Sunice v Wendy's Supa Sundaes - [1998] QSC 223

IN THE SUPREME COURT
OF QUEENSLAND
No. 8209 of 1998
Brisbane
Before White J
[Sunice v Wendy’s Supa Sundaes & Anor]
BETWEEN:

SUNICE PTY LTD (ACN 002 841 036) as Trustee of the SUNICE INVESTMENT TRUST
Plaintiff
AND:

WENDY’S SUPA SUNDAES (QLD) PTY LTD
(ACN 053 854 041)
First Defendant

AND:

WENDY’S SUPA SUNDAES PTY LTD
(ACN 007 897 994)
Second Defendant

AND:

HOLKSHAM PTY LTD (ACN 010 147 887)

Third Defendant

CATCHWORDS: Order 19 r.1 - whether trustee of fund - whether accounting parties - Order 19 r.3 - disputed issues of fact.

Counsel: Mr S Couper SC with him Mr I Erskine for applicant/plaintiff
Mr J Sheahan SC with him Mr P Flannagan for
respondents/first and second defendants.

Solicitors:Carl Blumen for the applicant
Flower & Hart for the respondents

Hearing Date: 15 October, 1998
REASONS FOR JUDGMENT - WHITE J

Judgment delivered 23 October 1998

The plaintiff is a franchisee who carries on a retail ice cream business under the name “Wendy’s Supa Sundaes” in 3 franchise premises in shopping centres in Brisbane. The second defendant is the national franchisor. The third defendant was the master franchisee for Queensland and assigned its interest in July 1997 to the first defendant which is the current master franchisee.
The plaintiff issued a writ on 4 September 1998 seeking, inter alia, injunctive relief restraining the first and second defendants from exercising rights of entry to shop premises pursuant to certain franchise agreements, damages and orders pursuant to the Trade Practices Act, damages for contractual breach and an account.
On 16 September the plaintiff issued a summons seeking an account pursuant to O.19 r.1 of the Rules of “all monies paid by the plaintiff in respect of Advertising Contribution to the First and Second Defendants pursuant to” 3 franchise agreements.
The defendants submit that such an order ought not be made summarily because the parties are not in an accounting relationship or, at the least, it is a question which must first be tried and that there are other contested issues which need to be resolved prior to the taking of an account.
The Terms of the Franchise Agreements
There is a franchise agreement relating to each of the 3 retail shops operated by the plaintiff dated respectively 8 November 1993, 24 March 1995 and 4 October 1996 (an agreement of 5 October 1992 was renewed on this date in respect of one of the shops). So far as is relevant to this inquiry the terms of the agreements are similar and during the hearing the agreement dated 8 November 1993 was used as the reference agreement.
The second defendant (“the national franchisor”) developed an image and technique for the marketing, preparation and sale of specialised ice cream and confection through dedicated ice cream parlours. The first defendant (originally the third defendant) (“the master franchisee”) entered into a Master Franchise Agreement with the National Franchisor which entitled the master franchisee to own, operate and franchise others in…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [1998] QSC 223
Decision Date: 23 October 1998

CaseChat Overview and Summary

In the case of Sunice v Wendy's Supa Sundaes, the plaintiff, a franchisee of Wendy’s Supa Sundaes, sought an account from the national franchisor and the master franchisee regarding the use of funds contributed to an advertising fund. The plaintiff argued that there was an express trust or a fiduciary relationship requiring the defendants to account for the use of advertising contributions. The defendants, however, maintained that the relationship was governed entirely by the terms of the franchise agreements and that there was no basis for an equitable intervention.

The central legal issue was whether the detailed contractual provisions between the parties precluded the imposition of an equitable duty to account for the advertising contributions. The court had to determine if the contractual relationship was so comprehensive that it left no room for additional fiduciary obligations, or if the nature of the advertising contributions could give rise to such duties. The court also considered whether there were factual disputes that needed resolution before an account could be ordered.

The court held that the detailed and specific terms of the franchise agreements between the parties effectively regulated all aspects of their relationship, leaving no room for the imposition of fiduciary duties such as an obligation to account. The agreements were precise in outlining the obligations and rights of each party, including the use of advertising contributions by the national franchisor. The court noted that unless the exact scope of the advertising contributions was clear, it would be impossible to conduct an account. Therefore, the court dismissed the plaintiff’s application, finding that the matter required further factual determination before any accounting could be ordered.

The court made no orders for costs, reflecting its view that the application was dismissed on the basis that further factual investigation was necessary.

