Gloria Jean's Coffees International Pty Ltd v Daboko Ltd
[2020] NZHC 29
•28 January 2020
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-1157
[2020] NZHC 29
BETWEEN GLORIA JEAN’S COFFEES INTERNATIONAL PTY LIMITED
First PlaintiffRFG (NZ) LIMITED
Second PlaintiffAND
DABOKO LIMITED
Defendant
Hearing: 6 September 2019 Appearances:
D J Clark and J S Clark for the Plaintiffs S D Campbell for the Defendant
Judgment:
28 January 2020
JUDGMENT OF GAULT J
This judgment was delivered by me on 28 January 2020 at 4:00 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………………
Solicitors:
Mr D J Clark and Mrs J S Clark, Wilson McKay, Solicitors, Auckland
Mr JWA Johnson and Mr S D Campbell, Wynn Williams, Solicitors, Auckland
GLORIA JEAN’S COFFEES INTERNATIONAL PTY LTD v DABOKO LTD [2020] NZHC 29 [28 January 2020]
Introduction
[1] This is a case about which version of a franchise agreement is binding. This judgment follows my interim judgment.1
[2] The defendant, Daboko Ltd, was (or is) a franchisee for Gloria Jean’s coffee, and the plaintiffs are the franchisors.2 Based on its version of the agreement, Daboko’s position is that the agreement ended on 1 April 2018. In reliance on that, Daboko removed Gloria Jean’s Coffees branding from the café and refused to pay franchise fees. The plaintiffs say their version of the agreement is binding, and the term of the agreement is until 2022, meaning Daboko wrongfully repudiated the agreement. The plaintiffs claim breach of contract based on their version of the franchise agreement and seek specific performance and payment of unpaid franchise fees.
[3] I dealt with almost all of the issues in dispute in my interim decision. The parties had mixed success. I found the plaintiff’s version of the agreement was binding, but that the agreement may have been varied to Daboko’s version. But it seemed to me that the new terms were entirely in Daboko’s favour. This meant that the outcome of the case turns on a narrow legal point that was not addressed at the main hearing: what, if any, consideration is required to vary an existing agreement? And, consequently, was the agreement successfully varied in this case?
Background
[4] I addressed the background to this dispute in detail in my interim judgment. I provide only a brief summary of the facts relevant to this issue now, incorporating some of my key findings.
[5] The main person behind the defendant, Daboko, is Ms Borisova. The shareholders are her and her husband, Mr Pavlenko, who lives in Russia. She moved to New Zealand in March 2012 from Russia to study English. She stayed and sought business opportunities here. She was introduced to Mr Ewing in July 2012, who was the director of a company, Jireh International NZ Ltd (Jireh), which was the master
1 Gloria Jean’s Coffees International Pty Ltd v Daboko Ltd [2019] NZHC 1097.
2 The first plaintiff is the head franchisor and the second plaintiff is its NZ representative.
franchisee for Gloria Jean’s Coffees in New Zealand. She eventually agreed with Mr Ewing to become a franchisee for a Gloria Jean’s franchise at 68 Victoria St West, Auckland.
[6] Jireh executed an Agreement to Lease 68 Victoria Street West from the landlord, J & J Ko Investment Ltd, dated 17 October 2012 and a Deed of Lease dated 15 May 2013, each for a term of 10 years with a 10 year renewal.
[7] Then, in April 2013 Mr Ewing and Ms Borisova signed a franchise agreement for the café. It was executed as a deed. Ms Borisova signed on behalf of Daboko, although at that time Daboko was not incorporated. It was subsequently incorporated on 3 May 2013.
[8]Then, at some point in May 2013 the agreement was altered substantially.3
[9]I set out the material differences between the two versions:
(a)The April version provides for a term concurrent with the lease of the premises, which is not due to expire until 31 October 2022. The altered version provides for an initial term of five years, with rights of renewal.
(b)There are changes to the fees payable:
Plaintiffs’ version Daboko’s version Initial Trade Mark Licence Fee $14,062.50 $200,000.00 Initial Technical Assistance Fee $42,187.50 $11,500.00 Training Fee $11,500.00 $11,500.00 Total $67,750.00 $223,000.00
However, it seems that the total price for the franchise was $350,000 plus GST, and that this did not change between the two versions. There
3 I did not make a specific finding about exactly when the agreement was altered. This was the substantial dispute between the parties, but Ms Borisova’s evidence was that it was in May 2013, and the plaintiffs did not prove otherwise. There was something made of the exact date at the most recent hearing, but I do not consider it significant.
was no satisfactory explanation of why the totals here did not reflect the price.
