Walter John Bailey (No. 1) Pty Ltd (formerly known as ITP Pty Ltd) v Glass, J.M. & anor

Re: WALTER JOHN BAILEY (No.1) PTY LIMITED (PROVISIONAL LIQUIDATOR APPOINTED)
formerly known as ITP Pty Limited
And: JOHN MAXWELL GLASS and MARLENE GRACE GLASS
No. G 223 of 1991 FED No. 416
Courts and Judges - Contract
(1992) 36 FCR 290

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Black C.J.(1), Neaves(1) and Einfeld(1) JJ.

CATCHWORDS

Courts and Judges - Federal Court of Australia - Jurisdiction - Cross- vesting legislation - Whether legislation limited in its operation to proceedings instituted after the date of its commencement.

Contract - AB engaged in business of providing income tax services - Grant by AB to CD of franchises to carry on business in designated areas - Default thereunder by CD giving rise to power in AB to terminate - Parties proceed on basis that franchises terminated - AB and CD agree that AB will grant franchises to new holders, require certain moneys to be paid to it by new franchise holders and pay certain moneys to CD - Agreement carried into effect - Payment of moneys to AB by new holder secured by deed of debenture - Default by new franchise holder resulting in sale of franchise - AB approves transfer and discharges debenture without protecting CD's interests - Whether AB liable in damages for breach of contract. Jurisdiction of Courts (Cross-vesting) Act 1987 (N.S.W.), s.4

Minister for Home and Territories v. Teesdale Smith and Ors (1924) 35 CLR 127, followed Re Hassell; Ex parte Pride (1984) 1 FCR 387 applied Kodak (Australasia) Pty Ltd v. The Commonwealth (1988) 22 FCR 197, discussed

HEARING

SYDNEY #DATE 17:6:1992

Counsel for the appellant : Mr D. Libling

Solicitors for the appellant : Brown and Partners

Counsel for the respondents : Mr F. Donohue

Solicitors for the respondents : Lenehan and Co.

ORDER

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The appellant pay the respondents' costs of the appeal.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This is an appeal from the whole of the judgment given by a judge of this Court (Sweeney J.) in a proceeding in which the respondents, John Maxwell Glass and his wife Marlene Grace Glass, were respectively the first and second applicants and ITP Pty Limited was the respondent. The judgment awarded the sum of $184,006.48 to the present respondents. Since the institution of the appeal, ITP Pty Limited has changed its name to Walter John Bailey (No.1) Pty Limited and has been placed in provisional liquidation. For convenience, however, the company will be referred to in this judgment as "ITP".

In order to deal with a preliminary submission on behalf of ITP that the Court had no jurisdiction to deal with the proceeding at first instance, it is necessary to recite something of the history of the matter.
On 5 September 1986, an application accompanied by a statement of claim was filed. By the application, the present respondents sought damages or, in the alternative, payment of an amount said to be owing pursuant to an agreement referred to in the statement of claim, plus interest and costs. The agreement was identified in the statement of claim as one made between the respondents and ITP on 15 February 1979. The statement of claim alleged that the respondents were the owners and operators of a franchise granted by ITP to engage in the business of preparing tax returns and performing related services within certain areas including the area known as "North Shore, Sydney"; that on or about 24 October 1978 the respondents entered into an agreement with a Mr Rory Glass for the purchase by him of the "North Shore, Sydney" franchise; and that on 15 February 1979 the respondents entered into a written agreement with ITP. This agreement was said to have contained the following terms -

(a) that it would be a term of the agreement between the respondents and Mr Rory Glass that Mr Rory Glass would pay the sum of $190,000 to ITP as part of the proposed franchise to be granted to him by ITP;

(b) that ITP would only grant any new franchise for "North Shore, Sydney" by including as a condition therein the payment of the sum of $190,000 or the balance of that sum then unpaid; and

(c) that ITP would act faithfully for the best interests of the respondents and ITP and use its best endeavours to collect all sums due from the franchisees and to fully account to the respondents annually but not later than 30 October each year for all sums collected.

The statement of claim went on to allege that in or about 1979 ITP granted a franchise for "North Shore, Sydney" with a condition that the franchisee pay ITP only the sum of $145,000; and that its conduct in doing so was conduct that was misleading or deceptive or likely to mislead or deceive within the meaning of s.52 of the Trade Practices Act 1974 (Cth) and amounted to a breach of the terms of the agreement dated 15 February 1979 referred to in pars (b) and (c) above. It was also alleged that the conduct of ITP in early 1984, in granting another franchise for "North Shore, Sydney" without a condition that the new franchisee pay to ITP the balance of the sum of $190,000 then said to be owing, was conduct in contravention of s.52 of the Trade Practices Act and amounted to a breach of the agreement dated 15 February 1979.
By its defence, filed on 11 December 1986, ITP admitted that the respondents were the owners and operators of the franchise until 1984; that on 15 February 1979 an agreement was made between itself and the respondents; and that it granted a franchise to Rory James Glass and Clytie Joanne Glass dated 15 February 1979. The remainder of the allegations in the statement of claim were denied or not admitted. In further answer to the alleged breaches of the agreement dated 15 February 1979, the defence alleged that in 1982 ITP agreed to a request of the respondents to vary that agreement so that the respondents themselves could collect the remaining indebtedness from Mr Rory Glass. In further answer to the whole of the statement of claim, ITP said that it relied on s.82(2) of the Trade Practices Act (which provided that an action under s.82(1) might be commenced at any time within 3 years after the date on which the cause of action accrued) and pleaded that the statement of claim did not disclose a cause of action under the Trade Practices Act.
When the matter came on for hearing before the primary judge on 30 May 1990, counsel for the respondents informed the Court that the respondents relied on two causes of action, one for breach of contract and the other under the Trade Practices Act. The latter cause of action was said to be based on a representation by ITP that it would use its best endeavours to collect all sums that were due from the purchasers of the franchise and pay those sums to the respondents after making certain deductions. In answer to a question from the primary judge, counsel for the respondents stated that, although he would seek to establish that the state of mind of ITP at the time of the making of the representation relied upon was such that the making of that representation amounted to misleading or deceptive conduct, he had reservations whether the evidence would go so far.
During the afternoon of the first day of the hearing, and virtually at the end of the respondents' case, their counsel handed to the Court a document described as being a redraft of the statement of claim. After some discussion between counsel and the Bench and some amendments being made to the document, counsel for the respondents was given leave to rely on the redrafted document by way of amendment to the statement of claim. The amended statement of claim as subsequently filed was in the following terms (the references to "the Respondent" being references to ITP and the references to "the Applicants" being to the present respondents):

"1. By an agreement for consideration dated 15th February, 1979 the Respondent agreed to dispose of its North Shore franchise for the sum of $190,000.00 and to pay to the Applicants the proceeds of such disposal.

