Sec New Line Pty Ltd v Muffin Break Pty Ltd
[2025] VSC 183
•10 April 2025
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
S ECI 2024 02962
| SEC NEW LINE PTY LTD (ACN 635 105 350) & ANOR (according to the attached Schedule) | Appellants |
| v | |
| MUFFIN BREAK PTY LTD (ACN 007 192 529) | Respondent |
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JUDGE: | K Judd J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 14 March 2025 |
DATE OF JUDGMENT: | 10 April 2025 |
CASE MAY BE CITED AS: | SEC New Line Pty Ltd v Muffin Break Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2025] VSC 183 |
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MISLEADING OR DECEPTIVE CONDUCT — Appeal from Magistrates’ Court — Franchise and licence agreements — Effect of silence or inaction — Lost opportunity — Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellants | Mr T Sowden | ALT Legal Associates |
| For the Respondent | Mr H R Watkins | Holding Redlich |
TABLE OF CONTENTS
Factual background........................................................................................................................... 1
Magistrates’ Court proceeding........................................................................................................ 4
Appeal to Supreme Court................................................................................................................. 4
Amended ground 1............................................................................................................................ 7
Appellants’ submissions.............................................................................................................. 7
Respondent’s submissions........................................................................................................... 8
Consideration................................................................................................................................ 9
Amended ground 3.......................................................................................................................... 12
Appellants’ submissions............................................................................................................ 12
Respondent’s submissions......................................................................................................... 13
Consideration.............................................................................................................................. 13
Amended ground 5.......................................................................................................................... 15
Appellants’ submissions............................................................................................................ 15
Respondent’s submissions......................................................................................................... 15
Consideration.............................................................................................................................. 16
Conclusion......................................................................................................................................... 18
HER HONOUR:
The first appellant, SEC New Line Pty Ltd (SEC), was a Muffin Break franchisee who had operated from premises in Frankston, Victoria. The second appellant, Dongbiao Su, is the sole director and shareholder of SEC. The respondent, Muffin Break Pty Ltd (Muffin Break), was the franchisor.
Factual background
The factual background is not in dispute.
On 17 September 2019, SEC entered into an agreement to buy into a Muffin Break franchise situated on level 2 of the Bayside Shopping Centre in Frankston (the Frankston premises). A franchise agreement and a licence agreement were executed on 27 September 2019, both of which had a commencement date of 17 September 2019 and an expiration date of 8 September 2020.
The expiration date of 8 September 2020 was one day prior to the expiration of the lease that Muffin Break had with the landlord of the Frankston premises (the landlord). The lease between the landlord and Muffin Break (the lease) was managed for the landlord by Vicinity Centres Real Estate Pty Ltd (Vicinity).
SEC provided a bank guarantee to the landlord, as required by the terms of the licence agreement, to meet Muffin Break’s obligation to pay a security deposit under the lease (the bank guarantee). The bank guarantee was in the sum of $21,450.84.
In December 2019, it became apparent that the chilled food cabinet at the Frankston premises needed to be replaced. Mr Su indicated that he would be prepared to replace the cabinet if an early renewal of the lease could be obtained.
On 11 December 2019, Mr Borsboom, who was acting on behalf of Muffin Break for Foodco Group Pty Limited (Foodco), the sole shareholder of Muffin Break, sent an email to Mr Norris at Vicinity stating:
Thank you for returning my call.
As discussed, the health department has condemned our chilled cabinet display, it is over 20 years old and no longer fit for purpose, they have advised us that they will hold off on any further action until after Christmas. As we only have 9 months remaining on the lease our franchisee won’t invest in new ones without lease tenure, are we able to look at terms for an early renewal.
If we are unable to resolve, we may be looking at an early closure & defit after Christmas.
On 10 January 2020, Mr Norris sent a reply email (10 January 2020 email) stating:
…unfortunately we are not able to offer any longer term at [sic] to anyone on level 2 as we are currently working through a future strategy on whether it will continue as a food court or if we will repurpose the space.
We will not have an answer from the business until the end of April on this, are Muffin Break able to use a fridge from another store that has recently closed?
Muffin Break did not inform SEC and Mr Su of the 10 January 2020 email.
