he viewed as an historically poor personal relationship between the Marrons and the Byrnes, Mr Way advised that he had personally visited the Byrnes to discuss the complaint. He enclosed a copy of the Byrnes’ letter dated 17 July 2009 responding to the complaint. Mr Way suggested that RPR should “bury the hatchet” with the Byrnes. Mr Way’s letter also contained the following paragraph:
I have given warnings to the Byrnes that we will not tolerate this type of behaviour, stealing from neighbours and I extend to the Marrons the same warning regarding infringement of known territories. I do however condone activity that relates to referrals from customers whom (sic) have friends, family or business associates in other franchise areas. The accepted procedure if a lead is generated through a referral I expect that the local incumbent franchise would be contacted and a request is made to service the lead on the proviso that the franchisee is happy for a design assessor to service the lead using the appropriate pricing sheet and contract pad and hand it over to the franchise who will make the appropriate arrangements to pay the commissions.
(Emphasis added).
It is to be noted that Mr Way’s description of the “accepted procedure” for referrals addresses a narrower category of leads than was covered by the permission he gave the Byrnes in mid-July 2009. And neither in his letter or otherwise did Mr Way inform RPR of the additional jobs which Marmax had apparently done in RPR’s territory according to the information stored on the SMARTS database.
By letter dated 18 September 2009 to Mr Way, Ms Marron expressed her extreme disappointment at Mr Way’s response and commented that he seemed “to have made this personal”. She said that she was driven not by any “vendetta with the Byrnes”, but rather by a concern to enforce RPR’s legal rights. I see no reason to doubt the truth of those statements. I found Ms Marron to be a truthful witness. On the same day, Ms Marron sent an email to Ms Oakley notifying her of another job which she believed was also done by Marmax in RPR’s territory.
Mr Way wrote a letter dated 29 September 2009 to the Marrons. The letter commenced with the following paragraph:
It never ceases to amaze me the expression of hurt and personal indignation that arises when someone does not want to accept the responsibility or facts surrounding any breakdown of business or human relationships.
The letter also contained the following statement:
I have a written guarantee [from the Byrnes] that no further projects will be entered into within the exclusive boundaries of your agreement, which is exactly what you asked for!… I have issued the [Byrnes] with a warning regardless of the response to the five contracts investigated which formed the allegation of the breech (sic) of exclusive boundaries.
In fact, no such written guarantee was obtained. And, as RPR pointed out in the proceeding, the remarks were misleading because Mr Way had in fact given permission to the Byrnes to do certain projects in RPR’s territory and he kept RPR in the dark about that permission.
Mr Way wrote to Marmax on 30 September 2009 seeking its response to further complaints made by RPR in respect of 4 jobs and adding that, as he said he had told the Marrons:
… I will not tolerate any further breeches (sic) in territory. I understand the issues that exist with the Southern Highlands and in a perfect world I know what solution would be in the best interest of the customers. However, the Marrons wisely purchased the area when the opportunity arose and unfortunately at this stage I can’t do anything about it other than warn you off contracting in that area.
Mr Way confirmed in cross-examination that his reference in the letter to “in a perfect world” was a reference to his desire that RPR set up a showroom in the Southern Highlands and have a local telephone number for that area. He also acknowledged that RPR was under no legal obligation to take these steps. Mr Way’s “warning” to the Byrnes was at odds with the permission he had given in mid-July. Unsurprisingly, Mr Byrne contacted him about the inconsistency and then followed that up with a letter dated 8 October 2009 to Mr Way.
In that letter, the Byrnes provided comments on the 4 jobs identified in Spanline’s letter dated 30 September 2009. The Byrnes wrote (emphasis added):
We are fully aware that the Southern Highlands area belongs to Spanline South Coast.
Back in July when we had previous allegations made by Spanline South Coast, you gave us permission to service clients that walk into our Showroom from the Southern Highlands area, as they would not travel another hour to Nowra.
As I mentioned in our phone call on the 30^th September this leaves us now in a predicament, has (sic) we have a project in Council waiting approval. Could you please advise us where we stand on this issue now?
It is clear from this letter that the Byrnes were troubled by what they regarded as the inconsistency between the “permission” which Mr Way had granted them during the course of their meeting in mid-July 2009, and the contents of his letter dated 30 September 2009. It is also notable that there is no reference in the letter to any understanding on the part of the Byrnes that they were to contact RPR about leads arising from customers from the Southern Highlands who walk into their showroom. That is consistent with their understanding that there was no such requirement. I find that in fact there was no such requirement.
There is another aspect of the Byrnes’ letter dated 8 October 2009 which has some significance to the question of which franchise territory the town of Gerroa falls into. Ultimately the resolution of that issue turns on the proper construction of the relevant franchise agreements (see [176] below), but it is notable that in their letter the Byrnes assured Mr Way that “we will forward any leads for the Gerroa area to Spanline South Coast”. Plainly, for what it is worth, at least at the time the letter was written, the Byrnes regarded Gerroa as being within RPR’s territory. In cross-examination Mr Byrne denied that this letter reflected his belief that Gerroa was in RPR’s territory. I do not accept this evidence.
