Testel Aust P/L v Rickard & Ors - [2017] SADC 31

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
TESTEL AUST P/L v RICKARD & ORS
[2017] SADC 31
Judgment of His Honour Judge Chivell
7 April 2017
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH - REPUDIATION AND NON-PERFORMANCE - REPUDIATION - WHAT AMOUNTS TO REPUDIATION
TRADE AND COMMERCE - TRADE AND COMMERCE GENERALLY - RESTRAINT OF TRADE - RESTRAINT BY AGREEMENT - VALIDITY AND REASONABLENESS - IN GENERAL - VALIDITY
TRADE AND COMMERCE - OTHER REGULATION OF TRADE OR COMMERCE - RESTRAINTS OF TRADE - ENFORCEMENT OF AGREEMENT - REMEDIES FOR BREACH OF AGREEMENT - DAMAGES
TRADE AND COMMERCE - TRADE PRACTICES ACT 1974 (CTH) AND RELATED LEGISLATION - ENFORCEMENT AND REMEDIES
TRADE AND COMMERCE - TRADE PRACTICES ACT 1974 (CTH) AND RELATED LEGISLATION - ENFORCEMENT AND REMEDIES - OTHER ORDERS OR RELIEF - DECLARATIONS - THAT AGREEMENT VOID OR VOID AB INITIO
TRADE AND COMMERCE - COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION - CONSUMER PROTECTION - UNCONSCIONABLE CONDUCT
TORTS - MISCELLANEOUS TORTS - INTERFERENCE WITH CONTRACTUAL AND OTHER RELATIONS
DAMAGES - GENERAL PRINCIPLES - EXEMPLARY, PUNITIVE AND AGGRAVATED DAMAGES
DAMAGES - MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS FOR TORT - MEASURE OF DAMAGES
DAMAGES - MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS FOR BREACH OF CONTRACT - REMOTENESS AND CAUSATION - LOSS OF PROFITS
EQUITY - EQUITABLE REMEDIES - ACCOUNTS AND INQUIRIES - GENERALLY
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - INJUNCTIONS FOR PARTICULAR PURPOSES - IN AID OF A LEGAL RIGHT
In 2004 Testel Australia Pty Ltd, T & T Rickard Pty Ltd, and Troy Rickard as guarantor, executed a franchise deed under which Testel granted to T & T Rickard a non-exclusive franchise in relation to its electrical testing business. The deed was renewed in similar terms in 2007 and 2010. T & T Rickard was deregistered in 2012.
Testel sues Troy Rickard as guarantor of T & T Rickard alleging breach of the restraint covenant in the deed. It is alleged that Troy Rickard became engaged, concerned in or interested in the business of Active Safety Services Pty Ltd, a company operating a business substantially the same as, and in competition with, Testel during the restraint period.
Testel also sues Troy Rickard as guarantor of T & T Rickard for other breaches of the franchise deed and for breach of a duty to maintain confidentiality of its information.
Testel sues Active and its director, Rowan Wilson, for interfering in the contractual relationship between Testel and T & T Rickard. In the alternative, Testel seeks restitutional damages in equity, alleging that Active and Rowan Wilson were unjustly enriched by their actions. Alternatively, it seeks an account of profits. Testel also seeks injunctions against all defendants to protect its right to confidentiality of its information.
By cross-action Troy Rickard sues Testel, alleging a breach of a collateral agreement entered into at the time the 2004 franchise deed was signed. Troy Rickard also seeks remedies under s 87 of the Trade Practices Act 1974 for breaches of s 51AC and s 51AD in relation to alleged unconscionable conduct and breaches of the Franchising Code of Conduct. In particular, he seeks declarations that the deed or alternatively the restraint covenant in the deed and/or the guarantee are void, and other remedies.
Held:
1.   The 2010 deed is valid and enforceable (at [419]).
2.   The restraint covenant in the 2010 deed is valid and enforceable. It operated for a period of 12 months after the expiry of the deed on 30 September 2013, and its operation was limited to activities in South Australia (at [51]).
3.   The 2010 deed was not repudiated by Testel (at [463]).
4.   Troy Rickard’s guarantee of the performance by T & T Rickard of its obligations under the 2010 deed is valid and enforceable (at [419]).
5.   T & T Rickard repudiated the 2010 deed by cessation of work in May 2011, and by written notice on 19 August 2011 (at [464]).
6.   Testel did not accept T & T Rickard’s repudiation. The restraint covenant continued in force despite T & T Rickard’s repudiation (at [311]).
7.   T & T Rickard, and Troy Rickard as guarantor, breached the restraint covenant by Troy Rickard becoming directly engaged, concerned in and interested in the business of Active, a company operating a business substantially the same as, and in competition with, Testel, throughout the restraint period, in the State of South Australia. Troy Rickard is therefore liable in damages for the breach (at [518]).
8.   Testel was in breach of the Franchising Code of Conduct made pursuant to the Trade Practices (Industry Codes) Franchising Regulations by failing to provide required documentation to Tracey Rickard, a co-director of T & T Rickard. Troy Rickard’s claim that the 2010 deed should be declared void for that reason is dismissed (at [444]).
9. Troy Rickard’s claim that a contract which was collateral to the 2004 deed, and which became collateral to the 2007 and 2010 deeds, was entered into by the parties to the deed in 2004, is dismissed (at [502]).
10. Testel’s claim for damages against Active and Rowan Wilson for interference with contractual relations is upheld (at [534]).
11. Testel’s claim for equitable relief for breach of confidence is upheld, without objection, in one respect, and injunctive relief is granted. I will hear the parties as to the form of the injunction (at [557]).
12. Troy Rickard’s claim for relief pursuant to s 51AC and s 87 of the Trade Practices Act on the basis of alleged unconscionable conduct by Testel is dismissed (at [574]).
13. Troy Rickard’s claim based on an alleged breach of the good faith obligations in the 2010 deed is dismissed (at [580]).
14. Troy Rickard’s claims based on an alleged breach of s 52 of the Trade Practices Act and s 7 of the Misrepresentation Act are dismissed (at [583]).
15. Damages are awarded against Troy Rickard, Rowan Wilson and Active in the sum of $144,812.63 (at [617]).
16. Testel’s claim against Rowan Wilson and Active for exemplary damages is dismissed (at [626]).
17. Testel’s claim to the right to elect for an account of profits against Active is dismissed (at [633]).
Corporations Act 2001 (Cth) s 126, s 127(1), s 128(1), s 129(3) & (5); Misrepresentation Act 1972 (SA) s 7; Trade Practices Act 1974 (Cth) s 51AC, s 51AD, s 52, s 87, s 95A; Trade Practices (Industry Codes - Franchising) Regulations 1998 (Cth) reg 3; Franchising Code of Conduct [3(1)], [10], [11], referred to.
Testel Australia Pty Ltd v KRG Electrics Pty Ltd & Anor [2013] SASC 91; Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) 110 FCR 157; Kaufman v McGillicuddy (1914) 19 CLR 1; Richmond v Moore Stephens Adelaide Pty Ltd [2015] SASCFC 147; Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722; Soyfer & Anor v Earlmaze Pty Ltd & Ors [2000] NSWSC 1068; Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101; SPAR Licensing Pty Ltd v MIS QLD Pty Ltd (No 2) [2012] FCA 1116; Rafferty v Madgwicks [2012] FCAFC 37; Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115; Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26; Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133; Maybury Atlantic Union Oil Co Ltd (1953) 89 CLR 507; Luxton v Vines (1952) 85 CLR 352; George Hill & Co v Hill (1886) 55 LT 769; William Corey & Son Ltd v Harrison [1906] AC 274; Batts Combe Quarry Ltd v Ford [1943] Ch 51; Griffiths & Beerens Pty Ltd v Duggan [2008] VSC 201; Jaddcal Pty Ltd v Minson [No 3] [2011] WASC 362; DC Thomas & Co Ltd v Deakin [1952] Ch 646; British Industrial Plastics Ltd v Ferguson [1940] 1 All ER 479; British Motor Trade Association v Salvadori [1949] Ch 556; OBG Ltd v Allan [2008] 1 AC 1; Meretz Investments NV v ACP Ltd [2008] 2 WLR 204; Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) & Anor (1987) 14 FCR 434; Landmark Underwriting Agency Pty Ltd v Kilborn [2006] NSWSC 1108; ACCC v 4WD Systems Pty Ltd & Ors (2003) 200 ALR 491; ACCC v C G Berbatis Holdings Pty Ltd (2002) ATPR 41-778; ACCC v Simply No-Knead (Franchising) Pty Ltd (2000) 104 FCR 253; Canon Australia Pty Ltd v Patton (2007) 244 ALR 759; Marmax Investments Pty Ltd v RPR Maintenance Pty Ltd [2015] FCAFC 127; The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; Wenham v Ella (1972) 127 CLR 454; Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653; Butler v Egg & Egg Pulp Marketing Board (1966) 114 CLR 185; Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298; Johnson v Unisys Ltd [2003] 1 AC 518; Henville v Walker (2001) 206 CLR 459; Attorney-General v Blake [2001] 1 AC 268, considered.

TESTEL AUST P/L v RICKARD & ORS
[2017] SADC 31
Contents
Background
The 2004 Deed
Income Support
Collateral Contract
The Restraint Covenant
Was the restraint covenant invalidated by repudiation?
Flinders Medical Centre becomes a Testel client
Advertising and marketing fee
Rickard considers selling franchise
The 2007 Deed
The 2010 Deed
Rickard again considers selling franchise
Further disputation between Rickard and Oszczypok
Rickard advises Flinders Medical Centre that he is leaving the industry
Crossman and Wilson commence discussions
Oszczypok continues to seek discussions with Rickard
Setting up Active
Rickard’s Purchase of a Car
The 2015 Receipt
Further Assistance to Active
T&T’s Last Testing at Flinders Medical Centre; Active’s First
Active’s Activities in 2011
Rickard’s purported termination
Text messages
The Newmont Quote
Active gets the Newmont Contract
Rickard becomes an ‘employee’ of Active
Active’s New Clients
– Badge Constructions
– Orana
– Lifecare
Creation of the ‘Active’ file on Mrs Rickard’s Computer
Issues
Validity of the 2010 Deed
The Franchising Code of Conduct
Repudiation by Testel
The ‘Flinders Agreement’ Issue
Repudiation by T&T
Collateral Contract
Breach of Restraint Covenant
Interference with Contractual Relations – Wilson/Active
Other Breaches of Contract
Breach of Confidence
Unconscionable Conduct by Testel
Good Faith
Misleading or Deceptive Conduct
Remedies
Damages for Breach of Contract
Flinders Medical Centre
Newmont
Badge Constructions
Lifecare
Other Active (non-Testel) Clients

Damages Claimed
Assessment of Damages
Exemplary Damages
Account of Profits
Conclusion
TESTEL AUST P/L v RICKARD & ORS