On 2 March 2020, Vicinity served on Muffin Break a notice of intention not to renew the existing lease of the Frankston premises (2 March 2020 notice). SEC and Mr Su were not informed of the 2 March 2020 notice until July 2020.
By email dated 4 March 2020, the National Business Manager of Muffin Break at Foodco advised Foodco’s legal counsel that there were no issues with franchise renewal reminders being sent but, in respect of the Frankston premises:
We will likely go into holdover or a short term lease agreement, and its [sic] possible we will close so may affect the letter you issue.
On 6 March 2020, Muffin Break sent Mr Su a letter (6 March 2020 letter) offering to renew the franchise agreement on the terms and conditions contained in the letter. The offer was expressly conditional upon:
(a) Muffin Break entering into a new lease or variation of lease with the landlord on acceptable terms;
(b) the landlord not terminating the lease once the lease expired on 9 September 2020; and
(c) SEC not being in breach of any franchise agreement, license agreement or other agreement related to the operation of the Muffin Break franchise business.
On 16 March 2020 a State of Emergency was declared in Victoria due to COVID-19, with restrictions following on an off for many months.
On 18 March 2020, Muffin Break received an email from Vicinity which included the following:
Thanks for your time on the phone on Monday, as discussed our long term plan for Muffin Break would be to offer a site within the fresh food mall on level 1.
On 7 July 2020, Muffin Break informed SEC and Mr Su of the landlord’s intention to not renew the lease. There was potential for a relocation to new premises, but the cost for the relocation would be in the vicinity of $220,000-$270,000.
On 8 July 2020, Mr Su emailed Muffin Break stating ‘I have no problem with closing the shop and defit [sic] it’.
Following this there were some lease extension negotiations and proposals.
SEC did not accept the lease extension proposals. The franchise agreement and licence agreement ended on 8 September 2020.
On 16 September 2020, Muffin Break negotiated a de-fit payment with the landlord in the amount of $14,300.
On 24 May 2022, Muffin Break received a letter of demand from the landlord in respect of unpaid fees under the lease. The unpaid fees included the sum of $14,300 for ‘make good costs’. Muffin Break forwarded that letter of demand to SEC.
On or about 29 June 2022, the landlord called upon the bank guarantee and applied it to the unpaid lease fees, leaving a residual amount of $6,331.16. The residual amount was paid by Muffin Break to the landlord.
On 29 April 2024, a certificate as to liability was issued pursuant to clause 20.8 of the franchise agreement, certifying that the sum of $6,331.16 in respect of lease payments owed under the franchise agreement and licence agreement remained outstanding and unpaid by SEC.
Magistrates’ Court proceeding
On 14 May 2021, SEC made a complaint in the Magistrates’ Court against Muffin Break, essentially alleging that Muffin Break had engaged in misleading and deceptive conduct within the meaning of s 18 of Schedule 2 of the Competition and Consumer Act 2010 (Cth) (‘Australian Consumer Law’).
On 1 July 2022, Muffin Break filed a counterclaim against SEC[1] and Mr Su[2] for outstanding rent and outgoings. The specific amount claimed was particularised as $6,331.16 with interest, being the residual for outstanding rent and outgoings after the application of the bank guarantee.
[1]As licensee and franchisee.
[2]As guarantor, pursuant to a guarantee contained in clause 14 of the licence agreement and clause 20.1 of the franchise agreement.
On 14 May 2024, the Magistrates’ Court constituted by his Honour Magistrate Tan made the following orders:
1. That the complaint against Muffin Break be dismissed.
2. That SEC pay Muffin Break $5,623.43[3] and interest of $1,368.11.
3. That Mr Su pay Muffin Break $5,623.43 and interest of $1,368.11.
[3]The Magistrate reduced the claim of $6,331.16 by $707.73 so as to deduct charges which had been made for a ‘grease trap’. This issue was not relevant to the appeal to this Court.
Cost orders were also made and a stay of 30 days was granted.
Appeal to Supreme Court
On 12 June 2024, SEC and Mr Su filed a notice of appeal seeking to appeal the judgment and final orders made by Magistrate Tan on 14 May 2024, pursuant to s 109 of the Magistrates’ Court Act 1989.
Five questions of law were identified and under cover of those questions of law, five separate grounds of appeal were identified.
On 16 September 2024, Muffin Break filed a summons seeking, relevantly, that the appeal be summarily dismissed. The application for summary dismissal was in large part founded upon deficiencies in the pleaded grounds of appeal.