Orders

Orders of the court

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Background

Background to the litigation

The second defendant (“the national franchisor”) developed an image and technique for the marketing, preparation and sale of specialised ice cream and confection through dedicated ice cream parlours. The first defendant (originally the third defendant) (“the master franchisee”) entered into a Master Franchise Agreement with the National Franchisor which entitled the master franchisee to own, operate and franchise others in Queensland. The national franchisor consented to the master franchisee granting a franchise to the plaintiff upon the terms and conditions set out in the agreements. The agreements are detailed and lengthy. Clause 5 of the November 1993 agreement concerns payments to be made by the plaintiff under that franchise agreement. By cl. 5.1 the plaintiff was required to pay to the master franchisee an initial non refundable franchise fee and by cl. 5.2 throughout the term a franchise service fee. Clause 5.3 concerns the advertising contribution which is the subject of the application for an account. It provides:“5.3.1The Franchisee shall pay to the Master Franchisee a contribution in respect of all advertising and marketing conducted by the National Franchisor or its agents during the Term in accordance with the calculation ...5.3.2The Master Franchisee shall pay the Advertising Contribution to the National Franchisor which shall use the Advertising Contribution for the development of advertising and promotional material and for advertising at the sole discretion of the National Franchisor.5.3.3The National Franchisor shall establish a separate bank account (“the Advertising Fund”) and shall operate such account, as a pooled trust account for all Wendys franchisees, to pay the costs of developing and publishing advertising and promotional material in such manner as the National Franchisor, in its sole discretion, deems appropriate for the benefit of all Wendy’s franchisees. Upon winding up of the Advertising Fund each such franchisee is to have a proportionate interest in the Advertising Fund (after payment of moneys expended pursuant to this clause) equal to the proportion to which its Advertising Contribution for the preceding month is a proportion of the aggregate Advertising Contribution from all Wendys franchisees for that month.5.3.4The National Franchisor shall apply the Advertising Contribution exclusively for the development and publication of Wendys advertising and promotions, including such advertising agency fees and reasonable costs as the National Franchisor may incur in connection with the administration of the Advertising Fund.5.3.5The National Franchisor may at its sole discretion from to time advance moneys to the Advertising Fund which moneys shall be refundable to the National Franchisor out of the Advertising Fund at the sole discretion of the National Franchisor and repayment of such moneys shall be a proper payment of advertising expenses pursuant to this clause. The Franchisee acknowledges and agrees that the total contributions to the Advertising Fund need not be spent in the year in which such contributions are received, and that a reasonable reserve may be accumulated in the Advertising Fund, and further acknowledges that upon the termination of this Agreement the Franchisee shall not be entitled to claim any part of the moneys standing in the Advertising Fund.5.3.6The Franchisee acknowledges and agrees that the National Franchisor is entitled to administer the Advertising Fund as it deems appropriate and is not obliged to expend a proportionate part of the contributions in any area or on behalf of any particular franchisee. The National Franchisor hereby agrees that no moneys in the Advertising Fund shall be invested in or lent to the National Franchisor or any company related thereto or invested in any prescribed interest provided that nothing herein shall prohibit payment of costs and expenses or repayment of loans properly made pursuant to this clause.5.3.7The National Franchisor shall be entitled to delegate its responsibilities contained in this clause to one or more persons of its choosing. The National Franchisor agrees to keep a proper set of books of account in relation to moneys paid to it for Advertising Fund contributions and to accurately maintain them at all times.5.3.8...5.3.9...”Background Facts

Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

The plaintiff contends for an express trust or, alternatively, some other fiduciary relationship between the parties which gives rise to an obligation to account. The defendants on the other hand submit that the relationship between them is defined and governed entirely by the detailed provisions of the franchise agreement and that equitable relationships have no part to play. That there is a contractual relationship is not inimical to a fiduciary relationship, but if such a relationship is to exist it must accommodate itself to the terms of the contract, Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 per Mason J at p. 97. The national franchisor may use the advertising contribution at its sole discretion limited only by the purpose for which it is paid, cl. 5.3.2, 5.3.3 and 5.3.4. Clause 7 sets out the general obligations of the national franchisor and the master franchisee to the franchisee covering matters such as training, setting up an operation, management advice, convening of meetings, and indemnity with respect to trademarks and other litigation concerning the master franchisee. On the other hand the franchisee’s obligations in cl. 6 are detailed and lengthy (24 pages) and include an obligation to keep records with specificity. The franchisee is obliged to render a weekly report of receipts and expenses to the master franchisee, annual certified financial statements, and to submit to an audit without notice by the master franchisee, and inspection of its books and records at any time. The national franchisor is required by cl. 5.3.7 to “keep a proper set of books of account in relation to monies paid to it for Advertising Fund contributions and to accurately maintain them at all times”. The national franchisee is expressly not obliged to operate the advertising fund evenhandedly between the franchisees or in any geographical area, cl. 5.3.6 and the expenditure is plainly for the benefit of the franchisee, the master franchisee and the national franchisor. The agreement is described as constituting the entire agreement and understanding between the parties and excludes any implied terms save for statutory imposition, cl. 12.11 and cl.12.19. I would conclude in a prima facie way without finally deciding the matter, that the contractual relationship between the parties is so precise in its regulation of what each party may do that there is no scope for the creation of a fiduciary duty such as to give rise to the right to an account. I think it unnecessary to deal with Mr Sheahan’s other point, that on a proper construction of the agreement, it is the master franchisee who is entitled to enforce any trust with respect to the advertising fund and not the plaintiff franchisee. Even if it were clear beyond argument that the parties were in a relationship so as to entitle the plaintiff to an account there are issues which, in my view, ought to be decided by trial before that might be ordered. There is a dispute on the affidavits as to the categories of expenditure which are encompassed by cl. 5, Keam, paras 28 and 36, and Wall, affidavit of 9 October 1998, paras 11 and 12. The clause itself variously describes the use to which the advertising fund may be put. In cl. 5.3.1: “in respect of all advertising and marketing conducted by the National Franchisor”; cl. 5.3.2: “for the development of advertising and promotional material and for advertising”; and cl. 5.3.4: “exclusively for the development and publication of Wendys advertising and promotions, including such advertising agency fees and reasonable costs as the National Franchisor may incur in connection with the administration of the Advertising Fund”. Unless the person conducting the account knows with certainty what line items which are the subject of challenge fall within cl. 5 and what do not, that person will be unable to carry out the task, Rockhampton Permanent Building Society v Petersen [1986] 1 Qd R 128 per Connolly J at p. 130.