(c)There was a new schedule 3, which contains technically drafted clauses disapplying significant clauses in the franchise agreement.
(i)Clauses 1 and 2 of schedule 3 contain material changes. Clause
1 reduces the assignment fee to $25,000 after 36 months. Otherwise, the assignment fee would be equal to the current initial trade mark licence fee and initial technical assistance fee. Clause 2 waives or reduces the first right of renewal fee to
$25,000. Otherwise, the renewal fee also would be equal to the current initial trade mark licence fee and initial technical assistance fee. On Daboko’s case regarding the increase in the initial trade mark licence fee to $200,000, those two clauses made very substantial fee reductions from what would have otherwise applied.
(ii)Clause 3 provides that if the franchisee does not renew the franchise, a number of clauses in the main agreement are disapplied. The most significant of these is cl 4.8, which provides that upon expiry the master franchisee or its nominee has the right to assume the franchisee’s status under the lease and replace the franchisee as lessee. Under the new cl 3 of schedule 3, cl 4.8 does not apply and the franchisee can continue to trade from the premises for its own purposes free from restriction or trade restraint. Clause 3 also provides:
The Master Franchisee agrees that this is an essential term of this Franchise Agreement and is for the sole benefit of the Franchisee and that the entire agreement would not have proceeded if this essential term had not been agreed.
(d)In physical terms, the plaintiffs’ April version is signed as a deed by both parties, and Ms Borisova has initialled every page except the
execution page, but Mr Ewing did not initial any of them. In Daboko’s version, Mr Ewing has initialled every page, and they have both initialled the execution page.
[10] In 2016, Mr Ewing wished to sell Jireh’s master franchise. As a part of that process, Mr Ewing on behalf of Jireh sent records of all current franchises to the first plaintiff. This included Daboko’s franchise, and attached the April version of the franchise agreement.
[11] In 2017, following issues between Jireh and its purchaser, which lead to the purchaser’s receivership, the first plaintiff came to hold the master franchise.
[12] Disputes subsequently arose between the parties and on 9 April 2018 Ms Borisova wrote to the plaintiffs referring to the expiry, under Daboko’s version of the agreement, on 1 April 2018.
[13] This was a surprise to the plaintiffs, who understood the term of the franchise not to expire until 2022.
[14] The main dispute in this case was which version of the agreement was binding. The plaintiffs’ version, being the unamended one, or Daboko’s version. The plaintiffs argued that the version received in 2016 was binding, and that Daboko’s version received in 2018 was effectively a sham, created not in May 2013 but much later.
[15] There is an unusual feature of this case. Mr Ewing gave evidence for Daboko. It was his evidence that the April version was never intended to be binding, and that Daboko’s version is the operative version. This was Ms Borisova’s evidence too. So, both signatories to the agreement were on the same side. The plaintiffs, perhaps, always had and have an uphill battle, as none of their witnesses had direct knowledge of what occurred in 2013.
[16] I found the April version was intended to be binding. But I did consider that the agreement may have been varied in May 2013. The plaintiffs did not overcome the difficult burden of proving the Daboko version was a sham.
[17] A deed may be varied by simple contract.4 I considered that Ms Borisova’s initialling of the new pages, and Mr Ewing’s initialling of the whole document was sufficient evidence of an intention to give legal effect to the changes. Although I rejected their evidence that the agreement was not already binding on them, I accepted the result of their actions in May 2013 would be to vary the April 2013 agreement, but with one problem. A simple contract requires consideration. I did not consider it at all clear on the evidence that Daboko provided consideration for the variation, as it seemed to me that all of the changes were in its favour.
[18] As this consideration issue affecting whether there was a variation had not been addressed and was not straightforward, I issued the interim judgment. The parties filed further submissions, and there was a further hearing. I thank counsel for their thorough submissions on this technical point.
Was the contract successfully varied?
