Wallera Pty Ltd v CGM Investments Pty Ltd [2003] FCAFC 279 (10 December 2003)

Last Updated: 10 December 2003

FEDERAL COURT OF AUSTRALIA

Wallera Pty Ltd v CGM Investments Pty Ltd [2003] FCAFC 279

CONTRACTS - whether abandonment of the contract - intention - regard to the parties' conduct to determine whether they have abandoned the contract

EVIDENCE - judicial notice - matters of which judicial notice can be taken - whether evidence is necessary

CASES

Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 Cited

Allied Marine Transport Ltd v Vale Do Rio Doce Navegacao SA (The Leonidas D) [1985] 2 Lloyd's Rep 18 Discussed

Australian Broadcasting Commission v Lenah Game Meats Pty Ltd (2001) CLR 199 Considered

Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424 Approved

CGM Investments Pty Ltd v Chelliah [2003] FCA 79; (2003) 196 ALR 548 Reversed

CIC Insurance Ltd v Bankstown Football Club Ltd (1995) 8 ANZ Ins Cas 61-232 Cited

Commissioner of Taxation of the Commonwealth of Australia v Sara Lee Household and Body Care (Australia) Pty Ltd (2001) 301 CLR 520 Cited

De Soysa v De Pless Pol [1912] AC 194 Considered

DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423 Approved

Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 Approved

Fresh Express Pty Limited v Cerreto [2003] FCAFC 222 Approved

L'Office Cherifien des Phosphates v Yamashita-Shinnihon Steamship Co Ltd (The Boucraa) [1994] 1 AC 486 Discussed

Leeming v Corporation of the City of Port Adelaide (1987) 45 SASR 506 Cited

McIntyre v Porter [1983] 2 VR 439 Cited

Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal (The Hannah Blumenthal) [1983] 1 AC 854 Discussed

Pearl Mill Co Ltd v Ivy Tannery Co Ltd (1919) 1 KB 78 Considered

Re Marriott, deceased [1968] VR 260 Cited

Riv-Oland Marble Co (Vic) Pty Ltd v Settef SpA (1988) 19 FCR 569 Cited

Settef SpA v Riv-Oland Marble Co (Vic) Pty Ltd (1987) 10 IPR 402 Cited

Summers v The Commonwealth [1918] HCA 33; (1918) 25 CLR 144 Approved

Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd [1957] HCA 10; (1957) 98 CLR 93 Cited

Tankrederei Ahren Keil GmbH v Frahuil SA (The Multitank Halsatia) [1988] 2 Lloyd's Rep 486 Cited

Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422 Cited

Treweeke v 36 Wolseley Road Pty Ltd [1973] HCA 27; (1973) 128 CLR 274 Cited

Wolfe v Freijahs Holdings Pty Ltd [1988] VR 1017 Cited

Woollahra Municipal Council v Banool Developments Pty Ltd [1973] HCA 65; (1973) 129 CLR 138 Cited

WALLERA PTY LTD (ACN 002 544 952), NARENDRA JAIN, NANDINI PATEL v CGM INVESTMENTS PTY LTD (ACN 001 037 314), A WHISTLE & CO (1979) PTY LTD (ACN 001 267 054), A WHISTLE & CO PTY LTD (ACN 001 153 573), CHARLES CHELLIAH and MULSANNE HOLDINGS PTY LTD (ACN 083 160 445)

V219 of 2003

RYAN, KIEFEL, GYLES JJ

10 DECEMBER 2003

MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 219 OF 2003

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	WALLERA PTY LTD (ACN 002 544 952) NARENDRA JAIN NANDINI PATEL APPELLANTS
AND:	CGM INVESTMENTS PTY LTD (ACN 001 037 314) FIRST RESPONDENT A WHISTLE & CO (1979) PTY LTD (ACN 001 267 054) SECOND RESPONDENT A WHISTLE & CO PTY LTD (ACN 001 153 573) THIRD RESPONDENT CHARLES CHELLIAH FOURTH RESPONDENT MULSANNE HOLDINGS PTY LTD (ACN 083 160 445) FIFTH RESPONDENT
JUDGES:	RYAN, KIEFEL, GYLES JJ
DATE OF ORDER:	10 DECEMBER 2003
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. The appeal be allowed.

2. The following orders are set aside:

Order No 1 made 20 February 2003

Orders Nos 1 and 2 made 19 March 2003

Order No 1 made 6 May 2003.

3. The answer to the question `Was the said agreement [that made on 21 August 1984 between CGM Investments Pty Ltd and Wallera Pty Ltd] abandoned?' is `No'.

4. The first, second and third respondents pay the appellants' costs of the appeal.

5. The matter be remitted to the trial Judge.

6. The costs of the trial, the subject of the order numbered 1 of 6 May 2003, be reserved to the trial Judge.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 219 OF 2003

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	WALLERA PTY LTD (ACN 002 544 952) NARENDRA JAIN NANDINI PATEL APPELLANTS
AND:	CGM INVESTMENTS PTY LTD (ACN 001 037 314) FIRST RESPONDENT A WHISTLE & CO (1979) PTY LTD (ACN 001 267 054) SECOND RESPONDENT A WHISTLE & CO PTY LTD (ACN 001 153 573) THIRD RESPONDENT CHARLES CHELLIAH FOURTH RESPONDENT MULSANNE HOLDINGS PTY LTD (ACN 083 160 445) FIFTH RESPONDENT

JUDGES:	RYAN, KIEFEL AND GYLES JJ
DATE:	10 DECEMBER 2003
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

RYAN J

1 I have had the advantage of reading in draft the reasons for judgment of Kiefel J and I gratefully adopt her Honour's account of the relevant facts. I also agree with her Honour's analysis of those facts and her reasoning in respect of matters on which she has upheld the findings of the learned primary Judge. I desire to explain at slightly greater length only my reasons for agreeing with her Honour on the central question of abandonment.

