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Federal Court of Australia - Full Court |
Last Updated: 15 July 2009
FEDERAL COURT OF AUSTRALIA
Allphones Retail Pty Ltd v Hoy Mobile Pty Ltd [2009] FCAFC 85
CONTRACT – whether party who
has repudiated a contract may exercise an express power of termination conferred
by the contract
TRADE PRACTICES –
unconscionable conduct – injunction – no conduct contravening s 51AC
established with consequence that s 87 not
engaged – whether injunctive
relief limited to reversing consequences of unconscionable conduct
Trade Practices Act 1974 (Cth) ss
51AC, 87
Alghussein Establishment v Eton
College [1988] 1 WLR 587
Banque Commerciale SA en Liquidation v Akhil
Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279
Burger King Corp v Hungry Jack’s
Pty Ltd [2001] NSWCA 187
Collins v Baltern (1767) 2 Wils
347
DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR
423
Foran v Wight [1989] HCA 51; (1989) 168 CLR 385
Hoy Mobile Pty Ltd v
Allphones Retail Pty Ltd (No 2) [2008] FCA 810
Hoy Mobile Pty Ltd v
Allphones Retail Pty Ltd (No 3) [2008] FCA 967
Jinright v Russell
123 Ga. App. 766; 182 SE 2d 328 at 330 (1971)
McKay v Dick (1881) 6
App Cas 257
Morris v Baron & Co [1918] AC 1
Nina’s
Bar Bistro Ltd v MBE Corp (Sydney) Pty Ltd [1984] 3 NSWLR
613
Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (in
liq) [2003] HCA 25; (2003) 214 CLR 514
Shevill v Builders Licensing Board [1982] HCA 47; (1982)
149 CLR 620
Stirling v Maitland & Boyd [1864] EngR 752; (1864) 5 B & S 840;
122 ER 1043
Suttor v Gundowda Pty Ltd (1950) 81 CLR
Tropac
Timbers Pty Ltd v A-One Asphalt Pty Ltd [2005] QSC 378
Woodar
Investment Development Ltd v Wimpey Construction UK Ltd [1980] UKHL 11; [1980] 1 WLR 277
ALLPHONES RETAIL PTY
LTD v HOY MOBILE PTY LTD
NSD 1007 of 2008
GOLDBERG,
JACOBSON & PERRAM JJ
9 JULY 2009
SYDNEY
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IN THE FEDERAL COURT OF AUSTRALIA
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GENERAL DIVISION
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THE COURT ORDERS THAT:
1. The appeal be allowed in part.
2. The declaration made in paragraph 1 of the order made on 16 June 2008 be set aside and in lieu thereof it be declared that:
The Respondent is entitled to terminate the Agreement pursuant to clause 9.3(viii) of the Franchise Agreement and upon the grounds set out in the Respondent’s Notice of Intention to Terminate Franchise Agreement, dated 28 August 2006 and that the Agreement was so terminated on 28 August 2006.
3. The orders made in paragraphs 5, 6 and 10 of the order made on 16 June 2008 be set aside and in lieu thereof it be ordered that:
The Applicant pay the Respondent 85% of the Respondent’s costs on a party/party basis.
4. The order made in paragraph 7 of the order made on 16 June 2008 be set aside and in lieu thereof it be ordered that:
The Respondent pay the Applicant the sum of $42,919.98
5. The respondent pay the appellant 85% of the appellant’s costs of the
appeal.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal
Court Rules.
The text of entered orders can be located using eSearch on the
Court’s website.
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NEW SOUTH WALES DISTRICT REGISTRY
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GENERAL DIVISION
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NSD 1007 OF 2008
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ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF
AUSTRALIA
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BETWEEN:
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ALLPHONES RETAIL PTY LTD
Appellant |
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AND:
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HOY MOBILE PTY LTD
Respondent |
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JUDGES:
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GOLDBERG, JACOBSON & PERRAM JJ
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DATE:
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9 JULY 2009
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PLACE:
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SYDNEY
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REASONS FOR JUDGMENT
GOLDBERG AND JACOBSON JJ:
1 We have had the benefit of reading in draft the reasons for judgment of Perram J. His Honour has set out in considerable detail the background to the appeal and the six issues arising on the appeal. We adopt his Honour’s identification of those issues and agree with his Honour’s reasoning and conclusions in relation to what he describes as The Dishonesty Issue. The Repudiation Issue, The Right to Terminate Issue, The Renewal Deductions Issue and The Store Refresh Charge Issue. However we have reached a difference conclusion from his Honour in relation to The Injunction Issue.
2 In relation to The Injunction Issue, Perram J has concluded that the primary judge erred in finding and declaring that the appellant (Allphones) did not have a contractual entitlement to terminate the franchise agreement pursuant to cl 9.3(viii). We agree with Perram J’s conclusion and his Honour’s reasoning for reaching that conclusion. However we disagree with Perram J’s conclusion that the primary judge did not err in granting an injunction restraining Allphones pursuant to s 87 of the Trade Practices Act 1974 (Cth) from terminating the agreement. We consider that the primary judge did so err.
3 The primary judge found that Mr Hoy alone was responsible for the fraudulent conduct of the respondent (Hoy Mobile) and that Allphones had not caused or contributed to Hoy Mobile to be fraudulent in connection with the operation of the franchise agreement (par [418]).
4 Further, the primary judge found (pars [394] and [399]):
Allphones accepted that, while a requirement to act in good faith was implied in many contracts, it said that was not necessarily so in every contract. As Finn J observed in GEC Marconi 128 FCR at 208-209 [920] it is not yet clear in Australian law whether a duty of good faith and fair dealing is implied as term of all contracts, or is an incident of particular classes of contract. I need not decide that here because I am not persuaded that Mr Donnellan was motivated by an extraneous purpose, or that he acted capriciously or otherwise than in good faith when Allphones was contemplating the exercise of its right to terminate in early July 2006, or when he caused the notice of intention to terminate to be given in late August 2006. I find that Mr Donnellan was genuinely concerned by the discovery of the fraud in which Hoy Mobile had been engaged. He was entitled to be so concerned. ... As I have found, Mr Donnellan sought to give Hoy Mobile an opportunity to explain its conduct from 7 July 2006. He was the person within Allphones who made the decision to issue the notice of intention to terminate. I am satisfied that he honestly believed that Allphones should terminate the franchise agreement because it was not in Allphones’ interest to have a franchisee which had engaged in the fraud which Hoy Mobile had. The fraud was serious and, having seen and heard Mr Donnellan, I am satisfied he decided to terminate the franchise agreement because of the undesirability of having a relationship with Hoy Mobile as a party which had committed that fraud.5 These findings were not challenged on this appeal. It must follow, therefore, that Allphones’ contractual right to terminate the agreement could not constitute conduct which was unconscionable for the purposes of s 51AC. The circumstances which the primary judge took into account in reaching the contrary view namely, the dishonest retention of commissions by Allphones, its bullying and oppressive conduct, the dysfunctional nature of the relationship and the grave consequences to Hoy Mobile if the agreement were terminated, had no nexus or causal relationship with Allphones’ decision to terminate the agreement or the termination itself.
6 Once it is accepted that Allphones’ conduct did not cause or contribute to the fraud committed by Hoy Mobile, it must follow that s 87 of the Trade Practices Act was not engaged.
7 Section 87(1)(a) is not engaged unless a party has suffered loss or damage by conduct in which another person engaged in contravention of, relevantly, s 51AC. But if Allphones did not cause or contribute to the fraudulent conduct which gave rise to its entitlement to terminate the agreement, there could be no causal connection between the circumstances complained of under s 51AC and the termination of the agreement.
8 In our view it is sufficiently clear from Allphones’ written submissions at [37] and [38], including the subheading to that section of the submissions, that this point was argued by counsel on the appeal. In [35] of Allphones’ written submission it was submitted that the primary judge concluded that the conduct of Allphones towards Hoy Mobile was unconscionable within the meaning of s 51AC. The footnote to this sentence referred to [419]-[425] of the primary judge’s reasons. The primary judge said in [425]:
In balancing the conduct of Allphones against that of Hoy Mobile for the purposes of determining whether or not, in all the circumstances, Allphones’ intention to proceed towards the termination of the relationship is unconscionable, it is also important to appreciate that the commercial relationship with the parties is dysfunctional ...
