FEDERAL COURT OF AUSTRALIA

Kiraig Pty Ltd (Trustee) v Rent the Roo Pty Ltd [2018] FCA 1904

Appeal from:

Kiraig Pty Ltd as Trustee for Jovette Trust v Rent the Roo Pty Ltd [2017] FCCA 1493

File number:

NSD 1222 of 2017

Judge:

MARKOVIC J

Date of judgment:

30 November 2018

Catchwords:

CONTRACTS – appeal from orders made by the Federal Circuit Court – where the primary judge found certain contractual clauses were void for uncertainty – where the respondent conceded that the appellant was never heard on this issue where the respondent’s notice of contention propounded that the primary judgment should be affirmed on other grounds – whether the primary judge erred in failing to find that the respondent breached certain contractual clauses – whether the appellant was entitled to damages plus interest – appeal allowed.

Legislation:

Federal Circuit Court of Australia Act 1999 (Cth) s 76

Federal Court of Australia Act 1976 (Cth) s 24(1)(d)

Cases cited:

Banque Commerciale SA v Akhil Holdings Ltd (1990) 169 CLR 279

RailPro Services Pty Ltd v Flavel (2015) 242 FCR 424

SLMB v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCAFC 129

SDAEA v Arora; SDAEA v Arora Markets Pty Ltd [2018] FCCA 85

Date of hearing:

27 March 2018

Registry:

New South Wales

Division:

General Division

National Practice Area:

Commercial and Corporations

Sub-area:

Commercial Contracts, Banking, Finance and Insurance

Category:

Catchwords

Number of paragraphs:

83

Counsel for the Appellant:

Mr S Couper QC with Mr J Gooley and Ms N Dewan

Solicitor for the Appellant:

MCW Lawyers

Counsel for the Respondent:

Mr R Parsons

Solicitor for the Respondent:

Kells

ORDERS

NSD 1222 of 2017

BETWEEN:

KIRAIG PTY LTD ACN 113 874 267 AS TRUSTEE FOR JOVETTE TRUST

Appellant

AND:

RENT THE ROO PTY LTD ACN 001 408 448

Respondent

JUDGE:

MARKOVIC J

DATE OF ORDER:

30 November 2018

THE COURT ORDERS THAT:

1.    The appeal be allowed.

2.    Order 1 made on 30 June 2017 and Orders 1 and 3 made on 20 July 2017 by the Federal Circuit Court of Australia be set aside and, in lieu thereof, it be ordered that:

(a)    the respondent pay damages in the sum of $269,153;

(b)    pursuant to s 76 of the Federal Circuit Court of Australia Act 1999 (Cth) the respondent pay interest on the amount set out in Order 2(a) above from 8 September 2015 until the date of these Orders; and

(c)    the respondent pay the applicants’ costs of the action, assessed according to the scale in Pt 1 of Sch 1 to the Federal Circuit Court Rules 2001 (Cth).

3.    The respondent pay the appellant’s costs of the appeal.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MARKOVIC J:

1    This is an appeal from an order made and judgment given on 30 June 2017 (see Kiraig Pty Ltd as Trustee for Jovette Trust v Rent the Roo Pty Ltd [2017] FCCA 1493) (Primary Judgment) and from certain orders made on 20 July 2017 in relation to costs by the Federal Circuit Court of Australia (Federal Circuit Court).

2    The proceeding in the Federal Circuit Court concerned two franchise agreements between the appellant, Kiraig Pty Ltd as trustee for the Jovette Trust (Kiraig), as master franchisee; Joy Elaine Gilmore, the sole director of Kiraig, as guarantor of Kiraig’s performance; and the respondent, Rent the Roo Pty Ltd (Rent the Roo), as franchisor. Rent the Roo is in the business of renting household products to consumers. It operates as a franchisor in over 60 exclusive franchise territories in Australia. Kiraig entered into the two franchise agreements with Rent the Roo on 19 April 2005 for the exclusive territory known as Area 20 (Area 20 Agreement) and on 7 September 2005 for the exclusive area known as Area 10 (Area 10 Agreement) (collectively, Franchise Agreements).

3    Before the primary judge, Kiraig and Mrs Gilmore, as first and second applicants respectively, sought damages in the sum of $269,153 and equitable compensation or, alternatively, an account of profits. They alleged that Rent the Roo had breached cl 1B(b) and cl 10B(a) of the Franchise Agreements; that Rent the Roo had failed to act in good faith in contravention of s 51ACB of the Competition and Consumer Act 2010 (Cth) (CC Act) or, in the alternative, had engaged in conduct which amounted to unconscionable conduct under s 20 and s 21 of the Australian Consumer Law, Sch 2 to the CC Act; and that Rent the Roo had breached its obligation of confidence by wrongfully accessing and copying certain information from Kiraig’s email account.

4    On 30 June 2017 the Federal Circuit Court made an order dismissing Kiraig and Mrs Gilmore’s application and on 20 July 2017 it made costs orders, including an order that Kiraig and Mrs Gilmore pay the costs of the action incurred by Rent the Roo and the second respondent (Phillip Hague, Rent the Roo’s chief executive officer).

5    Kiraig’s appeal is limited in scope and does not seek to challenge all of the primary judge’s findings. The grounds of Kiraig’s amended notice of appeal, set out at [44] below, are limited to the primary judge’s findings in relation to its claims of breach of the Franchise Agreements by Rent the Roo. Rent the Roo filed a notice of contention in which it effectively concedes two of Kiraig’s grounds of appeal but contends that the judgment should be affirmed on other grounds, namely that the primary judge concluded that there was no breach of the Franchise Agreements.

background facts

6    The following findings of fact, which were not in contention, were principally set out at [105] of the primary judge’s reasons.

7    As noted at [2] above, on 19 April 2005 Rent the Roo, Kiraig and Mrs Gilmore entered into the Area 20 Agreement and on 7 September 2005 they entered into the Area 10 Agreement.