2 Whether there has been an abandonment by both parties of a contract formerly subsisting between them turns on whether the acts and omissions of each party, viewed objectively in the light of the circumstances of the contract, give rise to an inference that the parties to the contract have agreed to discharge it. See Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 at 432 and the cases there cited. I consider that the natural inference on an objective view of that kind of all of the facts found, or available to be found, by the learned primary Judge is that Wallera decided to defer its re-entry into the Melbourne market until what it perceived to be adverse conditions in that market had improved. I have also concluded that a similar objective view of CGM's conduct requires the inference that it acquiesced in the decision which I have just imputed to Wallera.

3 The principal facts which support the inferences indicated in [2] above are;

(a) the relatively long balance of the licence period (approximately 37 years even in 1997) during which Wallera was presumptively entitled exclusively to exploit the "Electrodry" brand name in the area of metropolitan Melbourne;

(b) the perception attested to by Mr Jain and, at least, not disputed by Mr Burchell, that market conditions in Melbourne from 1992 to 1997 were unfavourable to Wallera's return to the carpet-cleaning business. In my view, the learned primary Judge had regard to an inappropriate circumstance when he said "it is incorrect to suggest that the economic situation in Victoria was so poor for the whole of the period from 1992 to 1997 that the business could not operate." The question in that context was, rather, whether Wallera believed that economic conditions in the carpet-cleaning industry in the specified period were such that its re-entry would be attended by an unacceptable risk of further losses;

(c) the failure by CGM to assert any breach by Wallera from 1992 to 1997 of Wallera's contractual obligations to exploit the "Electrodry" name and process "in a proper and businesslike manner." That failure, I consider, supports a conclusion that CGM acquiesced in the perception discussed at (b) above;

(d) a fact related to that which I have just indicated in (c) is CGM's interest as a shareholder in Wallera and the consequent ability of Mr Burchell to direct, or, at least, influence Wallera's decisions and affairs. That meant that the assertion or complaint hypothesised in (c) could have been made "internally" as well as, or instead of, being ventilated by, for example, a letter of demand, a formal notice of breach or the institution of legal proceedings.

4 I regard the inferences which the facts just outlined tend to support as strongly preferable to the inference of abandonment drawn by the learned primary Judge. I therefore agree with the orders proposed by Kiefel J.

I certify that the preceding four (4) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan.

Associate:

Dated: 10 December 2003

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 219 OF 2003

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	WALLERA PTY LTD (ACN 002 544 952) NARENDRA JAIN NANDINI PATEL APPELLANTS
AND:	CGM INVESTMENTS PTY LTD (ACN 001 037 314) FIRST RESPONDENT A WHISTLE & CO (1979) PTY LTD (ACN 001 267 054) SECOND RESPONDENT A WHISTLE & CO PTY LTD (ACN 001 153 573) THIRD RESPONDENT CHARLES CHELLIAH FOURTH RESPONDENT MULSANNE HOLDINGS PTY LTD (ACN 083 160 445) FIFTH RESPONDENT

JUDGES:	RYAN, KIEFEL, GYLES JJ
DATE:	10 DECEMBER 2003
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

KIEFEL J:

5 Prior to May 1984, A Whistle & Co (1979) Pty Ltd (`Whistle') was the proprietor of a registered trade mark `Electrodry' which was associated with an electro-magnetic carpet dry cleaning process which had been developed in the United States of America. On or prior to 15 May 1984 it transferred the rights to the name and the business it conducted to CGM Investments Pty Ltd (`CGM'). The sole shareholders and directors of each of those companies were Mr Paul Burchell and his wife. On 15 May 1984 CGM entered into some agreements with Wallera Pty Ltd and Mr Narendra Jain. Pursuant to the `Franchise Agreement' CGM warranted that it had the exclusive right to the use of the name `Electrodry' and would retain the right for the ensuing fifty years for an area which included the greater part of Sydney. CGM granted Wallera an exclusive licence to use the name for the area in association with the process. The term of the agreement was not stated. CGM also granted Wallera an option for an exclusive licence for each of the areas of metropolitan Brisbane and metropolitan Melbourne. The consideration for the licence was stated to be $1.00 per month payable annually in advance. By clause 5 Wallera was to `... exploit its rights to use the name Electrodry and the process in a proper and businesslike manner'.

6 By clause 8 the agreement could be terminated upon a failure, after notice, to remedy a breach of its provisions or if steps were taken by or against Wallera which might suggest its insolvency. Clause 9 provided that upon the termination of the agreement `all rights and privileges conferred upon Wallera hereby shall cease and revert to C.G.M.'.

7 Clause 7 of the Franchise Agreement provided that that agreement was `inter-dependent upon an agreement between the parties of even date for the supply of services and materials by C.G.M. to Wallera'. The `Agreement for Supply of Materials and Initial Training' recited that CGM had available to it materials, equipment, personnel and other resources and that it agreed to provide them to Wallera to assist in the conduct of its business. It was provided that, upon Wallera's request, CGM would supply `the resources referred to in the Schedule for a period of six months ...'. That period could be extended by agreement between the parties. The resources were personnel with expertise in the marketing of the Electrodry process, transportation, equipment, supplies and other resources as Wallera may reasonably require to fully exploit its right to use the name Electrodry and the process but they were not to exceed six trucks and sets of equipment and twelve persons at any one time. CGM was also to make available the benefit of the television commercial advertising time then booked with Channel 10 Sydney and the commercial itself. The consideration for the resources and the television commercial were the immediate payment of $50,000 by Wallera to CGM, the payment of one half of Wallera's gross receipts `in respect of services rendered by Wallera using the resources supplied by C.G.M.' and Wallera's payment of all advertising fees payable to Channel 10.