Testel Australia Pty Ltd is a business created by its sole director, Mr John Oszczypok, for the purpose of franchising the provision of electrical testing services. It also provided thermal image testing services and minor electrical repairs. The business commenced in 1997.
One of Testel’s franchisees was T & T Rickard Pty Ltd (T&T). T&T was incorporated in 2004 for the purpose of entering into a franchise agreement, by deed, with Testel. Its directors were Mr Troy Rickard and Mrs Tracey Rickard. Mr Rickard executed a document which guaranteed the performance by T&T of its obligations under the deed. The 2004 deed and the guarantee were executed on 14 September 2004.
The nature of Testel’s business, which was the same at all relevant times in this action and cross-action, was summarised by Blue J in Testel v KRG:[1]
Testel carries on, and has for several years carried on, an electrical testing business based in South Australia but operating Australia wide.
Businesses and institutions who use electrical appliances are often required by law to test them periodically, and to record details of the testing (which is typically done by affixing a tag). The testing is usually undertaken in South Australia on a three monthly, six monthly, annual, two yearly or five yearly basis, depending on the nature of the equipment and of the operation in which it is used. Testing every two years is comparatively rare, applying in only 5 per cent of cases in Testel’s business. Annual testing by Testel is most common.
Electrical testing and tagging is covered by Australian Standard 3760 entitled “In-Service safety inspection and testing of electrical equipment”.
Testel has, and at relevant times had, clients with whom it entered into contracts to provide electrical testing services for a defined period. It charged an agreed amount per appliance tested.
Testel services approximately 10 per cent of the South Australian market and 5 per cent of the Australian market for electrical testing services and has done so since at least 2008. As at 2008, the four largest electrical testing service providers in Australia (which included Testel) serviced approximately 20 percent of the Australian market. The balance of the Australian market was serviced by small operators.
At all material times, Testel has provided its electrical testing services to clients via franchisees. The franchisees perform the work for Testel (akin to subcontractors). The dealings with the clients to arrange testing and billing and payment are all undertaken by Testel rather than the franchisees. As at 2008, Testel had 21 franchisees in South Australia and 48 franchisees Australia wide.
The performance of ordinary electrical testing work does not require a person to be a qualified or licensed electrician. Some of Testel’s franchisees are not and do not employ licensed electricians.
[1] Testel Australia Pty Ltd v KRG Electrics Pty Ltd & Anor [2013] SASC 91 at [30]-[36].
Testel’s business model was a little unusual in that it had the responsibility for winning clients and charging them for services rendered by the franchisee. It collected the fees and, after deducting its fee of 22% plus marketing and other charges, paid the balance to the franchisee.
This model gave the franchisor a great deal of control over the business of its franchisees. Testel would allocate clients to its franchisees, and could thereby control the turnover of a franchisee’s business. Franchisees were encouraged to find and refer further clients to Testel and thereby receive a referral fee.
Active Safety Services Pty Ltd was incorporated by its sole director, Mr Rowan Wilson, on 11 April 2011. From May 2009 until shortly before that date, Mr Wilson had been an employee of T&T. Mr Wilson and Mr Rickard were close friends. They were both musicians in the same band, and were both members of the Moana Surf Life Saving Club.
The business relationship between Mr Oszczypok and Mr Rickard had broken down by the time Active was incorporated. Mr Rickard had not operated the franchise since about May 2011. He purported to terminate the contractual relationship between Testel and T&T by email dated 19 August 2011.
From April 2011, Active began operating an electrical testing business which was essentially identical to T&T’s business. In particular, Active began providing services to a large former client of Testel, Flinders Medical Centre (FMC).
In August 2012, Mr Rickard purported to enter a contract of employment with Active. Testel says that this was a sham, and that Mr Rickard had been involved as a principal in the business of Active from the start.
This litigation arises from the breakdown of the contractual relationship between Testel and T&T, and from the subsequent behaviour of Mr Rickard and Mr Wilson in relation to the business of Active.
T&T was deregistered as a company in 2012.
Testel sues Mr Rickard, as the guarantor of T&T, for various alleged breaches of the franchise deed. These alleged breaches include:
·breach of the duty of confidence owed by T&T to Testel; and
·breach of the clause which restrained Mr Rickard, as manager of T&T, from engaging in a business which was substantially the same as, or was in competition with, Testel’s business.
Testel also sues Mr Wilson and Active for interfering in the contractual relationship between Testel and Mr Rickard.
Alternatively, Testel claims the equitable remedy of restitution on the ground that Mr Wilson and Active have been unjustly enriched by their actions. It seeks an account of profits made, or restitutionary damages. It also seeks injunctive relief.
By cross-action, Mr Rickard sues Testel for breach of what he says was a collateral agreement entered into at the time that the franchise deed was executed, breaches of the Franchising Code of Conduct, and thereby s 51AD of the Trade Practices Act 1974 (Cth) (now the Competition and Consumer Act 2010 (Cth)), and breach of s 51AC of the Trade Practices Act by reason of Testel’s unconscionable conduct. He also seeks declarations that the guarantee in the franchise deed is void, that the restraint clauses in the deed are void, and other remedies.
Background
The 2004 Deed
The 2004 franchise deed was executed on 14 September 2004.[2] It was executed on behalf of Testel by Mr Oszczypok. Mr and Mrs Rickard executed it on behalf of T&T, which was not incorporated until 23 September 2004.
[2] Exhibit P57.22-204.
In the deed, Testel was described at the ‘Master Franchisee’, and T&T was described as the ‘Franchisee’ or ‘Franchise Holder’. I set out below some of the relevant provisions of the deed.
In paragraph 3.1 of the deed, Testel granted a non-exclusive franchise to T&T to undertaken appliance and equipment testing according to Australian Standard 3760 for a term of three years, commencing on 1 October 2004.[3] There was a right of renewal for four further consecutive terms of three years.
[3] [4.1].
The deed required Testel to pay T&T, monthly, the ‘Gross Monthly Receipts’ of the franchise, together with any defined credits, less deductions pursuant to the deed.[4] The deductions included the ‘Franchise Service Fee’ and ‘Any other deduction referred to in the Deed’.[5]
[4] [9.2].
[5] [9.2.1].
The ‘Franchise Service Fee’ was fixed by paragraph 10.3.1 and Schedule Item 15 at 22% (24% less 2% when the Franchisee complied with certain other conditions about professional development and the like).
T&T agreed to devote, through its nominated manager, Mr Rickard, its ‘full time attention and attendance’ and its ‘best efforts’ to the franchise.[6]
[6] [12.5].
The deed provides for mediation of disputes between contracting parties.[7]
[7] [27].
T&T acknowledged as follows:
PART 38 - FRANCHISE HOLDER ACKNOWLEDGES
In addition to many other acknowledgements contained in this Deed, the Franchise Holder acknowledges, warrants and represents to the Master Franchisee that prior to having executed this agreement, it has:
38.1 Acknowledgement
38.1.1carefully read the provisions of this agreement and has understood them;
38.1.2not relied upon any statement, representation or warranty made by the Master Franchisee or in the event that a Franchise Holder is recruited by another Franchise holder, any statement representation or warranty of the recruiting Franchise Holder other than as set out herein;
38.1.3understood that the Master Franchisee does not guarantee to provide a rate of return on investment or profit to the Franchise Holder and understood that the amount of any profit or return on investment to the Franchise Holder depends upon its own effort and investment;
38.1.4sought independent and specific advice from its personal taxation adviser concerning the likely taxation consequences of investment pursuant to this agreement and accordingly has not received from or relied upon any representations by the Master Franchisee, its officers servants or agents whom the Franchise Holder acknowledges are not qualified to provide taxation advice;
38.1.5sought its own independent legal and accounting advice with respect to this agreement and all other aspects of the Franchise Holder’s operation.
Income Support
The 2004 deed made provision for what was termed ‘income support’. The 2007 and 2010 deeds were in identical terms in this regard, so the provisions set out below applied throughout the time T&T held the Testel franchise. Income support was paid in relation to a ‘Testel Contract Licence’ referred to the franchisee by Testel.[8] Paragraph 5.4.1.1 provided that if the franchisee wished to have income support from Testel, then:
·prior to the signing of the deed, Testel and the Franchisee should have agreed in writing the amount of Gross Annual Income sought by the Franchisee from the Franchisor;
·Testel then agreed to provide sufficient Testel Contract Licences to meet the Gross Annual Income;
·the Franchisee agreed to pay the Testel Contract Licence Fee for each Testel Contract Licence so provided, fixed at an amount specified in paragraph 3 of the Schedule.
[8] [5.2].

Blue J explained the operation of the scheme in Testel v KRG:[9]
Under the Franchise Deed, Testel agreed to provide sufficient work to KRG to generate a Gross Annual Income of $100,000. KRG agreed to pay a fee of $20,000 in return for this guarantee. Gross Annual Income was defined by reference to gross turnover (receipts from clients for work performed) and in particular was calculated before deduction of the percentage based fees totalling 23.5 percent payable by KRG to Testel. The net result was that Testel agreed to pay to KRG a net annual amount of at least $76,500.