Mr Way gave evidence to the effect that he believed that Gerroa was part of RPR’s territory. This accords with Ms Marron’s evidence that Gerroa is on the letterbox drop list which RPR receives from Spanline’s head office.
In a letter dated 27 November 2009, Mr Way wrote to Mr Byrne in which he referred to his visit the previous week and the “unwillingness of the Marrons to take the issues raised over recent months any further”. He also told Mr Byrne that “the threat of legal action is over”.
Marmax continued to do jobs for customers who came into its showroom but lived in RPR’s territory. Mr Byrne gave evidence, which I accept, that he considered that if he abided by the permission given by Mr Way at their July meeting, he was unlikely to have any difficulties with Spanline.
2010
In early February 2010 there was an exchange of correspondence between RPR and Marmax regarding another job which Ms Marron claimed Marmax had done in RPR’s franchise area in August 2009. Ms Marron asked the Byrnes to provide a list of all jobs done in the RPR franchise area since 2005.
By letter dated 11 May 2010, Mr Marron wrote to Mr Way complaining that Marmax was continuing to service RPR’s franchise area. He asked Spanline to take “a more formal and disciplined (sic) based response”. He also stated that Marmax was servicing telephone leads and not merely leads from customers who visited its showroom. Mr Marron’s letter contained the following paragraph:
Unfortunately, I cannot take legal action against Spanline Illawarra for this breach; this is the responsibility of Spanline Australia as the franchisor. As we have been down this road before I believe it is the duty of Spanline Australia to take whatever action is needed to rectify this continuing breach of boundaries, and to put in place a system/protocol that severely penalises breaches up to the point that you could lose the right to trade as a Spanline franchise outlet if continued breaches are made. I believe there should be as a deterrent (sic) to breach of boundaries some sort of enforceable protocol put in place by Spanline Australia; if there is no deterrent or protocol, there will be no reason to stop the practice. Every Franchise should be bound to pass on leads to the correct Franchise.
As RPR points out in the proceeding, Mr Way took no steps to check whether Marmax was servicing telephone leads notwithstanding that he acknowledged in cross-examination that it was “pretty important” to find out whether or not the allegation was true. Mr Way acknowledged that he did not raise this allegation with the Byrnes one way or the other. He further admitted that he did not look at the SMARTS database to see if Marmax had been doing more jobs outside its territory, even though he accepted that that would have been easy to do. Mr Way accepted in cross-examination that he “had done a side deal with Illawarra to allow them to service Southern Highlands customers [in certain circumstances]”.
Mr Way responded to Mr Marron’s 11 May 2010 correspondence by a letter dated 7 June 2010, in which Mr Way stated that he was:
absolutely furious to hear your allegation that Spanline Illawarra have been in breech (sic) of the Franchise Agreement by servicing leads in the Southern Highland (sic). I was of the opinion that we had solved the issue of poaching from adjoining Franchise Territories but obviously we need to take positive action to resolve this issue once and for all!
In cross-examination, Mr Way sought to explain the reference in his letter to “poaching” as simply meaning touting for business. I do not accept that explanation. It is clear from the immediately preceding sentence in the letter that Mr Way was referring to RPR’s allegation that Marmax was taking its customers, which went far beyond touting. Mr Way gave an assurance to RPR that Spanline would deal with the issues “using the appropriate disciplinary actions”. He declared that it “was necessary for us to take action through our Solicitor”. It is also evident that, at least at this time, Mr Way was proceeding on the basis that there was an issue if Marmax was servicing customers from RPR’s territory even if it had not established a physical business presence there.
In fact, however, Mr Way did not arrange for Spanline’s solicitors to send such a letter, nor did he inform RPR of his change of mind. In cross-examination he repeated his acceptance of the proposition that he considered that he had the matter in hand because he had done “a side deal” with Marmax. Mr Way failed to appreciate the ramifications of that “side deal” for RPR’s legal rights and interests.
On 2 July 2010, Mr Way emailed Mr Marron stating that Spanline was “seriously contemplating our options with the issues raised with Spanline Illawarra and would like to discuss with you the issues and our possible form of action”, but as he confirmed in cross-examination he did not check the SMARTS database and he had no recollection of speaking with the Byrnes.
In mid-September 2010, a further complaint was made by RPR to Spanline, both by telephone and in writing, regarding a suspected encroachment by Marmax into its territory. The complaint related to a fortuitous encounter between Ms Marron and a utility loaded with Spanline roof products which had pulled into a service station where she happened also to be. Ms Marron asked the occupants where they came from and she said that they responded by saying “Illawarra”. She took their registration number and passed it on to Ms Oakley for investigation. As will emerge below, Ms Oakley did nothing to investigate the complaint.
In her oral evidence, Ms Marron confirmed what is evident from the correspondence, namely that she was concerned to have Spanline and Marmax provide full disclosure so that RPR could have a full appreciation of the nature and extent of any breaches. As she correctly pointed out, RPR was limited in its ability to access relevant information, certainly by comparison with both those other companies. I accept her evidence. Mr Way did little or nothing to investigate the complaints except to seek an explanation from the Byrnes, which was invariably accepted at face value.