The summons was heard by Irving AsJ who concluded that the grounds of appeal did not clearly articulate the specific error or errors said to have been made by the Magistrate and, as a consequence, had no real prospect of success.[4] Irving AsJ ordered that the grounds of appeal be struck out. Leave was granted to the appellants to file and serve an amended notice of appeal.
[4]Sec New Line Pty Ltd v Muffin Break Pty Ltd [2024] VSC 728.
On 3 February 2025, an amended notice of appeal was filed, merging the questions of law with reformulated grounds of appeal. Grounds 2 and 4 were not reformulated or further pressed in the appeal.
The questions of law and grounds of appeal were as follows:
Amended Ground 1 – The learned Magistrate erred in law in finding that the Respondent, who had entered into a lease of premises at Shop F001 Bayside Shopping Centre which it licensed to the First Appellant under the terms of a franchise agreement, was not under duty to disclose to the First Appellant:
(a)the contents of an email dated 10 January 2020 from the landlord to the Respondent stating that the landlord was not able to extend the term of the lease; and
(b)a Non-Renewal Notice from the landlord to the Respondent dated 2 March 2020;
and that its conduct was not misleading and deceptive in contravention of section 18 of the Australian Consumer Law 2010 as that provision has been applied in such cases as Demagogue Pty Ltd v Ramensky [1992] FCA 557 (“Demagogue”) in circumstances where:
(i)section 64 of the Retail Leases Act 2003 requires a landlord to notify a tenant at least 6 months before the end of a lease that it will either offer a new lease or that it will not be renewing the lease; and
(ii)by letter dated 6 March 2020 the Respondent had written to the Appellant offering to enter into a new franchise agreement for a term commencing after the lease was due to expire.
The Appellants say that the Magistrate erred in construing and applying the facts to the requirements of Section 18 of the Australian Consumer Law, in accordance with the principles enunciated by the Federal Court in Demagogue.
Amended Ground 3 – The learned Magistrate erred in concluding that the First Appellant was not entitled to an award of damages (as even if the Respondent’s conduct had been misleading and deceptive) and thereby misapplied the law relating to lost opportunities as enunciated in Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 and Lanhai v & 7-Eleven Stores [2022] VSC 132 in that he failed to take into account, or make allowances for, circumstances where a wrongdoer has prevented the victim from pursuing an opportunity because the wrongdoer “has thrust the victim into a difficult task of proving a past hypothetical” and instead rejected the First Appellant’s uncontradicted evidence (that it would have taken immediate steps to sell the business had it been properly apprised of the matters referred to in ground 1 above) without considering what it might have done had it been properly apprised of the matters referred to in ground 1 above.
Amended Ground 5 – The learned Magistrate erred in finding that the Respondent had made out its counterclaim when:
(a) there was no evidence to support his finding that the First Appellant was required to undertake a “de-fit” of the premises (as opposed to a “reinstatement” of the premises and noting the premises were not nor could be reinstated as they were demolished after the end of the lease); and
(b) further and alternatively, there was no evidence that the amount forfeited from the deposit by the Respondent and paid to the landlord, namely, $14,300, was either actually incurred or represented a reasonable sum for reinstating the premises; and
(c) further and alternatively in acceding to the landlord’s demand for compensation for a de-fit the Respondent failed to consult or have regard to the legitimate interests of the Appellant (noting the matters raised at subparagraphs 5(a) and (b) above. His Honour ought to have found that in doing so the Respondent had breached the duty of good faith it owed the Appellant under the Franchise Code and the Franchise Agreement.
Counsel for Muffin Break raised a number of concerns about the amended notice of appeal and the grounds of appeal. There is some force to the concerns raised. In particular, I accept the submission by counsel for Muffin Break that:
Each of the asserted grounds are prolix and convoluted such that the observations of Justice Beach are apposite – namely:
If a question of law arising from a tribunal’s determination cannot be stated succinctly and precisely ... one tends to suspect that in reality no real question of law is raised by the tribunal’s decision.[5]
[5]Respondent, ‘Respondent’s Submissions’, 21 February 2025, [13], quoting Gray v State of Victoria [2000] VSC 342, [9] (Beach J).