Consideration and variation
[19] Under the common law, a promise is not generally binding as a contract unless it is supported by “consideration”. Consideration has been a requirement for the formation of a contract since at least the 16th Century.5 But its relative importance tends to polarise contract lawyers and academics alike. On the one hand, it has been described as “the central core of the law of simple contract”.6 On the other, it has been described as merely “a valuable signal that the parties intend to be bound”.7 It is frequently viewed as a technicality.
[20] The traditional requirement for consideration is that the person benefiting from the promise, the promisee, must either provide a benefit to the promisor in return for the promise, or suffer a detriment requested by the promisor.8 As noted by the authors of Chitty on Contract, the two requirements are often merely the same thing looked at
4 Berry v Berry [1929] 2 KB 316 (Divisional Court); and Buckland v Commissioner of Stamp Duties
[1954] NZLR 1194 (SC).
5 See Michael Furmston Cheshire, Fifoot, & Furmston’s Law of Contract (17th ed, Oxford University Press, Oxford, 2017) at 100.
6 K O Shawell “The Doctrine of Consideration in the Modern Law” (1954) 1(3) Syd LR 289 at 290.
7 Antons Trawling Co Ltd v Smith [2003] 2 NZLR 23 (CA) at [93].
8 Bolton v Madden (1873) LR 9 QB 55 at 56.
from a different point of view,9 although either is sufficient consideration.10 It is based on the idea of reciprocity. For the law to recognise a promise as binding, something must be given in return for that promise.11
[21] What constitutes a benefit or a detriment is a source of difficulty. There are two key notions of benefit and detriment: benefit or detriment in fact, or in law.12 Benefits or detriments in fact are easy to understand. Does a person gain or lose something he or she wants or values? Legal benefits or detriments are more difficult. As explained by the authors of Chitty, a legal detriment is where a person incurs a legal obligation to a person where there was no binding obligation before, whether or not it actually causes a factual detriment to the person or confers a factual benefit on the promisor. Conversely, a legal benefit is where one has a legal right that did not exist before.13
[22] Different decisions have emphasised one notion or the other.14 Older decisions often found that where there was no legal benefit or detriment, there was no consideration. The most frequently cited is Stilk v Myrick.15 Stilk v Myrick was a case where the master of a ship promised his remaining crew, after two had deserted, that if they performed their existing obligation to crew the ship on a return voyage then he would pay them the wages he would have paid to the sailors who deserted. The case was bought on behalf of the sailors to recover that extra amount. The Court denied recovery on the ground the sailors had promised no more than what they were already bound to do, which was not good consideration in the eyes of the law. On the other hand, there was a clear factual benefit to the master, because he otherwise would not have been able to get his ship home so quickly. This case is the most cited authority for an important principle: it is not good consideration to promise to do something one is already legally bound to do.
9 G H Treitel “Consideration” in H G Beale (ed) Chitty on Contracts (33rd ed, Thomson Reuters, London, 2018) at 4-004.
10 At 4-005. For example, see O’Sullivan v Management Agency and Music Ltd [1985] QB 428 (CA) at 459.
11 At 4-002.
12 At 4-006.
13 At 4-006.
14 For example, Bolton v Madden (1873) LR 9 QB 55; and R v Attorney-General for England and Wales [2003] UKPC 22, [2004] 2 NZLR 577, [2003] EMLR 24 at [32] emphasised more the factual benefits. As against cases like Stilk v Myrick (1809) 2 Camp 317.
15 Stilk v Myrick (1809) 2 Camp 317.
[23] This principle is subject to two main exceptions. First, it is good consideration to promise to do something which one is already bound to do because of an agreement with a third party.16 So for A to promise B to do what A is already obliged to do for
C. That can perhaps be explained on the basis that A is conferring a legal benefit on B, because B now has a right to enforce A’s promise, which B did not have before.
[24] The second exception is more controversial, but directly relevant to this case. While it is a principle of contract law that a contract may only be varied by another agreement, traditionally required to be supported by consideration,17 it was held by the English Court of Appeal in Williams v Roffey Bros & Nicholls (Contractors) Ltd that it may be sufficient, in the case of a variation to an existing agreement, that consideration is found in a benefit “in practice” to the promisor.18 Benefit “in practice” or practical benefit is really another of way of describing a factual benefit.