8    The Franchise Agreements were in substantially the same terms. The Area 20 Agreement, for example, relevantly provided in:

(1)    cl 1B (hereafter referred to as the Renewal Clauses):

1B.    RENEWAL

Subject to sub clauses (a) & (b) below, the Franchisor will renew the Franchise for one (1) further period, at no additional cost to the master franchisee for the duration of which shall be the period set out in Schedule I ("the Renewal Term"), if and only if:

(a)    the Master franchisee has been throughout the Term in full compliance with this Agreement and or has rectified to the complete satisfaction of the franchisor any breaches within the specified timeframes of this or any other agreements between the Franchisor and the Master franchisee at the time of giving the notice referred to in paragraph (d) or at the date of expiration of the Term;

(b)    the Master franchisee and the Guarantor then enters into the Franchisor's then current Master Franchise Agreement (which will not however contain terms substantially different from those herein contained), however such renewal agreement shall not include any further option for any subsequent renewal. Such renewal agreement for one further term as outlined in Schedule One will not oblige the Master franchisee to pay any additional Initial or renewal Fee).

(e)    The master franchisee gives written notice to the Franchisor of the Master franchisee’s intention to renew the Franchise and said notice shall be given between (3) months and (6) months before the end of the first Term.

For the purposes of this agreement, the Master franchisee shall be deemed to have irrevocably elected not to renew the Franchise (and its option shall thereupon terminate) if it fails to execute and return to the Franchisor its then standard Franchise Agreement referred to in sub paragraph (b) hereof and other documents reasonably required by the Franchisor for a renewal within on (1) month after the Franchisor has delivered same to the Master franchisee on receipt of the Master franchisee’s notice exercising the option.

(2)    cl 10B, which concerned the franchisee’s rights to transfer the agreements:

10B.    BY MASTER FRANCHISEE

(a)    The Franchise is personal to the Master franchisee and may not be in whole or in part voluntarily, involuntarily, directly or indirectly assigned, subdivided, sub-franchised or otherwise transferred by the Master franchisee without the prior written approval of the Franchisor provided that approval to assign the Franchise in whole shall not be unreasonably withheld. If such approval to assign is granted, it may be conditional upon the following:

(i)    The Master franchisee paying to the Franchisor all unpaid accounts plus the costs associated with approving such transfer plus a transfer fee where the total of those transfer costs shall not exceed $15,000 (plus GST)

(ii)    The transferee executing the Franchisor’s then current master Franchise Agreement and if so deemed by the franchisor in its ultimate discretion the transferee paying a new franchise initial franchise fee for a new franchise agreement with a fresh term consistent with the then initial terms of the franchise agreement being granted at that time which will not contain financial terms substantially different from those contained herein), and such other documents then customarily used by the Franchisor for its master franchisees;

(iii)    the transferee acquiring all of the Master franchisee's essential assets used in the Franchise and assuming all of the Master franchisee liabilities in relation thereto including the management of all established sub franchisees;

(iv)    The transferee having adequate financial resources and meeting the criteria of the Franchisor for the selection of new master franchisees, satisfactorily completed the Franchisors then standard training program for master franchisees and being otherwise capable of operating the Franchise as a master franchisee;

(v)    where the transferee is a company the Directors of the transferee giving appropriate guarantees and indemnities and the shareholders being acceptable to Franchisor; and

(vi)    The Premises from which the transferee is to operate from complying with the then prevailing RENT THE ROO Marketing Image and all its trading requirements.

(c)    Such franchisor consent of the transfer will be made in writing within 30 days after the master franchisees request is made or a written response will be issued by the franchisor within 30 days if consent is withheld setting out the reasons.

(3)    cl 10D:

10D.    FRANCHISOR’S RIGHT OF FIRST REFUSAL

Notwithstanding the provisions of clause 10B, if the Master franchisee shall at any time determine to sell the Franchise or an interest in the Franchise and the Master franchisee shall obtain a written bona fide expression of interest to purchase the business, including the Master Franchise rights together with his interest in all real or personal property, leasehold improvements if applicable and other assets used by the Master franchisee in the Business from a responsible and fully disclosed bonafide purchaser and shall submit an exact copy of such expression of interest to the Franchisor, who shall, for a period of two (2) weeks from the date of delivery of such offer, have the right, but not the obligation, exercisable by written notice to the Master franchisee, to purchase the Franchise and the assets of the Business, for the price (less any amount payable by the Master franchisee to the Franchisor) and on the terms and conditions contained in such expression of interest, provided that the Franchisor may substitute cash for any form of payment proposed in such expression of interest. The Franchisor may deduct from the purchase price any unpaid debts of the Master franchisee to the Franchisor and may pay out of the purchase price any of the Master franchisee’s unpaid trade creditors.

If the Franchisor does not exercise its right of first refusal, the Master franchisee may complete the sale of the Business to such purchaser subject to the provisions of Clause 10B hereof, for a consideration which does not vary from the consideration set out in the offer of the right of first refusal. If the sale to such purchaser is not completed within two (2) months after delivery of such offer to the Franchisor, the Franchisor shall again have the right of first refusal. Nothing herein contained shall prevent the Master franchisee’s executing an agreement to assign conditional upon compliance with this Clause and Clause 10B.

(4)    schedule 1 definitions of the “Initial Term” as being 10 years and the “Renewal Term” as being 10 years.

9    On 19 October 2014 and 30 March 2015 Mrs Gilmore wrote to Rent the Roo giving notice of Kiraig’s intention to renew the Area 20 Agreement and the Area 10 Agreement respectively.

10    On 18 April 2015 the Initial Term for the Area 20 Agreement expired.

11    On 23 April 2015 Kells, solicitors for Rent the Roo, sent Kiraig a draft franchise agreement for both Area 10 and Area 20.

12    On 19 June 2015 Kells sent two further letters to Kiraig: one enclosing an amended draft franchise agreement for Area 20; and the second enclosing a draft franchise agreement for Area 10 (collectively, Proposed Agreements).

13    As the primary judge found at [105(g)] of his reasons, the Proposed Agreements contained terms that were different to those in the Franchise Agreements.

14    On 8 July 2015 Kells wrote to Kiraig in relation to the renewal of the Area 20 Agreement. In that letter Kells set out the documents and funds that needed to be provided prior to commencement of the new franchise agreement and requested that those things be provided by 22 July 2015.

15    On 23 July 2015 Kells again wrote to Kiraig in relation to the renewal of the Area 20 Agreement noting that they had not received any correspondence or documentation from Kiraig and that all documents and funds were to be provided by 22 July 2015. Kells requested that Kiraig advise whether it intended to continue with the renewal of the Area 20 Agreement by 24 July 2015.