I am satisfied that the reformulated grounds do not address the concerns that were the subject of the decision by Irving AsJ.
I am also satisfied that on the face of the reformulated grounds, as best as can be gleaned, the attack sought to be made by the appellants is an attack on the factual findings of the Magistrate.
These conclusions would be sufficient of themselves to dispose of the appeal.
A detailed consideration of the submissions made by the parties in respect of the purported grounds of appeal also leads to a conclusion that the appeal must be dismissed.
Amended ground 1
Appellants’ submissions
Pursuant to this ground, the appellants essentially submitted that because the Magistrate did not conclude that misleading or deceptive conduct had been engaged in, as had been concluded in Demagogue Pty Ltd v Ramensky (‘Demagogue’),[6] there must be an error.
[6](1992) 39 FCR 31 (‘Demagogue’).
Such misleading or deceptive conduct was said to occur by reason of the respondent offering to renew the franchise agreement[7] without disclosing the contents of the 10 January 2020 email and the 2 March 2020 notice.
[7]By sending the 6 March 2020 letter.
In the course of the appeal, counsel for the appellants articulated the ground of appeal as being that the Magistrate did not apply the test as laid down in Demagogue. The appellants said that the following passage from Demagogue set out the applicable test:
If in a particular case silence would, as a matter of fact, constitute misleading or deceptive conduct, s 52 by virtue of its prohibition of such conduct imposes its own statutory duty to make disclosure. The cases in which silence may be so characterised are no doubt many and various and it would be dangerous to essay any principle by which they might be exhaustively defined. However, unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed, it is difficult to see how mere silence could support the inference that the fact does not exist.[8]
[8]Demagogue, 41 quoting KimberleyNZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 53,193, 53,195 (French J).
It was submitted that:
(a) if the Magistrate had applied the reasonable expectation test as set out in that passage, it would necessarily follow that misleading or deceptive conduct had occurred, because if you put yourself in the position of the appellants or a reasonable franchisee, one would have a reasonable expectation of disclosure; and
(b) the following passage from the Magistrates’ reasons ‘turned the test on its head’:
I am not of the view that silence or an offer of a new franchise agreement or the ability to sell the business could cause or be likely to cause one to be of the impression that the landlord has not given a notice to not renew the lease.
Respondent’s submissions
Muffin Break submitted that the Magistrate did not fall into error in his decision because:
(a) The question of whether particular conduct is or is not misleading or deceptive is a question of fact and the conclusions reached were open to the Magistrate.
(b) Magistrate Tan clearly considered the circumstances which can give rise to a reasonable expectation of disclosure such that silence would be misleading or deceptive.
(c) His Honour then considered and applied the relevant principles of law and concluded that no such expectation arose in this case because:
(i) There were no circumstances that gave rise to such a ‘reasonable expectation’ including that there were not any direct representations given about the prospects of renewal or the lack of any notice which would have created such an expectation;
(ii) The 6 March 2020 letter was not misleading or deceptive as it was expressly subject to obtaining a lease and did not represent that no notice of intent had been given;
(iii) The silence in respect of the 2 March 2020 notice could not and was not likely to lead Mr Su to believe something substantially different to what he understood prior to 3 February 2020 (as he knew the lease was expiring absent a renewal); and
(iv) Mr Su was aware of the term of the lease and that it would end on 8 September 2020.
(d) The Magistrate did not stray from the ‘objective nature’ of the test. The Magistrate reached the (factual) conclusion that the 2 March 2020 notice was not ‘a situation where the chance of renewal of the lease had been totally extinguished and a renewal was no longer a possibility’.
(e) The appellants’ pleaded case was of a ‘continued representation’ by silence and it was both acknowledged by Mr Su and found by his Honour that no representation was included in the original letter, nor did an obligation to inform arise.
Consideration
The primary question for the Magistrate to determine was whether there had been conduct that was misleading or deceptive or likely to mislead or deceive. That question was a question of fact to be determined having regard to all of the relevant circumstances. The factual matrix may include silence, but silence is to be assessed as a circumstance like any other.[9]
[9]Demagogue, 31-32 (Black CJ), 40-41 (Gummow J); Lanhai Pty Ltd v 7-Eleven Stores Pty Ltd [2022] VSC 132, [93] quoting Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592, 625 [109] (McHugh J); Miller and Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357, 368-371 [14]-[23] (French CJ and Kiefel J), 384-385 [91] (Heydon, Crennan, and Bell JJ); Australian Competition and Consumer Commission v Telstra Corporation Ltd (2004) 208 ALR 459, 475 [49] (Gyles J).