[25] Roffey Bros concerned a dispute between a head-contractor and subcontractor. The head-contractor had been contracted to build a block of flats, and the subcontractor was contracted to do the carpentry work. The main contract contained a significant penalty clause which became operable if the flats were not completed in time. The subcontractor got into financial difficulty and, because the head-contractor was concerned that the subcontractor would be unable to complete the job, the head-contractor promised to pay an extra payment, divided into payments paid on completion of each flat. The subcontractor continued to work on the flats, and some were completed, but after only a month the head-contractor had not made all of the agreed extra payments, and the subcontractor ceased work. The subcontractor then sued the head-contractor for the balance owing under the oral agreement. The difficulty was that the subcontractor was already obliged under the original contract to build the flats: it was not promising anything new. The Court of Appeal, however, held there was sufficient consideration, distinguishing Stilk v Myrick. Glidewell LJ stated that where a party has reason to doubt whether the other will, or will be able to, complete and promises an additional payment in return for performance such that the party obtains a benefit in practice, or avoids a detriment, the benefit is
16 G H Treitel “Consideration” in H G Beale (ed) Chitty on Contracts (33rd ed, Thomson Reuters, London, 2018) at 4-073; and Shadwell v Shadwell (1860) 9 CB (NS) 159.
17 At 22-035. Or by deed.
18 Williams v Roffey Bros & Nichols (Contractors) Ltd [1991] 1 QB 1 (CA).
sufficient consideration absent economic duress or fraud.19 Russell LJ stated that the “rigid” application of Stilk v Myrick was no longer necessary or desirable,20 but taking a pragmatic approach the party gained an advantage arising out of the continuing relationship.21 Purchas LJ affirmed that Stilk v Myrick was still good law, indeed a “pillarstone of the law of contract”, and that consideration was still required to support a variation to an existing agreement,22 but accepted the modern approach to consideration where each party derived benefit, albeit one did not suffer detriment.23 The benefit in that case being the subcontractor continuing to perform what it was already obliged to do, avoiding having to employ new carpenters, and the potential avoidance of the penalty clause.
[26] This case has been subject to much criticism by both judges and academics.24 The criticisms mainly revolve around inconsistency with Stilk v Myrick, and around the difficulty with defining what constitutes a benefit in practice. For example, the benefit in Roffey Bros could not be actually avoiding the need to hire new carpenters, or avoiding the penalty, because that benefit never eventuated, albeit because of the head-contractor’s fault. One explanation advanced is that the benefit was the “increased chance” that performance is rendered,25 although that possibility has itself been criticised,26 and that was not the basis on which the case was decided.
[27] Whatever the merits of this debate, Roffey Bros was recently applied in England and Wales by the Court of Appeal in MWB Business Exchange Centres Ltd v
19 Williams v Roffey Bros & Nichols (Contractors) Ltd [1991] 1 QB 1 (CA) at 15-16.
20 At 18.
21 At 19.
22 At 20-21.
23 At 23.
24 For example, G H Treitel “Consideration” in H G Beale (ed) Chitty on Contracts (33rd ed, Thomson Reuters, London, 2018) at 4-070; Brian Coote, "Consideration and Benefit in Fact and in Law" (1990) 3 JCL 23; Mindy Chen-Wishart “Consideration for Variation of Contract” [2014] NZLJ 67 at 68; Brian Coote “Consideration and the Variation of Contract” [2003] NZ Law Rev 361 at 362; Marcus Roberts “The formation of variation contracts in New Zealand: consideration and estoppel” (2016) 47 VUWLR 327; and South Caribbean Trading Ltd v Trafigura Beheer BV [2004] EWHC 2676 (Comm) at [107]-[109].
25 Pey-Woan Lee “Contract Modifications - Reflections on Two Commonwealth Cases” (2012) 12 OUCLJ 189 at 195.
26 Marcus Roberts “The formation of variation contracts in New Zealand: consideration and estoppel” (2016) 47 VUWLR 327 at 335–336.
Rock Advertising Ltd 27 – but then questioned again on appeal.28 The United Kingdom Supreme Court overturned the Court of Appeal on other grounds, but Lord Sumption, with whom the other judges agreed, noted that Roffey Bros was inconsistent with other authority, most notably Foakes v Beer.29 That case has long been authority for the proposition that part payment of a debt is not consideration for a promise not to sue for the full amount.