16    On 28 July 2015 Paul Kean of MCW lawyers, solicitors for Kiraig, sent an email to Mario Quintiliani, a solicitor at Kells, in which he said, among other things:

I note your client has acknowledged a valid exercise by my client of its option for renewal of the franchise agreement.

The draft franchise agreement submitted by you in response to the option exercise contains terms materially different to the franchise agreements under which my client’s business has operated for many years. I am presently considering whether your client is permitted to introduce these terms in a franchise agreement made on·exercise of a renewal option.

My client wishes to be co-operative. It recognises that the franchise system must evolve and there are issues such as compliance with Financial Services legislation that may require a renewed agreement contain some different terms.

Please bear with my client for a few more days while we resolve how best to accommodate the interest of both parties.

17    On 29 July 2015 Kiraig received an expression of interest from Friends Investments Pty Ltd (Friends Investments), signed by its directors and Mrs Gilmore as director of Kiraig, to purchase the business operated by Kiraig, including its right to operate the franchised territories known as Area 10 and Area 20, for a purchase price of $250,779 plus GST. Settlement of the sale was to occur “at any time but within 28 days from 29 July 2015.

18    Later on 29 July 2015 the expression of interest was varied to include the acquisition by Friends Investments of Kiraig’s Mercedes Sprinter van (Van) by either taking up the existing lease arrangement for it or, if that was not possible, paying out the existing finance on the day of settlement.

19    On 31 July 2015 MCW Lawyers provided a copy of Friends Investments’ expression of interest to Kells. In its covering letter it informed Kells of the variation of the expression of interest to include the acquisition of the Van, including the terms on which Friends Investments would acquire the Van and queried whether Rent the Roo wished to exercise its first right of refusal.

20    On 7 August 2015 Kells informed MCW Lawyers that Rent the Roo intended to exercise its first right of refusal to purchase Kiraig’s businesses “as outlined in the expression of interest” and requested that they be provided with Kiraig’s proposed draft contract for sale for Rent the Roo’s consideration and approval prior to proceeding to exchange.

21    On 13 August 2015 Mr Kean of MCW Lawyers sent an email to Mr Quintiliani in which he said:

I have almost completed the agreement for sale but thought I would let you know it is on the way.

The agreement will provide for completion on 26 August which is the date in the offer to purchase made by the other franchisee.

Hope to have it to you tomorrow

22    By email dated 17 August 2015 Mr Kean provided to Mr Quintiliani a draft contract for sale of Kiraig’s business to Rent the Roo with a completion date of 26 August 2015.

23    On 18 August 2015 Kells wrote to MCW Lawyers requesting a number of amendments to the draft contract for sale including that:

(1)    the settlement date be amended to 1 September 2015;

(2)    the Van be excluded from the sale; and

(3)    electronic copies of current consumer lease agreements be provided.

24    On 19 August 2015 MCW Lawyers responded to Kells letter dated 18 August 2015.

25    On 26 August 2015 Mr Quintiliani sent an email to Mr Kean in relation to the draft contract for sale. In his email Mr Quintiliani indicated that Rent the Roo did not need to see Kiraig’s consumer leases but that he was instructed to seek that “after exchange [Kiraig] provide a schedule outlining the number of contracts, the expiry dates and the value of these leases”. Mr Quintiliani noted that he was instructed that this should expedite the process and that he was still waiting on instructions in relation to the only other issue that needed to be agreed by the parties but hoped to be in touch before the end of the day.

26    On 26 August 2015 in his email in reply to Mr Quintiliani’s email referred to in the preceding paragraph Mr Kean said that he took it that “completion on 1 September is agreed assuming the remaining issue can be resolved?”.

27    On 27 August 2015 MCW Lawyers sent a copy of an amended contract for sale of business to Kells by email which had been executed by Kiraig and the covenantors, Mrs Gilmore and her husband, Stephen Michael Gilmore. MCW Lawyers noted that the contract was to be held in escrow; had been provided so that Kells could see that it had been executed and its manner of execution; and that Kiraig did not intend to be bound until it further advised. MCW Lawyers asked Kells to confirm that the terms of the contract were acceptable, including Rent the Roo’s commitment to settle on 1 September 2015. The amended contract excluded sale of the Van.

28    On 1 September 2015 Kells sent a letter by email to MCW Lawyers which included, among other things:

We refer to your email dated the 27 August 2015 attaching executed contract of sale to be held in escrow pending the Franchisees final instructions. Further we confirm your advice to remove Stephen Michael Gilmore as a covenantor, and to include a requirement that the purchaser pay a 10% deposit on exchange of contract being the sum of $25,077.90.

We are instructed that the Franchisor will not be able to complete on 1 September 2015 but wish to first receive from the Franchisee the following:

1.    details of the number of current consumer leases;

2.    the expiry dates for those leases;

3.    the value of the gross future rent of the individual leases; and

4.    postcode distribution of the leases.

The Franchisee would no doubt appreciate that without this information the Franchisor is unable to determine the true underlying value of the business it is purchasing.

29    On 2 September 2015 MKean sent an email to Mr Quintiliani in which he informed Mr Quintiliani that Kiraig would not be proceeding with a sale to Rent the Roo; that MCW Lawyers had no further instructions in relation to the matter; and that future communication should be directed to Mrs Gilmore.

30    On 6 September 2015 the Initial Term for the Area 10 Agreement expired.

31    On 8 September 2015 (8 September Letter) Kells informed Mrs Gilmore, among other things, that:

We advise that the Franchisee's right to carry out the franchise business for territory 20 ceased on the expiration of the term of the agreement on the (sic) 19 April 2015. However, the Franchisee was permitted to continue to enjoy the rights to conduct the franchise on a holding over basis pending either the renewal of the franchise, or some other form of disposal as prescribed by the terms of the franchise agreement.

On the (sic) 2 September 2015 your lawyers provided us with an email notifying the Franchisor that you did not intend to proceed with the proposed contract for sale of the consumer leases. In order to avoid any doubt, we are instructed to put you on notice that as at the date of this letter your rights to continue to conduct the franchised business in territory 20 and territory 10 have both ceased by expiration of the franchise agreements.