[Footnote – Less the one off $20,000 fee]
[9] At [44].
In relation to the T&T franchise, no income support was sought. Paragraph 3 provided:
Gross Annual Income: Nil
Testel Contract Licence Purchase Fee: Nil
Paragraph 5.4.1.2 provided:
Where the Master Franchisee has provided Testel Contract Licenses to the Franchise Holder and the Franchise Holder has not paid to the Master Franchisee the Testel Contract License Purchase Fee in relation to such Testel Contract Licenses the Franchise Holder acknowledges that the Franchise Holder has no interest in those Testel Contract Licenses and agrees that the Master Franchisee can rescind those Testel Contract Licenses at any time or invoice the Franchise Holder and deduct the Testel Contract License Purchase Fee for the same.
Paragraph 5.4.2.1 provided that a franchisee could request from Testel further Testel Contract Licences and, if granted, the franchisee was required to pay a further fee. It provided:
The Franchise Holder may at any stage request from the Master Franchisee further Testel Contract Licenses. The Master Franchisee may in its absolute discretion agree conditionally or unconditionally or refuse to grant such further Testel Contract Licenses requested by the Franchise Holder. If the Master Franchisee grants to the Franchise Holder further Testel Contract Licenses the Franchise Holder shall pay to the Master Franchisee immediately upon the grant of such further Testel Contract Licenses or such later time as determined by the Master Franchisee the Testel Contract License Purchase Fee in relation to such further Testel Contract Licenses.
Paragraph 5.4.2.2 provided:
Notwithstanding anything in clause 5.4.2.1 hereof the Master Franchisee and the Franchise Holder may agree in writing to the grant of Testel Contract Licenses by the Master Franchisee to the Franchise Holder on such varied terms and conditions other than as stipulated in clause 5.4.2.1.
Paragraph 5.4.3 provided that a franchisee’s interest in a Testel Contract Licence was ‘personal’ and that the franchisee could not ‘at any stage assign, pledge, declare a trust over, devolve or in any way deal with such Testel Contract License without the prior written approval of the Master Franchisee’. If consent was granted, income support would cease. A fee of 5% of the Gross Annual Income was payable at the time of seeking consent.
Paragraph 5.4.5 made provision for a Franchisee to ‘offer to sell’ some of its Testel Contract Licences to the Master Franchisee on terms specified in the paragraph.
It is clear, then, that it was possible under the deed to purchase a Testel Contract Licence, which gave a Franchisee an interest which could be sold or otherwise dealt with, subject to Testel’s consent, upon payment of a fee. Such a purchase could take place prior to, or at the time of, the execution of the deed, and at any time thereafter.
The entitlement to income support was limited, however, to a period of five years. Paragraph 5.3.2 of the deed provided, rather awkwardly:
Income Support calculation shall be as calculated and finalized by the Master Franchisee on the Sign Off Date being the earlier date of the cessation of the Testel Contract or five years from the commencement of the Testel contract by the Franchise Holder or by mutual agreement between the Franchise Holder and the Master Franchisee. There shall be no entitlement to Income Support for work conducted beyond the Sign Off Date. There shall be no entitlement to Income Support beyond five years from the commencement of the Testel contract.
The entitlement to income support from this scheme is in paragraph 5.4.9. The relevant parts of this paragraph are:
5.4.9.1Where the Franchise Holder has paid the Master Franchisee the full fee pursuant to clauses 5.4.1 and/or 5.4.2 of this Deed for the grant of a Testel Contract License (“the Initial Testel Contract License”) the Master Franchisee will ensure that subject to the Franchise Holder’s strict compliance with this Deed, the Manual and the Testel Contract License, the Franchise Holder receives the Gross Annual Income in relation to the said Testel Contract License in total during a period of at least twelve (12) calendar months …
5.4.9.2…
5.4.9.3Where the Master Franchisee has provided Testel Contracts to the Franchise Holder without payment of the Testel Contract License Purchase Fee, there shall be no Income Support by the Master Franchisee.
It is common ground in this case that no Testel Contract Licence Purchase Fee was ever paid by T&T, either during the currency of the 2004 deed or during any of the subsequent periods, whether a deed was validly renewed or not.
Collateral Contract
In the period leading up to the execution of the 2004 deed, there were a number of discussions between Mr Oszczypok and Mr and Mrs Rickard. Mr Rickard alleged that these discussions gave rise to a collateral contract.
Mr Rickard asserted that, apart from the procedures provided in the 2004 deed, a collateral agreement was entered into during one of these discussions, which took place around two weeks before the 2004 deed was entered into. He alleged that Mr Oszczypok told him that:[10]
Another option was available whereby if the Rickards did not have the available funds upfront, then on exiting the franchise, and selling their franchised business to a new franchisee, a sum equal to 20% of the average annual value of work supplied by the plaintiff to the Rickards (or their ultimate franchise entity) during the term of their franchise would be payable to the plaintiff from the sale price payable by the new franchisee for the Rickards’ franchised business.
[10] Third Cross-Claim, [43.2].
Mr Rickard alleged that around one week after the meeting, he verbally informed Mr Oszczypok that he wished to accept that option, and ‘in response Oszczypok said words to the effect that this was acceptable’.[11]
[11] Third Cross-Claim, [44].
Mr Rickard said that as a result of this exchange, an oral agreement, collateral to the 2004 deed, was reached to the effect that:[12]
… on the Rickards exiting the franchise, and selling their franchised business to a new franchisee, a sum equal to 20% of the average annual value of work supplied by the plaintiff to the Rickards (or their ultimate franchise entity) during the term of their franchise would be payable to the plaintiff from the sale price payable by the new franchisee for the Rickards’ franchised business.
Mr Oszczypok denied that any such agreement was entered into.[13]
[12] Third Cross-Claim, [45].
[13] T 313.
This alleged agreement is referred to in the cross-claim as both the collateral agreement and the ‘First Representation’.
It is alleged in the cross-claim that Testel, by its conduct:[14]
·breached and repudiated the collateral agreement; and/or
·engaged in unconscionable conduct in connection with the First Representation, in particular by
· denying that the collateral agreement, or alternatively that the First Representation, was made, or failing to acknowledge the same and thereby from being able to sell its franchise or sell it for anything other than a trifling amount; or
· precluding, or unreasonably obstructing, T&T from making what is called the Deferred Contracts Payment.
[14] Closing Submissions of the Plaintiff by Cross-Claim, [10]
The Restraint Covenant
Further deeds were produced by Testel in 2007 and 2010. There is a dispute about whether the 2007 deed was executed at all, and about whether the 2010 deed was validly executed.
Each of these deeds contained an identical restraint covenant. Since the alleged breaches of the covenant occurred after the 2010 deed was executed, I will refer to the covenant in the 2010 deed.
Clause 12.29 of the 2010 Franchise Deed[15] provides:
[15] Exhibit P1.469-695 at page 510.
12.29 Restraint of Competition
12.29.1Covenant by Franchise Holder and Guarantor(s)
Except as allowed by this Deed the Franchise holder, each Guarantor jointly and severally agree with the Master Franchisee that they and each of them must not be directly or indirectly engaged concerned or interested in (either alone or in association with or as an employee, servant, agent, representative, director, shareholder, trustee, consultant, financier, adviser, unit holder or beneficiary of any trust, person, firm, business, organisation, association, trust or corporation which is engaged), concerned or interested in any business that is substantially the same as or in competition with the Franchised Business and/or the Master Franchisee for any of the periods specified in clause 12.29.2 and within any of the areas specified in clause 12.29.3.
12.29.2Periods of Restraint
(a)A period commencing on the date of this Deed and finishing 3 years after the termination or expiration of this Deed or transfer or assignment of whatever nature by the Franchise Holder of the Franchised Business.
(b)A period commencing on the date of this Deed and finishing 2 years after the termination or expiration of this Deed or transfer or assignment of whatever nature by the Franchise Holder of the Franchised Business.
(c)A period commencing on the date of this Deed and finishing 1 year after the termination or expiration of this Deed or transfer or assignment of whatever nature by the Franchise Holder of the Franchised Business.
12.29.3…
12.29.4Acknowledgment of Reasonableness of Restraint
The Franchise Holder and each Guarantor acknowledge that:
(a) the maximum restraints imposed under this clause are reasonable and are no more than reasonably and necessarily required by the Master Franchisee for the maintenance and protection of the goodwill and assets of the Franchised Business, the Master Franchisee and other franchises; and
(b) the Master Franchisee would not have entered into this Deed but for the maximum restraints so imposed.
12.29.5…
12.29.6During the term and for the period of one (1) year following the termination or expiration of this Deed or the transfer or assignment of whatever nature of the Franchised Business by the Franchise Holder, the Franchise Holder, each Guarantor jointly and severally undertake not to employ, seek to employ or engage in any capacity any employee or agent of the Master Franchisee or any Franchise Holder without (first) obtaining the written consent of the Master Franchisee or such other Franchise Holder.
The law of restraint of trade was explained by Hill and Finkelstein JJ in Hospitality Group Pty Ltd v Australian Rugby Union Ltd:[16]
There is no dispute between the parties as to the relevant principles to be applied. The modern law of common law restraint of trade is as stated by Lord Macnaghten in Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co. Ltd [1894] AC 535 at 565 and accepted for Australia in Buckley v Tutty (1971) 125 CLR 353 at 376:
“The public have an interest in every person’s carrying on his trade freely: so has the individual. All interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule. But there are exceptions: restraints of trade and interference with individual liberty of action may be justified by the special circumstances of a particular case. It is a sufficient justification, and indeed it is the only justification, if the restriction is reasonable – reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public. That, I think, is the fair result of all the authorities.”
[16] (2001) 110 FCR 157 at [85].
Testel v KRG[17] involved the interpretation of an identical clause. Blue J outlined the following ‘General principles applying to covenants in restraint of trade’:[18]
[17] Testel Australia Pty Ltd v KRG Electrics Pty Ltd & Anor [2013] SASC 91.
[18] At [53] and [54].
1.   A covenant in restraint of trade is prima facie unlawful and void at common law as being contrary to public policy.
2.   There are “some species of restraint of trade which do not attract the operation of the common law doctrine”, but Testel does not suggest that clause 12.29 of the Franchise Deed falls within any such species.
3.   The general rule is subject to the exception that restraints which are reasonable in reference to the interests of the parties and in reference to the interests of the public are valid.
4.   The onus of proof on the issue whether the covenant is reasonable in reference to the interests of the parties lies on the covenantee.
5.   For a covenant to be reasonable in reference to the interests of the parties, the covenantee must have a legitimate interest in restraining the convenantor from trading.
6.   The protection of the goodwill of the covenantee is frequently regarded as a legitimate interest for this purpose.
7.   Assessing whether a covenant in restraint of trade is reasonable in reference to the interests of the parties involves weighing the legitimate interests of the covenantee against the legitimate interests of the convenantor in being free to trade and to earn revenue.
8.   To be reasonable in reference to the interests of the parties, the covenant “must afford no more than adequate protection to the party in whose favour it is imposed”, ie it must not exceed “what is reasonably necessary for the protection of the covenantee”.
9.   A covenantee may have a legitimate interest in the protection of its goodwill in the context of various relationships, including that of employer and employee, contractor and subcontractor, franchisor and franchisee, partnership and vendor and purchaser.
10.   While the ultimate test and required approach is the same, different considerations apply to assessing reasonableness in a context such as a relationship of employer and employee compared to a transaction such as the sale of a business as between vendor and purchaser.
11.   The reasonableness of the restraint is determined as at the date of the contract in light of the provisions of the contract, the objective circumstances at the time of the contract and the objectively foreseeable circumstances.
In the context of a covenant in restraint of trade in a franchise agreement, every case needs to be considered by reference to its own facts and circumstances and it is dangerous to generalise. Nevertheless, typically the following factors are relevant in assessing the reasonableness of the covenant in reference to the interests of the parties.
1.   It is generally necessary that the franchisor possesses goodwill of a substantial value in respect of its business and that such goodwill would be likely to be adversely affected by the franchisee being unrestrained by the restraint of trade provision.
2.   A relevant factor will typically be whether the franchisor possesses confidential information and/or intellectual property of a substantial value which would be adversely affected by the franchisee being unrestrained by the restraint of trade provisions.
3.   Reasonableness will be assessed by reference to the nature of the restraint, the depth and scope of the activities restrained, the period of the restraint and the geographical area the subject of the restraint.
4.   A relevant factor will often be the nature and depth of the relationship between the franchisee and the franchisor’s clients, such that the stronger the relationship, typically the more likely the covenant will be found to be reasonable.
5.   A relevant factor will be the frequency with which contracts between the franchisor and its clients are negotiated.
6.   If the contract, and in particular the restraint of trade provision, was freely negotiated between parties at arm’s length, that is a factor to be taken into account in assessing the reasonableness of the restraint as between the parties.
7.   Generally, the more akin the relationship between franchisor and franchisee is to a relationship between employer and employee, the less likely it is that the covenant will be assessed as reasonable.
8.   To the extent that the franchisor relies upon protection of intellectual property or confidential information (or intangible property more generally) as justification for the restraint, it is relevant to consider the extent to which the franchisor is adequately protected by other contractual provisions or duties owed to the franchisor by the franchisee.
[References omitted]
Blue J held that the restraint clause should be read ‘distributively’, so that it prohibits the franchisee from being engaged, concerned or interested in any business that is either substantially the same as the franchised business, or in competition with the Master Franchisee.
Surprisingly, Mr Munt, counsel for the defendants, submitted that the restraint covenant should be restricted to a period of six months.[19] He submitted that it follows that such a restriction would render the covenant invalid because ‘the “ladder clause” in the 2010 deed does not contain a 6 month option’. Mr Dal Cin accepted that if I consider that the appropriate period is six months, then the ‘ladder clause’ falls, and there is effectively no restraint period.[20]
[19] Closing Submissions of the Defendants on the Plaintiff’s Claim, page 39.
[20] T 2409.
I reject Mr Munt’s submission, firstly, because I see no relevant distinction between this case and KRG; secondly, because this contention was not pleaded; thirdly, I agree with Mr Dal Cin’s submissions at transcript 2409-2410.
In KRG, Blue J held that Testel had goodwill of a substantial value in respect of its business, and that it had a legitimate interest in protecting that goodwill. In respect of the period following the expiration of the franchise, his Honour held:[21]
·it was not reasonable that the restraint extended to KRG’s activities outside South Australia;
·a restraint for a period of one year in relation to activities within South Australia was reasonable;
·a restraint of more than one year was not reasonable and was contrary to the public interest.
[21] At [65] to [70].
Assuming the 2010 deed is valid and enforceable, I hold that the restraint covenant is valid and enforceable. It is restricted to T&T’s business activities within South Australia. It applied for a period of one year after the termination of the franchise.
The 2010 deed was executed on 4 June 2010, but its date of commencement was 1 October 2010.[22] The term of the deed was three years commencing on that date. It follows that the restraint covenant was in force from 1 October 2010 until 1 October 2014, or, more correctly, 30 September 2014, unless the defendants can establish that the franchise was validly terminated by Mr Rickard at an earlier time. I will deal with this issue in due course.
[22] Exhibit P1.469-695 at page 546.
Was the restraint covenant invalidated by repudiation?
The defendants, however, argued that in this case Testel repudiated the contract, thereby releasing T&T and its guarantor from their obligations under the covenant, citing Kaufman v McGillicuddy.[23] Testel disputed that it repudiated the contract created by the deed. In the alternative, Testel argued that even if it did repudiate the contract, T&T’s proposition of law is incorrect, citing Richmond v Moore Stephens Adelaide Pty Ltd.[24] In that case, Blue J said:[25]
Mr Richmond contends that General Billposting Company Limited v Atkinson is authority for the proposition that it is a rule of law that a party who has repudiated a contract leading to its termination by the innocent party can never enforce a restraint clause expressed to operate after termination and this was endorsed by the High Court in Kaufman v McGillicuddy. Mr Richmond’s contention should be rejected because the question whether the restraint clause survives must depend on the proper construction of the contract. This was the approach adopted by the Court of Appeal in Measures v Measures Brothers Ltd which was cited with approval by the High Court in Kaufman v McGillicuddy and by Gibbs J, with whom Aickin J agreed, and Stephen J in Geraghty v Minter. To the extent that Lord Collins’ judgment in General Billposting Company Limited v Atkinson might be read as suggesting that there is a rule of law regardless of the parties’ intention as manifested in the contract that restraint clauses cannot survive termination for repudiation by the party in whose favour they operate, this might be explained by the fact that in 1909 the common law had not yet been clarified that termination for repudiation does not operate by way of rescission ab initio.
[References omitted – Kaufman v McGillicuddy was decided in 1909]
[23] (1914) 19 CLR 1.
[24] [2015] SASCFC 147.
[25] Àt [210].