It follows, in our view, that the reference in the subheading to [37] and
[38] of Allphones written submissions was a submission based
on the primary
judge’s finding that the decision to terminate was unconscientious. The
subheading was "Appeal Ground 4(a):
No causal link between the decision to
terminate and conduct attracting the opprobium of the Court". Our view that the
issue was
raised on the appeal is reinforced by what appears in the transcript
of the hearing of the appeal at pages 36 to 39.
9 It follows that we consider that the appeal should be allowed in part. The declaration made by the primary judge on 16 June 2008 in par [1] of his order that:
The Respondent is not entitled to terminate the Agreement pursuant to clause 9.3(viii) of the Franchise Agreement or upon the grounds set out in the Respondent’s Notice of Intention to Terminate Franchise Agreement, dated 28 August, 2006 or any of them,
should be set aside and in lieu thereof it should be declared that:
The orders made by the primary judge on 16 June 2008 in
paragraphs 5, 6 and 10 should be set aside and in lieu thereof it
should be
ordered that:
10 The appellant has succeeded on three of the six issues raised on the
appeal, namely The Right to Terminate Issue, The Injunction
Issue and the Store
Refresh Charge Issue and has failed on The Dishonesty Issue, The Repudiation
Issue and The Renewal Deductions
Issue. Having regard to the relative
significance of the issues and the time devoted to arguing the issues in the
hearing and in
the written submissions, we consider that the appropriate costs
order to make is that the respondent pay the appellant 85% of its
costs of the
appeal.
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NEW SOUTH WALES DISTRICT REGISTRY
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GENERAL DIVISION
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NSD 1007 of 2008
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ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF
AUSTRALIA
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BETWEEN:
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ALLPHONES RETAIL PTY LTD
Appellant |
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AND:
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HOY MOBILE PTY LTD
Respondent |
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JUDGES:
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GOLDBERG, JACOBSON & PERRAM JJ
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DATE:
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9 JULY 2009
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PLACE:
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SYDNEY
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REASONS FOR JUDGMENT
PERRAM J
Introduction
11 This case concerns a telephone shop in a Westfield Shopping Centre at Eastgardens in Sydney. A trial was conducted over 18 days before the primary judge who delivered a detailed judgment extending over 431 paragraphs. In this Court the proceedings excited the attention of the Australian Competition and Consumer Commission ("ACCC") who intervened to make submissions.
12 The appellant Allphones is a franchisor. It operates its franchise through shops run by franchisees. The essence of the franchise is the sale from retail premises of mobile phones which are not tied to any particular carrier. It is thus able to offer a broader range of services and products than most mobile phone stores which are typically aligned with one carrier. The respondent, Hoy Mobile, is one of Allphones’ franchisees. It conducts its Allphones franchise business from the Westfield Shopping Centre on Bunnerong Road, Eastgardens, a suburb near Botany Bay in Sydney.
13 In the proceedings before the trial judge there were numerous issues. Most, but not all, of the controversies turned on the entitlement of Allphones as franchisor to make deductions from monies due by Allphones to Hoy Mobile. For the purposes of this appeal it is only necessary to understand the nature of three of these alleged unauthorised deductions.
14 The first related to a commission received by Allphones from various carriers upon the activation of an account by a customer resulting from a sale through an Allphones store. Such a commission was known, perhaps unsurprisingly, as a mobile telephone sales commission or more simply as "MTSC". Under its franchise agreement with Hoy Mobile ("the agreement"), Allphones was obliged to pay 72.5% of any such commission received in respect of a sale from Hoy Mobile’s store to Hoy Mobile. Under that agreement MTSC was defined as "income received from the mobile telephone networks... in respect of the activation of a mobile telephone customer to the networks".
15 In May 2004 Allphones was in negotiations with Optus which resulted in that carrier agreeing to pay Allphones a bonus payment of $150 for each new post-paid phone activation in the three month period between May and July 2004. The bonus payment was called the "Optus stretch bonus". Allphones did not treat that bonus as being an MTSC and hence did not pass 72.5% of it on to Hoy Mobile. Hoy Mobile contended that it should have done so.
16 The second alleged unauthorised deduction also related to commissions paid by Optus. When the contracts of Optus’ customers expired, efforts were made by Allphones to have the customers renew them, usually by telephone canvassing. Where a customer renewed a contract, Optus would pay Allphones a bonus of $30. Allphones took the view that this was not part of the MTSC, 72.5% of which needed to be given to Hoy Mobile. The reason for this was, so Allphones argued, because it did not relate to a sale from Hoy Mobile’s store, the renewal occurring over the telephone. Upon such a renewal, however, Allphones continued to pass on to Hoy Mobile 72.5% of another commission received by it from Optus which was a commission whose quantum was a function of the extent of the customers’ use of the mobile phone service. This commission was known as a mobile telephone airtime commission or "MTAC". However, when Allphones passed on the MTAC for the Optus customers who had renewed, it deducted a $50 administration fee and a further fee of $11 for courier costs when the renewal resulted in the delivery to the renewing customer of a new handset. It is convenient to refer to these matters compendiously as the "renewal deductions". Hoy Mobile contested the right of Allphones to make the renewal deductions.
17 The third alleged unauthorised deduction arose from a decision by Allphones to change the appearance and get-up of all of its stores. From October 2006, Allphones made monthly deductions from commissions due to Hoy Mobile to cover the costs of this "refresh" programme. These deductions ultimately totalled $9,973.37. Hoy Mobile denied that Allphones had the right to compel the refresh.
18 Before turning to the primary judge’s treatment of these matters, one further matter should be noted. Although much of the case was devoted to determining whether Allphones had failed to pass on monies due to Hoy Mobile there was a part of the case where Allphones alleged fraudulent conduct against Hoy Mobile. Allphones alleged – and there is now no dispute – that Hoy Mobile had fraudulently "unlocked" mobile phones. Unlocking is a practice whereby mobile phones which were meant to be sold packaged to a particular network are disconnected and sold as mobile phones which are available to be connected to any network. The primary judge found that this fraudulent practice had netted Hoy Mobile about $32,000. The fraud eventually came to the attention of Allphones who, on 28 August 2006, purported to terminate the agreement on the basis of Hoy Mobile’s fraud. That termination was said to be justified under an express right of termination conferred by cl 9.3(viii) of the agreement, which permitted termination if Hoy Mobile was "fraudulent in connection with the operation of the franchise business".
19 It is then useful to note the primary judge’s conclusions which are relevant for the purposes of this appeal.
20 First, his Honour found that Allphones had no entitlement to deduct the Optus stretch bonus from Hoy Mobile’s entitlement to MTSC and that, further, Allphones knew that it was not so entitled. The primary judge concluded that Allphones’ dealings with the Optus stretch bonus were deceitful. Consequently, the primary judge concluded that Allphones had repudiated the agreement.
21 Secondly, as to the renewal deductions, the primary judge concluded that Allphones was not entitled to make them.
22 Thirdly, the primary judge concluded that Allphones was entitled to deduct a reasonable figure to cover the store refresh costs but that Allphones had not proven that the $9,973.37 it had deducted was, in the circumstances, reasonable. Accordingly, his Honour concluded that the deductions were not authorised.
23 Fourthly, although the primary judge concluded that Hoy Mobile had been guilty of fraud by unlocking the mobile phones, his Honour determined that Allphones’ express power to terminate because of that fraud could not be exercised by it. His Honour reached this conclusion because he decided that a party which had repudiated an agreement (as it was found that Allphones had) was not entitled to exercise an express power under the same agreement. In the primary judge’s opinion, rights could only be exercised by parties under an agreement who were ready, willing and able to perform that agreement.