Accordingly, the Franchisee is no longer permitted to enter into any new rental agreements with either existing or new customers.

In order to align·the·conclusion of your rights under the franchise agreements, we are instructed to formally bring both of the franchises to an end effective close of business 8 September 2015 and you will be required from 8 September 2015 to immediately take the following steps:

32    On 10 September 2015 Mrs Gilmore sent an email to Mr Quintiliani and Mr Hague which included:

Having had the opportunity for a conversation with the principal of your client (Phil Hague) and understand what (RTR's position is, we advised Phil Hague by email yesterday afternoon Thursday 10th that we would be renewing the franchise on each territory and depositing the amount required $3,300 for each territory into your Trust Account within 48 hours. That transfer has occurred in last few moments quoting the 2 references provided

33    On 11 September 2015 Mr Quintiliani sent an email to Mrs Gilmore informing her, among other things, that he was “instructed that your rights to exercise an option to renew have expired and you were notified of this via our letter date the (sic) 8 September 2015. You are now not in any position to seek to enliven the rights that have been properly terminated in accordance with the terms of the franchise agreement”.

34    On 16 September 2015 Kells sent a letter to Mrs Gilmore referring to their email dated 11 September 2015 and enclosing two cheques, each in the sum of $3,300, by way of return of the sums that were deposited into their trust account.

The primary JUDGES reasons

35    The primary judge provided an introductory summary at [1]-[3] of the Primary Judgment. Relevantly, at [3] his Honour said:

3.    Around the time the Franchise Agreements expired and potentially came up for renewal, Kiraig entered into an arrangement for another franchisee to purchase its franchise territories. Rent the Roo sought to exercise a right of first refusal in respect of that proposed sale but it and Kiraig could not agree on terms and that transaction did not proceed. Shortly after, the second of the Franchise Agreements expired and Rent the Roo thereupon refused to entertain Kiraigs attempts to renew either of the agreements. Kiraig was consequently unable to sell its franchises to the other franchisee. After the expiry of the Franchise Agreements, officers of Rent the Roo also accessed certain of (sic) Kiraigs documents which were saved on Rent the Roo's email system.

36    After setting out the evidence in detail the primary judge made findings of fact at [105]-[117].

37    As set out above, this appeal concerns the primary judge’s finding in relation to Kiraig’s claim that Rent the Roo breached the Franchise Agreements. The primary judge summarised the alleged breaches of the Franchise Agreements at [12] of the Primary Judgment observing that Kiraig alleged that Rent the Roo:

    breached its obligations under cl 1B(b) in that the terms of the Proposed Agreements were substantially different to those in the Franchise Agreements;

    breached its obligations under cl 10B(a) in that it unreasonably withheld approval of the transfer to Friends Investments; and

    wrongfully terminated the Franchise Agreements.

38    The primary judge addressed this aspect of Kiraig’s claim at [118]-[128] of his reasons. In doing so, his Honour first addressed the Renewal Clauses. At [119] his Honour said:

119.    The dispute over the operation of the Renewal Clauses turned on whether:

a)    if the conditions precedent to renewal of the franchises were satisfied, their renewal was “automatic” upon Kiraig expressing an election to renew them with the consequence that, in the circumstances, Rent the Roo was contractually obliged to renew the contracts such that its 8 September 2015 advice that those agreements had come to an end amounted to a breach of contract;

b)    Rent the Roo ought to have provided but did not provide Kiraig with agreements for the proposed renewed periods which did not “contain terms substantially different from” those of the expiring Franchise Agreements; and

c)    the Proposed Agreements contained terms which were “substantially different from” the expiring Franchise Agreements.

39    The primary judge then turned to consider the effect of the Renewal Clauses. At [122]-[124] his Honour found that:

(1)    the Renewal Clauses did not provide for renewal of the Franchise Agreements to be simply on the same terms as those of the “future ‘master franchise agreement’” but qualified that provision was to be by reference to an assessment of whether the terms of the agreements were or were not substantially different from those of the Franchise Agreements;

(2)    each renewal clause included an element of uncertainty which, because there was no agreed mechanism to arbitrate on any differences of view over whether certain terms were not substantially different from what had gone before, could only be resolved by the parties settling any differences of opinion on renewal terms;

(3)    the qualification concerning “substantially different” terms applied to both essential terms as well as other less important provisions which could be worked out if an agreement existed because essential terms were agreed;

(4)    for those reasons, at the time each of the Renewal Clauses was entered into, the terms of any future renewals were uncertain and what purported to be an option was, in reality, only an agreement to agree and was therefore void for uncertainty; and

(5)    because the Renewal Clauses were void for uncertainty, the expiry of the Area 20 Agreement on 18 April 2015 had no significance for the potential renewal of that agreement and, in those circumstances, in addition the subsequent informal holding over of that agreement until 8 September 2015, did not have any relevant significance for the question of renewal.

40    At [125] his Honour said:

125.    The applicants argued that because Rent the Roo was obliged to renew the Franchise Agreement, what they characterised as the unilateral termination of those agreements was also a repudiation of those agreements. However, the Renewal Clauses were not enforceable. Consequently, Kiraig’s notifications to Rent the Roo did not have the effect of bringing a new contractual term for either franchise into existence, even upon payment of what would have been the necessary fees, which were tendered and rejected. As a result, Rent the Roo’s advice of 8 September 2015 that the Franchise Agreements had expired was not a repudiation of those agreements.

41    Next the primary judge considered the question of whether there was a breach of the Franchise Agreements because of the provision of the Proposed Agreements with new terms. At [126] of the Primary Judgment his Honour found that there was no doubt that the terms of the Proposed Agreements were substantially different to those of the Franchise Agreements. His Honour then said that, even assuming that the Renewal Clauses were not void, simply providing the Proposed Agreements to Kiraig in terms different to those in the Franchise Agreements would not amount to a breach of contract. His Honour said that, in broad terms, as long as Rent the Roo did not insist on wording which did not satisfy the Renewal Clauses it would not have breached those provisions.

42    His Honour continued at [126]-[127]:

126.     On the assumption that the Renewal Clauses were not void, I see no basis to conclude that Rent the Roo’s conduct, including providing the Proposed Agreements, went so far as to evince an intention no longer to be bound by the Franchise Agreements or to fulfil them only in a manner substantially inconsistent with its obligations under them.