[28] Roffey Bros has also been approved at Court of Appeal level in New Zealand.30 In Attorney General for England & Wales v R, Tipping J stated, “that approach to consideration appropriately pays attention to the practical realities of the parties’ circumstances rather than to legal niceties”.31 This is perhaps the strongest argument against a strict application of the principle in Stilk v Myrick. If there is a situation where there is an existing contract between two commercial parties, and in good faith they both agree to vary the terms for the benefit of only one party, why should they both not be held to that when they both intended it to be binding? Such a situation would arguably be all the more unjust because the parties could have secured their new obligation by having the benefiting party provide something of nominal value in return, as Courts do not judge the adequacy of consideration, only whether it is present.32 Alternatively, parties can vary a contract by deed, which removes the need for consideration entirely. But that did not happen here. The question becomes, why should courts apply the law so strictly as to disentitle innocent parties of the benefit of their agreements, when they could have secured their entitlement so easily?
27 MWB Business Exchange Centres Ltd v. Rock Advertising Ltd [2016] EWCA Civ 553, [2017] QB 604.
28 MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] UKSC 24, [2019] AC 119 at [18].
29 Foakes v Beer (1884) 9 App Cas 605.
30 Talley v United Food & Chemical Workers Union of NZ [1993] 2 ERNZ 360 (CA) at 376 (obiter suggesting the ‘practical benefit’ reasoning would have been in accepted in a situation where more pay is promised in an employment situation); Attorney General for England & Wales v R [2002] 2 NZLR 91 (CA) at [51]; Antons Trawling Co Ltd v Smith [2003] 2 NZLR 23 (CA); Kain v Wynn Williams & Co [2012] NZCA 563 at [65]; and Teat v Willcocks [2013] NZCA 162, [2014] 3 NZLR 129.
31 Attorney General for England & Wales v R [2002] 2 NZLR 91 (CA) at [51]. I note that statement was not an essential part of the Court’s decision, which was also dealing with English contract law.
32 For example, in Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 (HL), where chocolate wrappers formed part of the consideration. See further G H Treitel “Consideration” in H G Beale (ed) Chitty on Contracts (33rd ed, Thomson Reuters, London, 2018) at 4-018.
[29] With criticisms of Roffey Bros on the one hand, and criticisms of a strict approach to consideration in variation cases on the other, our Court of Appeal proposed something of a third way in Antons Trawling Co Ltd v Smith.33 Mr Smith, a master of one of Antons fishing vessels, was made an oral promise by that company that if he through his fishing caused the quota of orange roughy to be expanded, he would receive 10 per cent of any increased quota granted to Antons. The problem was Mr Smith provided no consideration for this promise. Baragwanath J delivered the judgment for the Court of Appeal, and determined the consideration issue in Mr Smith’s favour:
[92] The reasoning in Williams v Roffey Bros & Nicholls (Contractors) Ltd, accepted by this Court in Attorney-General for England and Wales, has been trenchantly criticised by Professor Coote in (1990) 3 JCL 23. He argues with force that mere performance of a duty already owed to the promisee under a contract cannot constitute consideration and that the only principled way to such a result is to decide that consideration should not be necessary for the variation of contract. That is the approach of the Uniform Commercial Code, s 2-209(1) and it is vigorously supported by Reiter in “Courts, Consideration, and Commonsense” (1977) 27 University of Toronto Law Journal 439 especially at p 507, observing that a rigid requirement of consideration in the context of modern commercial contract modifications fails to recognise:
“. . . the illogicality of equating modifying with originating promises or to see that, insofar as consideration serves to exclude gratuitous promise, it is of little assistance in the context of on-going, arms- length, commercial transactions where it is utterly fictional to describe what is being conceded as a gift, and in which there ought to be a strong presumption that good commercial ‘considerations’ underlie any seemingly detrimental modification.”
…
[93] We are satisfied that Stilk v Myrick can no longer be taken to control such cases as Roffey Bros, Attorney-General for England and Wales and the present case where there is no element of duress or other policy factor suggesting that an agreement, duly performed, should not attract the legal consequences that each party must reasonably be taken to have expected. On the contrary, a result that deprived Mr Smith of the benefit of what Antons promised he should receive would be inconsistent with the essential principle underlying the law of contract, that the law will seek to give effect to freely accepted reciprocal undertakings. The importance of consideration is as a valuable signal that the parties intend to be bound by their agreement, rather than an end in itself. Where the parties who have already made such intention clear by entering legal relations have acted upon an agreement to a variation, in the absence of policy reasons to the contrary they should be bound by their agreement. Whichever option is adopted, whether that of Roffey Bros or that
33 Antons Trawing Co Ltd v Smith [2003] 2 NZLR 23 (CA).
suggested by Professor Coote and other authorities, the result is in this case the same.