24 Fifthly, the primary judge then determined that Allphones had engaged in unconscionable conduct within the meaning of s 51AC of the Trade Practices Act 1974 (Cth) ("the Act"). His Honour determined that, as a result of that conduct, it was appropriate to restrain Allphones from relying on its notice of termination. In light of the conclusion that Allphones had no entitlement to terminate the agreement it is not at once obvious why resort was had by Hoy Mobile to s 51AC. However, for reasons which will presently appear, this is no longer material.
25 In the event, the primary judge restrained Allphones from terminating the agreement and ordered it to pay Hoy Mobile the sum of $52,893.35.
Issues
26 It is then useful to turn to the issues which arose on the appeal. These were six:
(a) The Dishonesty Issue. The primary judge found that Allphones had failed to pass on to Hoy Mobile its share of the Optus stretch bonus which it knew to be owed to Hoy Mobile. His Honour expressly found that this conduct by Allphones was dishonest. Allphones submitted that such a case had neither been pleaded nor run by Hoy Mobile and was, therefore, not open to the primary judge.
(b) The Repudiation Issue. The primary judge found that Allphones had repudiated the agreement by deliberately withholding from Hoy Mobile its share of the Optus stretch bonus. Allphones submitted, and Hoy Mobile denied, that such conduct could not amount to a repudiation of the agreement.
(c) The Right to Terminate Issue. The primary judge found that although Hoy Mobile’s fraudulent conduct in unlocking mobile phones apparently permitted Allphones to exercise the express right to terminate conferred by cl 9.3(viii), that right could not be exercised when Allphones had itself repudiated the agreement. Allphones submitted that an express contractual right of termination could be exercised notwithstanding that the party upon whom the right was conferred had previously repudiated the contract.
(d) The Injunction Issue. The primary judge granted Hoy Mobile an injunction restraining Allphones from terminating the agreement pursuant to s 87 of the Act. That section authorised the granting of an injunction to prevent or reduce loss or damage caused by conduct in contravention of the Act. Hoy Mobile submitted, and the primary judge found, that Allphones had engaged in conduct which was a contravention of the Act. The conduct was said to consist of unconscionable conduct by Allphones. Section 51AC of the Act prohibits unconscionable conduct in business transactions. Allphones submitted that the primary judge erred in restraining the termination of the agreement because he had not concluded that the termination of the agreement would be unconscionable. Rather, so Allphones argued, the conduct characterised by the primary judge as unconscionable was its dishonest retention of portions of Hoy Mobile’s commissions (that is, the Optus stretch bonus) together with various acts of bullying and oppression. These, Allphones submitted, were not causally connected to the termination of the agreement and an injunction restraining that termination did nothing to reduce or prevent the loss or damage flowing from the unconscionable conduct identified. Allphones pointed to the fact that the primary judge had found that Hoy Mobile’s fraudulent practice of unlocking mobile phones was not caused, or made necessary, by Allphones’ own misconduct. There was, therefore, no connexion between any loss or damage which might be suffered as a result of Allphones’ own unconscionable conduct and the loss of the franchise consequent upon its termination. Hoy Mobile, on the other hand, submitted that the primary judge had, in fact, found that the termination of the agreement by Allphones was unconscionable conduct.
(e) The Renewal Deductions Issue. The primary judge concluded that Allphones was not entitled to make the deductions that it did from Hoy Mobile’s commission upon Optus’ customers renewing their contracts. Allphones contested the correctness of that conclusion.
(f) The Store Refresh Charge Issue. The primary judge concluded that Allphones was not entitled to deduct a charge from Hoy Mobile’s commission to fund the "refreshing" of Hoy Mobile’s store because it had not proved the sum deducted was reasonable. Allphones submitted that no such case had been run. Alternatively, it argued that there was evidence before the primary judge that the charge was reasonable.
27 It is useful to deal with these issues in turn.
First Issue – Dishonesty
28 The primary judge found at [273]:
I find that Mr Donnellan considered that Allphones could do what it wanted in accounting to its franchisees for commissions, without regard to its obligations under cll 7.3 and 7.4, as well as in negotiating commercial benefits for itself based on the franchisees’ sales with carriers. He did this because he knew that Allphones had concealed from its franchisees the true amount that it was paid by Optus. His explanations of how cll 4 and 6.4(iv) justified this conduct were specious.
29 His Honour also found at [278]:
Allphones’ instructions to Optus for the payment of this commission was a deceitful way of doing business with franchisees who were entitled, under cl 7.4, to be paid 72.5% of all commissions paid by Optus to Allphones for MTSC and MTAC. I am of opinion that Allphones’ argument that there were possible conditions is spurious. I find that there were no conditions which disentitled Hoy Mobile to be paid its share of this commission in full under cl 7.4. The experts agreed that Hoy Mobile was entitled to $16,388.63 (including GST and excluding interest) for the stretch bonuses.
30 Allphones submitted that Hoy Mobile had not pleaded a case that Allphones had acted in a dishonest or fraudulent manner; further, Hoy Mobile had not made any such allegation in its written or oral opening submissions. It pointed to an agreed statement of issues which was prepared by the parties and which lacked any reference to Allphones’ alleged dishonesty. It also pointed to occasions during the trial when counsel for Allphones, confronted with allegations of fraud against his client, repeatedly objected that such a case had not been pleaded.
31 Allphones submits that, had the allegation of dishonest or fraudulent conduct by it been pleaded, it would have run its case in a different fashion; in particular, it would have addressed in evidence the genuineness of its belief that it was entitled to withhold the Optus stretch bonus and would have addressed more carefully the possibility that payment of that bonus to Hoy Mobile was conditional upon other matters. It might also have called evidence from other directors of Allphones on the issue.
32 Hoy Mobile submitted that, properly construed, the pleadings did contain an allegation of fraud. Even if that were not so, however, it submitted that as part of Allphones’ defence to Hoy Mobile’s claims of repudiation, Allphones had expressly contended that it had acted under a bona fide belief as to the proper construction of the agreement. The primary judge was entitled to reject that defence to the repudiation claim. Thus, so viewed, it did not matter whether the fraud allegation was included in Hoy Mobile’s pleadings as Allphones had expressly made it an issue by raising the genuineness of its own beliefs in its defence.
Consideration
Did the Applicant plead fraud?
33 Paragraph K11(d) of Hoy Mobile’s amended statement of claim says:
At the time of giving the said notice the Respondent was not ready and willing to perform the Agreement in that it had been committing and was continuing with following repudiatory actions, breaches of essential terms, and breaches denying to the Applicant the substantial benefit of the Agreement.
...
(d) The Respondent has persistently failed to account for and withheld commissions as alleged in par F1 above and has persistently made unauthorised deductions from commission payments, as alleged in par F2 and F3 above.
...
34 Paragraphs F1, F2 and F3 appeared in the amended statement of claim under the heading "Skimming".
35 Paragraph F1 provides, in part, as follows:
In breach of the terms and obligations alleged in paragraphs B1, B4 to B7 and B9 to B13, the Respondent has failed to account for, and has withheld from the Applicant, part of the agreed percentage (being 72.5%) or alternatively 100% of:
(a) the MTSC commissions ..., and
(b) the MTAC commissions ... .
36 Particulars are provided to paragraph F1 which are extensive. For present purposes it is useful to note, as an example, a part of those particulars:
From September 2003 until June 2005, the Respondent received from Optus $10 more than it disclosed to the Applicant that it had received in respect of activations facilitated by the Applicant in respect of new customers and "Churn" customers ("Churn" meaning customers transferring to Optus from another carrier) purchasing plans of a cost to the customer of $33 per month or higher.
37 A number of other particulars were provided of a similar kind in relation to other carriers. Paragraphs F2 and F3 were to similar effect.