127.    Further in that connection, having satisfied condition (a) of the Renewal Clauses as I accept it did, and all other things being equal, and if the Renewal Clauses had not been void, Kiraig would have been entitled to insist on renewing its franchises on terms which were not substantially different from the terms which it had enjoyed under the Franchise Agreements. But at no point prior to the expiry of either of those franchises did it do that. Apparently because it was distracted by the potential sale of the business, it never put Rent the Roo on the spot and required it to state whether it would only renew the franchises on terms which would breach the Franchise Agreements’ Renewal Clauses. It postponed the renewal of the Franchise Agreements until any rights it had under the Renewal Clauses had come to an end.

43    At [128] of the Primary Judgment, his Honour concluded that “[f]or the above reasons”, the allegations of breach of contract in connection with the renewal of the Franchise Agreements had not been made out.

Grounds of Appeal

44    Kiraig raised five grounds of appeal in its amended notice of appeal but only pressed four of those grounds. It is convenient to set those grounds out in full:

1.    The learned primary judge erred in finding that clause 1B of each of the Franchise Agreements for the respondent’s franchise areas known as Area 10 and Area 20 (“the renewal clauses”) was void for uncertainty.

2.    The learned primary judge erred in not finding that the respondent’s failure to renew the franchises for Area 10 and Area 20 constituted breaches by the respondent of the Franchise Agreements for those areas.

3.    By deciding that the renewal clauses were void for uncertainty when that allegation was not pleaded or argued by the respondent and His Honour did not raise the issue prior to judgment, the learned primary judge denied the appellants procedural fairness thereby committing an error of law.

5.    The learned primary judge erred in failing to find that the appellant was entitled to damages in the sum of $269,153.00 plus interest.

45    Appeal grounds one and three concern the primary judge’s finding that the Renewal Clauses were void for uncertainty. Rent the Roo concedes that the primary judge found the Renewal Clauses were void for uncertainty without giving Kiraig the opportunity to be heard on that issue. That concession is properly made. It is apparent from the pleadings in the Federal Circuit Court that Rent the Roo and Mr Hague did not raise in their defence that the Renewal Clauses were void for uncertainty. Nor, I infer from Rent the Roo’s acceptance of the grounds, was it raised in their submissions before the primary judge. Kiraig submitted and, by the terms of its concession, Rent the Roo agrees that that proposition was not raised by the primary judge in the course of the trial.

46    In those circumstances, as submitted by Kiraig, the learned primary judge erred insofar as his Honour decided the case on the basis that the Renewal Clauses were void for uncertainty, a basis that was neither pleaded nor argued: see Banque Commerciale SA v Akhil Holdings Ltd (1990) 169 CLR 279 at 286-287 (per Mason CJ and Gaudron J) and at 288 (per Brennan J). Appeal grounds one and three are made out.

47    It follows that the only grounds that remain for determination are appeal grounds two and five. The parties’ submissions at the hearing were directed towards those grounds. In that regard, notwithstanding its position in relation to appeal grounds one and three, Rent the Roo contends that Kiraig is not entitled to the orders it seeks on appeal. In support of its position, it relies on the matters raised by it in its notice of contention which it says are a complete answer to the appeal and an alternative basis upon which the judgment of the Federal Circuit Court should be affirmed. Those grounds are:

1.    The Trial Judge did not leave the matter in issue to rest upon his holding that the renewal clauses were void for uncertainty.

2.    The Trial Judge proceeded to consider the matter in issue on the basis of assumed validity of the renewal clauses (J 126).

3.    On that basis the Trial Judge concluded there was no breach of the renewal clauses (J 126-128) for the reasons:

i.    The Respondent tendered its then current Master Franchise Agreement to the Appellant;

ii.    The Respondent did not breach the renewal clauses by that tender;

iii.    The Respondent did not insist on the Appellant accepting the terms in the document tendered;

iv.    The Appellant did not insist upon any alternative terms; and

v.    The allegation of breach of contract was not made out.

4.    Thus, the matters comprised in grounds of appeal 1 and 3 were not solely determinative of the decision of the Trial Judge on the matter in issue.

Rent the Roo’s contentions

48    Rent the Roo made the following submissions in relation to appeal ground two and its notice of contention.

49    Rent the Roo contended that the 8 September Letter, which confirmed the conclusion of the Franchise Agreements, resides in a chronology where Kiraig’s rights to conduct the franchise had, by that date, lapsed by effluxion of time while Kiraig deliberately took no action to proceed with renewal. It noted that the primary judge addressed this at [39] and [162] of his reasons. That is, Rent the Roo contended that the effect of the 8 September Letter was not to terminate the Franchise Agreements but to notify Kiraig that its franchise rights were terminated with the consequence that there was no termination of the Franchise Agreements by Rent the Roo as they had ceased to operate by the effluxion of time.

50    Rent the Roo submitted that, putting to one side the primary judge’s finding that the Renewal Clauses were void for uncertainty, his Honour founded his judgment on a further ground at [126] of his reasons. Rent the Roo said that there the primary judge determined that, by proffering the Proposed Agreements, Rent the Roo did not breach the Renewal Clauses and that his Honour went on to consider what would have been required to constitute a breach of contract in that context. Rent the Roo contended that, while the primary judge used language appropriate for a repudiatory breach, that was not an error; nor did it detract from or limit his finding that there was no breach of contract. Rent the Roo submitted that, rather, the primary judge’s findings at [126] of his reasons served to demonstrate that he was considering the possibility that a party insisting on unsupportable terms in such circumstances might thereby breach a contract containing cl 1B(b). Rent the Roo said that such conduct would also be repudiatory but that does not constitute an error on the part of the primary judge.

51    Rent the Roo submitted that the primary judge demonstrated that he had considered whether Kiraig had elicited from Rent the Roo a response which evinced an intention on the part of Rent the Roo to insist on unsupportable terms at [127] of his reasons. Rent the Roo said that the primary judge correctly concluded that no such thing had happened, a conclusion which was buttressed by the fact that, having asked for time to consider its position in relation to the terms of the Proposed Agreements (as found by the primary judge at [105(j)] of his reasons), Kiraig never returned to identify the terms which it contended were contrary to the Renewal Clauses in the Franchise Agreements. Rent the Roo submitted that the Renewal Clauses required the happening of specified events which did not occur because Kiraig moved away from renewal deliberately and on advice from its lawyer. Rent the Roo said that it was not to blame for that and that it committed no wrong causing loss to Kiraig.