I accept RPR’s submission in the proceeding that Mr Way sought to justify his inaction on the basis that he did not see Spanline’s obligation as franchisor to do anything more than it in fact did in response to the complaints. Mr Way saw the matter essentially as a dispute between two franchisees. In my view he singularly failed to grasp the franchisor’s role and legal responsibilities in the matter.
Mr Way met with the Marrons towards the end of 2010 and it is evident that they discussed allegations by the Marrons that the Byrnes were selling outside their territory. On 13 December 2010, Mr Way wrote to the Marrons and expressed a degree of resignation about Marmax’s activities, advising RPR that although Mr Byrne, “has given me his word that they are not breeching (sic) their Franchise Agreement however, I have been there before”. Mr Way said that he expected that the Marrons would advise him of any contravening conduct.
2011
Throughout 2011, RPR continued to provide Spanline with evidence of Marmax’s incursions into the South Coast territory, including photographs, details appearing on Marmax’s website and documentary evidence. RPR also complained that it appeared that leads were not always being entered by Marmax into the SMARTS database and that RPR was frustrated because it was likely that there were far more transgressions than those which came to its attention. In a letter dated 22 February 2011, Mr Marron asked Mr Way to advise on his proposed course of action, referring to the fact that Mr Way had previously indicated that a warning letter was being sent to Marmax by Spanline’s solicitor and that this was to be the “last warning”.
In April 2011, Mr Marron emailed Ms Oakley and stated that, as franchisor, Mr Way needed “to be seen as proactive or what is the relevance of the Franchise agreement”. It is evident that, by this time, Spanline was suggesting a mediation between the parties to be held in Sydney. Both RPR and Marmax were asked by Spanline to provide a list of relevant jobs which could be dealt with at the proposed mediation. There was some delay in the timing of the mediation, largely because of Mr Marron’s health issues and the time it took for RPR to collate the necessary information for the proposed mediation.
On 2 and 3 May 2011, Mr Marron informed Ms Oakley of other suspected breaches by Marmax. On 13 May 2011, Mr Marron again inquired as to what Spanline had done since Mr Way’s assurances of 7 June 2010.
The mediation/meeting in December 2011
Mr Marron wrote a letter dated 20 August 2011 to Ms Oakley in which he attached a document which purported to provide evidence of continuing breaches by Marmax. He said that Spanline was now in a position to terminate the Marmax franchise and he drew attention to relevant provisions in the RPR franchise agreement in support of his contention that it was Spanline’s responsibility to RPR to ensure that its exclusivity was honoured.
By letters dated 25 August 2011, Ms Oakley wrote separately to both the Marrons and the Byrnes in relation to the matters raised by Mr Marron in his 20 August 2011 letter. She invited the Marrons to provide all additional evidence of any other breaches and indicated that she considered that the new matters could suitably be dealt with at the proposed mediation. She gave a broad outline of the proposed mediation, including the role of an independent mediator. In her separate letter to the Byrnes, Ms Oakley recorded that the Marrons had asked Spanline to take action against Marmax. She invited their response to the Marrons’ latest complaint and also asked the Byrnes to provide her with details of territory breaches alleged by them against the Marrons. Ms Oakley also outlined the proposed mediation to the Byrnes.
In a letter dated 1 September 2011, Mr Marron replied to Ms Oakley and expressed his extreme disappointment at her response. As to the request that RPR provide any additional evidence, he said that each breach had been fully investigated by RPR and had taken valuable time and effort. He said that Spanline had more than enough evidence to proceed to terminate the Marmax franchise. He also criticised the proposed mediation as reflecting a misunderstanding by Spanline of the situation and possibly amounting to “an example of the abrogation of your responsibility to us in ensuring that we have exclusive rights to our franchise area”. He said that it was a matter for Spanline if it wished to have a mediation with Marmax regarding their breaches of the Marmax franchise agreement. Mr Marron included the following paragraph in his letter:
It is very unfortunate that you see fit to characterise our attitude has (sic) “being bent on taking the road on the way to court action”, when all we are asking is that you do what you contracted to do and take immediate steps to ensure that we have exclusive rights to our franchise area. In these circumstances where the only apparent action taken by yourselves amounts to no more than an admonishment of Spanline Illawarra, the only court action we are contemplating is not against Spanline Illawarra but against Spanline Australia if you continue to fail to honour your obligations to us under the franchise agreement.
The Byrnes responded to Ms Oakley’s letter dated 25 August 2011 in a letter dated 26 September 2011 in which they provided comments on the 6 jobs complained of by RPR. It is apparent that, by this time, Ms Marron had advised Ms Oakley that RPR had reconsidered its decision not to participate in a mediation with the Byrnes and, on that basis, Ms Oakley forwarded to Ms Marron a copy of the Byrnes’ response dated 26 September 2011. Ms Marron gave evidence in the proceeding, which I accept, that she decided to go to the meeting because she “actually wanted to go and hear what they had to say”. In late October 2011, Ms Marron emailed Ms Oakley advising that Marmax was also following up on telephone leads because Ms Marron had arranged for one of RPR’s staff to call and pretend to be a customer from the Southern Highlands.