38 It was submitted those paragraphs and particulars were a sufficient pleading of fraud. I do not agree. Order 12 r 2 of the Federal Court Rules requires any pleading of fraud to be properly particularised. That rule is a manifestation of the well-known principle that an allegation of fraud should be clearly and distinctly pleaded: Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (in liq) [2003] HCA 25; (2003) 214 CLR 514 at 534 [38] per McHugh, Kirby and Callinan JJ. It reflects the confluence of two ideas. The first is the notion that a pleading serves to afford the opposing party procedural fairness by informing it of the case it is obliged to meet. The second is that the making of a fraud allegation is a serious matter to be undertaken only on proper grounds. The requirement that fraud be pleaded distinctly ensures that those who are accused of it need be in no doubt about the matter. It likewise ensures that it is not pleaded in error or by drafting infelicity. In this case, none of the constituent elements of a pleading of fraud were present. Without an allegation that Allphones was aware that it was not entitled to retain the funds the pleading is simply incapable of being characterised in that way. The highest the matter can be put is that the heading "skimming" may carry a connotation of dishonesty. However, that possibility is not sufficiently clear to constitute a pleading of fraud.
Did Allphones raise the issue?
39 At paragraphs 37 and 38 of its defence, Allphones denied paragraphs F1, F2 and F3 of the statement of claim and further contended that it had not held back any monies other than those which it was entitled to hold back. It was not self-evident from that defence that Allphones was relying upon a defence to a claim of repudiation of honest but mistaken interpretation of a contract: cf DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423 at 432. This may have been because Allphones’ basic position was that, properly construed, the agreement permitted it to make the deductions which it had from the commissions due to Hoy Mobile.
40 Even though no defence based on DTR Nominees was pleaded, it is apparent that such a defence was relied upon by Allphones at trial. So much appears from Allphones’ written submissions in closing which, inter alia, said that:
(emphasis added)... complaints now made by Hoy in relation to the payment or non payment of commissions and the deduction of administration fees of particular types are clearly not essential or fundamental and, in any event, remain the subject of debate in these proceedings.
41 One possible interpretation of that statement is assertion of a defence based on DTR Nominees. That interpretation is to be accepted in light of two other matters. First, a defence based upon DTR Nominees was expressly asserted in this Court without any suggestion that such a case had not been run at trial; secondly, consistently the primary judge resolved an argument based on DTR Nominees in the following terms:
The deliberate concealment from the franchisees, including Hoy Mobile, of the true amounts paid to Allphones as commission for those activations is evidenced in the various emails to which I have referred and the conduct described by Mr Nicholl in his evidence. That conduct places Allphones’ behaviour outside that of a party who was seeking to perform the contract according to its terms, but acting on an incorrect interpretation of it: see DTR Nominees 138 CLR at 432 per Stephen, Mason and Jacobs JJ. The intention to conceal payments from the franchisees demonstrated a consciousness on Allphones’ part that the revelation of what it was doing would be seen, correctly, by the franchisees as a fundamental departure from the conventional understanding of how their commissions were earned. Allphones was not seeking to perform the contract according to its terms, but rather was seeking to perform it as and when it pleased and in the matter it pleased.
42 It follows that Allphones directly placed in issue the genuineness of its own belief that the agreement permitted it to decline to pass on a share of the Optus stretch bonus. Having put the genuineness of its beliefs in dispute it was open to Hoy Mobile to contest, and to the primary judge to reject, that contention. His Honour’s rejection of the genuineness of Allphones’ position arose from his rejection of the evidence of the witness Mr Donnellan who was called by Allphones. That rejection is set out above at [28] of these reasons.
43 Mr Pritchard SC submitted that all that the primary judge was entitled to do in rejecting Allphones’ claim based on DTR Nominees was to find that Allphones’ claim to have acted in accordance with a genuinely held belief as to the meaning of the contract was not made out. However, such a statement would have been inappropriate because it would not adequately have exposed the primary judge’s reasons for arriving at that conclusion. Allphones claimed a defence of honest belief and the primary judge rejected it. It was incumbent on the primary judge to explain why he rejected it. In discharging his obligation to give reasons for that course he was not only entitled but bound to indicate that he did so because he believed Allphones’ retention of the commissions to have been deliberate and knowingly wrong.
44 It follows that Allphones’ submission that the learned primary judge entertained a claim which was not before him must be rejected.
Second Issue – Repudiation
45 Allphones made two submissions. First, it said that its actions were based upon a bona fide interpretation of the contract and so its conduct could not be said to evince an intention not to be bound by the agreement: cf Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] UKHL 11; [1980] 1 WLR 277; DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423 at 432.
46 The primary judge rejected this argument because he found as a fact that Allphones did not have such a genuinely held belief. This he did because he found Allphones’ witness Mr Donnellan to be an untruthful witness. Apart from contending that that course was not open to the primary judge – a contention which I have rejected – Allphones did not otherwise seek to disturb that finding. It follows that this argument must be rejected.
47 Secondly, Allphones submitted that the primary judge’s characterisation of the obligation to pay commission to Hoy Mobile as an essential term of the agreement was incorrect. It was suggested that it could not have been intended that a single act of mistaken retention of commission by Allphones would have permitted Hoy Mobile to terminate for breach.
48 It is true that the primary judge did use the language of essentiality at [384]. However, a complete reading of his findings at [373]-[389] reveals that the primary judge’s reasoning was that Allphones’ deliberate and deceitful withholding of Hoy Mobile’s share of the Optus stretch bonus over the life of the contract represented an evincing of an:
... intention not to take seriously its obligations to pay MTSC in accordance with cll 7.3 and 7.4 the franchise agreement. Its conduct was that of a person who evinced an intention that he was prepared to carry out his part of the contract if and only when it suited him and, in the way that it suited him. [379]
49 It is true that a right to terminate arises upon breach of a fundamental or essential term of a contract. However, a right to terminate can also arise where a party evinces an intention no longer to be bound by the terms of a contract. Where the conduct said to constitute that kind of repudiation first manifests itself as a breach of a term of a contract there is, however, no need that that term be an essential term. As the facts in Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620 show, a failure by a lessee to pay rent in a timely fashion is ordinarily not in breach of an essential term. But there could be no doubt, I think, that a failure to pay rent accompanied by an indication by a lessee that it was never going to pay rent again would be a repudiation notwithstanding the non-essentiality of the provision actually breached. So viewed, the primary judge’s conclusions are properly to be seen as being about repudiation. I see, therefore, no reason to interfere with his Honour’s conclusion that Allphones did, indeed, repudiate the agreement.
Third Issue – Allphones’ Entitlement to Terminate
50 Clause 9.3(viii) provides:
The Franchisor may terminate this Agreement immediately and without notice to Hoy Mobile upon occurrence of any of the following:
...
(viii) [the Frnachisee] is fraudulent in connection with the operation of the Franchised Business.
51 There was no issue but that Hoy Mobile had committed fraud which activated Allphones’ entitlement to terminate under this clause. The primary judge, however, concluded that Allphones’ own fraudulent conduct constituted a repudiation of the agreement and that that repudiatory conduct disentitled Allphones from exercising the power of termination in cl 9.3(viii):
52 The primary judge began his analysis by considering the position at common law. His Honour concluded that a party who was not ready, willing and able to perform a contract was not entitled to treat himself as discharged from its performance by reason of the other party being in breach of an essential term. He then reasoned that a similar principle should apply in the case of an express contractual right of termination. The reasons for this were twofold. First, at [375] of the primary judgment his Honour identified, by reference to the judgment of Wilmot CJ in Collins v Baltern (1767) 2 Wils 347 at 351, a principle running through the common law which saw "fault as an appropriate basis for the court exercising its power to grant or withhold relief". Secondly, his Honour thought that the reasons of Mason CJ in Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 at 408 were apposite. The primary judge had previously set out the following part from the reasons of Mason CJ:
Accordingly, in relation to termination for actual breach, the principle is that established by the earlier decisions - the plaintiff is required to show that he was ready and willing to perform the contract if it had not been repudiated by the plaintiff. In other words, the requirement is that the plaintiff be ready and willing to perform except to the extent that the defendant dispensed with his performance. In the case of an anticipatory renunciation accepted by the plaintiff, the requirement of readiness and willingness extends only up to the time of acceptance because then the earlier repudiation results in an early termination of the contract. Accordingly, in the case of actual breach the requirement of readiness and willingness is more stringent; it continues through to the time for performance. That is because the termination of the contract does not antedate the time for performance.53 In this Court Allphones took issue with the primary judge’s conclusions about the common law position. More fundamentally, it submitted that the common law position was irrelevant where it relied upon an express entitlement to terminate pursuant to cl 9.3(viii). Hoy Mobile supported the primary judge’s conclusions about the position at common law. Further, it relied upon a statement by Finlay LC in Morris v Baron & Co [1918] AC 1 at 9 which was in these terms:
A party to a contract which imposes certain obligations and confers certain rights upon him cannot claim to exercise these rights while repudiating his obligations in material particulars.