52    Rent the Roo contended that Kiraig’s submission that its conduct was consistent with it asserting its rights to new franchise agreements on the basis that the franchises pursuant to those new agreements would be sold either to Friends Investments or Rent the Roo, does not engage with the fact that the right of first refusal had been exercised properly and that the rights of Rent of the Roo under it remain on foot. Rent the Roo submitted that, contrary to Kiraig’s submission, the right of first refusal, once exercised, did not leave room for Kiraig to sell to another party, it was bound to proceed with Rent the Roo but it refused to do so.

53    In relation to ground five, Rent the Roo said that Kiraig’s refusal impacts on the question of causation of loss which are identified and quantified by Kiraig by reference to the offer made by Friends Investments.

consideration

Ground two

54    In considering ground two it is necessary to start with the pleadings that were before the primary judge. In their amended points of claim, Kiraig and Mrs Gilmore relevantly pleaded:

30.    On or about 8 September 2015, [Rent the Roo] notified [Kiraig] that its franchise rights for the two territories were terminated.

Particulars

Letter from Kells to Ms Joy Gilmore dated 8 September 2015.

31.    Thereafter, [Rent the Roo], under the direction of [Mr Hague], began conducting itself within area 10 and area 20 in the following manner:

(a)    Removed [Kiraig] from receiving enquiries from new and existing customers made through the national telephone number of [Rent the Roo];

(b)    Diverted enquiries from new and existing customers intended for [Kiraig] to other Rent The Roo franchisees and to [Rent the Roo];

(c)    Began trading in the two territories in competition with [Kiraig], including directly soliciting business from [Kiraig’s] customers; and

(d)    On 11 September 2015, wrongfully accessed and copied from [Kiraig’s] email account, a management report containing a list of all of the customers of [Kiraig], together with particulars of each consumer lease of such customers.

Particulars

Email from Alan Carroll, [Rent the Roo’s] group general manager, to [Mr Hague] and others dated 11 September 2015.

Breach of the Agreements

32.    In the premises set out in paragraphs 8, 9, 10, 19 and 20 above, [Rent the Roo and Mr Hague], by proposing terms which were substantially different in the Proposed Agreement, were in breach of its obligations under clause 1B(b) of the Agreements.

33.    In the premises set out in paragraphs 13, 21, 22, 23, 24, 25, 26, 27 and 28 above, [Rent the Roo and Mr Hague] were furthermore in breach of its obligations under clause 10B(a) of the Agreements, by unreasonably withholding approval of the transfer to Friends Investments.

34.    [Kiraig and Mrs Gilmore] have suffered loss and damage as a result of [Rent the Roo and Mr Hague’s] breaches and wrongful termination of the Agreements referred to in a paragraph 30, 31, 32 and 33 above.

55    In their defence Rent the Roo and Mr Hague relevantly admitted to [30] of the amended points of claim. They thereafter pleaded the following matters by way of response to [31]-[34] of the amended points of claim:

31.    [Rent the Roo]:

(a)    admits that it did not direct new customer enquiries to [Rent the Roo] consistent with its previous advice to [Kiraig] but denies that it has removed or prevented [Kiraig] from receiving enquiries from its existing customers through [Rent the Roo’s] national telephone number as pleaded in paragraph 31(a) of the points of claim;

(b)    admits that [Rent the Roo] addressed new enquires for territories 20 and 10; denies that [Kiraig] was entitled to receive any enquires for the business system in territories 20 and 10 and further denies that it diverted enquiries from [Kiraig’s] existing customer as pleaded in paragraph 31(b) of the points of claim.

(c)    denies paragraph 31(c) of the points of claim; and

(d)    denies the contentions pleaded in paragraph 31(d) of the points of claim and further says in answer to paragraph 31(d) of the points of claim:

(i)    that the email account was at all times owned and operated by [Kiraig];

(ii)    that as the franchisor and the owner of the business system and the territories was entitled to access its email account and view the contents;

(iii)    denies making any copies of the contents of the information;

(iv)    denies that any information was used in a manner to [Kiraig’s] detriment..

32.    [Rent the Roo and Mr Hague] deny paragraph 32 of the points of claim.

33.    [Rent the Roo and Mr Hague]:

(a)    deny that they withheld or unreasonably withheld approval for the transfer of the Agreements as pleaded in paragraph 33 of the points of claim;

(b)    deny that the operation and meaning of paragraphs 13, 21, 22, 23, 24, 25, 26, 27 and 28 as pleaded establish a breach of any obligations that [Rent the Roo and Mr Hague] had under Clause 10B(a) of the Agreements as pleaded in paragraph 33 of the points of claim.

34.    [Rent the Roo and Mr Hague] deny paragraph 34 of the points of claim.

56    The primary judge considered each of the claims made by Kiraig and Mrs Gilmore in the amended points of claim in turn. In relation to claims of breach of the Franchise Agreements, his Honour first addressed the Renewal Clauses and found that they were void for uncertainty and thus could not be enforced. At [125] the primary judge addressed Kiraig’s submission that the 8 September Letter was a repudiation of the Franchise Agreements. His Honour did so in light of his finding that the Renewal Clauses were void and thus not enforceable, leading him to conclude that the 8 September Letter was not a repudiation of the Franchise Agreements. As set out at [46] above those findings cannot be sustained and should be set aside.

57    Rent the Roo contends that the primary judge made alternate findings at [126]-[127] on the assumption that the Renewal Clauses were not void for uncertainty. There the primary judge found that simply providing the Proposed Agreements to Kiraig was not a breach of the Franchise Agreements, although his Honour found they were significantly different to the Franchise Agreements. Neither party seeks to challenge that finding. However, as submitted by Kiraig, that finding does not address the critical point namely, whether the 8 September Letter constituted a wrongful termination of the Franchise Agreements.