2. The Respondent agreed to use its best efforts to timely collect the proceeds of sale of the said franchise.

3. By a debenture dated 2nd July, 1980 Tarea Management Pty. Limited agreed to pay to the Respondent the sum of $167,000.00 being the balance of the sum of $190,000.00 then owing by it to the Respondent arising from the sale by the Respondent to it of the said franchise.

4. It was a term of the said debenture that the whole of the said sum of $167,000.00 or so much thereof as should remain unpaid from time to time should become immediately due and payable upon the sale by the said Tarea Management Pty. Limited of the franchise.

5. It was a term of the franchise agreement between Tarea Management Pty. Limited and the Respondent dated 2nd July, 1980 that the consent of the Respondent was required to the transfer of the franchise.

6. By an agreement dated 9th December, 1983 the said Tarea Management Pty. Limited sold the said franchise to Zone Management (Western) Pty. Limited.

7. The Respondent in breach of the said agreement discharged the said debenture and did not thereupon obtain payment to it of the sum of $114,143.89 and interest thereon then owing by Tarea Management Pty. Limited to it for which it had agreed to account to the Applicants.

8. The Respondent in breach of the said contract consented to the transfer of the franchise to Zone Management

(Western) Pty Ltd by Tarea Management Pty. Ltd and did not require payment to it of the said sum of $114,143.89 and interest thereon.

9. Since 9th December, 1983 the Applicants have received payment of further sums of $22,108.05 on account of the selling price of the franchise and interest thereon.

10. The Respondent has neglected and refused to pay the balance of the principal sum of $92,035.84 and all interest outstanding.

The Applicants claim the sum of $92,035.84 and interest thereon to the date hereof at the rate of 6.5% per annum or alternatively such other sum as may be found to be due to the Respondent under the said agreement and interest thereon."

In answer to a question put to him, counsel for the respondents stated that, without conceding that it had no substance, the claim under the Trade Practices Act was not being pursued.
Subsequently, ITP filed a defence to the amended statement of claim. Beyond noting that it included an assertion that the Court had no jurisdiction to determine the claim brought by the respondents, it is unnecessary to set out the substance of the defence.
The primary judge rejected the contention that the Court had no jurisdiction on the basis that the original statement of claim pleaded a cause of action arising under the Trade Practices Act of which it could not be said that it was "colourable" in the sense of having been made for the improper purpose of "fabricating" jurisdiction in this Court: Burgundy Royale Investments Pty Ltd v. Westpac Banking Corporation (1987) 18 FCR 212 at p 219. It followed that, even though the cause of action under the Trade Practices Act was not being pursued at the hearing, the Court retained jurisdiction to deal with the non-federal aspects of what was a single justiciable controversy between the parties: Stack v. Coast Securities (No.9) Pty Ltd (1983) 154 CLR 261 at p 294.
Counsel for ITP submitted that his Honour erred in holding that he had jurisdiction to entertain the cause of action based in contract. Arguments which centred upon what has been called the "accrued" jurisdiction of the Court were presented in support of the submission that the Court lacked jurisdiction but during the course of argument it was suggested that jurisdiction might in any event have been conferred by the Jurisdiction of Courts (Cross-vesting) Act 1987 (N.S.W.) ("the Cross-vesting Act"). Having regard to the conclusion we have reached about the effect of the Cross-vesting Act we do not find it necessary to discuss the detailed and careful arguments put before us by both counsel about the accrued jurisdiction of the Court. This is because, in our opinion, at the time the proceeding was heard and determined and on the assumption that the source of jurisdiction was not to be found in the "accrued" jurisdiction, the Court had undoubted jurisdiction by virtue of the provisions of the Cross-vesting Act. Under that Act, this Court has jurisdiction with respect to "State matters", an expression which includes a matter in which the Supreme Court of New South Wales has jurisdiction otherwise than by reason of a law of the Commonwealth or of another State. A claim in contract such as that sued upon in the present proceeding is such a matter.
It was objected that the Cross-vesting Act could provide no source of jurisdiction in the present case for the reason that that statute came into operation on 1 July 1988 and that, while the hearing and determination of the matter occurred after that date, the proceeding was instituted at an earlier date.
In our opinion, the objection is not well founded. The statute does not affect substantive rights but simply enlarges the jurisdiction which this Court would otherwise possess to entertain a proceeding to vindicate such substantive rights. The statute is expressed in general terms: there is no express provision limiting its beneficial effects to proceedings commenced on or after 1 July 1988 and we see no reason why such a limitation should be implied. The recitals to the statute make plain its object and purpose and it would detract from the achievement of that object and purpose to construe the statute in the manner contended for by counsel for ITP.
The conclusion we have reached is supported by the decision of the High Court in Minister for Home and Territories v Smith (1924) 35 CLR 120 where the effect of s.33A of the Judiciary Act 1903 was considered. Section 33A empowered the High Court to direct that an award in an arbitration should be a rule of the High Court and the question arose whether the recently enacted section applied to awards in existence at the time it came into force. Having referred to the presumption against giving certain statutes retrospective operation, Isaacs A.C.J. and Starke J. said (at 129):

"Applying the principles stated to sec. 33A, it appears that the enactment is one related to procedure, that is, to the method of enforcing existing rights. It does not assume to alter any rights; it merely invests the High Court with a measure of original jurisdiction to ascertain and compel the observance of rights. Awards are not altered, the contracts of the parties to the submission under which the awards are made are not varied - nothing is done but to provide for a judicial recognition of whatever rights exist."