54 It is not apparent to me that this decision was made available to the primary judge.
Consideration
55 I do not think it is necessary to reach a view on whether a party who has repudiated an agreement may take advantage of a breach by the other party of an essential term and, thereupon, terminate the agreement. This is because the outcome of that question has no impact on the position of express powers of termination. It is, I think, plain that the parties could by their compact expressly provide that powers given to them under it could be exercised even where the party seeking to do so had repudiated the agreement. None of the familiar doctrines which can strike at the validity of contractual terms would invalidate such a provision. It does not, for example, find itself keeping company with the many bargains which the common law will not countenance such as those which operate in restraint of trade or those which have the effect of undermining the criminal law.
56 It follows that the suggested principle is one which, if it exists, conforms itself to the agreement at which the parties have arrived. This in turn means that it is either a presumption about how the parties’ bargain is to be interpreted or it takes the form of an implied term. As to the former, it is difficult to ascertain why the parties should be presumed to have intended one answer to this question rather than another. The very many circumstances in which the issue may arise caution against a simplistic approach to the parties’ intention. Should it be presumed, for example, that where both parties have repudiated the agreement neither should be able to escape it notwithstanding the express bargain between them that either could? Particularly where, as here, the right of termination is expressly conferred in the case of fraud, it is difficult to identify the redeeming features of an approach to interpretation that locks the victim of a fraud into an inescapable bargain with its perpetrator as a result of an act of repudiation which may be trivial by comparison.
57 For similar reasons I do not think that a term having a similar effect could be implied. No doubt there are implied terms which require the parties to a contract to do everything that is necessary on each of their parts to ensure the smooth operation of the contract. The decisions of Cockburn CJ in Stirling v Maitland & Boyd [1864] EngR 752; (1864) 5 B & S 840 at 852; [1864] EngR 752; 122 ER 1043 at 1047 and Lord Blackburn in McKay v Dick (1881) 6 App Cas 257 at 263 show as much. But for reasons I have just given, I do not think that the implication of such a term is plausible. To the contrary, an implied term which perpetually confines the parties to a contract which neither wish for and both have repudiated seems to me to have little to commend it.
58 That conclusion is, however, inconsistent with the passage from Morris v Baron which I have set out above. That case is better known as an authority dealing with the distinction between a variation of a contract and its rescission by the making of a new agreement, a distinction which is, at times, of critical significance. However, no issue arose in Morris v Baron as to the ability of a party who has repudiated an agreement to exercise an express power under it. Lord Findlay’s statement is, therefore, an obiter dictum.
59 So far as I can see, apart from this case the suggested principle has been applied only once. In Tropac Timbers Pty Ltd v A-One Asphalt Pty Ltd [2005] QSC 378 Muir J held that a party to a contract for the sale of land who had repudiated it could not exercise an express power of termination. Having set out a number of passages from Foran v Wight (which do not appear to me to deal with the position of express powers of termination) his Honour said (at [21]):
As a general principle, where a contract is terminated in reliance on such a contractual right, the parties’ rights are primarily defined by the contract and not by the general law. But the provisions of clause 13.1 do not abrogate or circumvent the principle that a party guilty of repudiatory conduct cannot rescind for the other party’s breach. No such exception to the application of the principle may be gleaned from any of the cases. In this case, the fact that the applicant’s conduct was repudiatory (if that be established on trial) relieved the respondent from any obligation to tender the purchase price. (emphasis added)60 Muir J did not identify the nature of the principle he was discussing. For reasons I have already given I do not agree with his Honour’s conclusion.
61 There have been some limited academic treatments of the principle.
62 The first of these is Professor Carter’s work Breach of Contract (2nd ed LBC 1991) where the learned author says (at p. 255, para 775):
Thus, although a repudiation does not itself terminate the performance of the contract, the promisor, whether or not liable to pay damages, may be unable to rely upon a promisee’s failure to perform as a breach of contract.
63 The author went on to set out the passage from Morris v Baron to which I have referred. Appended to that quote is footnote 283 which is in the following terms (excluding the reference to Morris v Baron):
See also Jinright v Russell, 123 Ga. App. 766; 182 SE 2d 328 at 330 (1971); Nina’s Bar Bistro Pty Ltd v MBE Corp (Sydney) Pty Ltd [1984] 3 NSWLR 613 at 632-633; Alghussein Establishment v Eton College [1988] 1 WLR 587. Cf. Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 at 406-407.
64 Jinright v Russell was a decision of the Court of Appeal of Georgia. It was a summary judgment action. The plaintiff sold a liquor establishment to the defendant. The transfer could not occur without the purchasers applying for a transfer of the relevant liquor licence. Whitman J delivered the opinion of the Court. At 330 he said:
A party may not repudiate a contract and at the same time seek the advantage of a stipulation in the very contract he has repudiated.
65 There was no issue in the case, however, to which this statement appears to be attached. Indeed, there were only two issues. One was a Statute of Frauds question; the other, whether the fact that the sale was conditional on the liquor licence being transferred rendered the agreement one which lacked mutuality. In that circumstance, the statement appears neither considered nor related to the issues in the case. Certainly, no authority was cited for it. In light of that, it seems to me that the statement is of little value.
66 The second case referred to by Professor Carter is Nina’s Bar Bistro Ltd v MBE Corp (Sydney) Pty Ltd [1984] 3 NSWLR 613 at 632-633. The passage in question is from the dissenting opinion of Priestley JA. There are two interesting aspects to that passage which deserve comment. First, Priestley JA referred to what Finlay LC had said in Morris v Baron and then went on to say:
However, what was said by Lord Finlay does not appear to have been part of the ratio decidendi of the case nor frequently relied on in England or Australia for the purpose I am now considering until mentioned in this connection in Carter, Breach of Contract, Sydney (1984) at 261.
67 Secondly, Priestley JA went on to confine Morris v Baron to situations where the repudiating party had led the innocent party to believe that it, the repudiating party, was treating the contract as being at an end, thereby generating an estoppel by conduct. So understood, the (dissenting) reasons of Priestley JA stand not for the principle expounded by Finlay LC but rather for a particular application of the principles of estoppel.
68 The third case referred to in the footnote, Alghussein Establishment v Eton College [1988] 1 WLR 587, is a case where the House of Lords applied the principle of construction which prevents a party from taking advantage of its own wrong. The sole issue before the House was the proper construction of the lease in question. So far as I can see, it is no authority for the proposition for which it is cited.
69 Finally, the footnote suggests comparison with the passage from Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 at 406-407. Those passages are not, however, concerned with express powers of termination.
70 So viewed, the cases cited by Professor Carter, apart from Morris v Baron, appear to provide little support for the proposition for which they are cited.
71 Professor Carter is, however, not alone. The learned authors of Cheshire and Fifoot’s Law of Contracts (8th Australian edition) say this at p. 943:
A party who is unwilling or unable to perform the contract is not entitled to terminate a contract for breach by the other party.
72 This is a statement about the common law right to terminate. However, at the end of a footnote containing authorities for that proposition, the learned authors go on to say:
The principle evidently applies (unless otherwise agreed, no doubt) to a contractual right to terminate: Burger King Corp v Hungry Jack’s Pty Ltd [2001] NSWCA 187.
73 No such issue arose in Burger King and I can detect in it no statement to the effect for which it has been cited. In those circumstances, I do not think that the principle is strongly supported in academic literature. It might be noted that no trace of it is to be found in Corbin on Contracts, Williston on Contracts or the English edition of Cheshire & Fifoot.