58    Similarly, contrary to Rent the Roo’s submission, the primary judge’s findings at [127] do not assist it. There the primary judge found that, because Kiraig had not insisted on renewing its franchises on terms that were not substantially different from the terms of the Franchise Agreements, it somehow lost that right. The primary judge found that Kiraig had become “distracted” by its potential sale of the businesses and that it had postponed the renewal of the Franchise Agreements until a time when those rights had come to an end through the effluxion of time.

59    With respect to the learned primary judge, that finding cannot be sustained. That is so for two reasons.

60    First, Rent the Roo did not raise in its defence before the primary judge that Kiraig had abandoned or otherwise somehow lost its rights under the Renewal Clauses by responding to Rent the Roo’s exercise of its first right of refusal.

61    Secondly, it is difficult to see how the primary judge could reach such a conclusion based upon the facts as found. In my opinion, upon analysis, the inference to be drawn from those facts is as follows:

(1)    Kiraig exercised its rights to renew the Franchise Agreements in accordance with cl 1B(e) of those agreements;

(2)    in accordance with the Franchise Agreements, Kiraig was thereafter entitled to franchises for the Renewal Term which met the requirements of cl 1B(b) of those agreements;

(3)    the Proposed Agreements provided by Rent the Roo to Kiraig did not meet the requirements of cl 1B(b) of the Franchise Agreements;

(4)    on 28 July 2015 Kiraig’s solicitor informed Rent the Roo’s solicitor that the Proposed Agreements contained substantially different terms to the Franchise Agreements;

(5)    thereafter Rent the Roo did not provide a further draft of the Proposed Agreements which met the requirements of cl 1B(b). Despite the terms of Kiraig’s solicitor’s email of 28 July 2015, which seemed to suggest that their client was considering how to “accommodate the interests of both parties”, the obligation imposed by cl 1B(b) clearly fell on Rent the Roo once the option for renewal had been validly exercised; and

(6)    between July and 2 September 2015 the parties negotiated for the sale of the Area 10 and Area 20 franchises. The primary judge did not make a finding that this conduct amounted to abandonment but characterised it as a “distraction”. Those negotiations must have proceeded on the assumption that Kiraig had something to sell, an assumption which could only arise on the basis of a valid exercise of their rights under the Renewal Clauses.

62    As submitted by Kiraig, the positon contended for by Rent the Roo, in support of which it relies on [127] of the Primary Judgment, is that if Kiraig did not take positive steps to compel Rent the Roo to comply with its obligations under cl 1B(b), it must be taken to have abandoned its rights to the new franchise terms. No legal basis is proffered to support that proposition and I am unable to identify any basis to sustain it. Rather the position must be, based on the above analysis, that as at 8 September 2015 Rent the Roo remained in breach of its obligation under cl 1B(b) of the Franchise Agreements. That Kiraig did not take any steps to insist on its rights and that Rent the Roo remedy its breach cannot be regarded as an abandonment of those rights.

63    Rent the Roo submitted that Kiraig lost its rights by effluxion of time, also a finding made by the primary judge. Rent the Roo said that was so because the Initial Term in each of the Franchise Agreements had expired, thus Kiraig was no longer entitled to new franchise agreements under the Renewal Clauses. Rent the Roo said that the 8 September Letter did not terminate the Franchise Agreements but simply notified Kiraig that its rights under those agreements had terminated. That submission should be rejected. Kiraig had exercised its rights under cl 1B of the Franchise Agreements. Thereafter, as I have already observed, Rent the Roo had an obligation to comply with cl 1B(b). It did not and was therefore in breach. That the Initial Term had expired did not change that position. In those circumstances, despite its terms, the 8 September Letter did not simply serve to notify Kiraig that its rights to operate the franchise businesses had ceased because the Initial Terms had expired. It in fact terminated the Franchise Agreements in circumstances where it was in breach of those agreements. As submitted by Kiraig that termination was wrongful.

64    I agree with Kiraig’s submission that the primary judge only addressed its submission that the 8 September Letter was a unilateral termination of the Franchise Agreements and a repudiation of them at [125] of the Primary Judgment in the context of his finding that the Renewal Clauses were void for uncertainty. His Honour did not address that submission on the alternate basis namely, on the basis that the Renewal Clauses were not void for uncertainty. To the extent his Honour made alternate findings at [126]-[127] of the Primary Judgment, they do not, with respect, support any finding about the 8 September Letter. There the primary judge found that Kiraig had lost its rights to renew the Franchise Agreements because of the effluxion of time. His Honour did not then go on to address the effect of that finding on the 8 September Letter.

65    Before leaving this issue it is necessary to consider [162] of the Primary Judgment which Rent the Roo also relies in support of its submission that the primary judge found that the Franchise Agreements had expired through the effluxion of time. At [162] of the Primary Judgment his Honour said:

162.    Fifthly, Rent the Roo did not terminate the Franchise Agreements. They expired through the effluxion of time and no renewal had been negotiated before they did, an omission which must attributed to Kiraig's lack of interest in pursuing the issue until it was too late. It is therefore not necessary to address Kiraig's perceptions of Rent the Roo's state of mind at the time.

66    That finding appears in that part of the Primary Judgment where the primary judge was addressing Kiraig’s claim that Rent the Roo had breached its duty of good faith. Rent the Roo submitted that, in circumstances where a number of claims are made, the consideration of those claims becomes enmeshed as occurred in this case.

67    Here the primary judge made his factual findings and then moved on to consider each claim made by Kiraig and Mrs Gilmore drawing on those facts. Relevantly, commencing at [158] of the Primary Judgment, his Honour gives seven reasons why the claim that Rent the Roo breached its obligation of good faith must fail. That reasoning is not challenged on appeal. The first reason given by the primary judge is that, consistent with his finding at [122]-[125], the Renewal Clauses were void and thus not enforceable leaving Rent the Roo “free to propose whatever terms it considered appropriate for new franchise periods”. Viewed in context, his Honour’s subsequent reasoning would, as Kiraig submitted, follow from the primary judge’s earlier reasons including that the Renewal Clauses were void.

68    Rent the Roo also contended that, as Kiraig did not challenge the finding at [162], it remained as a finding that Rent the Roo did not terminate the Franchise Agreements but that they expired through the effluxion of time. But even if [162] is not challenged, to the extent it is a finding, it cannot advance Rent the Roo’s position for the same reasons as set out at [63] above.