Adopting a similar approach, Toohey J. in Re Hassell; Ex parte Pride (1984) 1 FCR 387 at 389 extended the time for making an application for a writ of mandamus notwithstanding that s.39B of the Judiciary Act, which conferred the jurisdiction, came into operation after the date of the conduct in respect of which mandamus was sought. His Honour referred to Maxwell v Murphy (1957) 96 CLR 261 and said that while there were difficulties in describing s.39B as procedural in the ordinary sense of that word, the section dealt with the pursuit of remedies rather than the creation of substantive rights. It presupposed that there was conduct in respect of which mandamus or prohibition or an injunction would ordinarily lie and conferred jurisdiction on the Federal Court to deal with such conduct.
Soon after the Jurisdiction of Courts (Cross-vesting) Act 1987 (Vic.) came into force on 1 July 1988, the present question arose before Jenkinson J. in H 1976 Nominees Pty. Ltd. v Joel Auctions Pty. Ltd. (unreported, judgment delivered 18 July 1988). His Honour did not have to resolve the question because he considered that the Court had jurisdiction from another source but was inclined to the view that since 1 July 1988 jurisdiction had been conferred by s.4(1) of the Victorian Act; he referred to Minister for Home and Territories v Smith. At about the same time, the same question was considered by Nicholson C.J. in In the Marriage of N.R. and M. Gilbert (1988) 12 Fam LR 503. The hearing in that case had begun before the commencement of the Victorian Act but Nicholson C.J. considered that even if the Family Court did not have jurisdiction in its own right, it could exercise the inherent jurisdiction of the Supreme Court of Victoria by reason of s.4(2) of the Victorian Act.
Moreover, if the appellant's argument were correct, there would be an internal inconsistency in the Cross-vesting Act of such a nature as could not have been intended.
Section 5 requires the transfer of pending proceedings in certain circumstances. Section 5(1) provides that where a proceeding "is pending in the Supreme Court" and certain specified circumstances exist, the Supreme Court shall transfer the proceeding to the Federal Court. There is no basis for supposing that a proceeding is only "pending in the Supreme Court" for the purposes of the section if it was commenced after the Cross-vesting Act came into operation. Clearly, s.5(1) can operate according to its terms upon any proceeding that was "pending in the Supreme Court" at the time the Cross-vesting Act came into force on 1 July 1988: see also, as parts of the same scheme, ss. 5(2), (3), (4) and (5). To interpret s. 5(1) and its related subsections otherwise would require reading into them words that are not used and would, in any event, be inconsistent with the evident object of the Act as revealed by its terms and by the preamble. In Bankinvest AG v Seabrook (1988) 14 NSWLR 711 the New South Wales Court of Appeal acted on the assumption that s.5(2) of the Cross-vesting Act operated with respect to proceedings already commenced at the time the Act came into force when, in September 1988, it ordered pursuant to s. 5(2) that a proceeding which had been commenced in the Supreme Court of New South Wales on 18 January 1988 be transferred to the Supreme Court of Queensland.
Obviously the legislature must have intended that the conferral of jurisdiction upon the Supreme Court of another State or Territory with respect to a State matter should extend to proceedings transferred to the other court under s.5. Exactly the same consideration applies to a proceeding transferred to the Federal Court under s.5(1), and see s.4(3) and s.9 of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth). It would be absurd if the legislation conferred jurisdiction upon a transferee court with respect to a matter pending in another court at the time the Cross-vesting Act came into force, but did not confer jurisdiction with respect to a proceeding pending in the transferee court itself when the legislation came into force. Such a result cannot have been intended.
In support of the argument that the Court did not derive jurisdiction under the Cross-vesting legislation to deal with the case in contract, counsel for the appellant relied upon a passage in the judgment of Lockhart J in Kodak (Aust) Pty. Ltd. v Commonwealth (1988) 22 FCR 197 at 203. In that case Kodak brought proceedings in the Federal Court for the recovery of sales tax paid by it under protest pursuant to s.12A of the Sales Tax Procedure Act 1934 (Cth). Section 12A(2) of that Act provided that a person who had paid an amount of sales tax under protest pursuant to s.12A might, within six months after the date upon which the amount was paid, bring an action "in any Commonwealth or State court of competent jurisdiction for the recovery of the amount so paid".

Lockhart J. upheld the objection to jurisdiction and dismissed the proceedings, holding that s.12A(2) did not confer express or implied jurisdiction upon the Federal Court. Section 12A(2) recognised jurisdiction that might be invested in the Federal Court from another statutory source but was not in itself an independent source of jurisdiction. His Honour considered the Cross-vesting Act as a possible source of jurisdiction in the Federal Court where jurisdiction would have been available to the Supreme Court of New South Wales had proceedings under s.12A been commenced in that Court (see at 202). A concession by counsel for Kodak that the cross-vesting legislation had no application was considered by his Honour to be correct because an action brought under s.12A(2) was not a "State matter" within the meaning of the Cross-vesting Act, in that it was a matter in which the Supreme Court did not have jurisdiction otherwise than by reason of a law of the Commonwealth. His Honour then said (at 203):

"I would add that the NSW Act (the Cross-vesting Act), so far as presently relevant, did not commence until 1 July 1988, after the proceedings had commenced in this Court and after the expiration of the period of six months mentioned in s.12A(2) of the Sales Tax Procedure Act. This circumstance provides a further ground supporting the conclusion that the NSW Act does not confer jurisdiction on the Federal Court in the present proceeding and the conclusion that this Court should not, even if it could, transfer the proceeding to the Supreme Court pursuant to s.5 of the NSW Act." (Emphasis added)