In October 2011, Spanline decided to alter the proposed mediation. Ms Oakley advised the Marrons and the Byrnes separately in letters dated 18 October 2011 and that, based on legal advice, rather than proceed to mediation at that point in time, the “two conflicting parties” [i.e. RPR and Marmax] were to participate in a meeting, together with Mr Way who, after listening to the detailed complaints and explanations, would then adjudicate as the managing director of the franchisor.
That meeting eventually took place on 1 December 2011. Mr Way presided. Ms Oakley was also present. Marmax was represented by both Mr and Mrs Byrnes. RPR was represented by Ms Marron alone. Mr Marron was unable to attend because he was hospitalised. Ms Marron asked Spanline before the meeting whether she could be accompanied by her construction manager but that request was denied (apparently because the Byrnes objected to his attendance). Spanline then approved a request that she be accompanied at the meeting by her daughter. When her daughter became unavailable because of a conflicting work commitment, Ms Marron then asked whether she could be accompanied by her 72-year-old uncle, but Spanline refused.

There are two issues upon which the parties do not agree. First, Marmax contends that a seller can never impose a restraint on the buyer to protect another of the seller’s business, citing Giblin v Murdoch 1979 SLT (Sh Ct) 5 (Giblin v Murdoch) and J D Heydon, The Restraint of Trade Doctrine, 3^rd edition, at 200 (Heydon). Secondly, it contends that, to obtain the benefit of the restraint clause, the covenantee must have paid to the covenantor some consideration for the restrictive promise otherwise that clause is per se void, citing Creamoata v Rice Equalization Association Ltd (1953) 89 CLR 286 at 318 (Creamoata).
RPR disputes both these contentions. As to the first, while it accepts that, in the context of the sale of a business, restraint of trade clauses generally restrain the vendor and not the purchaser, there is no general principle to the effect that a restraint of trade clause in a sale of business agreement will only be valid where it restrains the vendor and not the purchaser. I accept that submission. It is supported by the following statement in Stilton, Sale of Shares and Businesses: Law, Practice and Agreements, (3^rd edition, 2011) at 372:
The seller, meanwhile, if it is continuing to operate in related businesses, may seek covenants from the buyer against competing with any business retained by the seller.
In my view, Giblin v Murdoch is distinguishable. The passage relied on by Marmax was directed to the situation where a vendor sought to impose a restraint in order to protect another of its businesses. That is not the case here. The object of cl 3.9 is to protect RPR’s franchise business in its reduced franchise area and not another unrelated business.
As to the second disputed principle, RPR acknowledges that Fullagar J did say in Creamoata at 318 that “there must be some consideration for the restrictive promise”, but it also draws attention to Gibbs J’s subsequent observations in Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 316 that the relevance of the provision or absence of consideration by the covenantee relates to the reasonableness of the covenant. RPR further contends that consideration need not involve a monetary payment and can take other forms. It says that consideration was provided by RPR to Marmax in exchange for such matters as the promise made in cl 3.9 and that that consideration included the transfer of the business to Marmax and all the promises made by RPR to Marmax under the TBLA. Those promises included RPR’s obligations under cl 3.8, which imposed restraints on it in identical terms to those in cl 3.9. I accept those submissions.
It is necessary to now determine whether RPR has discharged its onus of establishing the reasonableness of the restraint at the time that it was imposed (similar considerations apply to Marmax’s reliance on cl 3.8 in support of its cross-claim). In considering this question, I consider that a distinction should be drawn between restraint provisions in contracts of employment and restraint provisions in agreements relating to the sale of a business. In the latter context, there generally will not be the inequality of bargaining power which is likely to be present in an employment context. The courts have generally taken a more restrained approach in assessing the reasonableness of a restraint in a sale of business context. For example, in North Western Salt Co Ltd v Electrolytic Alkali Co Ltd [1914] AC 461 at 471, Lord Haldane observed:
… when the question is one of the validity of a commercial agreement for regulating their trade relations, entered into between two firms or companies, the law adopts a somewhat different attitude - it still looks carefully to the interest of the public, but it regards the parties as the best judges of what is reasonable as between themselves.
Applying that general approach here, it is to be noted that both parties to the TBLA were legally represented (as recorded in Schedule 1 to the agreement) and there is no issue of any inequality in bargaining power.
In assessing the reasonableness of cll 3.8 and 3.9, I also consider that it is important to view the clauses in the context of the franchising relationship between the parties. It is that context which provides the interests which the clauses seek to protect. I respectfully agree with Austin J’s statement in KA & C Smith Pty Ltd v Ward (1998) 45 NSWLR 702 at 722 that to “assess the reasonableness of the restraint clause, it is necessary to identify the legitimate interests which the clause seeks to protect”.
In my view, the legitimate interests relate to the exclusivity of the rights which RPR enjoyed under the first RPR franchise agreement. As has been emphasised above, RPR had an exclusive Spanline franchise for the South Coast territory and, at the time the TBLA was executed, it intended to continue that franchise albeit covering a reduced area to reflect the sub-franchise, which was also exclusive in the Illawarra territory, to Marmax.