8 A further agreement entitled `Loan and Shareholders Agreement' was also entered into on 15 May 1984 between CGM, Wallera and Mr Jain. It referred to Wallera's share capital as 100,000, $1.00 shares. Its issued capital was then $2.00, one share being owned by CGM and the other by Jain Co Services. The latter company is a company controlled by Mr Jain. Each of CGM and Jain Co Services covenanted to advance the sum of $50,000 to Wallera. Provision was made for the allotment of further shares which might redeem, in whole or in part, a shareholder's loan account with Wallera and for notification as between the shareholders of their intention to do so, so as to enable them to maintain an equal number of shares in Wallera. The board of directors was to number two members, nominees of each of the two shareholders. The chairmanship was to rotate and, in any event, the chairman was not to have a casting vote. Provision was made instead for the resolution of any deadlock.

9 The options provided by the Franchise Agreement were exercised by Wallera in 1986 with respect to Brisbane and Melbourne. These proceedings concern the Melbourne operations. No additional franchise agreements were executed for those areas and it was not suggested that supply agreements were. The business in Brisbane was said by Mr Burchell to have been taken over by Whistle, with the consent of Wallera, in 1992.

10 Wallera conducted its business in Melbourne through sub-franchises granted to third parties. The first sub-franchise operated between 1985 and 1987. Wallera continued the business itself, sustained losses and ceased in 1988. The second sub-franchise commenced in 1989 and ceased operations in late 1991. There was some evidence of Wallera attempting to continue business thereafter, but none was conducted after some time in 1992.

11 In this period Mr Burchell says that he and Mr Jain and Mr Jain's wife, Ms Patel, conducted a number of businesses together on an informal basis. So far as concerned Wallera he, Mr Jain and Ms Patel were co-directors until Mr Burchell resigned in August 1991. Mr Burchell's wife however continued as a director until February 1993 and Mr Burchell maintained an active involvement with the management of Wallera until 1996. It would appear that Mr Jain had the day-to-day management of the Sydney business. It would also appear that Whistle or A Whistle & Co Pty Ltd, the third respondent, supplied products to Wallera and its sub-franchisees.

12 In early 1997 a dispute arose between the parties with respect to the Sydney operation. It concluded with the execution of a deed of settlement on 27 November 1997. Pursuant to that deed Wallera was to pay Whistle and CGM some monies on account of debts they claimed to be due to them. The last such payment was to be made on 26 September 1998. CGM was to transfer all shares held by it in Wallera to Mr Jain or his nominee for a consideration of $34,700.

13 A further dispute arose in November 1998. Again it concerned the operation of the business in Sydney and in particular the supply of products by Whistle. The correspondence between the parties at the time touched upon a number of topics. They included the agreement with respect to Melbourne. On 7 November 1998, in a reply to an earlier communication from CGM, Wallera advised that:

`the agreement covers the territory as defined and optioned. We are currently in the process of establishing sub licensing arrangements to reenter Melbourne market.'

14 Mr Burchell, for CGM, responded:

`As to the issue of Melbourne Wallera gave up its rights to the Melbourne area by agreement when it decided not to pay for the outstanding debts of the Franchise in that area. It was an agreement that if A Whistle would pay for those debts instead of Wallera then Wallera would release those rights. If Wallera wants to reimburse A Whistle & Co (1979) Pty Ltd for its expenses then that can be agreed to.'

15 On 15 December 1998 Wallera in turn advised:

`Territory covered is as per the contract and exercised option. There has never been any agreement to release Wallera Pty Limited's rights to Melbourne. The right to Melbourne territory vests with Wallera Pty Limited and Wallera Pty Limited will exploit same as convenient.'

16 It was at about this time that Wallera's solicitors forwarded a cheque for $420 said to represent `the licence fee for the balance of the term'.

17 Each of Mr Jain and Mr Burchell contended for different agreements which were said to have been reached in the period after 1992 with respect to Melbourne. Mr Jain alleged that he and Mr Burchell had agreed not to re-enter the Melbourne market. He said that they had agreed that it was `not opportune to tackle the Melbourne market as it appeared that Victoria was going through some unstable economic times and that carpet cleaning would be low on people's financial priorities'. Mr Burchell denied that there had been such a conversation. In his affidavit Mr Burchell agreed that he had been in communication with Mr Jain throughout this period and that he `may' have mentioned to him that he saw difficulties in re-entering the Melbourne market. At the hearing he said that it would have required substantial expenditure on the part of Whistle. Expansion of the business into Melbourne would have cost a `couple' of hundred thousands of dollars and his companies were not in a position to provide those sums, which would have been necessary for promoting the business. Mr Burchell was questioned about the viability of operations in Melbourne in late 1992. He agreed that he made a decision in late 1992 `not to continue ... with the Melbourne operations'. It was not suggested by him that the `decision' was made in concert with Wallera, or Mr Jain. Mr Burchell agreed that the sub-franchisees did not feel it was viable to continue and `we didn't continue after that time'. Although they had an arrangement with him, apparently for the supply of chemicals, he had agreed to see if things improved and they did not. He did not however accept that the reason the business was not viable was because there was insufficient demand for the product or service at that time.

18 For his part Mr Burchell contended that there had been an agreement whereby Wallera relinquished its rights to the Melbourne area in consideration for the forgiveness of a debt owed to CGM, in the order of $35,000. Mr Jain denied that there had been any such agreement.

19 The litigation between the parties concluded in March 2001. Mr Jain conceded, in cross-examination, that Wallera had not done anything to exploit the name and the process in Melbourne from 1992. It was his contention that Wallera was not obliged to do so if it was contrary to sound commercial judgment having regard to economic conditions. He said that Wallera took out a telephone listing for the business in about 1999 with the intention of starting up operations given that the Melbourne market was then `looking up'. He says that he had some early discussions with a potential purchaser, Mr Chelliah. He did not suggest any other step was taken.

20 Mr Burchell said that A Whistle & Co Pty Ltd, the third respondent, took steps to recommence the business in early 2000. His evidence suggests Wallera's listing in the telephone directory was made after this time. The third respondent spent considerable sums in the period following and established franchises by the end of November 2001.