Even if the Cross-vesting Act had been wide enough to encompass a matter in respect of which the Supreme Court had jurisdiction deriving from a federal statute, it could not have been said that the proceeding had been commenced in a court of competent jurisdiction within six months after the payment under protest was made. It seems to us that this particular feature of the case was central to his Honour's observations and that he was not intending to deal with the wider issue that arises here as to the conferral of jurisdiction in a proceeding commenced in this Court before 1 July 1988. We do not understand his Honour to have been saying that if the Cross-vesting Act had commenced within the six months' period and the proceeding had been a 'State matter', the Federal Court would not have had jurisdiction to hear and determine it.
We should add that the respondents had not previously relied on the Cross-vesting Act as a source of the Court's jurisdiction and counsel for the appellant objected to their doing so on the hearing of the appeal. He relied upon Order 10A, r.5 of the Federal Court Rules which requires a party proposing to invoke a jurisdiction arising under a cross-vesting law to include in the Statement of Claim a statement of the provision on which the party relies and the grounds upon which the party does so. As we pointed out during argument, however, the Court has power under Order 1, r.8 to dispense with compliance with the requirements of the Rules, either before or after the occasion for compliance arises. Had the matter been raised before the primary judge, the course of the evidence could not have been affected and the issue was raised before us on appeal in sufficient time to enable both parties to make oral and written submissions on the point. In these circumstances we have thought it appropriate to deal with the question of jurisdiction by reference to the Cross-vesting Act notwithstanding the failure of the respondents to raise the issue at an earlier stage.
We turn then to a statement of the relevant facts and a consideration of the substantive grounds of appeal.
The primary judge found that the respondents had, since 1974, been the owners and operators of franchises granted to them by ITP to engage in the business of preparing tax returns and performing related services within certain areas including an area described as "North Shore, Sydney".
The franchise agreement relating to that area bore date 3 May 1974. Under that agreement, the respondents undertook to pay to ITP royalties in a sum equal to 22% of the gross receipts of the business to be carried on under the franchise with provision for that percentage to be reduced to 12% in the event of prompt payment and to make certain other payments to ITP. The respondents were entitled to sell, assign or transfer all or any part of the franchise provided that the proposed transfer was submitted to and approved and accepted by ITP, such approval not to be unreasonably withheld. Any attempted disposition was not to take effect unless and until such acceptance and approval were evidenced by an instrument in writing executed by ITP. The agreement also provided that any material breach of its terms by the respondents was to constitute grounds for its termination. Prior to such termination ITP was to give the respondents written notice of the alleged breach by certified mail, whereupon the respondents were to have fifteen days from receipt of the notice to correct the breach.
There were in existence two other franchise agreements between the respondents and ITP, those agreements relating respectively to an area described as "Melbourne West" and an area described as "Gold Coast". The terms of those agreements are not in evidence. It may be assumed, however, that they were in substantially the same terms as the agreement dated 3 May 1974 relating to the North Shore, Sydney area.
By a notice dated 20 October 1978 served on the respondents, ITP gave notice of breaches of the three franchise agreements between itself and the respondents to which reference has been made. The notice continued:

"Unless the above amounts are paid to us within fifteen

(15) days from the receipt of this notice, I.T.P. PTY LIMITED will be free to terminate all three (3) contracts."

The course of events between the giving of that notice and 15 February 1979 is not clearly established by the evidence. However, on 20 October 1978 ITP instituted proceedings against the respondents in the Supreme Court of New South Wales to recover certain amounts said to be owing by the respondents to the company by way of royalties and otherwise under the franchise agreements. It appears that the respondents had endeavoured to sell their franchises and had entered into certain arrangements in respect of the North Shore, Sydney franchise with Mr Rory Glass, who was the brother of the respondent John Maxwell Glass and who had previously assisted the respondents in the running of the business, and in respect of the Gold Coast franchise with a Mr Ian Daley. Mr Rory Glass had made a payment of $20,000 to the respondents and had, apparently, been operating the business in the North Shore, Sydney area since 1 November 1978 though under what precise circumstances does not appear. Mr Daley had made a payment of $15,000 to the respondents and had been operating the business in the Gold Coast area since 1 December 1978. The respondents had also endeavoured to sell the Melbourne West franchise but had made no arrangement with any proposed purchaser by 15 February 1979.
It further appears that ITP did not at any time execute an instrument in writing in accordance with the relevant term of the franchise agreement dated 3 May 1974 evidencing its approval and acceptance of the proposed transfers to Mr Rory Glass and Mr Daley. It did not, however, accept that the respondents were in a position to transfer their rights under the relevant agreements to the proposed purchasers.
Prior to 15 February 1979, negotiations had taken place between the respondent John Maxwell Glass and a Mr Monte Nelson who, with members of his family, had previously controlled ITP. Mr Nelson appears to have acted as an intermediary between the respondents and ITP and, as a result of his intervention, the agreement dated 15 February 1979 was executed. That agreement was in the following terms:

"AGREEMENT

AGREEMENT entered into and made this 15th day of February, 1979, by and between I.T.P. Pty. Ltd. a N.S.W. Company, hereinafter referred to as ITP, and John Maxwell and Marlene Grace Glass, hereinafter referred to as Glass. WHEREAS Glass was the owner, operator of Tax Preparation Franchises granted by ITP in the area of North Shore Sydney, Melbourne West, and Gold Coast, which was (sic) cancelled by ITP by due Notice of 15 Day Cancellation in October, 1978, and WHEREAS Glass would of (sic) been able to sell his Goodwill, Fixtures Equipment in those areas had he not lost his Franchises due to Financial losses in other areas beyond his control, and Agrees to sell what is his Right, Title, Interest to Buyers, and

WHEREAS Glass had agreed to enter into an agreement with Rory Glass for the purchase of the North Shore Franchise, and into an agreement with Ian Daley for the purchase of the Gold Coast Franchise, and

WHEREAS Glass was trying but had not an agreement for the sale of his interest in the Melbourne Franchise area, and WHEREAS Glass acknowledges a Debt owing to I.T.P. in the amount of $64,712.14 plus interest which is agreed to and acknowledged by I.T.P., and

WHEREAS Glass acknowledges there are accounts payable outstanding not known and known which has (sic) to be paid out of any proceeds available to Glass, and

WHEREAS Glass acknowledges that he transfers clear title to all equipment at North Shore to Rory Glass, and that he transfers clear title to all equipment at Goldcoast to Ian Daley, and he herein passes title to all equipment at Melbourne to I.T.P., and

WHEREAS ITP is willing to obligate any and all future Sun Franchise holders for these Franchise areas to pay the sums agreed to below as a condition of their receiving the Sun Franchise Contract for each specific area, and WHEREAS GLASS is willing for the above consideration of ITP becoming a collection agent for said sums agrees to transfer any and all company names having to do with ITP or ITP the Income Tax Professionals, Executive Income Tax Service or any other Trade Marks acknowledge (sic) as being the property of ITP Pty. Ltd. under their Franchise license.

NOW THEREFORE IT IS AGREED that

1) Glass agrees to pay ITP the sum of $20,000.00 receipt of which is herewith acknowledged to be applied against the sum of $64,712.14 owing to ITP for past Royalty, Supplies advertising and services rendered.

2) Glass agrees to transfer all his right, Title and Interest in Trade names belonging to ITP in order for them to grant these rights out to new Sun Franchise holders for the areas of Melbourne West, North Shore Sydney and Goldcoast-Queensland.