The restraint of trade clauses in cll 3.8 and 3.9 of the TBLA are in mirror terms and created mutual obligations. In the case of the former, it reflected and protected Marmax’s right to an exclusive Spanline franchise in the Illawarra territory. In the case of the latter, it reflected and protected RPR’s right to an exclusive franchise in the South Coast territory (with Illawarra excised post execution of the sub-franchise agreement). I accept RPR’s submission that these restraint revisions do no more and no less than require the parties to comply with their obligations under the exclusive franchising arrangements. And as RPR further points out, there is no challenge in the proceeding to the reasonableness or validity of the parties’ rights of exclusivity under those arrangements.
In my view, cl 3.9 protects a legitimate business interest of RPR, being its interest in the continued preservation and success of its exclusive Spanline franchise for the South Coast territory. Clause 3.8 protects a similar business interest of Marmax vis a vis its exclusive Spanline franchise for the Illawarra territory.
It is well-established that in determining whether a restraint of trade clause is reasonable at common law, it is relevant under the rubric of the interest of the parties to consider the scope of trade restrained, the geographical territory covered and the duration of the restraint. As to the first, the restraint imposed by cl 3.9, when read with the definition of “Restrained Businesses” in cl 1(1), restrains Marmax in the South Coast Franchise Area (as defined in cl 1(1)) from engaging in any business or operation similar to, competitive with or supplying similar products and services to, Spanline franchise businesses, such as the business which RPR was selling to Marmax. I accept RPR’s submission that this effectively restrains Marmax from engaging inter alia in a Spanline franchise business in the South Coast territory. I consider that this restraint reasonably refers to RPR’s legitimate business interest in the continued preservation and success of its exclusive Spanline franchise in the South Coast territory. It does so by preventing Marmax from engaging in such activities as selling and installing Spanline Products in RPR’s exclusive territory. Similar observations can be made in respect of cl 3.8.
As to the second criterion, namely the reasonableness of the geographical territory covered, it is relevant to note that the territory affected by the restraint is no more extensive than that of the business in question (see British Reinforced Concrete Engineering Co Ltd v Schelff [1921] 2 Ch 563). Marmax complains that it is unreasonable that customers who live within RPR’s South Coast franchise territory but whose houses are closer to Marmax’s business at Albion Park, are not able to use Marmax and must travel further to Nowra. I cannot accept that submission. It assumes that all customers physically visit a Spanline showroom before they enter into a contract for a Spanline home addition. That assumption overlooks the fact that the evidence suggests that only approximately 10% of jobs involving Spanline Products result from a customer visiting a Spanline showroom. In any event, as RPR points out, any inconvenience which is involved is the inevitable consequence of an exclusive franchise arrangement which impacts upon customer choice, as is the case here.
As to the third criterion, namely the duration of the restraint, RPR relies on a series of cases which stand for the proposition that, if a restraint is to territory is considered to be reasonable, it is seldom the case (at least where goodwill is concerned) for the restraint to founder because of its duration. It cited cases such as Connors Brothers Ltd v Connors [1940] All ER 179 at 194 and IRAF Pty Ltd v Graham [1982] 1 NSWLR 419 at 429. In the latter case, the Court indicated that considerable weight should attach to the duration selected by the parties themselves.
In Schedule 1 of the TBLA, the “Restraint time” is defined as:
Ten (10) Years from the Adjustment date (sic) (Clauses 3.8, 3.9 and 3.11).
As noted above, the Adjustment Date is defined as 1 July 2003. The references in the definition of “Restraint time” to the specific clauses imposing restraints is important. Those clauses (which are set out in [50], [51] and [56] above respectively), refer to “each restraint period”. Although those phrases are expressed in uppercase, they plainly pick up the definition of “Restraint Period” in cl 1(1) (see [54] above). Those periods vary from 10 years to 1 year. I do not accept Marmax’s contention that the drafting of this definition and the provision of a series of cascading periods indicates that it was considered that the maximum of 10 years was excessive. Such drafting is not unusual in commercial agreements and is plainly intended to anticipate the possibility that a court might reject as unreasonable longer periods of restraint.
RPR contends that the maximum 10 year period here is not excessive or unreasonable because it reflects the parties’ rights and obligations under the franchising arrangements. Marmax disagrees and says that a reasonable period is only 5 years at most, to reflect the period within which RPR and Marmax were in a franchise relationship with each other. I accept that submission which I consider to be consistent with the mutual legitimate business interests of the parties to the TBLA, both of whom were understandably concerned to protect their individual exclusivity during the period of the sub-franchise agreement. I do not consider that it is reasonable in the circumstances for the restraint period within which cll 3.8 and 3.9 operated to extend beyond the life of the sub-franchise agreement. There was no certainty that Spanline would renew the first RPR franchise agreement or enter into the Marmax franchise agreement, even though it was contemplated at the time the sub-franchise agreement was executed that the latter might occur. Accordingly, I consider that the relevant restraints only operated during the term of the sub-franchise agreement (i.e. until September 2008) and were invalid and unenforceable beyond that time.