21 In June 2002 Wallera entered into agreement with Mr Chelliah to sell the rights to the name and process for Melbourne. These proceedings were commenced shortly thereafter.

THE PROCEEDINGS BROUGHT BY CGM - THE PRELIMINARY POINT

22 CGM alleged three alternative bases for any agreement with Wallera with respect to the Melbourne metropolitan area having come to an end. It alleged an agreement between Whistle and Wallera in September 1991 for the relinquishment of Wallera's interests. Alternatively it was alleged that, by ceasing to conduct business in Melbourne, Wallera had breached that agreement and Whistle or CGM had accepted the repudiation. It was not said when this acceptance took place. A further alternative contention was that Wallera had abandoned the agreement and CGM had agreed to the abandonment. Again, it was not said how or when this had occurred.

23 The matter proceeded to a hearing before his Honour the primary Judge on a preliminary question as to abandonment. The questions ultimately stated under Order 29 of the Federal Court Rules were:

`Q: Was the franchise agreement relating to the use of the name "Electrodry" and the use of an exothermic chemical process in metropolitan Melbourne made on 21 August 1984 between CGM Investments Pty Ltd and Wallera Pty Ltd discharged by agreement?

Q: Was the said agreement abandoned?'

24 His Honour made findings as to the agreements alleged by each of CGM and Wallera with respect to Melbourne and found neither of them to be established. His Honour found the agreement to have been effectively abandoned by Wallera and answered the questions above respectively `NO' and `YES' (CGM Investments Pty Ltd v Chelliah [2003] FCA 79; 196 ALR 548). On 20 February 2003 his Honour made orders in terms of the questions and answers and gave directions including one for mediation. The issue remaining undetermined, in relation to the subsistence of the agreement, was that of repudiation. On 19 March 2003 his Honour granted injunctions against `the Wallera respondents' (Wallera, Mr Jain and Ms Patel) and on 6 May 2003 ordered that those respondents pay 80 per cent of the applicant's costs of the application. Other orders as to costs made on that day, relating to aspects of the conduct of the proceedings, are not presently relevant.

THE PRIMARY JUDGE'S REASONING

25 A preliminary matter considered by his Honour was the principal terms of the Melbourne agreement. His Honour considered that when an option is exercised in circumstances such as these it is exercised on the same terms as the principal agreement, save for the reference to the geographic areas and the option itself. The assumption which would have been made by the parties was that their rights and obligations would be the same in each area. I respectfully agree and observe that the appellants did not contend otherwise.

26 His Honour did not refer to the question of the term of the agreements created by the exercise of the option. His Honour may have considered that they would simply follow the term of the principal agreement, by parity of reasoning. Given the warranty given by CGM it would seem likely that the Franchise Agreement was intended to operate for the period during which it was said Electrodry had the exclusive right to the brand name, namely fifty years. By the time the Melbourne option was exercised some forty-eight years would have remained and at the time when the agreement was taken to have been abandoned some thirty-six years remained.

27 His Honour observed that Mr Jain gave evidence that when the second sub-franchise in Melbourne ended Wallera continued to operate it and his Honour accepted that this might be so. CGM also claimed to have conducted the business in this period, until early 1992. The conflict in the evidence on this point did not require resolution as, in his Honour's opinion, nothing turned upon it.

28 His Honour found the evidence of both Mr Jain and Mr Burchell to be `thoroughly unsatisfactory'. Mr Burchell had changed the description of the conversation significantly, even accepting that he was giving evidence of events some time ago. He was unable to provide detail of the terms of the agreement or to show how the alleged debt was made up. His Honour was not satisfied that there was any such agreement, nor was he satisfied that there was any arrangement between Mr Burchell and Mr Jain pursuant to which Wallera refrained from operating in the Melbourne area. Mr Jain's evidence was deficient and left his Honour to speculate as to what was said and how often these discussions occurred. His Honour went on to observe that one reason for Mr Jain's `reticence' might be that `it is incorrect to suggest that the economic situation in Victoria was so poor for the whole of the period from 1992 through 1997 that the business could not operate'. His Honour considered that it was common knowledge, of which he could take judicial notice, that the picture was not so bleak as Mr Jain had painted it to be. He gave no weight to Mr Jain's evidence. In neither case however did his Honour make findings as to credit based upon observations of the two witnesses. Rather the content of their evidence was unsatisfactory and, objectively, Mr Jain's was inaccurate. If there be an implicit finding against Mr Jain's credit because he painted a different picture of the true economic conditions prevailing, it was based simply upon its factual inaccuracy about which Mr Jain would have known.

29 As to Wallera's payment, in November 1998, for the licensing fee for the balance of the term, Mr Jain had said that Wallera decided to make the one payment rather than risk forgetting the successive payments and being in arrears. His Honour rejected this explanation and found that the money was paid in order to deny CGM the opportunity to terminate for breach. The assertion in Wallera's letter of 7 November 1998 that it was in the process of re-establishing the Melbourne franchise, was not accepted by his Honour and his Honour held that the contract had been effectively abandoned by this time. His Honour therefore proceeded on the basis that there were no discussions about the conduct of the Melbourne franchise between mid-1992 and mid-1998.

30 In his Honour's view (at 18) the Australian authorities concerning abandonment of a contract, Summers v Commonwealth [1918] HCA 33; (1918) 25 CLR 144; DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423; Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd [1957] HCA 10; (1957) 98 CLR 93; and Commissioner of Taxation of the Commonwealth of Australia v Sara Lee Household and Body Care (Australia) Pty Ltd (2001) 301 CLR 520 at 534 establish:

`not only that an agreement can be abandoned by conduct, but also that the question whether an agreement has been abandoned does not require one to examine whether the parties actually had the intention of abandoning the agreement; only whether their conduct, when objectively viewed, manifests that intention.'

31 His Honour considered that this accorded with the `objectivist theory of contract which is now irrevocably entrenched in our law': Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422; and Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 336.