3) Glass agrees to transfer all his right title and interest in all Equipment, Fixtures Furniture, Sundry items on location at North Shore to Rory Glass as part of his purchase of the Franchise, in consideration of Rory Glass agreeing to pay a sum of $190,000.00 to ITP as part of the proposed Sun Franchise to be granted to him by ITP, plus interest at 6 1/2% simple. 4) Glass agrees to transfer all his right title and interest in all Equipment, Fixtures, Furniture, Sundry items on location at Gold Coast, Queensland to Ian Daley as part of his purchase of the Franchise, in consideration of Ian Daley agreement to pay a sum of $35,000.00 to ITP as part of the proposed Sun Franchise to be granted to him by ITP, plus interest at 6 1/2% simple. Further Glass acknowledges that he has received a payment of $15,000.00 from Ian Daley and a payment of $20,000.00 from Rory Glass.

5) Glass agrees to transfer all his right title and interest in all equipment, Fixtures, furniture, Sundry items on location at Melbourne to I.T.P., to be held by ITP and sold to persons or person who agrees to purchase Melbourne Sun Franchise. The said purchase price of Melbourne shall also be included as a conditional payment by the new Franchise holder for said Sun Franchise.

6) ITP agrees to act faithfully and fully for the best interest of ITP and Glass, to use its best efforts to timely collect all sums due from the said Sun Franchises (sic) and to fully account to Glass annually, but no later than October 30 each year for all sums collected less any direct costs for this agency. ITP further agrees that sums collected shall be disbursed as follows and in that priority, to wit: )a. The first $20,000.00 shall be applied by ITP against its receivable from Glass.

)b. The second $25,000.00 shall be paid jointly to Glass and F.C.A. Corporation.

)c. The next $5,000.00 shall be paid to Glass. )d. The next moneys collected shall be applied against the balance of ITP's receivable from Glass plus interest at 6 1/2% Simple, with a minimum payment to Glass for the 1980 year ending of $14,000.00 (October 30, 1980)

)e. The balance of all purchase amounts after the above disbursement shall be due and payable as collected plus interest to Glass, within 30 days of receipt of same.

7) Glass does hereby transfer to ITP and agrees to execute all necessary papers authorising the Corporate affairs commission to release the trade names and marks from Glass to ITP or its assignees, for Melbourne West, North Shore-Sydney, and Goldcoast.

8) ITP agrees to only grant any new Sun Franchises for the areas of North Shore-Sydney, Melbourne-West, and Gold Coast-Queensland, by including as a condition the payment before any down payments herein acknowledged the sum of $190,000.00 for North Shore, and $35,000.00 for the Gold Coast, and not less than an amount agreed upon in writing by Monte C. Nelson. It is agreed that any debts owing by Glass on Melbourne will be paid for out of the proceeds of the sale of Melbourne before any distribution to any other parties under this agreement. 9) ITP agrees as of this day to assume management control of the city of Melbourne, and assume all responsibility of payment of current on going expenses of said city until a purchaser is secured.

10) ITP agrees to require an accounting from the prior management of all three cities for any profits or losses still held by said operations belonging to Glass as of date of transfer which is November 1, 1978 for North Shore, December 1, 1978 for Goldcoast, and February 16, 1979 for Melbourne West. 11) Glass agrees that he will not directly or indirectly compete with any of ITP Franchisees for a period of this agreement and one year after.

12) ITP agrees that it will cause the agreements for payments from the new Sun Franchise holder to correspond with original intended agreement with Glass and the 3rd Parties namely that balance will be held to around 10 years time, North Shore. One Year Gold Coast.

13) ITP agrees that upon the condition of Glass fully cooperating in this transfer and assistance in getting the new Sun Franchisees into operation that (sic) it will cancel all litigation in connection with the Franchise matter of these three Franchised areas.

Time is of the essence and both parties agree to fully and honourably fulfil all matters agreed to. They agree that there are no other agreements pertaining to this agreement."

It is common ground that the agreement was drafted without the assistance, on either side, of legal advisers. The reference in the agreement to "FCA Corporation" is a reference to Finance Corporation of Australia Ltd which had apparently lent money to the respondents.

The evidence as to the course of events between 15 February 1979 and 2 July 1980 is, again, not clear. It is, however, apparent that attempts were made by ITP, without success, to renegotiate the agreement dated 15 February 1979. Various documents were drafted on its behalf, including a proposed deed of sale between the respondents, ITP, a company called Tarea Management (North Shore) Pty Ltd ("Tarea"), Mr Rory Glass and his wife, Clytie Joanne Glass, a deed of debenture between Tarea, ITP and Mr and Mrs Rory Glass and a document described as an "Agreement of Record" between ITP and the respondents. None of those documents was ever executed. There is also a reference in the evidence to the cancellation during this period of the tax agents licence that had previously been available to Mr and Mrs Rory Glass for the purpose of carrying on the business.
Notwithstanding the provisions of the agreement dated 15 February 1979, the franchise in respect of the North Shore, Sydney area was granted not to Mr Rory Glass but to Tarea, a company controlled by Mr and Mrs Rory Glass. It should be recorded that, in the course of their dealings and in the course of giving evidence, those involved used the names Rory Glass and Tarea synonymously.
The relevant agreement is dated 2 July 1980. By that agreement (clause 1), ITP granted to Tarea an exclusive franchise to engage in the business of preparing tax returns and performing certain related services within the North Shore, Sydney area for the period of 5 years commencing from the date of the agreement. In consideration of the grant, Tarea agreed to perform certain covenants and agreements and to pay as a royalty (clause 4E) a sum equal to 22% of the gross receipts of the business with provision for a discount of 10 percentage points and a further discount of 2 percentage points from the 22% rate in the events set out in the agreement. By clause 5D, it was provided that Tarea might transfer and assign its interest in respect of the franchise territory in whole or in part provided the proposed transfer was first submitted to ITP for approval, ITP undertaking not to exercise its right to approve or disapprove arbitrarily or unreasonably. The clause also provided that a proposed transfer was to become effective 30 days after the receipt by ITP of the transfer request unless ITP did not approve the proposed transferee within that period.
On the same day, 2 July 1980, a deed of debenture was executed, the parties thereto being Tarea (described as "the Mortgagor"), ITP (described as "the Mortgagee"), and Mr and Mrs Rory Glass who were described as "the Joint Debtors" and who were to stand in the position of guarantors. The debenture recorded, in what was referred to as "The Contract Schedule", the indebtedness of Tarea to ITP in the sum of $167,000 which, together with interest at 6 1/2%, was to be paid by instalments on the 25th day of each month and the 10th day of the following month commencing on 25 July 1980. The amount of each instalment was to be an amount equal to 7 1/2% of the gross income of the business described in "the Main Assets Schedule" and of Tarea and of "The Glass North Shore Trust" of which Tarea was the trustee. The Main Assets Schedule referred to the business name "I.T.P. Income Tax Professionals (North Shore)" and to the business carried on or to be carried on under that business name or any other business name. This was clearly a reference to the business to be carried on under the franchise agreement in favour of Tarea to which reference has already been made. The deed further provided that:

"On the day upon which shall expire the period of fifteen years from the date hereof, the Mortgagor and the Joint Debtors shall pay to the Mortgagee such monies as shall then be outstanding under the terms of this Debenture."

Clause 2 of the deed of debenture provided:

"The Mortgagor as beneficial owner hereby conveys, transfers and assigns to the Mortgagee all and singular the main assets and with payment of the moneys hereby secured hereby specifically charges the main assets and hereby charges all other assets included in the term 'the mortgaged premises' and the parties declare that this charge shall operate as a first fixed charge as regards the main assets and shall operate as a first floating security as regards all other assets included in the term 'the mortgaged premises' provided that upon the happening of any of the events set out in The Schedule hereto headed 'The Crystallisation Schedule' the floating security hereby created shall ipso facto and without any act on the part of the Mortgagee being necessary immediately become a fixed charge on the mortgaged premises and all the assets included in that term and the charge shall no longer operate thereafter as a floating asset and title to all the assets included in the term 'the mortgaged premises' shall be thereupon vested in the Mortgagee."

Clause 24 provided:

"The moneys hereby secured shall become immediately payable not only at the times and in the manner stated in the Contract Schedule but also upon the happening of any of the events set out in The Schedule hereto headed 'The Acceleration Schedule'."

The events set out in the Acceleration Schedule included Tarea being unable to carry on business under the name "I.T.P. Income Tax Professionals (North Shore)". Clearly, a sale of the franchise by Tarea would fall within this provision.

The respondents were not parties to the franchise agreement dated 2 July 1980 or the deed of debenture of that date.
For some time prior to and during November 1983, Tarea was in default in the payment to ITP of the royalties provided for by the agreement dated 2 July 1980. During November 1983, Walter John Bailey, a director of ITP, told Mrs Lynette Norma Meiklejohn, the respondents' accountant, of the default and that he could not get any money out of Mr Rory Glass. He further said that, if the respondents could get any money out of Mr Rory Glass, they should try to do so. He also told Mrs Meiklejohn that he, Mr Bailey, had little hope that the respondents would receive any moneys from Mr Rory Glass or Tarea unless Tarea sold the franchise and paid the respondents out of the proceeds.
By November 1983, as a result of payments made by the new franchisees of the three areas in which the respondents formerly carried on business, the debt of $64,712.14 referred to in the recitals to the agreement dated 15 February 1979 as owing by the respondents to ITP had been extinguished. In consequence, ITP was bound to account to the respondents for the balance, when received, of the amount of $190,000 referred to in that agreement. In that situation, the respondent John Maxwell Glass endeavoured to induce Mr Rory Glass to make payments direct to him of amounts which, under the deed of debenture, Tarea became bound to pay to ITP. It should be noted, in passing, that in January 1982 Mrs Meiklejohn on behalf of the respondents requested ITP to allow the respondents to receive payments directly from Tarea but that request had been refused by Mr Bailey. In the period 1 July to 30 September 1983, however, a payment of approximately $6,000 was received by the respondents directly from Mr Rory Glass.
During November 1983, negotiations took place between Mr John Glass and Mrs Meiklejohn on the one hand and Tarea and Mr Rory Glass on the other which resulted in the execution of a document called a "Letter of Agreement" bearing date 12 December 1983. The document was executed under seal by Tarea and by a company known as Eastshire Pty Ltd which appears to have been, at that time, the trustee of The J M and M G Family Trust. The operative part of the document was in the following terms:

"This letter records an agreement between the J.M. and M.G. Glass Family Trust (hereinafter called Glass) and Tarea Management (North Shore) Pty. Ltd. (hereinafter called Tarea) to this effect:-

1. Tarea owes Glass $114,144 and that after Tarea pays two further instalments due at 30th September, 1983 totalling around $3000 the total amount then outstanding will be around $111,000.

2. If Tarea pays Glass the above instalments in 1 and following amounts on the dates indicated Glass will accept that the debt has been completely satisfied.

$40,000 to be paid on 30th August, 1984 $20,000 to be paid on 30th August, 1985 $10,000 to be paid on 30th August, 1986

3. Tarea will cause the new franchisee of the I.T.P. 'The Income Tax Professionals' (North Shore) area to grant a debenture in favour of Glass to secure repayment of the amounts owing and Glass is to rank equally with Tarea in this debenture. The debenture should provide that the abovementioned 30th August payments be made directly to Glass by the new franchisee."

It is clear that Tarea did not fulfil the obligation imposed upon it by par.3 of the letter of agreement. Nor did it make payment of the instalments referred to in par.1 of that document.

