Robbies Bar and Bistro Limited v Robbies Bar & Bistro Franchising Limited (in liq)

[2020] NZHC 2258

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2018-409-000245

[2020] NZHC 2258

BETWEEN

ROBBIES BAR AND BISTRO LIMITED

First Plaintiff

AND

ALAN JOHN ROBERTS and LOLA NEROLI ROBERTS

Second Plaintiffs

AND

ROBBIES BAR & BISTRO FRANCHISING LIMITED (in liq)

Defendant

Appearances:

J Shingleton for Plaintiffs

No appearance for the Defendant

Judgment:

1 September 2020

(Determined on the papers)

JUDGMENT OF OSBORNE J

This judgment was delivered by me on 1 September 2020 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

ROBBIES BAR AND BISTRO LIMITED v ROBBIES BAR & BISTRO FRANCHISING LIMITED (in liq) [2020] NZHC 2258 [1 September 2020]

[1]    In this proceeding, the plaintiffs seek judgment for the unpaid balance of the purchase price of a business sold under an agreement for sale  and  purchase dated  21 December 2007 (the Agreement). The business comprised franchise rights of a bar and restaurant chain operating under the name ‘Robbies’ (the Business). The first plaintiff was the vendor and the defendant, Robbies Bar & Bistro Franchising Ltd (now in liquidation), was the purchaser.

[2]    The plaintiffs were granted leave to proceed against the defendant (in liquidation) on 30 June 2020.1

Background

[3]    The plaintiffs, Alan John Roberts (Mr Roberts), and (his wife) Lola Neroli Roberts, founded the Robbies chain of restaurants in the early 1990s and successfully franchised the business. The Business involved what Mr Roberts describes as “the creation of local eateries where people could meet, eat and drink in their local area at a reasonable price” along with the associated operating systems. As its name suggests, the restaurants/bars had a Scottish themed logo and setup.

[4]    Mr Roberts explains his connection to a Mr Kofoed, whom he came to know as the business’s Barter Card representative. He explains they got on well. Mr Kofoed expressed an  interest  in  getting  involved  in  the  Business.  By  the  mid-2000s, Mr Roberts and his wife were interested in selling the Business. In late 2007 terms were agreed, following which the defendant was incorporated by Mr Kofoed and his wife to purchase the franchise rights to the Business from the first plaintiff.

The Agreement

[5]    The Agreement was prepared by the defendant’s solicitor. The defendant took legal advice on the Agreement. On the front page of the Agreement in respect of “total purchase price” there is the reference “see further terms”.

[6]    Paragraph 10 of the Further Terms is headed “Purchase Price” and provides as follows:

1      Robbies Bar & Bistro Ltd v Robbies Bar & Bistro Franchising Ltd (in liq) [2020] NZHC 1491.

10.1The purchase price of the franchise rights shall be the initial sum of

$115,000.00 payable as set out in Clause 10.2 together with an additional sum equating to 33% of the franchise fees (exclusion of GST) received by the purchaser for a period of 10 years to a maximum of $1,500,000.00 to be paid as set out in Clause 10.3.

10.2The sum of $115,000.00 plus GST (if any) shall be paid as follows:

(i)$34,000.00 plus GST (if any) 1 February 2008

(ii)$40,000.00 plus GST (if any) 1 August 2008

(iii)$40,000.00 plus GST (if any) 1 February 2009

In the event that the purchaser does not make payment on any of the specified dates, penalty interest at the rate of 14% shall apply.

10.3The balance shall be paid by way of payments equivalent to 33% of the amount of all franchise service fees (as defined in the Robbies Franchise Agreements) collected by the purchaser as franchisor under all franchise agreement. The parties agree that payments under this clause 10.3 shall be payable to the vendor monthly in arrears on the 20th day of the month following collection of the fees by the purchaser. The purchaser shall provide the vendor with such documentation as the vendor may reasonably request to substantiate the quantum of the payments being made under this clause.

Penalty interest shall be charged at the rate of 14% on any late payments.

For the sake of clarity, the parties expressly acknowledge and agree that the payment referred to in Clause 10.3 is a payment in the nature of a capital payment.

Notwithstanding anything contained in this clause the purchaser shall have the right at any time during the 10 year term to make full payment to the vendor of the balance then owing of the $1,500,000.00.

In the event that the purchaser sells the franchise rights to a third party at any time prior to all payments stipulated in this agreement being made, the purchaser shall, on settlement, pay to the vendor the balance then owing of the $1,500,000.00.

(remaining sub-clauses omitted)

[7]    Mr Roberts says that, after the sale was settled, he requested the payments to be made under the Agreement to be made to the first plaintiff’s partnership bank account. It is not suggested that there was any attempt to formally change the identity of the contracting parties to the Agreement.

[8]    Mr Roberts explains that, although there were occasionally delays in payments being made, by and large the defendant met its payment obligations under the Agreement.

[9]    At the conclusion of the 10 year period, referred to in cl 10 of the Agreement, the plaintiffs (on 2 March 2018) emailed the defendant requesting that it pay the balance outstanding of the $1,500,000 purchase price. At that time, Mr Roberts incorrectly calculated the amount outstanding to be $493,000 and stated that sum in his request. The correct balance was in fact $436,998. The defendant declined to pay and this proceeding followed.