32 The position appeared to be different in England, his Honour observed, referring to the three different approaches taken in Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal (The Hannah Blumenthal) [1983] 1 AC 854 and the criticism made of them in Tankrederei Ahren Keil GmbH v Frahuil SA (The Multitank Halsatia) [1988] 2 Lloyd's Rep 486 at 491. The emphasis placed by the House of Lords, in his Honour's view, was upon the principles of formation of contract by `sequential offer and acceptance'. His Honour did not consider however that the controversy raised by Phillips LJ in The Multitank Holsatia and continued in Allied Marine Transport Ltd v Vale Do Rio Doce Navegacao SA (The Leonidas D) [1985] 2 Lloyd's Rep 18; 1 WLR 925 required resolution. The Australian cases require an objective ascertainment of the intention to abandon a contract.

33 His Honour concluded (at [22] and [23]):

`In my opinion to show that a contract has been abandoned by inactivity on both sides it is necessary to establish that the inactivity (which may sometimes amount to no more than silence on one side) produces the clear inference that one party does not wish to proceed with the contract and the other party consented to that situation.

This is precisely what has occurred. Wallera had assumed an obligation to exploit the name Electrodry and the process "in a proper and business-like manner". It did no such thing between 1992 and the end of 1998. I deal with the position up to that point because of the assertion made by Wallera in December 1998 that it intended to reactivate the business. I think that where a franchisee without the consent of a franchisor does not conduct the franchise for seven years that is a sufficient indication that the franchisee intends no longer to be bound by the franchise agreement. Correspondingly CGM's silence throughout this period of inactivity (that is its failure to make any complaint that Wallera was not honouring its obligations under the franchise agreement) is a clear indication that it accepted Wallera's stance. In these circumstances the conclusion that the Melbourne franchise agreement has been abandoned is inescapable. It is a conclusion that cannot be avoided by the payment of $420 made in December. By that time it was simply too late for Wallera to breathe life into the agreement. All that it could hope to achieve was to bring about a fresh agreement, and nothing along those lines has been alleged.'

THE APPEAL

34 The appellants submit that his Honour ought to have found that there was an agreement not to re-enter the Melbourne market until conditions improved. They submit that the likelihood of there being an agreement finds support in Mr Burchell's evidence. Regard should not have been had by his Honour to what he regarded as the true economic conditions in Melbourne at the relevant time, it is submitted. Alternatively, the parties did not intend to abandon the agreement. In this regard, it is submitted that, the Court may resort to evidence of the parties' actual intentions. It is also submitted that if the Court limits its consideration to the parties conduct, nevertheless that conduct does not clearly indicate that they had abandoned the agreement, but only that they were not pursuing performance of it for commercial reasons. With respect to that conduct it is also submitted that his Honour ought not to have included, as relevant conduct, a failure on Wallera's part to fulfil its contractual obligations. No such obligation arises from the terms of clause 5, it was submitted.

35 It has been said that great care is required when judges act upon assumptions about current conditions or circumstances in society: Australian Broadcasting Commission v Lenah Game Meats Pty Ltd (2001) CLR 199 at 298, [252]. Nevertheless judges have taken judicial notice of economic conditions generally prevailing: J D Heydon, Cross on Evidence, Butterworths, Australia, 2003 at [3060]. Many matters in this category will be well known and uncontroversial. In the cases referred to in Cross, judges have taken notice of the decreasing value of money and the existence of an overall inflationary trend. The question in each case will be whether evidence is necessary. This will be so where views might differ on the subject. In the present case his Honour found that (at [13]):

`...it is incorrect to suggest that the economic situation in Victoria was so poor for the whole of the period from 1992 through 1997 that the business could not operate.'

36 There would appear to be two limbs to his Honour's finding. The first involves his Honour's perception of the economic climate at the time. The second puts a carpet-cleaning business in that context. Considerations of the latter kind would, in my respectful view, require some understanding of the extent to which such a business is affected by a downturn in the economy. I take his Honour to have at least considered that the economic situation in Victoria was affected to an extent. It is the degree to which it was affected with which he disagreed. However, without knowledge as to how sensitive businesses such as this are to economic downturns I am unable to see that his Honour could reach a conclusion about whether it could operate profitably in the period in question. The evidence, such as it was, suggests that at least in the early part of that period the sub-franchisees did not think it could be and Mr Jain and Mr Burchell were apparently reluctant to re-enter the market.

37 His Honour's finding influenced the view he took of Mr Jain's creditworthiness on that topic. It confirmed the view his Honour had already reached about there not having been an express agreement between Mr Jain and Mr Burchell. His Honour formed that view because of the lack of detail Mr Jain was able to give about the discussions concerning it. No basis has been shown for interfering with that finding. Whilst it remains the appellants cannot establish the existence of the agreement, even if one were to disregard his Honour's additional finding based upon his understanding of economic conditions. I turn then to the question of abandonment.

38 It has been said, in connexion with the law relating to the formation of contracts generally in Australia, that proof of actual intention is not necessary: Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422 at 428-429. Mason ACJ, Murphy and Deane JJ there observed that pursuant to the `objective theory', which commanded the field, the law is concerned not with the parties' actual intentions, but with the outward manifestations of those intentions (see also Air Great Lakes Pty Ltd v KS Eastern Pty Ltd (1985) 2 NSWLR 309 at 336; CIC Insurance Ltd v Bankstown Football Club Ltd (1995) 8 ANZ Ins Cas 61-232 at 75,558. As Mahoney JA observed in Air Great Lakes (at 330) the existence of a contract is `a consequence which the law imposes upon, or sees as the result of, what the parties have said and done'.

39 The Australian cases on abandonment would not appear to be concerned with whether a contract to terminate the agreement was concluded, nor with what the party relying upon abandonment actually understood or assumed to be the case. The latter appears to be the English approach the Court of Appeal in Allied Marine applied Lord Brightman's test in `The Hannah Blumenthal' rather than the approach of Lord Brandon, which was similar to that followed by Australian courts. I respectfully agree with his Honour the primary Judge that it is not necessary to enter upon that debate.