All of the 17 jobs done by RPR within Marmax’s territory about which it complains in its cross-claim were done after 17 January 2006. As noted above in the section dealing with the sub-franchise agreement, several of those jobs cannot be breaches because the work was carried out by a related company of RPR’s and involved the use of a different product. Likewise, jobs carried out by RPR in Gerroa were not in breach because that is in RPR’s territory. In respect of the two jobs done for the Kay family in 2010 by RPR, I accept Ms Marron’s evidence that Marmax gave its consent to the former and that the latter involved no Spanline product.
I should also state that I consider that the restraints imposed by either cll 3.8 or 3.9 for any period beyond the 5 year term of the sub-franchise agreement would be unreasonable as being against the public interest. It would be contrary to the public interest to accept as reasonable a restraint on trade which extended beyond the term of the parties’ franchise relationship as reflected in the sub-franchise agreement.
As noted in [61] above, RPR submits that Marmax was restricted to conducting the Spanline franchise not only by cl 3.9 of the TBLA but by that agreement more generally because that agreement effectively incorporated the sub-franchise agreement between RPR and Marmax and any future franchise agreement between Spanline and Marmax. I do not accept that submission. Insofar as the sub-franchise agreement is concerned, to the extent it was incorporated into the TBLA, that would have to be on the basis of its own express terms, including the termination date of September 2008. And although the TBLA anticipated that Marmax might enter into a franchise agreement there was no certainty that it would or, if it did, that it would necessarily be on the same terms and conditions as those set out in the franchise agreement which was said to be attached to the TBLA (it might also be noted in this context that none of the copies of the TBLA which were tendered in evidence had any such agreement attached). The terms are simply too uncertain.
Turning to the cross-claim, which is based on an allegation that RPR breached the restraint imposed on it by cl 3.8 by doing 17 jobs in Marmax’s territory, by similar reasoning I find that a reasonable period for that restraint is one which expired in September 2008, which coincides with the stated termination date for the sub-franchise agreement. Some – but not all – of the jobs done by RPR about which Marmax complains were done prior to that date. I consider, however, that the matter needs to be taken no further because, for reasons given above in [285]-[287], I do not consider that any of the jobs which were done by RPR prior to September 2008 breached cl 3.8 of the TBLA. Accordingly, the cross-claim should be dismissed.
(n) RPR’s remedies against Marmax
RPR has established that:
(a)the sub-franchise agreement did not terminate in 2005 and continued to the end of its stated term in September 2008; and
(b)Marmax breached the sub-franchise agreement by doing 5 jobs in RPR’s territory during the period 4 September 2007 to 31 July 2008.
For similar reasons to those given above, I consider that RPR has established that it suffered a loss because it could have, and most probably would have, done these jobs if the opportunity had arisen. I also reject Marmax’s claim that RPR failed to mitigate its losses, for similar reasons to those given above in respect of the comparable argument by Spanline.
I also consider that RPR is entitled to draw upon the indemnity in cl 20.2 of the sub-franchise agreement in respect of its costs and expenses relating to the bringing of this proceeding for Marmax’s breach of the sub-franchise agreement.
For completeness, I should also say that I do not consider that RPR’s entitlement to damages should reflect only the Spanline component of any job done by Marmax in its territory. Of course, for a particular job to constitute a breach there has to be some Spanline product involved, but I do not see why RPR should not receive damages which reflect its entire loss in having been deprived of the opportunity to do the relevant work, even if completion of a job would involve the use of some non-Spanline product. Mr Rickard pointed out that the particulars of damage set out in the fourth amended statement of claim only specified loss of profits from the sale of Spanline products, but he did not point to any prejudice to Marmax if the claim was expanded. Nor in its defence to the fourth further amended statement of claim did Marmax plead to RPR’s allegation concerning its loss. Ms Rees SC also pointed out that, as a matter of logic and principle, RPR is entitled to damages in respect of the entirety of a job done in breach of its exclusivity. I agree.
On the issue of quantifying damages, it might also be noted that Mr Byrne purported to give evidence in one of his affidavits differentiating between the value of Spanline and non-Spanline products in the jobs complained of by RPR. His figures were unsubstantiated in his affidavit. On the penultimate day of the trial I rejected the belated tender of costing sheets which were said to relate to his calculations. My reasons for rejecting that tender are set out at Transcript 480, lines 6-24, 27 March, 2014. Ms Marron annexed to one of her affidavits copies of the various contracts and variations thereof for the 49 jobs complained of, including the contract price. These figures provide a basis for calculating RPR’s damages.
I will deal with the assessment of RPR’s damages below.
(o) How are damages to be assessed?
Each of the parties called an expert witness to give evidence on accounting matters which bear upon the assessment of RPR’s damages and, in particular, its claims regarding the gross profit margin which it contends should be applied to the jobs it lost to Marmax. Following a Court-ordered conclave, the experts produced a joint report in which they identified areas of agreement and disagreement between them. One important area of disagreement relates to the different view expressed by the expert called by Marmax (Mr Balding) and the experts called by RPR (Mr Moore) and Spanline (Ms Jones) as to the relevance of a particular Accounting Standard (AASB 111). This accounting standard applies to construction contracts carried out by particular reporting entities as identified in the Corporations Act 2001 (Cth). It describes the accounting treatment of revenue and costs associated with construction contracts and specifies in paragraph 16 that contract costs comprise costs that relate directly to a specific contract, costs that are attributable to contract activity in general and can be allocated to the specific contract and such other costs as are specifically chargeable to the customer under the terms of the contract. Mr Moore, gave evidence, which I accept, that by applying AASB 111, Mr Balding assigned more costs of a fixed nature than would be the case if the standard were not applied. I am not willing to accept Mr Balding’s methodology which, I consider, has no application to the circumstances here.