The passage relied on by the appellants, that—
…unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed, it is difficult to see how mere silence could support the inference that the fact does not exist
does not create a test in and of itself, which, if satisfied, leads to a conclusion that misleading or deceptive conduct has occurred.
The reasons of the Magistrate demonstrate that his Honour clearly understood the relevant principles of law and appropriately applied those principles to the facts of this case.
The Magistrate proceeded on the basis[10] that:
[10]Relying on passages from Lanhai Pty Ltd v 7-Eleven Stores Pty Ltd [2022] VSC 132, and Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 (McHugh J).
(a) the question of whether conduct is misleading or deceptive is a question of fact;
(b) the task of the court is to examine the course of conduct as a whole and in light of the relevant facts and circumstances;
(c) the question is objective and one which the court must determine for itself;
(d) the effect of silence or inaction must be deduced from the whole course of conduct; and
(e) where the alleged contravention relates primarily to a document, the effect of the document must be examined in the context of the evidence as a whole.
Insofar as there is a complaint on appeal that the Magistrate ‘turned the test on its head’ by concluding:
I am not of the view that silence or an offer of a new franchise agreement or the ability to sell the business could cause or be likely to cause one to be of the impression that the landlord has not given a notice to not renew the lease
this was no more than a conclusion in response to the submissions that had been made by the appellants to the Magistrate, namely:
… that the net effect of the [6 March 2020 letter] is to suggest that that no notice [from the landlord not to renew the lease] had been received, and that the prospect of a renewal was still on the table. [SEC] submits that the letter of 6 March 2020 contains a positive representation that a new term to the franchise agreement would be granted, and that this would allow the franchisee either to continue operating the franchise business or to sell it with a new term, and a representation then conveyed by silence that the landlord had not elected to end the lease.
The Magistrate clearly articulated that:
(a) he did not agree with the submissions that had been made by the appellants;
(b) the import to be given to the 6 March 2020 letter had to be determined in light of the relevant surrounding facts and circumstances, and not in isolation; and
(c) the 6 March 2020 letter was subject to conditions, one of which was Muffin Break entering into a new lease or variation of lease with the lessor on acceptable terms.
The Magistrate further indicated that he did not assess the 2 March 2020 notice as equating ‘to a situation where the chance of a renewal of the lease had been totally extinguished and a renewal was no longer a possibility’. The 10 January 2020 email talked of a future strategy on level 2 and noted that there were ongoing negotiations and communication about alternative sites. Added to this was Mr Su’s understanding:
(a) that the term of the franchise agreement expired on 8 September 2020;
(b) that a renewal of the lease with the landlord had not been obtained;
(c) that there were no guarantees that a renewal of the lease would be forthcoming; and
(d) that, in the absence of being told anything further, the business was coming to an end on 8 September 2020.
Insofar as it is complained that the Magistrate did not properly apply Demagogue or reach the same conclusion as was reached in Demagogue, the Magistrate appropriately concluded:
Looking at the facts of [Demagogue], it was unsurprising to me that the court found misleading and deceptive conduct from the silence and a failure to alert a purchaser of real estate … that a road licence was required in order to utilise a driveway for vehicle access …
This was because, in my view, and as the court also found, that it was an unusual and unexpected circumstance where one might ordinarily expect that a driveway can be utilised without the need for a road licence. A failure to alert this circumstance can well be understood to be misleading and deceptive conduct.
I am not persuaded that there is any merit to ground 1 on the basis that:
(a) the learned Magistrate did not err in his articulation of the relevant legal principles;
(b) whether the particular conduct complained of in this matter constituted misleading or deceptive conduct was a question of fact; and
(c) the conclusions reached by the Magistrate were clearly open to him.
Amended ground 3
Appellants’ submissions
Pursuant to this ground, the appellants challenged the Magistrate’s rejection of evidence relating to ‘a lost opportunity,’ submitting that ‘the rejection of Mr Chang and Mr Su’s evidence was not available on the evidence’.