40 Whilst the Australian cases may not have discussed the theoretical basis for abandonment to any great extent it is clear that regard is to be had to the conduct of the parties and what might be inferred from it. Abandonment may be seen as a conclusion that parties have no further interest in a contract continuing, even though they may have said nothing to that effect. It may nevertheless be clear that they both regard it as at an end. This can more readily be discerned where one or more of the parties have ineffectively attempted to bring the agreement to an end and both behave as if it was ended as occurred in Summers v The Commonwealth [1918] HCA 33; (1918) 25 CLR 144 and DTR Nominees Proprietary Limited v Mona Homes Proprietary Limited [1978] HCA 12; (1978) 138 CLR 423.

41 In Summers v The Commonwealth, the assignee of the contractor, who had agreed to supply a quantity of marble, claimed damages for refusal to accept some marble or a quantum meruit for that which had been tendered. The parties' approach to the question as to what the contractor was to supply differed and this had led to the contractor being unwilling to perform it. The purchaser gave notice cancelling the contract, but its terms were held to be ambiguous and ineffective. The contractor responded by saying that he did not wish the agreement to be cancelled, but modified. He did not however take the matter further and took no step towards performance. Isaacs J found him to have `acquiesced in considering his obligation at an end' (at 151). The purchaser also treated it in that way, since it proceeded to procure the marble from another source.

42 Isaacs J considered that, whatever the terms of a contract may be, parties might conduct themselves so as to mutually abandon or abrogate it, regardless of whether there had been something in the nature of rescission (at 151-152). His Honour (at 152) referred to De Soysa v De Pless Pol [1912] AC 194, at 202 where Lord Atkinson had observed that:

`One party to a contract is not bound to give to the other unlimited time after a day named to do that which the other has contracted to do. There must be some point of time at which delay or neglect amounts to refusal .... In truth, the projects seem to have been to a great extent, if not altogether, abandoned by all the parties concerned.'

43 Isaacs J concluded that the position in that case was the same and that `Informally, but effectively, the parties have so acted in relation to each other, as to abandon or abrogate the contract' (at 152).

44 In DTR Nominees, which applied Summers v The Commonwealth, the parties bona fide held different views as to what the contract required. Their attempts to rescind were ineffective. The Court was however in no doubt that, when the proceedings commenced, neither party regarded the contract as being on foot or intended that the contract should be further performed. The parties had so `conducted themselves as to abandon or abrogate the contract' (at 434).

45 No such conduct was involved in the present case. His Honour the primary Judge's view was that it was sufficient evidence of abandonment that there be no fulfilment of a contractual obligation, without objection from the other party, for a long time. In Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 specific performance was sought of an agreement for the sale of an interest in land which had been partly performed by the payment of some monies but not completed by either party for many years. The question of long delay evidencing abandonment, such that equity might refuse relief, was the ultimate issue for the Court. The Court had been unable to conclude, although there had been such delay, that the agreement should be regarded as abandoned at law. Importantly, the contract had been partly performed and the purchaser had acquired an equitable interest in the land which could not be lost by mere inaction on his part. The view which might be taken in contract, where neither party has attempted to perform and where an `inordinate length of time' had elapsed, was however considered. Dixon CJ and Fullagar J considered that in such circumstances it may be inferred that the contract has been abandoned, giving as an example the decision in Pearl Mill Co Ltd v Ivy Tannery Co Ltd (1919) 1 KB 78 per Rowlatt J at 82. As their Honours observed (at 432):

`What is really inferred in such a case is that the contract has been discharged by agreement, each party being entitled to assume from a long-continued ignoring of the contract on both sides that (in the words of Rowlatt J) "the matter is off altogether".'

46 The appellants rely upon the view expressed by Mahoney JA in Air Great Lakes, that where parties `have, in terms, indicated that it is not their intention that there be not a contract but rather the contrary, reference may, I think, be made to that evidence' (at 332). That case involved the question whether extrinsic evidence should be admitted to prove the parties' intentions with respect to whether a contract was concluded, in circumstances where there was a written agreement. Mahoney JA and McHugh JA considered that regard could be had to what the parties had said and done to determine that question (at 332-3; 337). In that sense evidence of intention could be received, at least where it was known to the other: Mahoney JA at 331. However, as his Honour there observed an unknown subjective intention could not be set up where the other party reasonably understood there to be a legal commitment.

47 Air Great Lakes provides no support for the proposition that Mr Jain's uncommunicated intentions could be taken into account. At the very least such evidence would be inherently unreliable. Regard may however be had to what was said and done by the parties. The parties' conduct is the very evidence that the Courts resort to in order to determine whether they have abandoned an agreement. It is not inconsistent with an objective assessment to do so. Here there was some evidence beyond that simply of the parties' inaction, to which I shall shortly refer.

48 It was of some importance to his Honour's reasoning that Wallera was contractually obliged to exploit the name and process `in a proper and business-like manner' and did not do so. The appellants submit that the reference to a `business-like manner' in clause 5 enabled Wallera to perform or not, depending upon its commercial judgment. The submission must be rejected. The words import a standard of behaviour. The obligation to exploit the name would be implied, were it not already clear from clause 5.

49 The appellant's contention that the contract could not be abandoned, for the reasons dealt with in Fitzgerald v Masters, must also be rejected. Whilst there had been some performance of the agreement at an early point, Wallera had not paid for and did not obtain any proprietary interest which is subject to being divested were the contract held to be abandoned. It merely had a licence, albeit one which extended over a long period of time.

50 The length of the term of the agreement is a matter of some relevance in assessing the likelihood of abandonment. It provides a context for seven years of inactivity and raises the question whether the parties can be taken to have no interest in any further performance over the next thirty years or so. Abandonment may be somewhat more difficult to infer in such circumstances.