74 In this case the primary judge identified two bases for his conclusions. The first was the principle that where a party has brought about the happening of an event which makes performance of a contract impossible then that party should not be able to avoid the contract: Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 at 441 per Latham CJ, and Williams and Fullagar JJ. This orthodox principle was, with respect to the primary judge, not capable of sustaining the suggested conclusion. Here, the event which activated the power of termination under clause 9.3(viii) was Hoy Mobile’s fraudulent unlocking of the mobile phones. For the principle invoked by the primary judge to be applicable it would have been necessary for his Honour to have concluded that that fraud had been brought about by, or was causally connected with, the actions of Allphones. Of course, it is not difficult to imagine a scenario in which just such a finding might have been made – the difficulty in the present case is that the primary judge made a finding to the opposite effect. His Honour summarised his conclusion this way:
Thus, here, equity would consider whether Allphones had caused Hoy Mobile to be fraudulent in connection with the operation of the franchise agreement (cl 9.3(viii). On the facts, I have found Mr Hoy alone was responsible for that fraudulent conduct of Hoy Mobile. So, equity would not find a nexus between Allphones’ entitlement to terminate and the fraud in which Hoy Mobile had engaged.75 Once that position was reached, the principle invoked by the primary judge appears to me to have had no application.
76 The second matter relied upon by the primary judge was the statement of Mason CJ in Foran v Wight which I have set out above. However, as I have endeavoured to show, that statement was not directed at express contractual provisions. In those circumstances, I do not regard the principle as one whose existence should be accepted. The primary judge erred, therefore, in concluding that Allphones did not have an entitlement to terminate the agreement under cl 9.3(viii).
Fourth Issue – Grant of Injunctive Relief
77 The learned primary judge concluded that it was appropriate to restrain Allphones from acting on its notice of termination by means of an injunction granted pursuant to s 87 of the Act. Since his Honour had concluded that Allphones had no entitlement to terminate the contract at all it may perhaps be doubted whether it was necessary to look to s 87 for the basis of the injunction. However, this appears to have been how the trial was conducted and no different course was urged upon this Court. In any event, the question of the appropriateness of the statutory injunction does arise in this Court because, unlike the primary judge, I have concluded that Allphones was contractually entitled to terminate.
78 His Honour granted the injunction under s 87 because he concluded that Allphones had engaged in unconscionable conduct contrary to s 51AC of the Act. By reason of the terms of s 87 the power to grant such an injunction was, in this case, conditional upon the primary judge being satisfied not only that Allphones had contravened the Act but also that the grant of such an injunction would "prevent or reduce the loss or damage" which might otherwise be suffered by Hoy Mobile as a result of the contravention.
79 Allphones advanced two independent submissions. First, it submitted that the primary judge had identified as its unconscionable conduct its dishonest retention of a portion of the MTSC commission due to Hoy Mobile. The loss and damage caused by that misconduct was a loss of money. Yet, so Allphones noted, the primary judge had granted an injunction restraining it from terminating the agreement. That injunction had no impact on the loss and damage said to flow from the dishonest retention of the commission. Certainly, such an injunction could not be said, in the language of s 87 of the Act, to "prevent or reduce the loss or damage" which might otherwise be suffered by Hoy Mobile as a result of the retention of the commission.
80 Section 51AC(1) provides:
(1) A corporation must not, in trade or commerce, in connection with:(a) the supply or possible supply of goods or services to a person (other than a listed public company); or
(b) the acquisition or possible acquisition of goods or services from a person (other than a listed public company);
engage in conduct that is, in all the circumstances, unconscionable.
81 What the section requires is the identification of conduct with a particular quality. The existence of that quality is to be assessed by an examination of "all of the circumstances". The provision does not call for a determination of whether the circumstances themselves deserve the appellation unconscionable. Indeed, the circumstances are not limited to the conduct of the party whose actions are impugned, or, indeed, even to the conduct of any party. The "circumstances" might, in an appropriate case, include events external to the parties.
82 The primary judge correctly recognised this at [419]:
But, s 51AC authorises the Court to look more broadly at the whole of the relationship and to assess the corporation’s conduct in that broader context. That context includes the breaches of the franchise agreement which I have found Allphones to have committed as the basis of my finding that it was not entitled to terminate the franchise agreement because it was itself in breach of an essential term or evincing an intention not to be bound. In addition, Allphones engaged in other conduct which is relevant under ss 51AC(1) and (2). (emphasis added)83 The emphasised text is a reference to Allphones’ dishonest retention of Hoy Mobile’s commission. The last sentence makes clear that the dishonest retention was not the entirety of the circumstances with which his Honour was concerned. The primary judge also took into account Hoy Mobile’s dishonesty as [423] clearly shows:
However, as subss 51AC(3)(k) and 4(k) make clear, the propriety of the conduct of both parties may be relevant. Hoy Mobile also exhibited a lack of good faith in conducting its fraudulent activities of unlocking and selling phones for undisclosed profits. Unlocked phones would not usually be connected to a plan on which MTSC or MTAC or other commissions for sale of air time would be payable. It is relevant that Hoy Mobile engaged in equally dishonest conduct to that which Allphones did.84 Having surveyed the circumstances, the primary judge then assessed, as he was bound to, the quality of the impugned conduct. That conduct was the intention to terminate the agreement. So much is plain from [425]:
In balancing the conduct of Allphones against that of Hoy Mobile for the purposes of determining whether or not, in all the circumstances, Allphones intention to proceed towards a termination of the relationship in unconscionable, it is also important to appreciate that the commercial relationship of the parties is dysfunctional. Each has committed substantial financial irregularities towards the other. While Hoy Mobile’s irregularities were categorised by the use of the epithet ‘fraud’, the behaviour of Allphones in relation to its non-payment and disguising of withheld commissions was equally dishonest. (emphasis added)85 And at [427] his Honour said:
Allphones was not willing to carry out the franchise agreement honestly or in good faith according to its terms. Both parties have been in default of their obligations, both contractual and moral, towards one another in the conduct of the relationship. I have had regard to all of the circumstances, including Allphones’ conduct leading up to the notice of intention to terminate, and the consequences on Hoy Mobile of a termination. I am of the opinion that it would be unconscientious for Allphones to insist upon its strict legal rights to force an immediate termination in all the circumstances where the performance of its own obligations under the franchise agreement has been lamentably and dishonestly short of the standards that it ought to have followed. It engaged in unjustified bullying and oppressive conduct: cf Simply No-Knead 104 FCR at 210 [51]. (emphasis added)86 It is, I think, impossible to read this other than as a finding that the decision to terminate pursuant to cl 9.3(viii) was unconscionable. The primary judge’s conclusion was not that the misappropriation of the commissions was unconscionable. Rather it was that termination of the agreement in light of all the circumstances would be unconscionable. Those circumstances were the dishonest retention of commission by Allphones, the dishonest unlocking of phones by Hoy Mobile, the bullying and oppressive conduct by Allphones, the dysfunctional nature of the relationship and the grave consequences to Hoy Mobile if the agreement were terminated. Once that is accepted, as I think it must be, it is plain that the injunction had the effect of preventing the loss and damage to Hoy Mobile caused by that conduct, that is, caused by the termination of the agreement.
87 In my opinion, Allphones put its case on this topic squarely on the basis that the unconscionable conduct identified by the primary judge consisted of the wrongful retention of commission. I do not think that in this Court Allphones advanced an alternative argument that the primary judge’s conclusion that the termination was unconscionable should itself be set aside nor do I think that such an argument is encompassed in the notice of appeal. That being the case, there is no occasion for me to consider either the principles governing an appeal from such an evaluatative determination or whether the circumstances of these parties did render Allphones’ behaviour unconscionable. I would not, however, wish necessarily to be seen as endorsing an approach to that question which downplays the fact that the termination of the agreement was not causally connected to the oppressive behaviour of Allphones. There may be much to be said for the idea that the circumstances referred to in s 51AC(1) include notions of causation. So viewed, it may be necessary to ask what the logical connexion is between any particular circumstances identified for the purposes of s 51AC(1) and the conclusion that the impugned conduct is unconscionable. Unless such an approach is taken there is a real risk that the conclusion that conduct is unconscionable "in all the circumstances" ceases to be a statement that a norm required by the Act has been breached and becomes instead a remedial conclusion thought to be appropriate by reason of the particular constellation of circumstances. However, there having been no direct attack on the primary judge’s conclusion that the conduct was unconscionable, it is not appropriate that I take the matter any further.