The appellants also submitted that:
Given the hypothetical and evaluative nature of the process, the rejection of the evidence of the appellants and their witnesses did not relieve the learned Magistrate from engaging in an assessment of damages even if that assessment was determined “by reference to the degree of probabilities and possibilities of hypothesis [and] required a process of estimation extending even to a degree of guesswork”.
Respondent’s submissions
Muffin break submitted that:
(a) the Magistrate was not bound to accept the evidence of the appellants, and as such was not required to proceed on the basis that there was a ‘lost opportunity’;
(b) if there was no lost opportunity, there was no loss;
(c) if there was no loss, there was no need for the Magistrate to proceed to evaluate the value of an opportunity he had found did not exist.
Consideration
The Magistrate determined that even if he had found that Muffin Break had engaged in misleading or deceptive conduct, he was not of the view that any damage or loss flowed from such conduct.
The alleged damage and loss was said to flow by reason of SEC losing an opportunity to sell the franchise business to Mr Chang. The appellants’ case was that if they had known about the landlord’s intention to not renew the lease, then the business would have been sold to Mr Chang.
The appellants relied on Mr Chang’s wife’s evidence that ‘if [her] husband had been offered the opportunity to purchase the business in 2020 before COVID set in, [she] would have encouraged him to do so.’
The Magistrate said:
As I understand it, [SEC’s] case is that in the short window of opportunity between 2 March 2020, or maybe earlier, and the second half of March 2020, when the impact of COVID became more entrenched, [SEC] would have been able to sell the franchise business to Mr Chang, and indeed, this is what it would have done.
Hence, because of [Muffin Break’s] conduct, [SEC] had lost the opportunity to sell the business and its chattels. I simply do not accept and I reject what is asserted here.
The Magistrate gave a number of reasons for rejecting the assertions and associated evidence, including:
If I was to accept what Mr Su and Mr Chang are asserting, I would have to accept that Mr Chang, a person who gives his occupation as a businessman, was attracted by and would have paid $50,000 for a 6-month franchise without examining the financials, just relying on his wife, who was working one or two days per week, and her perception as to the business profitability.
…
I would then have to accept that Mr Chang, notwithstanding what it cost Mr Su to purchase a 12-month franchise, that he would, without hesitation, as he says … pay $50,000 for a six-month franchise where the landlord has now served a notice to not renew the lease.
…
If Mr Chang was indeed in a position to invest in another business, I would have expected that he would have explored what other business options were available that may have been more favourable.
It was open to the Magistrate to reject the evidence of both Mr Su and Mr Chang. A court is not bound to accept evidence, even uncontradicted evidence,[11] especially when the nature and substance of the evidence is such as to ‘justify disbelief’.[12] Accordingly, I do not accept the appellants’ contention that it was not open to the Magistrate to reject the evidence of Mr Su and Mr Chang.
[11]Hutchinson v Van Den Berg [2024] SASCA 117 at [117].
[12]Quinn v Shepard [1921] VLR 555, 559 (Schutt J).
I also reject the appellants’ further submission that the rejection of the evidence of the appellants and their witnesses did not relieve the learned Magistrate from engaging in an assessment of damages. As stated by Barrett AJA in Mal Owen Consulting Pty Ltd v Ashcroft:
The court’s task, in relation to the issue of causation, is thus to assess the prospects of success of the opportunity had it been pursued. Such an assessment depends on proof by a plaintiff according to the balance of probabilities that he or she has sustained some loss or damage because deprived of an opportunity having value beyond merely theoretical or negligible value.
…
The process just described goes to the issue of causation. It represents the first of what the joint judgment in Sellars v Adelaide Petroleum NL identified as two distinct stages relevant to the resolution of a case such as the present. … The second stage becomes relevant only if causation is established at the first.
…
It is only if the second stage is reached (after causation is established at the first) that anything approaching particular quantification is required. An assessment made at the second stage by reference to the degree of probabilities and possibilities of factual hypotheses may require a process of estimation extending even to a degree of guesswork and may lie at any point within a broad range.[13]
[13](2018) 97 NSWLR 1163, 1184-1185 [99]-[101] (Barrett AJA).
I am not persuaded that there is any merit to ground 3.