[30] On its face, this passage might seem to do away entirely with the need for consideration for variation, but for the last sentence. By referring to both Roffey Bros and Professor Coote’s option, that latter option may be obiter dictum. While Baragwanath J himself, sitting in the High Court, cited Antons Trawling as authority for the proposition that consideration is not required in the case of the variation of an existing contract where there is no evidence of oppression, none of the cases I have found citing it has actually applied it for that proposition.34
[31] The Court of Appeal had the opportunity to address the issue again in 2014 in Teat v Willcocks.35 In that case, Mr Teat promised Mr Willcocks shares in his business. But then there was a variation to that agreement, such that the shares would only be transferred if it was proved the two could work together well. At issue was whether Mr Teat gave consideration for this variation, which was solely to his benefit. The Court of Appeal stated:36
On the basis that the term was that the parties would work together to see whether or not they could get on, as found by the Judge, the original agreement was, in our view, varied to include it. Although the position is not yet settled, we consider that consideration in the form of a benefit “in practice” is sufficient to support a binding variation. Further, we are attracted to the alternative view expressed by this Court in Antons Trawling Co Ltd v Smith that no consideration at all may be required provided the variation is agreed voluntarily and without illegitimate pressure. This seems to us to reflect the reality of what happened in the present case – a variation was proposed and willingly accepted, and the parties proceeded on that basis. In the context of an existing agreement supported by consideration, that seems to us to be sufficient to constitute a binding variation.
(citations omitted)
[32] The Court of Appeal’s reference in this passage to the no consideration option in Antons Trawling as an “alternative view” is consistent with my understanding of Antons Trawling. Further, the Court of Appeal’s preceding finding in Teat was that
34 Ross Bindon Ltd v PB & CS Properties Ltd (in liq) (2006) 7 NZCPR 850 (HC) at [36]. See also Goldsmith v Carter [2012] NZHC 1693 at [34] (but other consideration found); MacDonald v C1 Gloucester Street Ltd [2012] NZHC 2842 at [29], fn 5 (but no variation agreed); and Northwest Developments v Xue [2019] NZHC 1042 at [40]-[42] (but decided on the narrower Roffey Bros basis).
35 Teat v Willcocks [2013] NZCA 162, [2014] 3 NZLR 129.
36 At [54].
consideration in the form of a benefit “in practice” is sufficient to support a binding variation. Therefore, the Court’s endorsement in Teat of the alternative view in Antons Trawling also appears to be obiter.37 While the position is not yet finally settled in New Zealand, as Lang J said in New Zealand Local Authority Protection Disaster Fund v Auckland Council,38 in the two cases mentioned the Court of Appeal has endorsed the proposition that in the case of variation no consideration at all may be required provided the variation is agreed voluntarily and without illegitimate pressure.
This case
[33] The plaintiffs submit that consideration as traditionally understood is still required for an effective variation. Daboko submits the law in New Zealand has reached a stage where no consideration is required (for a variation). The parties agree (each in the alternative) that it is open to me to apply the practical benefit test, which is perhaps the most authoritative.
[34] Given the Court of Appeal cases discussed above, and the Court of Appeal’s earlier approval of Roffey Bros, I cannot accept the plaintiff’s first submission that consideration as traditionally understood is still required for an effective variation. Nor do I consider it is necessarily desirable to go back to that position. While it may be the most theoretically pure position, it has the effect of potentially leaving deserving litigants with no remedy, when all they had to do was give the most minor consideration.
[35] If no consideration is required, that would of course be determinative in Daboko’s favour, as there is no question of there being illegitimate pressure here, and the evidence of Mr Ewing and Ms Borisova was consistent, and ultimately not negated, that they intended the Daboko version of the agreement to be binding.