Prior to the execution of the Letter of Agreement, Tarea had, by an agreement dated 9 December 1983, transferred and assigned to Zone Management (Western) Pty Ltd ("Zone") "all its rights under the Agreement .... absolutely free of all encumbrances or interests contrary thereto". The parties to the agreement were expressed to be Tarea (described as "the Franchisee"), Zone (described as "the Purchaser") and ITP. The reference to "the Agreement" was a reference to the franchise agreement dated 2 July 1980 between ITP and Tarea which was said to have been amended on 12 November 1981. The amendments made on that date do not appear from the evidence. The consideration for the transfer and assignment was $250,000 payable, as to $150,000, on date of completion, as to $60,000, on 30 August 1984 and, as to the balance of $40,000, on 30 August 1985. The agreement acknowledged that the transfer and assignment required the prior approval of ITP. Although completion of the agreement subsequently occurred, the date of completion is not established by the evidence.
Although named as a party, ITP appears not to have executed the agreement dated 9 December 1983. It did, however, by a separate but undated document, approve the transfer and assignment to Zone of Tarea's rights under the franchise agreement. The approval was expressed to be subject to the payment by Tarea of all royalties due to ITP at the date of completion. No reference was made in the approval to the moneys owing by Tarea to ITP under the deed of debenture dated 2 July 1980.
Subsequently, ITP executed a document, dated 6 April 1984, evidencing that the charge created by the deed of debenture dated 2 July 1980 "was on the 29th day of March 1984 paid or satisfied in whole" and that the property the subject of that deed was released from the charge thereby created.
On 1 August 1984 the Supreme Court of New South Wales ordered that Tarea be wound up under the provisions of the Companies (New South Wales) Code.
The primary judge accepted that the parties to the agreement dated 15 February 1979 had proceeded on the basis, referred to in the recitals to that agreement, that the present respondents, by reason of their having lost the franchise they previously held from ITP in respect of the area known as North Shore, Sydney, were not in a position to transfer or assign any rights under that franchise to Mr Rory Glass although they had previously agreed to enter into an agreement to do so. His Honour construed the agreement as one under which ITP assumed an obligation, in the event that it granted a new franchise in respect of that area, to require the new franchisee, as a condition of being granted the franchise, to pay an amount of $190,000 to ITP and a further obligation to account to the respondents for the balance of that sum after satisfying the acknowledged debt of $64,712.14 owing to it by the respondents.
As appears from what has been said earlier in these reasons, the new franchise was granted not to Mr Rory Glass but to Tarea and that company had, by the deed of debenture dated 2 July 1980, acknowledged its indebtedness to ITP in the sum of $167,000, that sum apparently representing the balance then outstanding of the sum of $190,000 referred to in the agreement dated 15 February 1979.
The primary judge concluded that ITP, by failing to use the security afforded by the deed of debenture to protect the interests of the respondents and by agreeing to discharge that deed, which secured payment of the moneys then owing to it by Tarea, being moneys for which ITP was liable to account to the respondents, had committed breaches of its obligations under the agreement dated 15 February 1979 for which it was liable in damages.
In reaching these conclusions, his Honour rejected the contention advanced on behalf of ITP that, at some time prior to 1 December 1983, Mr John Glass and Mr Rory Glass had come to an agreement that the role of ITP in collecting money from Mr Rory Glass was to terminate, that the amount to be collected was to be reduced and that the time at which the money was to be paid was to accelerate and to be made certain. In his Honour's opinion, nothing that was done by or on behalf of the respondents amounted to a termination of the obligations of ITP under the agreement dated 15 February 1979 or a repudiation of that agreement.
Counsel for ITP submitted that the primary judge had erred in construing the agreement dated 15 February 1979. It was contended that that agreement, properly construed in the context of the events which preceded its execution, created the relationship of principal and agent between the respondents and ITP. ITP, it was submitted, was a mere collection agent in respect of moneys owing to the respondents. It was argued that the agency agreement had subsequently been terminated by the conduct of the respondents.
To sustain these submissions it was necessary that certain findings of the primary judge be successfully challenged. The Court was invited by counsel for ITP to find that, at the time of the execution of the agreement dated 15 February 1979, the franchise agreements between ITP and the respondents in respect of the three areas referred to in the agreement remained in full force and effect. Those agreements were, it was said, not terminated pursuant to the notice dated 20 October 1978 served on the respondents by ITP, and there was a failure by the respondents to remedy, within the time specified, the breaches therein notified. It followed, so it was submitted, that the respondents remained in a position to transfer or assign their rights under the franchise agreements subject to obtaining the prior written acceptance and approval of ITP.
It must be accepted that the evidence before the primary judge did not include any document in which ITP terminated the franchise agreements with the respondents. However, the first and second recitals of the agreement dated 15 February 1979 are inconsistent with the assertion that the franchise agreements remained in full force and effect. Further, there was oral evidence given by Mr Bailey, which his Honour clearly accepted, that prior to February 1979 the respondents had been "stripped of their franchises" and that he, Mr Bailey, "thereupon directly entered into the contracts to sell those franchises to third parties".
Counsel for ITP also sought support for his submissions in the fact that, prior to 15 February 1979, the respondents had endeavoured to sell the franchises relating to the three areas. They had, he said, agreed to enter into an agreement with Mr Rory Glass for the purchase of the franchise in respect of the North Shore, Sydney area and with Mr Daley for the purchase of the franchise in respect of the Gold Coast area as evidenced by the recitals to the agreement dated 15 February 1979. Counsel also referred to the circumstance that payments of $20,000 and $15,000 respectively had been made to the respondents by Mr Rory Glass and Mr Daley, those payments being referred to in clause 4 of the agreement dated 15 February 1979 and to the further circumstance that by 15 February 1979 Mr Rory Glass and Mr Daley were respectively "in management control" of the North Shore, Sydney and Gold Coast businesses. It appears that the payment of $20,000 by Mr Rory Glass was made on 26 January 1979 and that by Mr Daley on 1 December 1978. In addition, counsel sought support for his submissions in the fact that, as at 15 February 1979, the respondents acknowledged that they were indebted to ITP in the sum of $64,712.14 plus interest. He contended that the respondents were to have the whole of the benefit of the amounts of $190,000 and $35,000 plus interest payable by the purchasers of the North Shore, Sydney and Gold Coast franchises and of the purchase price of the Melbourne West franchise then yet to be negotiated after ITP had made the disbursements referred to in clause 6 of the agreement dated 15 February 1979 and after it had appropriated to itself such amounts as were necessary to discharge the respondents' indebtedness to it. Counsel also relied upon the reference in the recital to the agreement dated 15 February 1979 to ITP "becoming a collection agent for the said sums". Those sums were, he said, those referred to in the previous recital as "the sums agreed to below as a condition of their (i.e. future holders) receiving the Sun Franchise Contract for each specific area". Reference was also made to the words "any direct costs for this agency" in clause 6 of the agreement.
Counsel for ITP also relied upon the circumstance that the franchise agreement between ITP and Tarea dated 2 July 1980 contained no provision obliging Tarea to pay to ITP the sum of $190,000 (or that sum less any payments previously made). From this circumstance, counsel asked the Court to infer that Tarea was indebted to the respondents in the sum of $190,000 (or that sum less any amounts previously paid). The Court was asked to draw that inference notwithstanding the provision in the deed of debenture dated 2 July 1980 whereby Tarea acknowledged its indebtedness to ITP in the sum of $167,000, being the undisputed balance of the $190,000 then outstanding. To accept this submission would also involve finding that ITP had failed to do what it was obliged to do by clause 8 of the agreement dated 15 February 1979.
It must be acknowledged that there are gaps in the evidence concerning precisely what took place between the various actors prior to the execution of the agreement dated 15 February 1979. It must also be acknowledged that the language used in that agreement is not internally consistent and no doubt reflects that the document was not drafted by a lawyer. We are, however, unable to construe the agreement as creating the relationship of principal and agent between the respondents and ITP. As we read the document, the respondents and ITP were clearly proceeding on the basis that the respondents were no longer in a position to assign or transfer their rights under the franchise agreements. It was clearly contemplated that any future holder of the franchise would derive its rights directly from ITP and not by way of transfer or assignment from the respondents. It may be that there remained in the minds of those concerned some doubt whether the respondents retained any rights under the franchise agreements. It certainly appears that they did have chattels of their own to transfer and this may explain the inclusion of clause 2 in the agreement dated 15 February 1979 whereby the respondents agreed to transfer all their right, title and interest in trade names belonging to ITP in order that ITP might grant those rights to the new holders. However there was clearly no legal obligation upon Mr Rory Glass or Tarea to make any payments to the respondents and there were, therefore, no payments for the collection of which ITP could be regarded as the agent of the respondents. The fact that the respondents acknowledged that they had agreed to transfer the chattels at North Shore to Mr Rory Glass does not alter this conclusion because the agreement dated 15 February 1979 was not drawn on the footing that Mr Rory Glass would pay the respondents for the chattels but on the footing that Mr Rory Glass would pay an entire sum to ITP.
We are, therefore, unable to accept the submission that the primary Judge erred in construing the agreement dated 15 February 1979. In the light of the conclusion that ITP was not constituted the agent of the respondents for the purpose of collecting the amount of $190,000 or any part of it, no question arises whether the alleged agency arrangement was terminated by conduct on the part of the respondents.
Against the possibility that the Court would not accept the construction of the agreement dated 15 February 1979 for which he contended, counsel for ITP also submitted that the primary judge erred in reaching the conclusion that ITP had committed a breach of that agreement.
It will be recalled that the relevant clause of the agreement is clause 6 by which ITP undertook "to act faithfully and fully for the best interest of ITP and (the respondents), to use its best efforts to timely collect all sums due" from the new franchisees and to account to the respondents for all sums collected less any direct costs incurred. As already mentioned, the primary judge held that the failure of ITP to use its security over the franchise so as to protect the interests of the respondents was a breach of its contractual duty to them as was the agreement of ITP to discharge the deed of debenture to which it, Tarea, and Mr and Mrs Rory Glass were parties.
Counsel for ITP submitted that the question whether ITP had fulfilled its obligations under clause 6 of the agreement was to be considered in the light of the conduct of the respondents. That conduct was said to include attempts by Mr John Glass to have Mr Rory Glass make payments directly to the respondents rather than to ITP and the negotiation of the Letter of Agreement dated 12 December 1983 between the J M and M G Glass Family Trust and Tarea, the text of which is set out above.
Reference has already been made to the request to ITP by Mrs Meiklejohn on behalf of the respondents in January 1982, refused by Mr Bailey, that ITP agree to Mr Rory Glass making payments directly to the respondents. The evidence also establishes that between January 1982 and September 1983 only one payment, of approximately $6,000, was made by Mr Rory Glass directly to the respondents, although the evidence does not clearly establish how that payment came to be made. There is nothing in those facts to support the submission that ITP was entitled to act as it did.
The negotiation of the Letter of Agreement must be viewed in the light of the statements made by Mr Bailey on behalf of ITP to Mrs Meiklejohn on behalf of the respondents in November 1983 that Tarea had for some time been in default in the payment of royalties, that he, Mr Bailey, was unable to obtain money from Mr Rory Glass, and that, if the respondents thought they could obtain money from that source, they should endeavour to do so. It should also be borne in mind that the Letter of Agreement was drafted in contemplation of a sale of the franchise by Tarea taking place after its execution, a sale in which the respondents' interests would be protected, whereas the agreement for the transfer and assignment from Tarea to Zone had been executed three days before without any protection to the respondents.
Counsel for ITP also submitted that, by reason of the alleged conduct, the respondents led ITP to believe, prior to granting approval to the transfer and assignment from Tarea to Zone, that it, ITP, was relieved of its obligation to collect, at least until further notice from the respondents, the outstanding balance of the amount of $190,000. It followed, so it was submitted, that the respondents were, by reason of their conduct, estopped from complaining of any failure on the part of ITP to collect those moneys.