There was also initially a dispute between Mr Moore and Ms Jones concerning the accounting treatment of various wages paid to various RPR employees. It is not necessary to set out the nature of that dispute because RPR indicated in closing address that it would accept Ms Jones’ approach, which was reflected in a two-page document marked Exhibit 20. Lest there be any doubt, I should also indicate that I do not accept Marmax’s submission that this document should be varied to reflect Mr Balding’s views on the need to bring to account additional fixed costs in the nature of factory overheads, such as rent and depreciation. As I have already indicated, I reject Mr Balding’s evidence to the extent that it relied upon AASB 111. Nor do I consider that the figures need further adjustment in respect of Mr Marron’s wages and superannuation, in circumstances where the evidence demonstrated that Mr Marron only took over his current role in the factory in January 2013, which postdates the period in which the relevant jobs were done.
The parties were agreed that they should be given an opportunity to quantify damages in the light of the Court’s reasons and to seek to agree final orders. I propose to take that course.
Conclusion
As requested by the parties, I will provide them with an opportunity to seek to agree final orders which give effect to these reasons, including as to costs. If they are unable to reach agreement within 14 days hereof they should each file and serve within that time a written outline of submissions of no more than 8 pages in length setting out their proposed orders and supporting submissions. They should also indicate whether a further oral hearing is required before final orders can be made or whether they can be made on the papers.

I certify that the preceding three hundred and twenty (320) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Griffiths.
Associate:

Dated: 29 April 2014

Citation:	RPR Maintenance Pty Ltd v Marmax Investments Pty Ltd [2014] FCA 409
Parties:	RPR MAINTENANCE PTY LTD ACN 003 610 231 v MARMAX INVESTMENTS PTY LTD ACN 001 147 511 and SPANLINE WEATHERSTRONG BUILDING SYSTEMS PTY LTD ACN 002 968 087
File number(s):	NSD 804 of 2012
Judge(s):	GRIFFITHS J
Date of judgment: Corrigendum:	29 April 2014 22 May 2014
Catchwords:	TRADE AND COMMERCE – restraint of trade – reasonableness of restraint in the context of franchise agreements – duration of restraint CONTRACTS – alleged breaches of express and implied terms – interpretation of multiple agreements relating to franchises and sale of business – scope of clauses imposing obligations on a franchisor to ensure franchisee’s exclusive franchise territory – whether exclusivity provisions breached by franchisor – scope of clauses restricting franchisees from conducting franchise in each other’s exclusive territory in sub-franchise and sale of business agreements – whether exclusive territory provisions breached by franchisees –whether exercise of option under franchise agreement valid – whether franchise agreement terminated effectively – whether sub-franchise agreement terminated on entry into direct franchise agreement – whether franchisor unreasonably withheld consent to franchisee transferring franchise business – effect of purported unilateral variations to franchise agreements – whether agreements contained implied terms of good faith and fair dealing – whether agreements contained implied term that parties will do all things necessary to provide the other party with benefit of the agreement – whether implied terms breached CONSUMER LAW – unconscionability – whether unconscionable for franchisor to permit a franchisee to impinge on the exclusive territory of another franchisee where franchisor had obligations to ensure exclusive territory of each franchisee and where the franchisor knew this would result in the breach of another agreement between the franchisees EVIDENCE – parol evidence rule – exception where patent ambiguity in a contract – application of Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 RELIEF – declaratory relief – specific performance – injunctive relief restraining reliance on improper termination notice – damages
Legislation:	Australian Consumer Law Corporations Act 2001 (Cth) Federal Court Rules 2011 (Cth) Local Government Act 1919 (NSW) Restraint of Trade Act 1976 (NSW) Trade Practices (Industry Codes-Franchising) Regulations 1998 (Cth) Trade Practices Act 1974 (Cth)
Cases cited:	Allstate Life Insurance Co v ANZ Banking Group Ltd (1995) 58 FCR 26 Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 Attorney General v Blake [2001] 1 AC 268 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Ltd (2000) 104 FCR 253; [2000] FCA 1365 Blomley v Ryan (1956) 99 CLR 362 at 415 British Reinforced Concrete Engineering Co Ltd v Schelff [1921] 2 Ch 563 Buckley v Tutty (1971) 125 CLR 353 Burger King Corporation v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 Connors Brothers Ltd v Connors [1940] All ER 179 Creamoata v Rice Equalization Association Ltd (1953) 89 CLR 286 Far Horizons Pty Ltd v McDonalds Australia Ltd [2000] VSC 310 Franklins Pty Ltd v Metcash Trading Pty Ltd (2009) 264 ALR 15 Giblin v Murdoch 1979 SLT (Sh Ct) 5 Haviv Holdings Pty Ltd v Howards Storage World Pty Ltd (2009) 254 ALR 273; [2009] FCA 242 Hope v Bathurst City Council (1979) 144 CLR 1 Hospitality Group Pty Ltd v Australian Rugby Union Limited (2001) 110 FCR 157 Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) 110 FCR 157 Hurley v McDonalds Australia Ltd (2000) ATPR 41-741; [1999] FCA 1728 IRAF Pty Ltd v Graham [1982] 1 NSWLR 419 