In the circumstances of Richmond, his Honour found that the restraint clause did not survive the termination because the purchase price for the business was not to be fixed until three years from completion of the purchase, the price depending upon achievement of specified levels of fees during the first three years after purchase. In the case of termination for breach or repudiation before the three years expired, the restraint clause was unsupported by consideration until the price was paid.
That is not the case here. Applying the principles outlined by Blue J in Richmond to the circumstances of this case, the fact that consideration for the restraint covenant was given and received during the currency of the contract, it was supported by consideration and therefore survived termination, even if the defendants had a right to terminate.
That being the case, it is unnecessary to rule upon the further submission of Mr Dal Cin that T&T’s contention that the restraint covenant did not survive the termination is inconsistent with its pleadings. In paragraphs 34.4.2 to 34.4.5 of their Fourth and Fifth Defences, none of the defendants pleads that assertion. Indeed, there is an acceptance that the covenant survived and should be restricted to a period of one year and to within South Australia (clause 34.4.1 and following). I indicate that if I am wrong in finding that the restraint covenant survived the termination, I would have upheld Mr Dal Cin’s submission that the defendants should not be permitted to contend otherwise because they have not pleaded that contention.
In his final oral submissions, Mr Munt took the argument about termination of the deed even further. He submitted that the expression ‘termination or expiration of this Deed’ in the restraint covenant is ambiguous and should be interpreted in favour of the covenantor pursuant to the ‘mischief rule’ by extending the meaning of ‘termination’ to include termination by the covenantor, whether ‘a legal termination (or ‘lawful’) or not’.[26]
[26] T 2379.
I fail to understand the logic of this submission. A ‘termination’ which has no legal validity is no termination at all. If Mr Rickard’s contention that Testel repudiated the contract, thereby giving T&T a right to terminate, is not made out, then Mr Rickard’s purported termination on 19 August 2011 has no validity and the franchise contract would continue until valid termination or expiry.
I will discuss whether Testel repudiated the contract, and gave T&T the right to terminate, in due course.
Flinders Medical Centre becomes a Testel client
In around April 2005, Mr Bob Crossman, the then maintenance manager of FMC,[27] contacted Mr Oszczypok in relation to testing work. Mr Oszczypok had been pursuing this work for some time. It was agreed that Testel would undertake the work. Mr Oszczypok decided to allocate the work to T&T.
[27] In 2011 Mr Crossman was Acting Director of Environmental Services, and in 2013 he became Strategic Asset Manager (T 2009-10).
After discussion between Mr Oszczypok and Mr Rickard, it was agreed that T&T would do the work for $2.50 per item tested. Mr Munt submitted that this was an unusually low fee. He pointed to the original pricings schedule created by Testel on 30 July 2003,[28] in which the lowest testing price in South Australia recorded in the schedule is $3.20 per item. The evidence of Robyn Schmidt, a former manager at Testel, was that she did not remember a rate of $2.50 per item being charged by Testel prior to FMC becoming a client.[29]
[28] Exhibits P23, D134, D134A and D174.
[29] T 949-53.
Mr Rickard gave evidence that during their discussions, Mr Oszczypok acknowledged that the testing fee was lower than usual. He said that he would reduce the franchise fee from 22% to 16% for that reason.[30] Mr Rickard said that his wife Tracey was present during this conversation. He said:[31]
John said that he would - he made me an offer that he would treat the Flinders work like I had won it. I knew at that time it didn't mean I owned it to sell it or anything like that but I would be charged a commission fee as if I had won it like I would have a referrer allowance taken out of the commission charge. So I would be charged 16% commission on that work instead of the standard 22%.
[30] T 1079.
[31] Ibid.
Mr Rickard said that he told Mr Oszczypok that he would need to consider his offer and get back to him. After discussing it with his wife, he telephoned him again about 15 minutes later and accepted, saying:[32]
… if that is what I am going to be charged for the commission then we would be happy to do it.
[32] T 1080.
Mr Oszczypok acknowledged in cross-examination that he put in a low bid of $2.50 in order to get FMC on board as a client. However, he denied that he convinced Mr Rickard to take on the FMC contract at $2.50 per item by offering him a reduction in the franchise fee from 22% to 16%.[33]
[33] T 714.
In evidence, Mr Oszczypok said that Testel franchisees charged a range of rates from $2.00 to $10.00 per item. He said that Testel had limited control over what a franchisee charged if they secured the contract themselves. However, in this case he won the contract, negotiated the rates, and then he needed to find a franchisee prepared to do the work at that rate.[34]
[34] T 713.
It is telling that Testel began charging T&T a 16% franchise fee from the inception of the FMC contract. This is demonstrated in a statement dated 28 June 2005, part of Exhibit P124. Mr Oszczypok accepted this.[35]
[35] T 720.
Mr Oszczypok was unable to explain how this occurred. When it was put to him that this was done on his instructions, he replied:[36]
There was no intervention on my part; I was not aware. To take the invoicing system as described with a flat rate of 16%, it is a manual intervention, someone has to change the software to do that. And given the fact that Mr Rickard was servicing some clients at 16% and some clients at 22%, there was a constant change between the 16 and 22%, so there was a prompt. The prompt wasn't me.
[36] T 718.
There is no evidence that this practice was instigated by any intervention by Mr Rickard, or anyone on his behalf.[37] There is no evidence of who instigated the lower commission rate.
[37] T 719.
Ms Robyn Schmidt, the former operations manager at Testel,[38] was asked about her understanding of the arrangement. She also understood that the 16% franchise fee was imposed because $2.50 was ‘such a low rate of testing’.[39] Ms Schmidt added that when the system changed to a rebate rather than a lower flat fee, Mr Rickard was required to email Testel and claim the lower rate before it would be paid. She said that the system always depended upon the franchisee pointing out to the administration which invoices were to be the subject of the ‘referral fee’. She said:[40]
… right from the outset, he would have had to let us know which invoices they were. You know, there's a myriad of invoices that are created at any given time, so the onus wasn't on us to go and find them. You know, that's what the work file management register was for, so that they could advise us of things that we needed to monitor, so he would have needed to let us know orders by email or by the work file management register that the invoices were there and needed something done to them.
[38] T 946-7.
[39] T 982.
[40] T 984.
I reject the idea that some member of Testel’s staff took it upon him or herself to change to 16% instead of 22%. As Mr Oszczypok said:[41]
Something prompted it, it doesn’t happen by itself.
[41] T 718.
Mr Oszczypok was a very ‘hands on’ manager, and there is no evidence that any of his employees had the discretion to reduce the franchise fee without consulting him. It is no longer possible to know whether Mr Oszczypok instigated the change and has now forgotten, or whether some misunderstanding occurred as a result of something he or Mr Rickard said to a staff member.
It was submitted that Mr Rickard’s version of these events was supported by his wife, Mrs Tracey Rickard. Mrs Rickard said that she heard her husband speaking on the telephone with Mr Oszczypok, that he was ‘quite excited’ and ‘asking a lot of questions’, and that the conversation went on for 15 or 20 minutes.[42] However, she made it clear that her knowledge of any agreement reached derived not from overhearing the conversation, but from what her husband told her afterwards.[43]
[42] T 2190-1.
[43] T 2191.
I do not accept that Mrs Rickard’s evidence corroborates Mr Rickard’s as to the terms of the alleged agreement.
From 28 June 2005 onwards, a franchise fee of 16% was charged, with one exception, on 14 July 2006.[44]
[44] T 721.
From 14 February 2007 onwards, Testel did not charge T&T a 16% franchise fee ‘up front’. After that date, Testel charged 22%, and then reimbursed, or ‘rebated’, 6% to T&T on request.[45]
[45] See Exhibit D156.206-215.
The only direct evidence that Mr Oszczypok agreed to pay T&T a rebate of 6%, or agreed to charge a lower franchise fee of 16% rather than 22%, is that of Mr Rickard. The suggestion is denied by Mr Oszczypok. There is no evidence that Mr Rickard claimed the lower 16% franchise fee from the administrative staff, as Ms Robyn Schmidt suggested. The change from a flat fee to a rebate must have come at the direction of a senior manager as well. There is no evidence as to how, or why, the change was made.
I agree with Mr Munt’s submission that in email correspondence with Ms Schmidt on 20 August 2005, Mr Rickard pointed out an error in an invoice dated 31 May 2005 in which the full 22% fee was charged. Mr Rickard wrote:[46]
[46] Exhibit D190.
Hi Robyn
The Flinders job is meant to have a 6% rebate as agreed with John for work I win.
Cheers troy.
Ms Schmidt replied:
Hi Troy,
Changes done, you will see these on your next statement.
Thanks
Robyn
Although it is clear that Mr Rickard did not ‘win’ the FMC work, it was his assertion that the 6% reduction was agreed because Mr Oszczypok agreed to treat FMC as having been won by him because of the low fees involved. From then until early 2007, the flat 16% franchise fee was charged.
A similar event occurred on 9 January 2006, when Mr Rickard again referred to the FMC work as having been ‘won by me’.[47]
[47] Exhibit P182, page 6.
After February 2007, there is also ample documentary evidence that Mr Rickard applied for, and was paid, the 6% rebate.[48] For example, an email dated 18 March 2008 attached ‘Work File Management Register’ records which included FMC work charged at 16% and checked as correct.[49] There are many other examples of this (for example, on 24 January 2008, 4 February 2008, 10 February 2008, 27 March 2008, 17 April 2008, 23 June 2008 and 28 August 2008[50]).
[48] Exhibits D191, D192.
[49] Exhibit D191.
[50] Exhibits P64.237, D157.240-242, D158.243-244, P64.247, D191, D191, D159.274.
There is a dispute about the authenticity of an email exchange between Mr Oszczypok and Mr Rickard on 14 December 2007 on this topic.[51] At 10:53 am on that day, Mr Rickard wrote:
[51] Exhibit P61.229.
Hi John
Here is the email you asked for.
We have agreed to a 6% rebate on RCD and Exit light testing if I get the additional work.
Cheers
Troy
At 1:52 pm Mr Oszczypok replied:
Dear Troy
Your request was for a 6% reduction from the 22% service fee because you had to quote Flinders Medical Centre a unit rate of $3.50 per RCD and em/ex to win the work.
I agreed to this rebate if you win the quote at $3.50 per unit.
Up until that stage, T&T was only testing appliances. There was an opportunity to quote on the testing of ‘em/ex’ (emergency/exit lighting) and ‘RCDs’ (residual current devices).
Mr Rickard said he has no record of sending the email or receiving Mr Oszczypok’s reply.[52]
[52] T 1098, T 1100-1104.
The defendants made repeated calls for production of the document containing these emails. The Ninth Affidavit of Mr Bruce,[53] solicitor for the defendants, details the rather tortuous history:
[53] Exhibit D323.
·the plaintiff’s first List of Documents did not contain any reference to these emails;
·the plaintiff’s second List of Documents, filed on 29 August 2014, did refer to them (Documents 119 and 120);
·Mr Rickard instructed Mr Bruce that he could not find the emails on his wife’s computer (the ‘Compaq laptop’), where ‘historical emails’ were stored after they were recovered from the ‘malfunctioned desktop computer’ that had been used to store T&T’s records. It was possible that they were not successfully recovered, but Mr Rickard doubted their authenticity;
·Mr Bruce therefore requested the ‘original electronic copies of all emails listed in the Plaintiff’s Lists of Documents’. The plaintiff responded that this exercise would cost $15,000 to $20,000, which Mr Rickard would have to pay in advance;
·this was disputed by Mr Rickard’s solicitors;
·there were repeated requests for production of this material. Eventually, an application was made to the court;
·the court ordered production of the original electronic copies within 21 days;
·a USB device was produced. It contained a copy of Mr Rickard’s email on 14 December 2007, but not Mr Oszczypok’s reply;
·after further correspondence, the plaintiff’s solicitors advised that ‘personal storage table’ files were not imported into the plaintiff’s database in full, as intended;
·the machine which printed the hard copy of Mr Oszczypok’s reply had been replaced and the original email folders were no longer available;
·a further call for production was made on 24 November 2015, during the trial. Mr Fakes, Testel’s computer consultant, was cross-examined about his inability to locate the files. He said he was ‘annoyed’;[54]
·a compact disc was produced on 30 November 2015 at court. Again, it did not contain Mr Oszczypok’s reply. Finally, a further disc, containing Mr Oszczypok’s reply, was produced on 2 December 2015.
[54] T 895.
The defendants argued that the appearance of this email was ‘convenient’ for the plaintiff, because at around the time it was first disclosed, in August 2014, Testel also amended its pleadings to allege that the first time the 6% rebate was agreed was in late 2007. This was the time when T&T secured the contract for the extra work, the RCD and emergency/exit light testing.[55]
[55] Second Reply and Defence [41.2.1] and [41A] to [41F].
Mr Munt submitted that Mr Oszczypok’s statement in the questioned email that the RCD and exit light testing work was quoted for at the same time, is contrary to the evidence of both Mr Rickard[56] and Bob Crossman.[57] I do not see that it follows as a matter of logic, however, that Mr Oszczypok has invented this evidence. He could simply have misunderstood the situation.
[56] At T 1101-04.
[57] At T 2017-19.
The 14 December 2007 emails do reflect Mr Oszczypok’s attitude that the only rebate he granted was in 2007 for RCD and emergency/exit light testing only. The fact was that the rebate was paid throughout 2007, 2008 and 2009 on all FMC work, not just RCD and emergency/exit testing.
The evidence about this matter falls far short of being sufficient to justify a finding that Mr Oszczypok has manufactured these emails in order to deceive the court, or that Mr Rickard consciously lied about his agreement with Mr Oszczypok about the FMC work in order to get the rebate. The rebate was paid for several years. It is entirely possible that Mr Oszczypok was unaware it was being paid. All of the dealings appear to have been between Mr Rickard and senior subordinates of Mr Oszczypok.
In my view, the entire issue of the 14 December 2007 email is of little moment. It has been amply demonstrated that the reduced rebate was paid long before late 2007. Fraud has not been demonstrated on either side. Misunderstanding looms as the likely explanation.
There is also a dispute between Mr Oszczypok and Mr Rickard about Mr Rickard charging an hourly rate rather than per item in relation to RCD testing. Mr Oszczypok said he was not aware that Mr Rickard was doing that. There was an implication that it was done ‘surreptitiously’, in Mr Munt’s words.
In fact, Mr Rickard made it clear in an email to Mr David Jones, a Testel employee, that he was charging $60 per hour.[58]
[58] Exhibit P68.307.
Exhibit D164.315-318 is a series of emails between Mr Rickard and David Lodge, the Testel account manager.[59] There is a discussion about how the time records for testing could be incorporated into the Testel computer system so that the charges could be levied on the client. On page 318, Mr Lodge advises Mr Rickard that he could not charge an hourly rate through the computer system (TES), so he should create a spreadsheet and record the hours on that, and they would raise the invoice from that information. Importantly, Mr Oszczypok was ‘cc’d’ into this advice.
[59] From 28 April 2009 to 2 July 2009.
In cross-examination, Mr Oszczypok insisted he was unaware that it was happening, and that he did not read such emails, which was the role of client account managers.[60]
[60] T 750.
That may be so, but Mr Oszczypok cannot complain that he was unaware of such facts when he had delegated the role to someone else, and that person had kept him informed of what was happening, but he had chosen not to read the emails.
Clearly, Mr Rickard was not attempting to conceal or mislead Mr Oszczypok or Testel about what he was doing.
In fact, on one occasion, on 27 July 2009, Mr Oszczypok dealt personally with a request by Mr Rickard for reimbursement of the 6% rebate in relation to general FMC testing.[61] It would appear that Robyn Schmidt was on leave, so Mr Rickard sent the request to Mr Oszczypok, who said he ‘took steps to have it actioned’.[62] The rebates were subsequently paid.[63] Mr Oszczypok accepted that he processed this claim without objection.[64]
[61] Exhibit P74.325-326.
[62] T 755.
[63] Exhibit D167.333-334.
[64] T 756.
There were many other examples throughout 2009 and 2010 where the 6% rebate on all FMC work was accepted as routine by Testel staff, including two occasions, on 6 and 10 August 2010 (Exhibit D195) and 12 April 2010 (Exhibit P85.398), when Mr Oszczypok again passed on requests from Mr Rickard.
Mr Oszczypok began to question the payments to T&T in November 2010. On 8 November 2010, he wrote an email to an employee, Jenny Bing, instructing her to investigate all FH (franchise holder) payments which had been varied, particularly referring to ‘Troy’. He wrote:[65]
In particular find any correspondence for Troy’s reimbursement. In particular I wish to know when Troys reimbursement was granted and by whom.
[65] Exhibit P110.794-798 at 795-6.
Ms Bing replied that she could find no such documentation in Testel’s records. Mr Oszczypok then instructed her to email the ‘FHs (franchise holders) in question’ and ask:[66]
1.   Who approved the commission
2.   When was the commission approved.
3.   Supply any supporting documentation.
[66] Exhibit P110.794-798 at 794.
Ms Bing duly emailed Mr Rickard, and he replied.[67] He said that the arrangement was verbal, between Mr Oszczypok and himself and his wife ‘when we won the contract’,[68] that it had been ‘honored for five years’, that ‘several staff members’ were aware and that Mr Oszczypok’s approval was often required to make changes.
[67] Exhibit P109.788.
[68] As I have already mentioned, T&T did not ‘win’ the FMC contract. Testel did. It was his evidence that Mr Oszczypok agreed to treat it is if he had won the contract, and thus paid the rebate.
On 23 January 2011, Mr Rickard made a claim for a 6% reduction of the service fee in relation to a number of invoices.[69]
[69] Exhibit P2.813, P8.2438-2577.
After some further correspondence, Mr Oszczypok emailed Mr Rickard on 16 February 2011. The language of the email is somewhat convoluted. Mr Oszczypok wrote:[70]
The referral fee has been calculated and is detailed on invoice number SAUFA3377.
In relation to Flinders Medical you will note that the work involved in the additional services is subject to the Referral Fee and has been included.
This is typically emergency/exit and fixed wire RCD testing according the Site Codes that were set up at the time. This is what was agreed.
Work categories that were on foot are not subject to the Referral fee.
Further, the Referral Fee shall end on 30/6/2011.
[70] Exhibit P111.829.