69    In my opinion, ground two of the amended notice of appeal is made out. Rent the Roo’s contention that the judgment of the Federal Circuit Court should be affirmed because the primary judge concluded that there was no breach of the Renewal Clauses is not made out.

The consequence of upholding ground two

70    Rent the Roo submitted that the Court should remit the matter to the primary judge to redetermine both the question of whether there had been a wrongful termination and the issue of damages, which is the subject of appeal ground five addressed below. In my opinion, that ought not occur.

71    The jurisdiction of this Court to hear appeals from the Federal Circuit Court is conferred by s 24(1)(d) of the Federal Court of Australia Act 1976 (Cth) (FCA Act). Such an appeal is by way of rehearing: see RailPro Services Pty Ltd v Flavel (2015) 242 FCR 424 at [77]. It is necessary to show error in the judgment appealed from: SLMB v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCAFC 129 at [11]. Kiraig has succeeded in demonstrating error in the reasons of the primary judge.

72    The next question is to determine what should flow from the demonstration of error. That is whether the orders of the primary judge should be set aside and the matter remitted to the primary judge to determine the issues that arise as result of setting aside the primary judge’s orders or whether this Court should determine those issues. Section 28 of the FCA Act sets out what the court may do in exercising its appellate jurisdiction including varying the judgment appealed from and giving such judgment, or making such order, as in all the circumstances it thinks fit: subs (1)(a) and (b).

73    In my opinion, this Court is in as good a position as the primary judge to decide the issues that arise as a result of the finding of error in the Primary Judgment.

74    I have set out at [61] above the analysis which, in my opinion, arises from the facts as found by the primary judge. Two things necessarily follow from that analysis. First, Rent the Roo had an obligation pursuant to cl 1B(b) of the Franchise Agreements to provide new franchise agreements which complied with that clause. It did not do that and was thus in breach of that clause. Secondly, notwithstanding the breach it sent the 8 September Letter notifying Kiraig that its rights to operate the franchises were at an end. That letter served to terminate the Franchise Agreements in circumstances where Kiraig had exercised its rights under the Renewal Clauses and Rent the Roo had failed to comply with its obligations pursuant to cl 1B(b) of those agreements. That termination was wrongful and amounted to repudiatory conduct on the part of Rent the Roo. Kiraig was shut out of operating the franchises and, I infer, accepted the repudiation bringing the Franchise Agreements to an end.

Ground five

75    Appeal ground five concerns the consequences of a finding of wrongful termination. Kiraig contends that the primary judge erred in not finding that it was entitled to damages in the sum of $269,153 plus interest.

76    The facts clearly establish that Friends Investments was prepared to pay $250,779 for the business the subject of the Franchise Agreements and to takeover or pay out the existing lease for the Van as part of the acquisition. The facts establish that Kiraig suffered a net loss of $13,435.38 on the sale of the Van. Kiraig also submitted that it had made monthly payments for the Van of $4,938.78 for the months of August, September and October 2015 which it claimed as part of its damages.

77    The loss suffered by Kiraig as a result of Rent the Roo’s conduct in wrongfully terminating the Franchise Agreements was, as submitted by Kiraig, the loss of the value of those franchises. The primary judge recognised at [3] of his reasons that the consequence of Rent the Roo refusing to entertain Kiraig’s attempts to renew the Franchise Agreements was that it was unable to sell the franchises. Had the Franchise Agreements been renewed, Kiraig would have sold its business the subject of those agreements to either Friends Investments or, pursuant to the first right of refusal, Rent the Roo. The primary judge accepted the evidence of one of the directors of Friends Investments that, despite being informed that Rent the Roo would exercise its first right of refusal, Friends Investments remained interested in purchasing the business.

78    In those circumstances the measure of damages is the value of the business based on the deal that had been struck with Friends Investments, $250,779, plus Kiraig’s loss on the sale of the Van, $13,435.38.

79    The primary judge accepted that the sale to Friends Investments provided for settlement within 28 days from 29 July 2015 with completion on 26 August 2015. There was also evidence before the primary judge that the monthly payments for the lease of the Van were $1,646.26. Because the sale of its businesses did not proceed, Kiraig continued to lease the Van for an additional three months. It therefore claims, and is entitled to, the amounts paid in that regard until the Van was sold on 21 October 2015.

80    In its application in the Federal Circuit Court, Kiraig claimed interest pursuant to s 76 of the Federal Circuit Court of Australia Act 1999 (Cth) (FCCA Act) on an award of damages. Section 76(2) of the FCCA Act entitles a party to a proceeding for the recovery of money in respect of a particular cause of action to apply for an interest order under subs (3). That subsection in turn provides that if an application is made and the Federal Circuit Court or the judge is not satisfied that good cause has been shown for not making an order under the subsection, the Federal Circuit Court or judge must either:

(c)    order that there be included in the sum for which judgment is given interest at such rate as the Federal Circuit Court of Australia or the Judge thinks fit on the whole or any part of the money for the whole or any part of the period between:

(i)    the date when the cause of action arose; and

(ii)    the date as of which judgment is entered; or

(d)    without proceeding to calculate interest in accordance with paragraph (c), order that there be included in the sum for which judgment is given a lump sum in lieu of any such interest.

81    No submissions were made by Rent the Roo that Kiraig was not entitled to an award of interest before me and I can discern no reason why it would not be entitled to interest pursuant to s 76(3)(c) of the FCCA Act from 8 September 2015 until the date of this judgment at the rate in this Court’s Interest on Judgments Practice Note (GPN-INT): see SDAEA v Arora; SDAEA v Arora Markets Pty Ltd [2018] FCCA 85 at [60].

conclusion

82    It follows from the reasons set out above that the appeal should be allowed and that Order 1 made on 30 June 2017 and Orders 1 and 3 made on 20 July 2017, which dealt with the costs of the proceeding in the Federal Circuit Court, should be set aside. In lieu thereof, orders should be made that Rent the Roo pay Kiraig damages in the sum of $269,153, interest upon that sum pursuant to s 76 of the FCCA Act and Kiraig’s costs of the proceeding in the Federal Circuit Court. As Kiraig has been successful, it should also have its costs of the appeal.

83    I will make orders accordingly.

I certify that the preceding eighty-three (83) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic.

Associate:

Dated:    30 November 2018