[36] Accepting that no consideration is required for a variation would be a theoretically, if not practically, large step for the law of contract to take. It has not
37 See further Jeremy Finn, Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) at 129-130.
38 New Zealand Local Authority Protection Disaster Fund v Auckland Council [2013] NZHC 1858 at [35].
been taken in any other common law country to my knowledge, besides in certain States of the USA, where the change has been effected by statute.39 Of course, consideration is a peculiarity of the common law, and it is not a requirement to form, let alone vary, contracts in most jurisdictions. And it is arguable there is no real practical difference between the approaches in Roffey Bros and Antons Trawling. Practical benefit, it could be argued, is just another way of saying the promisor had a reason for making the promise, which it will almost always have in the absence of duress. And if there was duress, that would vitiate the agreement.
[37] But there are arguments against taking that step. Doing so would be inconsistent with cases of very long standing, including Stilk v Myrick, and Foakes v Bear.40 The Supreme Court of the United Kingdom, as noted above, recently considered even Roffey Bros to be inconsistent with Foakes v Bear.
[38] While there are now many endorsements of the view that consideration is only an indicator of an intention to be bound, there are arguments against it. First, it is not a new argument. It was raised by Lord Mansfield, the Chief Justice of the King’s Bench in 1756.41 It was conclusively rejected in Rann v Hughes in 1778.42 Secondly, all major text books on contract law agree consideration is an essential requirement to the formation of a contract. This is a problem because, as argued by at least one academic, there was not before Roffey Bros a distinction drawn between regular contracts and contracts to vary other contracts.43 Consideration is a requirement for both. If we are to remove consideration from one, why not the other? I expect this would require a more purposeful change, by higher appellate courts or Parliament.
[39]Thirdly, there is an argument, given that Antons Trawling and Teat v Willcocks
have not conclusively changed the law and overruled the prior cases, that I am bound
39 G H Treitel “Consideration” in H G Beale (ed) Chitty on Contracts (33rd ed, Thomson Reuters, London, 2018) at 4-006.
40 Stilk v Myrick (1809) 2 Camp 317; and Foakes v Beer (1884) 9 App Cas 605.
41 See the discussion in Michael Furmston Cheshire, Fifoot, & Furmston’s Law of Contract (17th ed, Oxford University Press, Oxford, 2017) at 101.
42 Rann v Hughes (1778) 7 Term Rep 350n. See further Eastwood v Kenyon (1840) 11 Ad & El 438.
43 Marcus Roberts “The formation of variation contracts in New Zealand: consideration and estoppel” (2016) 47 VUWLR 327 at 338.
by our Court of Appeal’s approval of the Roffey Bros benefit in practice approach until that Court moves away from it in favour of its signalled alternative view.
[40] In view of these arguments, I consider it is not for me to conclude that consideration is no longer necessary for variation in New Zealand. I consider I should follow the Court of Appeal’s approval of the benefit in practice exception in variations.
[41] I therefore proceed to examine whether there was a benefit in practice to Jireh when the agreement was varied.
[42] Daboko submits the bar for a practical benefit is exceedingly low, and cites several examples (some of which I have already addressed):
(a)a builder continuing to do building work that the company was already obliged to do, where the benefits were potentially avoiding a penalty clause, and not hiring knew carpenters;44
(b)a master of a ship continuing to fish on a vessel as he was contractually obliged to do;45
(c)a person entitled to an immediate transfer of shares deferring shares for an unspecified trial period after the agreement had been reached;46
(d)a lessee staying in occupation of premises, as it was contractually obliged to do, in exchange for a rent reduction to avoid the premises becoming empty;47
(e)the deferral of enforcement of a requirement to pay a debt where the outcome might be that payment is made rather than a default;48 and
44 Williams v Roffey Bros & Nichols (Contractors) Ltd [1991] 1 QB 1 (CA).
45 Antons Trawing Co Ltd v Smith [2003] 2 NZLR 23 (CA).
46 Teat v Willcocks [2013] NZCA 162, [2014] 3 NZLR 129.
47 Machirus Properties Ltd v Power Sports World (1987) Ltd (1999) 4 NZ ConvC 193,066 (HC).
48 Kain v Wynn Williams & Co [2012] NZCA 563, [2013] 1 NZLR 498.
(f)an agreement to perform existing contractual obligations, followed by actual performance of those obligations.49
[43] Daboko submits there are several practical benefits to Jireh, which I distil as follows:
(a)Varying the agreement in May 2013 had the effect of Daboko ratifying the agreement that had been made before it was incorporated. Daboko submits this is a benefit to Jireh both in fact and in law, as it then had enforceable rights against Daboko.