I accept Mr Munt’s submission that the import of the email is that the 6% rebate was limited to the emergency/exit lighting and RCD testing, and that, in any event, all rebates (or ‘referral fees’) would cease on 30 June 2011.
Mr Rickard responded, disputing Mr Oszczypok's assertions. In his email dated 17 February 2011, he said:[71]
This is the way Flinders has been working for the last 6 years.
However, he did accept the cessation of the ‘referral fee’, in equally convoluted language, saying:[72]
As agreed this referral fee is due to end 30/6/11 which I have signed to but as yet I haven’t received a copy of this deed.
Could you please arrange for this to happen.
[71] Exhibit P111.830.
[72] Ibid.
In an email dated 24 February 2011, Mr Oszczypok said that he had examined T&T’s invoices for the FMC work, and that T&T had not claimed the asserted rebate from 2005 to 2008. In February 2008, Mr Rickard had claimed it for the first time, in relation to invoices going back to January 2007. Mr Oszczypok acknowledged that the testing of exit lights (commencing January 2008) and RCDs (commencing July 2009), attracted the rebate, but reconfirmed that the rebate did not apply generally.[73] Mr Oszczypok acknowledged that errors had been made in the past. He stated:
I have no emails transmitted to myself with details of rebates etc. There are a number of emails transmitted by you to various office staff seeking a rebate of some form with a title like.
Changes required.
Commission overcharged.
Etc
How would they know if the request is accurate?
[73] Exhibit P113.837-838.
Mr Oszczypok wrote a further email to Mr Rickard on 28 February 2011 along the same lines. Confusingly, he wrote:[74]
I note also that a 6% fee was paid to you from work completed in 2005, which is when you commenced claiming a fee. From that time approximately $100,000.00 of work was never claimed by you as being subject to a fee.
What Mr Oszczypok appears to be acknowledging is that T&T was paid a fee (or received a rebate) of 6% on some services since 2005, when FMC first became a client, but did not claim a fee for about $100,000 worth of work.
[74] Exhibit P114.849.
As already discussed, it is clear that during the time specified by Mr Oszczypok, commission was charged at 16%, not 22%, which was simply a rebate in another guise. Mr Oszczypok’s response was simply that he did not notice that when he checked the invoices.[75]
[75] T 781-2.
Rejecting Mr Rickard’s protests, Mr Oszczypok proceeded to deduct $9,518.26 from money owed to T&T on the basis of the alleged overpayment.[76]
[76] See Exhibit 115.851-853.
Mr Rickard was obviously angry at what he perceived, justifiably, as Mr Oszczypok’s high-handedness and stubborn refusal to accept the correctness of his position. On 7 March 2011, he wrote:[77]
John
As you are probable aware there is a general legal principal [sic] that despite there being a written agreement, the behavior of two parties towards each other does provide evidence in its self that there is in fact an alternative agreement.
The consistent 16% data management fee charged by your office for all Flinders Medical Centre invoices clearly displays the arrangement between yourself and my Franchise.
For more than five years your office has made these payments approved by you as per your company procedures.
To change your fee to 22% and back date this extra charge to 2007 is not plausible.
You have no grounds to take approximately $10000 from my franchise leaving me in major financial hardship.
I ask that you review all the information I have supplied you and reply as soon as possible.
[77] Exhibit P116.889.
Mr Rickard resent the email on 10 and 15 March 2011. He had obviously taken legal advice. He received no response. By a further email on 22 March 2011,[78] he requested a meeting, complaining that he was ‘totally penniless’, that he had had to sell his work vehicle, and that he was unable to pay his employee (Rowan Wilson), so ‘I will be losing him also’.
[78] Exhibit P9.900.
At around the same time, on the holiday weekend of 12-14 March 2011, Mr Rickard, Mr Wilson and some other former workmates of Mr Rickard, worked in the pressure-cleaning business which Mr Rickard had recently set up. They spent the weekend undertaking pit-cleaning work at the premises of Mr Rickard’s old employer, Orrcon.
As it transpired, Mr Rickard and Mr Wilson were also taking early steps to set up Active at this time. It is clear that Mr Rickard was being somewhat disingenuous in this correspondence. I will refer to his assertion that he was ‘totally penniless’ later. It was clearly untrue.
Mr Oszczypok indicated his willingness to meet, and some to-ing and fro‑ing took place about arrangements, but ultimately no meeting took place. Mr Rickard said that he decided that it would not achieve anything.[79] He also made a veiled suggestion that he might not have been able to control himself in any such meeting.[80]
[79] T 1121.
[80] T 1120.
This was a further issue which added to the conflict between Mr Rickard and Mr Oszczypok.
The preponderance of the evidence compels the conclusion that there was an agreement between Mr Oszczypok and Mr Rickard in 2005 that Testel would reduce its commission by 6% because T&T was receiving such a low fee of $2.50 per item for electrical testing at FMC.
I do not accept that Mr Oszczypok has lied to the court about this. The tone of his correspondence clearly suggests that he genuinely, but erroneously, thought that the first rebate was not agreed until 2007 in relation to emergency/exit lights and RCDs.
His actions in deducting $9,518.26 from T&T’s payment on the basis of this erroneous belief was high-handed and stubborn. He simply ignored Mr Rickard’s version of the events, supported as it was by several senior members of his staff. His actions clearly outraged Mr Rickard.
This topic was one issue upon which Mr Rickard bases his claim that Testel repudiated the franchise deed. This claim must be limited to the unilateral deduction of $9,518.26. It could not include Mr Oszczypok’s decision to terminate the ‘referral fee’ as at 30 June 2011. Mr Rickard accepted that in his email of 17 February 2011 referred to above.[81]
[81] Exhibit P111.830.
I will return to this topic when discussing the issue of repudiation.
Mr Munt also relied upon the ‘Flinders Agreement’ issue as part of his clients’ assertion that Testel engaged in unconscionable conduct. I will return to this topic in due course.
Advertising and marketing fee
In the 2004 deed, provision was made for payment by the franchisee of a fee for advertising and marketing undertaken by the franchisor. It was stated to be 1.5% of ‘Receipted Amounts’.[82]
[82] Exhibit P57.22-204 at page 76 (clause 15.1.2) and page 104 (Schedule, [22]).
Mr Oszczypok said he always intended to recover this fee, but he did nothing about it until 2009 because he did not have time.[83]
[83] T 326.
Mr Munt pointed out, however, that in the ‘disclosure document’, attached to the 2004 deed (Exhibit P57.122), the following appears:
Marketing or other cooperative funds
12.Does the master franchisee, by itself or on its behalf, control or administer a marketing or cooperative fund for franchisees? No.
Further, paragraph 13 of the same document, which sets out the payments the franchisee is required to make, includes a section:
Other payments
Isolated or recurring payments by franchisee to be collected by the master franchisee or an associate of the master franchisee.