KA & C Smith Pty Ltd v Ward (1998) 45 NSWLR 702 LG Thorne & Co Ltd v Thomas Borthwick & Funds (Australasia) Ltd (1955) SR (NSW) 81 Lindner v Murdock’s Garage (1950) 83 CLR 628 Lockhart v GM Holden Ltd [2008] QSC 257 Mackay v Dick (1881) App Cas 251 McHugh v Australian Jockey Club Limited [2014] FCAFC 45 Meridian Retail Pty Ltd v Australian Unity Retail Network Pty Ltd [2006] VSC 223 Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 297 National Association of Local Government Officers v Bolton Corporation [1943] AC 166 Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 North Western Salt Co Ltd v Electrolytic Alkali Co Ltd [1914] AC 461 Northern Territory v Mengel (1995) 185 CLR 307 RPR Maintenance Pty Ltd v Marmax Investments Pty Ltd [2012] FCA 681 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Tonto Home Loans Australia Pty Ltd v Tavares (2011) 15 BPR 29,699; [2011] NSWCA 389 Town Investments Ltd v Department of Environment [1978] AC 359 Video Ezy International Pty Ltd v Sedema Pty Ltd [2014] NSWSC 143
Date of hearing:	24-28 March 2014, 2 April 2014
Date of last submissions:	2 April 2014
Place:	Sydney
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	320
Counsel for the Applicant:	Ms K Rees SC
Solicitor for the Applicant:	Newhouse & Arnold Solicitors
Counsel for the First Respondent:	Mr T J Rickard
Solicitor for the First Respondent:	Martin & Holmes Legal
Counsel for the Second Respondent:	Mr M P Cleary
Solicitor for the Second Respondent:	Elliot & Sochacki Lawyers

JUDGE:	GRIFFITHS J
DATE OF ORDER:	29 APRIL 2014
WHERE MADE:	SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 804 of 2012

JUDGE:	GRIFFITHS J
DATE:	29 APRIL 2014
PLACE:	SYDNEY

Introduction........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[1]
Summary of contractual agreements........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[6]
(a) The first and second RPR franchise agreements........ ........ ........ ........ ........ ........	[7]
The asserted option........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[26]
(b) Sub-franchise agreement between RPR, Spanline and Marmax........ ........ .......	[35]
(c) Sale of RPR’s Illawarra business to Marmax........ ........ ........ ........ ........ ........ ......	[48]
(d) Transfer of Business and Loan Agreement between RPR and Marmax........ ....	[49]
(e) The Byrnes buy into Marmax........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[62]
(f) Marmax franchise agreement with Spanline........ ........ ........ ........ ........ ........ .....	[63]
The facts surrounding the alleged breaches of contract........ ........ ........ ........ ........ ........ ...	[74]
2009........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[79]
2010........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[109]
2011........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[120]
The mediation/meeting in December 2011........ ........ ........ ........ ........ ........ ........ ........ ......	[123]
2012........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[140]
Exercise of asserted option........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[153]
Purported termination of the second RPR franchise agreement........ ........ ........ ........ .......	[156]
RPR’s proposed sale of its business........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[158]
Misleading or deceptive conduct........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[160]
Unconscionable conduct........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[163]
Damages........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[166]
The cross-claim........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[171]
Consideration........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[175]
(a) The central issue of construction........ ........ ........ ........ ........ ........ ........ ........ ........	[176]
(b) Implied terms and alleged breaches........ ........ ........ ........ ........ ........ ........ ........ ...	[202]
(c) Did Spanline perform its contractual obligations to RPR in respect of its exclusive franchise territory?........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[216]
(d) Lawfulness of Spanline’s ‘side deal’ with Marmax........ ........ ........ ........ ........ ..	[224]
(e) Did Spanline induce Marmax to breach the TBLA?........ ........ ........ ........ ........ ..	[228]
(f) The option issue........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[243]
(g) Was the second RPR franchise agreement validly terminated?........ ........ ........	[249]
(h) The proposed transfer to the Smiths and the reasonableness of Spanline’s conduct........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[251]
(i) Unconscionability........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[255]
(j) Misleading or deceptive conduct........ ........ ........ ........ ........ ........ ........ ........ .......	[261]
(k) RPR’s remedies against Spanline........ ........ ........ ........ ........ ........ ........ ........ ......	[262]
(l) Issues relating to the sub-franchise agreement........ ........ ........ ........ ........ ........ ...	[275]
(m) Issues relating to the TBLA........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[289]
(n) RPR’s remedies against Marmax........ ........ ........ ........ ........ ........ ........ ........ .......	[311]
(o) How are damages to be assessed?........ ........ ........ ........ ........ ........ ........ ........ ......	[317]
Conclusion........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[320]