51 It is also relevant to consider the position of CGM and Wallera, in my view. CGM was a shareholder in Wallera and their interests were, to an extent, coincident. They acted, in a sense, as if they were joint venturers. Mr Burchell took an active part in the management of Wallera until 1996. He was aware that it was not re-entering the Melbourne market in the years following 1992. It must be inferred, in my view, that he knew why, even if it was not a matter upon which he was questioned at the hearing. That he and Mr Jain had discussed it is confirmed by his own evidence. Neither were apparently concerned to have Wallera operate in Melbourne for the time being. Even if no agreement based upon the economic climate was in fact made, it is plain that Mr Jain did not consider it a course which was prudent and Mr Burchell had his own reasons for not requiring Wallera to recommence operations. It would have required his companies to expend monies at a time when their resources were diverted elsewhere.

52 These factors indicate that the parties were unconcerned about Wallera's present inactivity but, in my respectful view, they do not permit a conclusion that Wallera and CGM would not take it up in the future. It is not possible to infer that the parties thought the matter was `off altogether'. This conclusion is supported by the correspondence between the parties in late 1998. In it Wallera asserted its right to continue and CGM did not challenge it. Importantly, CGM did not assert that it considered that the contract was no longer available to Wallera.

53 There was a further period of inaction by Wallera after this correspondence was exchanged and during which CGM commenced operations. It may be by this point that the parties' contractual relationship, and their assumptions about it, had altered. This is not a matter dealt with by his Honour and not the subject of any cross-appeal. It would not necessarily involve issues of abandonment in any event.

54 In my respectful view his Honour did not have regard to the available evidence of the parties' conduct and their circumstances under the agreement and considered only what unexplained inaction could mean. The evidence, such as it was, did not suggest that the parties regarded the contract as abandoned. At most it suggested they were not presently interested in its performance.

55 The appeal should be allowed and the order numbered 1 made on 20 February 2003, the orders numbered 1 and 2 made on 19 March 2003 and the order numbered 1 of 6 May 2003 be set aside. In lieu of the firstmentioned order there should be an order that the answer to the question `Was the said agreement abandoned?' is `No'. The first, second and third respondents should pay the appellant's costs of the appeal. The costs of the trial should be reserved to the trial Judge as a decision as to who should bear them may be affected by the ultimate outcome of the proceedings.

I certify that the preceding fifty-one (51) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kiefel.

Associate:

Dated: 10 December 2003

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 219 OF 2003

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	WALLERA PTY LTD (ACN 002 544 952) NARENDRA JAIN NANDINI PATEL APPELLANTS
AND:	CGM INVESTMENTS PTY LTD (ACN 001 037 314) FIRST RESPONDENT A WHISTLE & CO (1979) PTY LTD (ACN 001 267 054) SECOND RESPONDENT A WHISTLE & CO PTY LTD (ACN 001 153 573) THIRD RESPONDENT CHARLES CHELLIAH FOURTH RESPONDENT MULSANNE HOLDINGS PTY LTD (ACN 083 160 445) FIFTH RESPONDENT

JUDGES:	RYAN, KIEFEL AND GYLES JJ
DATE:	10 DECEMBER 2003
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

GYLES J:

56 I have had the advantage of reading the judgment of Kiefel J in draft. I agree that the appeal ought be allowed, I agree with the orders proposed and I agree in substance with Her Honour's reasons.

57 The question as to whether there has been abandonment of contract is one of fact. Although I have difficulty with some of the analysis of the authorities by the trial Judge, in my opinion, he properly directed himself as to the issue. He identified what needed to be found as an implied agreement to abandon a contract and went on to say:

`In my opinion to show that a contract has been abandoned by inactivity on both sides it is necessary to establish that the inactivity (which may sometimes amount to no more than silence on one side) produces the clear inference that one party does not wish to proceed with the contract and the other party consented to that situation.'

(CGM Investments Pty Ltd v Chelliah [2003] FCA 79 at [22]; [2003] FCA 79; (2003) 196 ALR 548 at 555).

58 Satisfactory guidance as to the principle to be applied can be gleaned from the following passage from Dixon CJ and Fullagar J in Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 at 432:

`There can be no doubt that, where what has been called an "inordinate" length of time has been allowed to elapse, during which neither party has attempted to perform, or called upon the other to perform, a contract made between them, it may be inferred that the contract has been abandoned. A good example is to be found in Pearl Mill Co Ltd v Ivy Tannery Co Ltd [[1919] 1 KB 78]. See also Mathews v Mathews [[1941] SASR 250 at p255] and G W Fisher Ltd v Eastwoods Ltd [[1936] 1 All ER 421], especially at p426, per Branson J. What is really inferred in such a case is that the contract has been discharged by agreement, each party being entitled to assume from a long-continued ignoring of the contract on both sides that (in the words of Rowlatt J) "the matter is off altogether".' (emphasis added)

59 This explanation is consistent with the decision in Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal (The Hannah Blumenthal) [1983] 1 AC 854. Lord Brandon spoke of `an implied agreement between them to abandon the contract' (914B). Lord Diplock also insisted upon the bilateral nature of the concept (915C-916F). Lord Brightman spoke of the inference of abandonment by mutual agreement (924A).

60 The test is easy to state but not so easy to apply. As Lord Mustill put it in L'Office Cherifien des Phosphates v Yamashita-Shinnihon Steamship Co Ltd (The Boucraa) [1994] 1 AC 486 at 521G:

`The concept of a consensual abandonment is sound in theory but largely useless in practice, given the difficulty of extracting a consensual termination of the agreement ... from a situation in which, ex hypothesi, neither party has done anything.'

However, as will often be the case, here there is a factual matrix against which inaction is to be judged.