Amended ground 5
Appellants’ submissions
The appellants’ articulated fifth ground of appeal was somewhat broader than the way that this ground was argued orally. The appellants submitted that they were not contractually liable to pay the amount claimed by way of counterclaim as it essentially consisted of monies paid by Muffin Break to the landlord for a ‘de-fit’.
The appellants contended that there was no evidence to support the finding of the Magistrate that SEC was required to undertake a de-fit of the premises. All the licensee had to do was to reinstate the condition of the premises as they were at the commencement of the lease. That lease commenced in 2015 at a time when it had been fully fitted out and minimal alterations had been made. As there was no obligation to de-fit, it was improper for Muffin Break to hand over $14,300 to the landlord and then call upon SEC to pay it.
Respondent’s submissions
The respondent submitted that the appellants were simply challenging the factual findings of the Magistrate.
The Magistrate had before him copies of the franchise agreement, licence agreement and lease agreement. His Honour was taken through these provisions in detail and concluded that there was an obligation on SEC to pay for all amounts properly payable to the landlord and that such amounts appropriately included monies necessary to de-fit and reinstate the premises to the landlord under the lease.
Consideration
Clause 4.4 of the licence agreement provided that SEC must reimburse Muffin Break upon demand for all payments of any kind made by Muffin Break pursuant to the terms of the lease, which SEC is liable under the licence agreement.
The Magistrate accepted that a demand was made and that clause 4.4 of the licence agreement became applicable.
As to SEC’s liability under the licence agreement, pursuant to clause 5.1, SEC agreed to observe and promptly perform such of Muffin Break’s covenants and obligations under the lease, as are applicable to the premises.
The Magistrate concluded that Muffin Break did have an obligation to pay unpaid fees under the lease and that such unpaid fees appropriately included ‘monies expended to de-fit and reinstate the premises to the landlord under the lease’.
That obligation arose from clause 12.12 of the lease which states –
(a) At the end of this lease [Muffin Break] must:
(i)surrender and yield up the Premises, the Centre Services in the Premises and the Landlord’s Property in a condition in accordance with the terms of this lease and in proper working order;
(ii)remove the Tenant’s Property from the Premises in a proper and workmanlike manner (beginning no more than one week before the end of the lease);
(iii)subject to clause 12.12(b), reinstate any alterations made to the Premises by the Tenant so that the Premises are in the same condition as before the alterations were made; and
(iv)return to the Landlord the Landlord’s Property including all keys and/or security passes to the Premises and the Centre.
(b) Despite clause 12.12(a), if:
(i)the Landlord and the Tenant agree in writing; and
(ii)the Tenant pays to the Landlord an amount agreed between the Landlord and the Tenant for the purposes of this clause 12.12,
the Landlord may waive the Tenant’s obligations under this clause 12.12 in whole or in part.
The Magistrate not only concluded that ‘there would have needed to be monies expended to de-fit and reinstate the premises to the landlord under the lease’ but that a lump sum figure in this regard was negotiated by Muffin Break in good faith (as was permitted by paragraph (b) of clause 12.12 of the lease).
These findings were open to his Honour.
It may have also been possible for his Honour to utilise a path of reasoning that relied on clause 5.18.1 of the licence agreement which provided for reinstatement of the premises ‘to the original and former state as at the commencement date of the initial lease’. The appellants’ submissions under this ground were more directed to the interpretation that should be given to this clause, rather than the clauses relied on by his Honour. For example it was submitted that:
(a) clause 5.18.1 provided for a ‘reinstatement’ rather than a ‘de-fit’; and that
(b) evidence had been given that any reinstatement obligations would have been cosmetic.
I am not persuaded that the appellants’ submissions on this point ought be accepted, especially as a distinction needs to be made between the original and former state as at the commencement of the ‘initial lease’ as opposed to the original and former state as at the commencement of the licence agreement between Muffin Break and SEC. However, it is not necessary for me to finally determine this point, as the Magistrate, similarly, did not need to determine this point.
For the reasons already given, there is no merit to ground 5.
Conclusion
The appeal will be dismissed.
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SCHEDULE OF PARTIES
S ECI 2024 02962
BETWEEN:
| SEC NEW LINE PTY LTD (ACN 635 105 350) | First Appellant |
| - and - | |
| DONGBIAO SU | Second Appellant |
| - v - | |
| MUFFIN BREAK PTY LTD (ACN 007 192 529) | Respondent |
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