The issues

[10]   The defendant in its statement of defence (struck out for non-compliance with timetabling) advanced an interpretation of cl 10.1 to 10.3 of the Agreement. The defendant agreed the purchase price was a maximum of $1,500,000. It asserted that, provided it met the obligation to pay 33% of the franchise fees during the 10 year period, then whatever sum those payments totalled after 10 years, became the purchase price.   Accordingly,  the  argument  for  the  defendant  was  that  $1,500,000  was   a maximum purchase price. The amount payable during the 10 year term was capped at $1,500,000, but if that sum was not reached during the 10 years, any “shortfall” would not be payable.

[11]   The first plaintiff submits that approach does not represent a proper reading of the clause.   The first plaintiff in particular refers to the two last subparagraphs of    cl 10.3 as clearly providing that the first defendant was indebted in the sum of

$1,500,000. Consistent with that, Mr Roberts says that at the time of the sale, the first plaintiff issued a tax invoice for $1,500,000 without any protest from the first defendant.

[12]   Further, as a result of discovery, the plaintiffs have identified that the defendant recorded the $1,500,000 as a debt in its annual accounts (including on its) balance sheet. The balance sheet as at 31 March 2008 recorded a debt owing to the first plaintiff of $1,465,000, being $1,500,000 less the $35,000 paid on settlement date. The balance sheet also records the franchise rights as an asset worth $1,400,000. All

the subsequent balance sheets of the defendant show the amount paid each year to the plaintiffs as being deducted from the opening balance of the debt, with the first defendant’s accounts showing a balance due to the first plaintiffs at the end of the   10 year term.

Discussion

[13]   Who then is correct? The plaintiffs, who say that cl 10 provides a fixed sum purchase price of $1,500,000, (with calculation mechanisms for payments over a period of 10 years)? Or the defendant who would assert that the payments to be calculated and made over the 10 year period represent the purchase price, even if they fall short of $1,500,000?

[14]I am satisfied that cl 10, fully read, makes it clear that the purchase price was

$1,500,000 as a fixed sum.

[15]   The repeated references in cl 10.3 to “the balance”, particularly the latter two references which refer in full to “the balance then owing of the $1,500,000.00” clearly identify the $1,500,000 as the purchase price.

[16]   I recognise that cl 10.1, with its reference to “a maximum of $1,500,000.00”, might if read alone to introduce an element of ambiguity. The reference to “a maximum of $1,500,000” might be argued to suggest that a lesser sum may ultimately become the purchase price.

[17]   Clause 10, read as a whole, removes any element of ambiguity in relation to the use of “a maximum of $1,500,000” in cl 10.1. The first two sub-clauses (10.1 and 10.2) are concerned with the mechanism by which the purchaser (during a period of up to 10 years) will have its annual instalment payments calculated. The calculation is driven by the productivity of the business during that period. What the detail of cl

10.1 provides is for a maximum period of 10 years of instalment payments and a maximum payment total sum of $1,500,000, precisely because the parties have agreed through cl 10 on a 10 year maximum period and a purchase price of $1,500,000. What the “maximum of $1,500,000” identified in cl 10.1 achieves is clarity for the purchaser

that, notwithstanding that the continuing business may prove to be very successful, no more than the agreed purchase price of $1,500,000 will have to be paid.

[18]Accordingly, the plaintiffs have correctly asserted that the purchase price was

$1,500,000.

[19]   That leaves the question of the due date for payment of the balance, a matter not expressly addressed in cl 10 or elsewhere in the Agreement.

[20]   The plaintiffs plead that it was an implied term of the Agreement that the defendant would, at the conclusion of the 10 year term (that is on 1 February 2018), pay any balance then owing of the $1,500,000 purchase price.

[21]   The test most commonly applied in New Zealand when a Court is invited to find an implied term is that identified by the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings where the Privy Council stated:2

In their [Lordships’] view, for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable;

(2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.

[22]   The implied term proposed by the plaintiffs, as to the date for repayment, meets all the points of the BP Refinery test. The specific references to a 10 year period in  cl 11 make it plain that, had the parties to the Agreement expressly provided a date for repayment of any balance in situations not expressly covered, the date would have been at the expiry of the 10 year period.

[23]   It follows that the plaintiffs were entitled to make demand for the balance owing (established on the evidence to be $436,998) upon the expiry of the 10 year period.

[24]The first plaintiff is entitled to judgment in that sum.

2      BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363 at 376. For New Zealand authority see Devonport Borough Council v Robbins [1979] 1 NZLR 1 (CA) at 23; Dovey v Bank of New Zealand [2000] 3 NZLR 641 (CA) at 654.

[25]   The first plaintiff also seeks interest. The contractual rate stipulated for late settlement on page 1 of the Agreement is 14 per cent, which is the rate claimed in the plaintiff’s statement of claim. The first plaintiff seeks interest from 2 March 2018, being the date of the first plaintiff’s demand for payment. The plaintiff is entitled to interest at the contractual rate down to the date of this judgment. The interest calculated from 2 March 2018 to 25 August 2020 is $181,695.38. Thereafter interest on the judgment debt will accrue in terms of the Interest on Money Claims Act 2016.

Orders

[26]I order:

(a)There is judgment against the defendant in favour of the first plaintiff.

(b)The defendant is to pay to the first plaintiff the sum of $471,343.59 together with interest in the sum of $181,695.38.

(c)The defendant is to pay to the first plaintiff the costs of this proceeding on a 2B basis together with disbursements to be fixed by the Registrar.

Osborne J

Solicitors:
First Law, Lincoln