88 Allphones’ second submission was that the primary judge should have refused relief under s 87 because of Hoy Mobile’s disentitling conduct. It submits that it was Hoy Mobile’s act in fraudulently unlocking the phones which has brought the parties to their present situation and that the primary judge gave insufficient weight to this factor.
89 Hoy Mobile, on the other hand, submits that its fraudulent conduct was taken into account by the primary judge in assessing the question of whether Allphones’ conduct was unconscionable. It says that the primary judge undertook an evaluative process and that Allphones’ complaint that his Honour did not give sufficient weight to a factor does not, by itself, constitute grounds for appellate interference.
90 There are conceptual difficulties with both parties’ submissions. The primary judge’s process of reasoning focussed principally upon whether Allphones’ conduct in issuing the notice of termination was unconscionable. His Honour undertook a detailed analysis of both parties’ conduct. It is plain, however, that that survey took place in the context of his assessing whether Allphones had engaged in unconscionable conduct. This much is plain from [423] which I have set out above.
91 That passage cannot, I think, be read as a consideration by his Honour of whether, a breach of s 51AC having been established, it was appropriate to grant relief under s 87. Indeed, his Honour’s only treatment of s 87 is at [428]:
I am of opinion that Allphones should be restrained under s 87 of the Trade Practices Act from relying on the fraud of Hoy Mobile to effect a termination of the franchise agreement.92 It is, therefore, difficult to accept a submission that his Honour gave insufficient weight to the fraud of Hoy Mobile in exercising the discretion under s 87 when his Honour appears not to have considered the relevance of that issue under s 87 in any substantive way. The matter is made more difficult by Hoy Mobile’s seeming acceptance in its submissions in this Court that the primary judge did take the fraud of Hoy Mobile into account in considering whether to grant relief under s 87.
93 On the other hand, there is no doubt that Allphones did run a case at trial that even if a breach of s 51AC were otherwise made out then relief should nevertheless be refused under s 87 because of Hoy Mobile’s fraud. The procedural situation then is:
(a) Allphones ran a case at trial that relief should be refused under s 87 because of Hoy Mobile’s fraud;
(b) the primary judge did not deal with that argument;
(c) on appeal Allphones ran an argument that insufficient weight was given by the primary judge to the fraud of Hoy Mobile in deciding whether to grant relief under s 87; and
(d) on appeal Hoy Mobile appeared to accept that his Honour had dealt with that argument but that "insufficient weight" was not a proper ground for appellate interference.
94 The solution to this procedural imbroglio is that it is likely that the primary judge, having concluded that Hoy Mobile’s fraud did not prevent Allphones’ termination from being unconscionable, simply assumed that that question should be approached the same way when the question of relief under s 87 came to be addressed. That approach is consistent with the parties’ assumption that the primary judge took the matter into account.
95 On that view of things, the questions were basically the same; having resolved one, his Honour must have resolved the other.
96 That observation directs attention to the need to ensure that the misconduct of Hoy Mobile is not taken into account twice. Here, the primary judge took the misconduct into account in assessing whether Allphones behaviour was unconscionable. Having concluded that Allphones’ behaviour was unconscionable there would be, I think, conceptual difficulties in refusing relief under s 87 on a ground which had already been taken into account under s 51AC. I would not wish to be seen as saying that this is never permissible, however, ordinarily disentitling conduct will take its toll at the level of s 51AC rather than under s 87 of the Act.
Fifth Issue: The Retention Programme
97 Reference has already been made to the two different commissions MTAC and MTSC. An issue arose between the parties as to whether those commissions were due when a customer’s contract was renewed. The contention that they were not was grounded in the text of cl 7.4 of the agreement, which Allphones suggested meant that the commissions were payable only insofar as the sale took place at Hoy Mobile’s store.
98 Renewals typically took place as a result of customers agreeing with their carriers to do so. That event could not be described as a sale taking place at the store. The relevant part of cl 7.4 was as follows:
(i) All moneys received by the Franchisee [sic] in relation to mobile telephone sales commission ("MTSC") and mobile telephone airtime commission ("MTAC") shall be promptly deposited into such bank account of [Allphones] from time to time ...
(ii) [Allphones] shall on the 15th day of each calender month, or if this shall not be a business day then the business day thereafter transfer to [Hoy Mobile] by way of cheque or electronic funds transfer to such bank account as [Hoy Mobile] may notify [Allphones] in writing from time to time moneys equivalent to [72.5%] ... of the MTSC and the MTAC from the total moneys received by [Allphones] pursuant to clause 7.4(i), and [Hoy Mobile] shall bear all costs and bank charges relating to such transfers. (emphasis added)
99 It will be seen that this clause makes no specific reference to when the MTAC or MTSC would be due. The definitions of MTAC, and MTSC were couched in broad terms. MTAC was defined thus:
... as the income received from the mobile telephone networks ... relating to the proportion of call revenue received by the networks that is payable to [Allphones] in accordance with its agreements with the networks.100 MTSC was defined:
as income received from the mobile telephone networks ... in respect of the activation of a mobile telephone customer to the networks.101 Pausing there, the language of both definitions was broad. It might be noted that MTSC was not defined to be a commission paid for income earnt on activation but rather "in respect of" activation. MTAC did not seem to be limited by any notion of activation.
102 If matters rested there it might be thought that Allphones’ argument that MTSC and MTAC were only due on sales which took place at Hoy Mobile’s store was a difficult one. However, before the primary judge evidence was given on Allphones’ behalf by Mr Donnellan about the operation of cl 7.4. This evidence was necessary in a sense because the plain wording of cl 7.4(i) might suggest that MTSC and MTAC were receivable by Hoy Mobile directly from the carriers rather than through Allphones. Mr Donnellan, however, gave evidence that this was never how the contract operated and that the commissions were received by Allphones and then on-paid to Hoy Mobile. The critical part of the primary judge’s reasoning is at [55] and in these terms:
While cl 7.4(i) referred to monies ‘received by the Franchisee’ (here, Hoy Mobile) in relation to MTSC and MTAC, it was common ground that the carriers had always paid Allphones those commissions. I accept Mr Donnellan’s evidence that the money which Allphones received from the carriers in respect of those commissions was dealt with as if Allphones had received it from the franchisee in accordance with cl 7.4. He said, in effect, that if a telephone service had been activated through a sale made at an Allphones store, such as that of Hoy Mobile, Allphones was bound to pay the MTSC and MTAC it received from the carrier in respect of that activation to the relevant franchisee. He said that Allphones was obliged to account to the franchisee of that commission, in accordance with the terms of cl 7.4. This understanding expressed by Mr Donnellan reflects the way in which cl 7.4 should be construed in order to give it the commercial effect the parties must have intended. They both knew that MTSC and MTAC were significant rewards for the sales efforts of franchisees and that the franchisees were intended to receive the shares of commission for MTSC and MTAC provided in cl 7.4 however the carriers might pay those sums. No other provisions in the franchise agreement would have enabled a franchisee to benefit from MTSC and MTAC which was paid to Allphones directly by the carriers in respect of sales effected by the franchisee which generated such commission.(emphasis added)
103 It will be seen from the emphasised portion that Mr Donnellan had said that MTSC and MTAC were payable "if a telephone service had been activated through a sale made at an Allphones store". Allphones seizes upon the statement made by the primary judge a few lines later to the effect that Mr Donnellan’s understanding reflected the way cl 7.4 should be construed. Thus, so Allphones argued, MTAC and MTSC were only due when a sale was made at Hoy Mobile’s store, and this meant that no commission was due on renewals which, ex hypothesi, did not occur at a store.