Description of payment

Estimated amount or estimated low-high range or formula

To whom the payment is made

Where the payment is due

Whether refundable, if so under what conditions

Franchise Service Fee

22% of gross sales – net of GST

Master franchisee

Monthly

No

Advertising Fee

N/A

No.

Mr Oszczypok was evasive and argumentative when challenged about the truthfulness of his evidence that he always intended to recover this fee.[84]
[84] T 541-50.
Mr Oszczypok said that he arranged to have Testel’s expenditure or advertising audited. The audit covered expenditure going back to 2003. He said he did so on legal advice.[85] That may be so, but the decision to collect the fee was clearly his.
[85] T 550.
In purporting to charge the fee retrospectively, Mr Oszczypok was clearly acting contrary to the clear representations in the 2004 deed and in the disclosure statement that no such charges were applicable.
It follows that there was no contractual obligation on T&T to pay an advertising and marketing fee.
In September 2009, two invoices were issued, one for expenses incurred from 2004 to 2007, and the other from 2007 to 2009. The charges in the invoices[86] were $3,554.85 and $6,154.20 (both including GST) respectively.
[86] Exhibit P76.342-343.
By the time the invoices were issued, of course, the term of the 2004 deed had expired.[87]
[87] T 552 – on 30/9/07.
When accused by Mr Munt of ‘moving the goalposts’, Mr Oszczypok said:[88]
I did not move the goalposts. I did not retrospectively endeavour to charge a fee. I simply took advice and followed instructions.
[88] T 554.
This is disingenuous in the extreme. It amounts to a suggestion that Mr Oszczypok was not responsible for the decision to change the advertising and marketing fee. I reject any such suggestion. The decision was clearly his. After all, Mr Oszczypok specifically stated that it had always been Testel’s intention to recover that fee.[89]
[89] T 325.
It is not known what was in the 2007 deed, since it is not before the court. In an email from Mr Rickard to Mr Oszczypok sent on 23 April 2010, Mr Rickard pointed out that the 2007 deed made provision for a marketing fee of 1.5%, whereas the deed presented to him in 2010, purporting to be the 2007 deed, referred to a marketing fee of 3%, which Mr Rickard pointed out was ‘incorrect’.[90]
[90] Exhibit P92.437.
There is no evidence of what a ‘disclosure document’, which should have accompanied the 2007 deed, may have said.
In an email from Mr Rickard to Mr Oszczypok sent on 3 October 2009, Mr Rickard wrote:[91]
[91] Exhibit P77.344.
Hi John

I’m a bit shocked at the size of these marketing and software bills and can’t really cope with paying them straight out.

Would I be able to arrange to pay these off over a period of time.

I would really appreciate this mate.
Cheers
Mr Rickard did not refer to the disclosure document at that stage.
In a memo to franchise owners dated 5 October 2009,[92] Testel advised:
5. Advertising and Marketing
An Advertising and Marketing fee is being calculated and will be available over the coming weeks. The expenditure in full will be provided to you. It is a list of every tax invoice/receipt.
It is a requirement of the franchise code that the statement of expenditure be audited by a registered company auditor unless 75% of the franchise community agrees to it not being audited. Please indicate if you wish to have the statement audited or if you do not wish to have the statement audited. Naturally, there is a charge for the auditing process.
[92] Exhibit P77.347.
In an email dated 7 October 2009,[93] Mr Rickard queried the need for two separate invoices, ‘one dating back to 2004?’
[93] Exhibit P77.351.
Mr Oszczypok replied on 11 October 2009:[94]
The invoices relate to the period of the deed. The original deed had an expiry date of 1^st Oct 2007. Hence you will notice 2 periods and 2 invoices.
[94] Ibid.
The audit report referred to in the memo is Exhibit P79.362-364. It is dated 30 October 2009.
In an email dated 2 November 2009, at 10:48 am, Mr Oszczypok wrote:[95]
[95] Exhibit P79.366.
Dear Troy
Thank you for your email.
I hope that the auditing of (the) marketing fund and (the) ledger of costs clears things up.
The cost has been a progressive cost over a period and provides the overall exposure amongst (other things that) we need.
Mr Rickard replied on the same day, at 10:58 pm:[96]
[96] Exhibit P79.365.
Hi John
Not actually sure what the PDF is telling me, it doesn’t seem to say anything.
Hopefully all confusion will be resolved in the near future.
Mr Oszczypok replied on 4 November 2009:[97]
[97] Ibid.
Dear Troy,
The pdf is a copy of the accountants audit.
I believe all the confusion will be resolved in the near future.
As I mentioned earlier, in the course of the negotiations for the renewal of the 2010 deed, Mr Rickard wrote, on 23 April 2010:[98]
[98] Exhibit P92.437.
Morning John,
I am having the latest deed reviewed by a solicitor as you suggested so I am still not able to sign at this stage.
One problem I do have with however is that I have a copy of the 2007 deed that I paid a fee for in 2007 and in that it states that a marketing fee of 1.5% applies.
The new deed you have supplied me however states a marketing fee of 3% which is incorrect for the period 2007 to 2010.
Mr Oszczypok replied on 26 April 2010:[99]
Dear Troy
Thank you for your email.
Any errors can be amended and thank you for bringing this to my attention.
I trust that dealing with this and the checklist items provides sufficient time to be finalised by 14^th May 2010.
[99] Ibid.
The above correspondence demonstrates that, although Mr Rickard was very unhappy about having to pay the two invoices for nearly $10,000, his concern was more about the suddenness of the charge, rather than T&T’s liability to pay the charge.
It is noteworthy that Mr Rickard signed the 2010 deed, with an advertising and marketing fee of 1.5% until 30 June 2010 and 5% thereafter. This indicates a clear acceptance by him that 1.5% was the appropriate charge under the 2007 deed.[100] Mr Rickard now says that in charging the advertising and marketing fee in 2009, Testel:
·repudiated their contractual relationship;
·was guilty of unconscionable conduct.
I will deal with these issues in due course.
[100] See Exhibit 100.460-464.
Rickard considers selling franchise
On 3 August 2007, Mr Rickard advised Mr Oszczypok that he had decided to sell T&T’s franchise, and that he would like to meet Mr Oszczypok the following week ‘to find out what protocol I need to follow and how much I am required to pay testel upon sale of my franchise’.[101] He made no mention of the alleged collateral contract, or any of its terms.
[101] Exhibit P59.219.
Mr Oszczypok made himself available to discuss the matter, but Mr Rickard did not pursue it. In an email dated 29 September 2007, Mr Rickard said that his decision not to proceed was made ‘(a)fter considering the sale value of my franchise at the current time’.[102]
[102] Exhibit P60.225.
Mr Munt submitted that Mr Rickard’s references to ‘how much I am required to pay testel upon sale of my franchise’ and ‘the sale value of my franchise at the current time’ are consistent with his evidence about the alleged collateral contract. He also pointed out that Mr Oszczypok did not query Mr Rickard’s references at that time.
It seems to me that these submissions do not deal with the following points:
·Mr Rickard’s beliefs about the existence of a collateral contract could have been the product of a misunderstanding on his part;
·Mr Oszczypok’s failure to respond cannot be taken as acceptance that a collateral contract was entered into. Mr Rickard’s references to ‘how much I am required to pay’ and to the sale value of his franchise, do not necessarily imply that he was alleging the existence of a collateral contract which might have called for a response on Mr Oszczypok’s part;
·the requested meeting did not take place, so Mr Oszczypok had no occasion to discuss the topic further.
Mr Rickard alleged that he was motivated to sell his franchise because of the marketing fee, the end of the 6% rebate on the FMC work imposed by Testel, and the ‘consequent reduction in profitability of the business.’ Mr Munt submitted that an ‘estimated sale value’ was not achieved because ‘T&T effectively had nothing of value, or adequate value, to sell, in circumstances where Testel had control of the client contracts.’[103] Mr Rickard did not articulate any of these matters to Mr Oszczypok in 2007. On his own evidence, he signed a renewal deed in September 2007 or thereabouts without voicing any of these concerns. Indeed, his actions in doing so tell against the existence of a collateral contract in my view. I reject Mr Munt’s submission that it supports his clients’ contention that there was a collateral contract.
[103] Cross-Claimant’s Table of Issues and Evidence on Cross-Claim, page 7.
The 2007 Deed
On 17 August 2007, Testel sent a ‘renewal deed and accompanying documentation’ to Mr Rickard.[104] On 14 September 2007, Mr Rickard acknowledged receipt and said he would sign and return it ‘over the next few days’.[105] Mr Rickard said he thought he executed and returned it to Testel, but that he did not retain a copy.[106] He paid the ‘Documentation Fee’ of $2,200.[107] The 2007 deed is not before the court. Its whereabouts are unknown. Mr Oszczypok said it was never returned.
[104] Exhibit D201.220.
[105] Exhibit P129.
[106] T 1046.
[107] The tax invoice is Exhibit D152.224.
Mr Rickard’s evidence about his execution of the 2007 deed is surprising. At that time, he was still considering selling the franchise. His evidence suggests that he simply executed the 2007 deed and returned it to Testel without further discussion and, in particular, without reference to the alleged collateral contract. It is surprising that he would have done so without raising the question of what payment he would have to make if he thought that to do so would give him something to sell.
It would appear that Mrs Rickard did not sign the 2007 deed, nor did she receive any of the documents required to be provided pursuant to the Franchising Code of Conduct.
There is a document in evidence entitled ‘Advice received by Franchisee’, in which Mr Rickard acknowledged that he had received, at least 14 days earlier, copies of the Franchising Code of Conduct, a disclosure document, a copy of the franchise agreement, and an acknowledgment that he had read and had a reasonable opportunity to understand those documents and that he had been appropriately and independently advised. The document is signed by Mr Rickard and dated 11 February 2008.[108] Mr Rickard acknowledged his signature, but did not remember the document.[109]
[108] Exhibit D153.245.
[109] T 1122.
The most likely explanation for the missing deed is that it was executed and Mr Rickard had forgotten to return it, or that Mr Rickard did return it and it was lost at Testel. Either way, it is likely that it was executed, at least by Mr Rickard. If it was not, I cannot see why he would have signed the ‘Advice’ document so soon afterwards.
The 2010 Deed
On 10 March 2010, Mr Oszczypok wrote a letter to Mr Rickard.[110] This is a bizarre document. It reads:
Dear Troy
You will note that the provisions of your Franchise Deed require notice of the exercise of the Right of Renewal (clause 4.2).
Whilst the Right of Renewal was not exercised pursuant to clause 4.2, I presume that has simply slipped your mind.
Accordingly, it would be appreciated if you would confirm your intention to renew the franchise for the term commencing on 1^st October 2007. An email to the undersigned will suffice and I ask that you do this by COB 19^th March 2010.
Presuming that you intend to renew the franchise we enclose herewith the relevant documentation including the Franchise Deed, Disclosure Document, Tax Invoice and draw your attention to various amendments which have been made thereto. The current Franchise Deed is the most recent version thereof. The deed reflects the most recent changes and there may be some changes which may have a bearing on your net income or your procedures and accordingly for completeness I draw your attention to those.
You should check the registration status of any business name registered in your particular franchise jurisdiction.
A Franchise Holder Checklist is attached and you are requested to provide that document completed enclosing attachments with the return of the Franchise Deed. This is required by COB 2^nd April 2010 to ensure a smooth transition. Please send all this documentation by hard copy to John Oszczypok.
[110] Exhibit P80.373.