(b)The varied agreement avoided the need for any argument over intention to create legal relations, as occurred in this Court. I take this point to be that if Jireh tried to enforce the original agreement against Ms Borisova, she would argue it was not intended to be binding, as there were terms still to be agreed, so avoiding this was a practical benefit.
(c)There was evidence that Ms Borisova’s husband required the further terms before he would finance her purchase of the franchise, so there was a benefit to Jireh in modifying the agreement so that it would actually proceed and Daboko would have funds in its account.
(d)Ms Borisova was uncertain about staying in New Zealand at the time of the agreement, the inference being that the variation was of benefit to Jireh because she did not simply leave New Zealand.
(e)The parties acted in reliance on the May agreement.
(f)The change in payment terms under schedule 1, referred to above.
[44] Daboko also submits that in fact the April version of the agreement was rescinded. I do not regard this argument as persuasive, as a rescission requires a
49 Newmans Tours Ltd v Ranier Investments Ltd [1992] 2 NZLR 68 (HC).
manifest intention to do away with the earlier agreement completely.50 There was no such evidence here; there was no reference to the earlier agreement and the new version was not even properly re-executed.
[45] I do not consider there is practical benefit in terms of (a), (b), (d), (e) or (f) above. In terms of (a), I did not accept that the May variation ratified the agreement in my interim judgment.51 Nor was there any convincing suggestion of an argument avoided. As for (b), I consider it speculative to suggest that Ms Borisova would have argued that she did not intend to be bound just because she did so in the very different circumstances of this case. On (d), I do not consider there was a real risk Ms Borisova would have left New Zealand. In terms of (e), I accept the plaintiffs’ submission that the fact a variation is acted upon is not consideration for the variation, at least under the law in Roffey Bros. I also do not consider (f), that the altered payment terms were of benefit to Jireh, is sufficient as the total price paid was to be the same either way and I accept the plaintiff’s submission that there was no convincing evidence there was any advantage to Jireh in altering the make-up of the price.
[45] Turning to (c), I do not consider the issue straightforward. While Ms Borisova’s husband (Mr Pavlenko) agreed with the offer terms in April 2013 and I doubted Daboko’s evidence about the further negotiations after the April agreement, I ultimately concluded that the plaintiffs did not prove that the May variation was a sham. Both Ms Borisova and Mr Ewing gave evidence that Mr Pavlenko required the new terms before he would fund the purchase. Although I had doubts about their credibility, I did accept that Mr Pavlenko did not transfer funds for the purchase until 6 May 2013, so the timing is consistent. On the other hand, there is evidence that does not sit easily with this narrative; for example, it does not seem that Mr Pavlenko ever saw the amended terms at the time. However, that is not necessarily inconsistent with Ms Borisova’s and Mr Ewing’s evidence. Mr Pavlenko might have been willing to leave the drafting to them. Ultimately, I accept on the balance of probabilities that Mr Pavlenko required the new terms before he would transfer the money, and that Mr Ewing knew this, so there was a benefit in practice to Jireh in amending the agreement.
50 Morris v Baron & Co [1918] AC 1 (HL) at 5.
51 Gloria Jean’s Coffees International Pty Ltd v Daboko Ltd [2019] NZHC 1097 at [202].
[46] This being the case, I find there was consideration and the agreement was varied in May 2013. So Daboko’s version of the agreement is binding.
Unpaid franchise fees
[47] As a result, the defendant must pay unpaid franchise fees due up to 1 April 2018. The evidence indicated the amount was $56,548.13 (including GST), with interest at 15.95 per cent per annum in accordance with cl 3.3 of the franchise agreement. There was discussion at the hearing over GST and how interest was to be calculated, and counsel were agreed that I should make the order in general terms – unpaid franchise fees to 1 April 2018 plus GST (if any) and interest at 15.95 per cent per annum calculated on a daily rate from the seventh of each month (when fees accrued), with leave to apply if necessary.
Result
[48]The plaintiffs’ claim for specific performance is dismissed.
[49] I enter judgment for the plaintiffs for unpaid franchise fees to 1 April 2018 plus GST (if any) and interest calculated as set out in [47] above, with leave to apply if necessary.
Costs
[50] Each party has had a measure of success. If costs cannot be agreed, the parties may file and serve brief memoranda (not more than three pages) within 15 working days and I will determine costs on the papers.
Gault J
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