104 This argument should be rejected. To begin with, the primary judge’s statement about Mr Donnellan’s evidence reflecting the way cl 7.4 should be construed has to be seen in context. That context was the confusion which arose from the fact that cl 7.4(i) mistakenly suggested that the carriers paid Hoy Mobile the commissions when, as Mr Donnellan accepted, that was not what happened at all. The primary judge was not considering the question of whether the commissions were due on renewals.
105 Secondly, the language used by Mr Donnellan was, in any event, linked back to the words "in respect of" and "relating to" in the definition of MTSC and MTAC (as the emphasised portion shows). Those words are easily broad enough to pick up renewals.
106 Thirdly, that view of the primary judge’s reasoning is reflected in the declaration which his Honour ultimately made which was in these terms:
It is the obligation of the Respondent to account for and pay to the Applicant the said percentage of the MTSC and MTAC commissions, whenever received by the Respondent (whether during or after the term of the Agreement), in respect of activations facilitated during the term of the Agreement and that the Applicant’s entitlement thereto is an accrued entitlement which continues after the expiry or determination of the term of the Agreement.107 This singularly lacks any reference to the commissions being due only on sales from Hoy Mobile’s store. I would, in those circumstances, reject Allphones’ argument. So viewed, it is plain that the primary judge’s approach to cl 7.4(i) meant that MTAC and MTSC were payable on any renewals. This is because any such renewal was "with respect" to the original activation (in the case of MTSC) or "relating to" the charges received by Allphones (in the case of MTAC).
108 It is, therefore, unnecessary to consider Allphones’ further complaint that the primary judge erred in concluding that the payment by Allphones of MTSC and MTAC in the case of renewals constituted an admission on Allphones’ part that they were covered by cl 7.4. However I do not, in any event, think this is an accurate statement of the primary judge’s reasoning. That reasoning is at [306] in these terms:
Allphones admitted in its defence that it was required to pay Hoy Mobile 72.5% of the MTSC and MTAC received by Allphones ‘... as a result of the operation of [Hoy Mobile’s] business’. The retention program was designed to identify commercial opportunities to earn further MTSC and MTAC from existing customers whose then current contracts with the carriers had come about directly as a result of the operation of Hoy Mobile’s business. The decision by Allphones to pay to Hoy Mobile all MTAC, together with part of the MTSC due to it under cl 7.4, resulting from the re-signing of retained customers was a recognition that use of the ‘system’ referred to in cll 4 and 6.45 of the franchise agreement had brought about both the original and the new ‘retention’ contracts with those customers.109 The admission is not, as Allphones submits, an admission about the operation of cl 7.4. Rather, it is an admission about a factual state of affairs. I would dismiss this ground.
Sixth Issue – The Store Refresh Charge
110 In mid 2006 Allphones indicated to its franchisees that it was proposing to require them to embark upon a "store refresh" which involved a renovation and refit of each franchisee’s premises. The refresh was to be arranged by Allphones. It required each franchisee to pay it $9,900 for the refresh which could be paid upfront or, if not so paid, would be paid by deductions from the franchisee’s commissions. An invoice was sent to the franchisees indicating the manner in which the $9,900 was calculated. This was an invoice from Allphones rather than from any firm carrying out the refresh works themselves. In its correspondence with the franchisees, Allphones suggested that it was entitled to embark upon the store refresh programme on the basis of cll 4, 6.23 and 6.35 of the agreement. Hoy Mobile did not pay the amount upfront. Accordingly, as Allphones had said it would, it deducted $9,973.34 from commissions due to Hoy Mobile by way of monthly deductions. It was common ground that the refresh works were never carried out at Hoy Mobile’s store.
111 The primary judge upheld Allphones’ entitlement under cll 4, 6.23 and 6.35 to impose the refresh charge. However, his Honour concluded that Allphones’ entitlement was only to deduct the reasonable costs of the refresh process. His Honour concluded that there was no evidence that the sum claimed by Allphones was reasonable and so he found that it had no entitlement to deduct the sums it had from Hoy Mobile’s commissions.
112 In this Court Allphones made two submissions. First, it contended that the reasonableness of the charge had not been in issue at trial. Secondly, it argued that the primary judge’s conclusion that there was no evidence about the reasonableness of the charges was wrong. There was in evidence Allphones’ own invoice for $9,900 which was, so Allphones submitted, some evidence of the reasonableness of the charges.
113 I would accept the first argument. At para F2 of the amended statement of claim Hoy Mobile alleged the wrongful deduction of $1,000 per month from its commissions for the store refresh. At para 38 of its defence Allphones denied this allegation on the basis, inter alia, of cll 4, 6.23 and 6.35. Hoy Mobile filed a reply but did not deal with this issue therein. Paragraph 2, however, generally joined issue on the defence. At the level of pleading, therefore, there was an issue between the parties about Allphones’ entitlement to levy the refresh charge under cll 4, 6.23 and 6.35. Like the primary judge, I think that Allphones’ entitlement only arose if the charges were reasonable. It follows, at least at the level of pleading, that the reasonableness of the charge was in issue.
114 At the trial the gravemen of Hoy Mobile’s complaint was that the refresh works had never been carried out so that the charges could not be reasonable. Allphones claimed that the refresh had not been carried out because Hoy Mobile would not permit access to the premises. I do not discern in Hoy Mobile’s submission to the primary judge any submission that the actual costs levied were themselves unreasonable except to the extent that they related to works which had not been done. Consistently, the parties agreed a statement of issues. Items 3(c) and (d) of that statement posed as issues whether Allphones breached the agreement by:
(c) withholding commission due to the applicant;(d) levying unauthorised fees and charges as debits against the applicant’s commission payments.
115 It is theoretically possible that these issues encompassed the reasonableness of the charges but, in light of Hoy Mobile’s submission that the works had not been carried out, this is not a natural reading of the issues reserved. Accordingly, whilst the reasonableness of the charges was open on the pleadings, it seems to me that the manner in which the case was run removed it as an issue. The parties may, of course, conduct the case in a way which departs from the pleadings: Banque Commerciale SA en Liquidation v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279 at 287 per Mason CJ and Gaudron J, 228 per Brennan J, 298 per Dawson J and 303 per Toohey J. This is what occurred here.
116 Allphones did not lead evidence about the reasonableness of the charges although its invoice to the franchisees was in evidence. This is consistent with an understanding by it that the reasonableness of the charge was not an issue. I accept that it would have been possible for Allphones to have conducted its case differently if it had known that this was an issue. The evidence suggested that the refresh program was a substantive matter and, no doubt, those responsible for its design and costing could have been called to justify the suggested charge. In those circumstances, it was, I think, not open to the primary judge to embrace this argument.
117 That being so, I do not need to deal with the second issue, namely, whether the invoice was evidence of the reasonableness of the charges. It may, however, be doubted whether it was.
Disposition
118 The appeal should be allowed in part on the limited basis relating to the store refresh charge. Order 7 of the primary judge’s orders of 16 June 2008 should be set aside, and in lieu thereof there shall be an order that Allphones pay Hoy Mobile an amount of $42,919.98 in damages, to reflect the removal of the store refresh deduction of $9,973.37 from the amount awarded to Hoy Mobile by the primary judge.
119 This victory by Allphones is, in my opinion, of a minor nature and Hoy
Mobile has substantively succeeded on the appeal. Allphones
should, therefore,
pay Hoy Mobile’s costs of the appeal. There is no reason to interfere
with the primary judge’s conclusion
on costs.
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I certify that the preceding one hundred and nine (109) numbered paragraphs
are a true copy of the Reasons for Judgment herein of
the Honourable Justice
Perram.
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Associate:
Dated: 9 July 2009
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Solicitor for the Appellant:
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DLA Philips Fox
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Counsel for the Respondent:
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D A Smallbone
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Solicitor for the Respondent:
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Birch Partners
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Counsel for the Intervener:
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S T White S.C. with J C Giles
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Solicitor for the Intervener:
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Corrs Chambers Westgarth
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URL: http://www.austlii.edu.au/au/cases/cth/FCAFC/2009/85.html