61 Although this appeal is by way of rehearing, appealable error must be demonstrated before this Court should interfere. A mere disagreement with a factual conclusion is not sufficient (Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424 at [21]- [30]; Fresh Express Pty Limited v Cerreto [2003] FCAFC 222 at [68]- [69]). In my opinion, the trial Judge did fall into such error in not analysing and taking into account at the critical point of his reasoning the nature and duration of the interests acquired pursuant to the agreement constituted by the exercise of the option found by the trial Judge.

62 The licensor warranted that it had the exclusive right to the use of the name `Electrodry' until 2034 for the relevant area and had the right to use the electromagnetic carpet dry-cleaning process in question. On that basis it then granted the exclusive licence to use the name and the process (in conjunction with each other) until at least 2034. The licensee could divide the area into such sub-areas as it may deem expedient and grant sub-licences within the terms of the rights conferred upon it by the agreement. The Melbourne licence resulted from the exercise of the option granted in the head franchise agreement which was under seal. The further consideration provided in that agreement was a licence fee of one dollar per month payable annually in advance. It may well be that that requirement for consideration would be transposed into the Melbourne licence agreement. The fundamental point, however, is that the licensor does not receive any economic benefit from the exploitation of the Melbourne licence.

63 The Melbourne licence in issue in this case is a consequence of the other commercial arrangements between the parties. It was ancillary or corollary to the head arrangements between the parties. Whatever was to be gained by the licensor was gained as a result of those arrangements, not created by the exercise of the option and the operation of the Melbourne licence. When this commercial background is understood, the terms of clause 5 of the agreement which provide that:

`Wallera shall exploit its rights to use the name Electrodry and the process in a proper and businesslike manner'.

take on a different aspect than they might normally bear. The licensor has nothing to gain from the success or otherwise of the exploitation of the rights in Melbourne by the licensee. However, it would have an interest in ensuring that what business was done in Melbourne by the licensee was done in a proper and businesslike manner in order to avoid the possible damage to its business reputation in other areas which might flow from improper or unbusinesslike conduct under the licensed name in Melbourne. In other words, contrary to the opinion of the trial Judge, failure to exploit the rights is not a breach of the clause but, if the rights are exploited, then that should be done in a proper and businesslike manner. Even if this were incorrect, and the clause were construed to impose a positive obligation to exploit the rights in Melbourne no matter what the business judgment of the licensee was from time to time, the trial Judge failed to take account of the fact that there was an express provision for termination in the event of breach. Indeed the failure to establish any complaint by the licensor indicates that the parties regarded the agreement as leaving the licensee to exploit the rights granted as it saw fit according to its business judgment from time to time.

64 This analysis invites comparison with the abandonment of an incorporeal property right such as an easement, a right of way or a trademark. It is well established that it is unlikely that mere delay, for even a very lengthy period, would amount to abandonment of such a right. See, for example, Treweeke v 36 Wolseley Road Pty Ltd [1973] HCA 27; (1973) 128 CLR 274 at 282, 284, 287-288 and 302; Re Marriott, deceased [1968] VR 260 at 273; McIntyre v Porter [1983] 2 VR 439 at 444-445; Wolfe v Freijahs Holdings Pty Ltd [1988] VR 1017 at 1023-1024; Settef SpA v Riv-Oland Marble Co (Vic) Pty Ltd (1987) 10 IPR 402 at 421-426 (not challenged on appeal - Riv-Oland Marble Co (Vic) Pty Ltd v Settef SpA (1988) 19 FCR 569). See also, in relation to abandonment of use in town planning, Woollahra Municipal Council v Banool Developments Pty Ltd [1973] HCA 65; (1973) 129 CLR 138 per Mason J at 144 and Leeming v Corporation of the City of Port Adelaide (1987) 45 SASR 506 per King CJ at 512-515.

65 In my opinion, the other respect in which the trial Judge fell into error was in not taking into account the nature of the beneficial interests in Wallera in his reasoning on the critical issue. As those connected with the licensor were effectively involved in Wallera in one way or another during a not inconsiderable portion of the period of inactivity, the circumstances cannot be analysed as if the licensee and licensor were completely at arm's length. It is unlikely, to say the least, that Wallera would have made a positive decision to withdraw forever from the Melbourne market without that having been conveyed to those connected with the licensor who were involved in the affairs of Wallera.

66 These errors having occurred, the question arises as to whether the matter should be returned to the trial Judge or whether it should be dealt with by this Court. In my opinion the issue can be resolved on the basis of the primary facts found at trial. Thus it is appropriate to be dealt with by this Court on appeal by way of rehearing.

67 In my opinion the circumstances fall far short of establishing consensual (or unilateral) abandonment. The nature of the rights acquired by virtue of the licence agreement and their duration make it inherently unlikely that withdrawal from the Melbourne market for a period of a few years by a licensee would unequivocally indicate an abandonment of those rights forever. It is also unlikely that acquiescence in that state of affairs by the licensor would amount to a consensual acceptance of that situation. There is, after all, nothing which the licensor could do unless it wished to pursue a claim that non-exploitation of the rights was a breach of the licence agreement. The path for doing that was by way of the express clause of the agreement dealing with breach. This conclusion is reinforced by the fact that for much of the relevant period the licensor was represented in the affairs of Wallera. A positive decision to withdraw from Melbourne forever would surely have been communicated to those representing the licensor.

68 This conclusion makes it unnecessary to consider any of the other grounds of appeal. However, I also have reservations about the use by the trial Judge of judicial notice, both as to whether it was appropriate to do so at all and, if so, whether there was any breach of the rules of natural justice in the manner it was used.

I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles.

Associate:

Dated: 10 December 2003

Counsel for the Appellants:	Mr M Colbran QC
Solicitor for the Appellants:	Dean Beveridge & Associates
Counsel for the Respondents:	Mr C Golvan SC
Solicitors for the First, Second and Third Respondents:	Jerrard & Stuk
Solicitor for the Fourth and Fifth Respondents:	Pertsoulis Lawyers
Date of Hearing:	7 August 2003
Date of Judgment:	10 December 2003