The fact is that ITP gave its approval on or about 9 December 1983 to the transfer and assignment by Tarea to Zone of its rights under the franchise agreement "absolutely free of all encumbrances or interests contrary thereto" without insisting upon payment being made, either out of the proceeds of the transfer and assignment or otherwise, of the balance then unpaid of the sum of $190,000. It subsequently discharged the deed of debenture which secured payment of that balance. We are, therefore, of the opinion that ITP failed to fulfil its obligations to the respondents under clause 6 of the agreement dated 15 February 1979. The company was clearly in a position, by withholding its approval to the transfer and assignment, or by making that approval conditional, or by enforcing the terms of the deed of debenture, to ensure that the interests of the respondents were protected. It clearly failed to take any appropriate steps in that regard. It seemingly did not even make an inquiry of the respondents whether they had any objection to the approval being given or the deed of debenture being discharged. We are unable to agree that the matters relied upon by counsel require a contrary conclusion. We also agree with the primary judge that nothing that was done by or on behalf of the respondents relieved the company of its obligations to them or amounted to a repudiation of the agreement.
We are further of opinion that ITP has failed to establish any estoppel arising from conduct on the part of the respondents. It is sufficient to say that the evidence does not establish any sufficient representation on the part of the respondents or that ITP acted thereon to its detriment.
The appeal is dismissed. The appellant must pay the respondents' costs of the appeal.

[1992] FCA 416

17 JUNE 1992