I accept Mr Dal Cin’s submission that, on the basis of these emails, had it not been for Active’s incumbency, Testel would have been the only other contender for the FMC work. The defendants’ argument that Testel ‘competed for the work and was unsuccessful in obtaining it’, misses the point for that reason. Had it not been for the breach by T&T and Mr Rickard, Testel would have been the incumbent, and there is no reason to suppose that it would not have been able to retain the work.
Newmont
Testel argued that the probability that Newmont would have come back to Testel in 2012 is about 80%. Mr Rickard had asked Caroline Pell at Testel to reallocate the 2011 Newmont work in an email dated 20 April 2011.[386] This work was allocated to another ‘Test Engineer’, Steve Bolter, on 27 April 2011. Mr Rickard assisted Mr Bolter by answering a number of his questions by email.[387] The defendants said Testel’s chances of getting the 2012 work were more like 50% if Active is taken out of the scenario. I do not see why. There is no other evidence as to what happened in 2011. I accept Testel’s assertion that the likelihood of its reclaiming the Newmont work was 80%.
Badge Constructions
[386] Exhibit P24.993.
[387] Exhibit P25.1001-4, 1007-1018, 1021-26.
Testel submitted that the prospect that it would have retained Badge’s work but for the breach is as high as 60%. I do not accept that. Mr Martin Taylor, the maintenance supervisor, said the company was unhappy with Testel’s services in 2011, so much so that he did a course and did the testing and tagging himself for six months or so. He had trouble keeping up with it.[388] He then rang Mr Wilson, whom he knew through a connection at the Moana Surf Life Saving Club. Active has done all Badge’s work since that time.[389] Despite concessions made to Mr Dal Cin during some expert cross-examination,[390] Mr Taylor gave me the distinct impression that it was unlikely that he would have gone back to Testel for a quote. Testel would have needed some very persuasive salesmanship to have stood a chance of retaining the work. I agree with the defendants’ estimate of the likelihood at 10%.
Lifecare
[388] T 2152.
[389] T 2153.
[390] T 2156-7.
Testel’s relationship with Lifecare was even worse than it was with Badge. Mr David Flight, who was then manager of property services, was extremely dissatisfied with the performance of Testel’s franchisee. He terminated the relationship with Testel at their Aldinga site. By 13 December 2012, it was announced to the staff that Testel had been cancelled and Active was to commence at all sites.[391]
[391] Exhibit D307.1358-60.
Mr Flight had been referred to Active by a staff member whose daughter played in Mr Wilson’s band. A formal quotation was eventually submitted on 28 January 2014 and accepted.[392] Mr Flight insisted that the decision was about the poor performance of Testel’s franchisee, not about a desire to have Active take over the work.[393] I accept his evidence about that.
[392] Exhibit D311.1454-68.
[393] T 2149.
Testel argued that there was a 20% chance that, if Active had not been cultivating Lifecare, it would have come back to Testel and tried to resolve the difficulties. Mr Flight rejected this.[394] He made it clear that he had decided to cancel Testel before he decided to engage Active. I think there is a 100% likelihood that Lifecare would have gone elsewhere for its electrical testing services rather than go back to Testel.
[394] T 2148.
This head of damage fails.
Other Active (non-Testel) Clients
Testel submits that I should adopt the same approach as did Blue J in Testel v KRG at [85].[395] In that case, Blue J assessed Testel’s loss on the basis that since Testel had about 10% of the market in South Australia, Testel lost the opportunity to gain 10% of KRG’s Testel revenue during the restraint period.
[395] Testel Australia Pty Ltd v KRG Electrics Pty Ltd & Anor [2013] SASC 91.
In this case, the defendants argued that this claim is based on Mr Oszczypok’s ‘guestimate’,[396] and therefore inadmissible.
[396] T 291, T511.
The evidence was admitted without objection, on the basis that it was evidence of Mr Oszczypok’s belief,[397] rather than evidence of a fact. It is too vague and I am not prepared to rely on it. I decline to make an award in relation to non-Testel clients.
[397] See discussion with counsel at T 290.
Damages Claimed
Testel quantified its claim for damages on the basis that, were it not for the breach of the restraint covenant, Testel would have received 22% of Active’s total revenue for the period of the restraint by way of commission or ‘franchise fees’, and 5% by way of advertising and marketing fees.
The defendants argued that these claims are flawed because they do not represent Testel’s loss of profit, to which its claim should be confined, citing Marmax Investments Pty Ltd v RPR Maintenance Pty Ltd.[398]
[398] Supra.
Mr Munt submitted that the general principles to be applied are:
·for breach of contract, the plaintiff, so far as money can do it, should be placed in the same position as if the contract had been performed;[399]
·for a tort, the plaintiff, so far as money can do it, should be placed in the position it would have been in had the tort not been committed.[400]
[399] Wenham v Ella (1972) 127 CLR 454 at 460 per Barwick CJ, at 471 per Gibbs J; The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 80 per Mason CJ and Dawson J, at 98 per Brennan J, at 117 per Deane J, at 134 and 148 per Toohey J; Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653 at 667, 672.
[400] Butler v Egg & Egg Pulp Marketing Board (1966) 114 CLR 185.
Since the tort in this case is interference in contractual relations, there is no material difference between the measure of damages in contract and in tort.
Mr Munt conceded that the breach and/or tort need only be a cause of the loss, rather than the only cause, citing Henville v Walker.[401]
[401] (2001) 206 CLR 459.
Further, he conceded that if Testel’s wider case is proved, that is that Mr Rickard was a principal in the Active business, and that he and Mr Wilson set out from the start in a joint enterprise to take over the FMC work for Testel for the benefit of Active, then this ‘arguably’ permits causation to be addressed on a global basis, as Testel has implicitly done.[402]
[402] Closing Submissions of the Defendants on the Plaintiff’s Claim, [382].
This concession was appropriate. I have found Testel’s wider case proved. Damages should be assessed on a global basis against all three defendants.
In Testel v KRG, Blue J awarded damages on the basis of the full amount of the franchise fee, in that case 23.5%, because that was the amount payable by the franchisee pursuant to the franchise deed.
Mr Munt submitted that there was no contradictor in that case (KRG did not appear), and that ‘(t)he approach adopted by Blue J in that regard, on the basis of submissions made by Testel, was, with respect, incorrect and should not be adopted in the present case’.[403]
[403] Closing Submissions of the Defendants on the Plaintiff’s Claim, [400].
The defendants claim that the plaintiff’s damages should be for loss of profits, and that Testel’s ‘overheads’ should be deducted from any revenue earned.
There is no evidence that Testel’s overheads were any less as a result of the breach. Mr Munt submitted that Testel no longer had to issue invoices, collect fees and distribute money to T&T in relation to the clients lost as a result of any breach. There were many Testel franchisees (57 in 2010), so any reduction in Testel’s overhead expenses as a result of the breach would have been minimal. There is no evidence that any staff were laid off, or other savings made, after the breach of the restraint covenant took place.
In all the circumstances, I conclude that it is appropriate that Testel’s damages should be on the basis of compensation for revenue lost.
As to the advertising and marketing fees, the defendants argue that had Testel collected those fees from T&T, they would have been spent on advertising and marketing. Testel’s only loss would have been the loss due to any reduction in advertising and marketing as a result. I agree with Mr Munt that any loss would have been minimal, and has not been quantified.
The claim for damages under this head fails.
Assessment of Damages[404]
FMC (including Spotless)
[404] See Plaintiff’s Closing Address, [225].
For the reasons I have already outlined, I assess Testel’s damages as follows:

Period

Active Revenue

Rate

Fees/Charges

Apr 2011 – Sept 2011

$64,724.92

22%

$14,239.48

Oct 2011 – Sept 2012

$154,693.38

22%

$34,032.54

Oct 2012 – Sept 2013

$221,157.79

22%

$48,654.71

Oct 2013 – Sept 2014

$189,398.95

22%

$41,667.77

(allowed) 100% thereof

$138,594.50

TOTAL:

$138,594.50

Newmont

Period

Active Revenue

Rate

Fees/Charges

2012

$33,182.00

22%

(allowed) 80% thereof:

$5,840.03

TOTAL

$5,840.03

Badge Constructions

Period

Active Revenue

Rate

Fees/Charges

Oct 2011 – Sept 2012

$2,311.70

22%

(allowed) 10% thereof

$50.85

Oct 2012 – Sept 2013

$8,917.54

22%

(allowed) 10% thereof

$196.18

Oct 2013 – Sept 2014

$5,958.00

22%

(allowed) 10% thereof

$131.07

TOTAL

$378.10

Lifecare

Period

Active Revenue

Rate

Fees/Charges

(allowed)

Nil

Non-Testel Clients

Period

Active Revenue

Rate

Fees/Charges

(allowed)

Nil

TOTAL ASSESSED $144,812.63

This assessment is more than the damages claimed for the alternative cause of action for breach of the obligation to service the franchise under the deed. It is therefore not necessary to assess damages claimed under that head.
Exemplary Damages
Exemplary damages are not available for breach of contract.[405] Accordingly, the claim for exemplary damages is confined to the claim in tort against Mr Wilson and Active.
[405] Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298; Johnson v Unisys Ltd [2003] 1 AC 518 at 530.
Mr Dal Cin quoted Hospitality Group Pty Ltd v Australian Rugby Union Ltd:[406] He extracted the following principles:[407]
[233.1]This head of damage is punitive in character, designed to punish a wrongdoer who has been involved in a conscious wrongdoing in contumelious disregard of another’s rights, and to deter him from engaging in that conduct again.
[233.2]To be damnified by punitive damages, the defendant’s conduct must be “outrageous” or must be conduct “which shocks the tribunal of fact, representing the community” or his behaviour must be “in a humiliating manner and in wanton or reckless disregard” of the plaintiff’s welfare.
[233.3]This head of damages comes into play whenever the defendant’s conduct is sufficiently outrageous to merit punishment, as where it discloses malice, fraud, cruelty, insolence or the like.
[233.4]All that said, the court must also display restraint in the amount it awards.
[406] (2001) 110 FCR 157 at [140]-[143].
[407] Plaintiff’s Closing Address, [233].
Testel’s claim is based on two factors:
·Mr Wilson’s conduct in acting with Mr Rickard in concert to covertly set up Active in competition with Testel in breach of the restraint covenant;
·an attempt to subvert the court process by the non-disclosure of the ‘Active folder’ on Mrs Rickard’s computer.
As to the second of those factors, there is no evidence that Mr Wilson was complicit in a deliberate attempt to subvert the court process. The computer was not in his possession. There is no evidence that he knew that the Active folder was on it at the relevant time.
As to the first factor, I accept that Mr Wilson was complicit in Mr Rickard’s breaches, but it was Mr Rickard who owed the contractual duty to Testel, not Mr Wilson. Further, I do not accept that Mr Wilson instigated the breach. I am sure that Mr Rickard did that. It was not until after Mr Rickard announced that he was getting out of Testel that Mr Wilson came ‘on board’.
Further, it was Mr Rickard who had a detailed knowledge of the restraint covenant, whereas Mr Wilson had a more general knowledge of its contents. Mr Rickard had received legal advice, whereas Mr Wilson had not.
In those circumstances, while I regard Mr Wilson’s and Active’s roles as wrongful and worthy of criticism, they were not so contumelious or outrageous as to justify an award of exemplary damages.
The claim for exemplary damages fails.
Account of Profits
In a decision which is binding on me, Blue J in Testel v KRG[408] held that the remedy of account of profits is not available to Testel as a remedy in contract or tort, following Hospitality Group v Australian Rugby Union Ltd,[409] which had declined to follow the decision of the House of Lords in Attorney-General v Blake.[410]
[408] At [109].
[409] Supra.
[410] [2000] UKHL 45; [2001] 1 AC 268.
However, Mr Dal Cin submitted that the remedy is available in restitution, an equitable remedy which is an alternative to Testel’s action in tort. He submitted that Testel has a right to elect between its tortious remedy and the restitutionary remedy. At a time before judgment is entered, Testel may ‘waive the tort’ and elect for the restitutionary remedy. He quoted Hospitality Group at [169]-[173]. This is the minority judgment of Emmett J.[411]
[411] See Closing Submissions of the Defendants on the Plaintiff’s Claim, [429].
Emmett J said:
One area where Courts have awarded an account of profits is in the commission of the tort of inducing a breach of contract between master and servant. Where a wrongdoer acquires the benefits of the labour of an employee by reason of inducing that employee to breach his contract of employment with his employer, the employer is entitled to the value of the labour that he has lost. The action is brought for the benefit acquired by the wrongdoer from the service of the employee.
Historically, the rationale for such a result was said to be that the wronged employer is entitled to "waive the tort" and adopt the new contract entered into between the wrongdoer and the employee - see Lightly v Clouston (1808) 127 ER 774 at 775 and Foster v Stewart (1814) 105 ER 582 at 585. This legal fiction was created to fit the remedy within the shape of the action for money had and received. It no longer serves any useful purpose - see Goff & Jones The Law of Restitution (5^th ed.) at 775-778.
This, however, is not an action involving a contract between master and servant. It cannot be said that Testel is seeking to recover the value of an employee’s labour that it has lost. In this case, Testel is seeking damages for lost opportunity. Such damages are based upon the idea that damages may be reduced if the likelihood of Testel’s opportunity to earn revenue from clients is less than 100%. In that case, Testel is in no position to ‘waive the tort’ and adopt the contract between Active and the client.
It would seem that the idea that an account for profits might be had in a case involving a contract between master and servant may have been based on the notion that a master had some proprietary right to the services of the servant. That could not be the case in a contract between franchisor and franchisee.
In any event, the majority in Hospitality Group, Hill and Finkelstein JJ held to the contrary of Emmett J’s opinion. They said:[412]
Turning to the remedies available to the victim of a tort, those remedies may conveniently (if somewhat inaccurately) be divided into two groups (a) damages; and (b) other remedies. Here, we are not concerned with non-pecuniary remedies, the principal ones being injunction and restitution. So far as pecuniary remedies are concerned, it should be noted that damages may be either compensatory or non-compensatory. In the latter category are contemptuous damages, nominal damages, exemplary damages and restitutionary damages. Restitutionary damages may be limited to cases involving the misuse of a plaintiff's property: Surrey County Council v Bredero Homes [1993] 1 WLR 1361; [1993] 3 All ER 705.
Speaking generally, an award of damages is made in order to compensate the plaintiff for his injury. The rule is that the plaintiff is to be placed in the same position as he was before the tort was committed: Livingstone v Rawyards Coal Co (1880) 5 App Cas 25 at 35. This is sometimes referred to as the rule of restitutio in integrum. The rule is more easily applied to losses which are capable of calculation in money terms. In areas where the losses are not readily quantifiable, for example where damages are claimed for pain and suffering or in an action for defamation, the court attempts to award "fair compensation": Clerk & Lindsell on Torts (17th ed, 1995) par 27-09.
However described, it is not possible to slot an account of profits into the general framework of remedies that are available in tort, when the account is not awarded to compensate the plaintiff for his actual or presumed loss. That is to say, under presently accepted principles, an injured plaintiff cannot claim a windfall to prevent a wrongdoer profiting from his wrong, except in those cases where exemplary damages are available and it is proper that illicit profits are taken into account in assessing the quantum of the award, as happened in McMillan v Singh (1984) 17 HLR 120 at 125 and John v MGN Ltd [1997] QB 586 at 619.
[412] At [160]-[162].
On that basis, there is no room for a ‘waiver of tort’ in this case. No exemplary damages are available. The award of damages in this case is not for Testel’s actual or presumed loss, but for loss of opportunity.
Conclusion
My conclusions are as follows:
1.The 2010 deed is valid and enforceable.
2.The restraint covenant in the 2010 deed is valid and enforceable. It operated for a period of 12 months after the expiry of the deed on 30 September 2013, and its operation was limited to activities in South Australia.
3.The 2010 deed was not repudiated by Testel.
4.Troy Rickard’s guarantee of the performance by T & T Rickard of its obligations under the 2010 deed is valid and enforceable.
5.T & T Rickard repudiated the 2010 deed by cessation of work in May 2011, and by written notice on 19 August 2011.
6.Testel did not accept T & T Rickard’s repudiation. The restraint covenant continued in force despite T & T Rickard’s repudiation.
7.T & T Rickard, and Troy Rickard as guarantor, breached the restraint covenant by Troy Rickard becoming directly engaged, concerned in and interested in the business of Active, a company operating a business substantially the same as, and in competition with, Testel, throughout the restraint period, in the State of South Australia. Troy Rickard is therefore liable in damages for the breach.
8.Testel was in breach of the Franchising Code of Conduct made pursuant to Trade Practices (Industry Codes) Franchising Regulations 1998 by failing to provide required documentation to Tracey Rickard, a co-director of T & T Rickard. Troy Rickard’s claim that the 2010 deed should be declared void for that reason is dismisssed.
9.Troy Rickard’s claim that a contract which was collateral to the 2004 deed, and which became collateral to the 2007 and 2010 deeds, was entered into by the parties to the deed in 2004, is dismissed.
10.Testel’s claim for damages against Active and Rowan Wilson for interference with contractual relations is upheld.
11.Testel’s claim for equitable relief for breach of confidence is upheld, without objection, in one respect, and injunctive relief is granted. I will hear the parties as to the form of the injunction.
12.Troy Rickard’s claim for relief pursuant to s 51AC and s 87 of the Trade Practices Act on the basis of alleged unconscionable conduct by Testel is dismissed.
13.Troy Rickard’s claim based on an alleged breach of the good faith obligations in the 2010 deed is dismisssed.
14.Troy Rickard’s claims based on an alleged breach of s 52 of the Trade Practices Act and s 7 of the Misrepresentation Act are dismissed.
15.Damages are awarded against Troy Rickard, Rowan Wilson and Active in the sum of $144,812.63.
16.Testel’s claim against Rowan Wilson and Active for exemplary damages is dismissed.
17.Testel’s claim to the right to elect for an account of profits against Active is dismissed.

I will hear the parties as to the form of the orders to be made in light of these reasons, and as to any ancillary orders.

Description of payment	Estimated amount or estimated low-high range or formula	To whom the payment is made	Where the payment is due	Whether refundable, if so under what conditions
Franchise Service Fee	22% of gross sales – net of GST	Master franchisee	Monthly	No
Advertising Fee	N/A	No.

Period	Active Revenue	Rate	Fees/Charges
Apr 2011 – Sept 2011	$64,724.92	22%	$14,239.48
Oct 2011 – Sept 2012	$154,693.38	22%	$34,032.54
Oct 2012 – Sept 2013	$221,157.79	22%	$48,654.71
Oct 2013 – Sept 2014	$189,398.95	22%	$41,667.77
(allowed) 100% thereof	$138,594.50
TOTAL:	$138,594.50