FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Allphones Retail Pty Limited (No 4) [2011] FCA 338

THE COURT ORDERS THAT:

1.    The notice of motion filed 17 August 2009 stand over to a date to be fixed by arrangement with the associate to Nicholas J for further hearing in relation to questions of penalty and costs.

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 Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

Background

1    Before me is a notice of motion filed by the applicant for orders that the respondent be punished for contempt of court. The notice of motion is accompanied by a statement of charge which specifies what the applicant alleges are four separate contempts of court committed by the respondent.

2    The respondent is a mobile phone retailer which operates nationally through a series of both franchised and company owned stores. The company was the respondent in the principal proceeding brought by the applicant. The principal proceeding has been settled with final orders being made by Foster J.

3    The evidence relied upon by the applicant was given by way of affidavit and I will refer to it where necessary in these reasons. None of the deponents was cross-examined. Nor did the respondent call evidence.

4    The respondent raised a number of objections to the affidavits relied upon by the applicant. Many of those objections were determined by me during the course of the hearing and, so far as they are concerned, nothing more need be said of them. However, there were a number of paragraphs of an affidavit of Mr Kiley, a witness for the applicant, which both parties agreed could be received by me subject to the respondent’s objection. I have considered the admissibility of those parts of Mr Kiley’s affidavit which were received on that basis and I will indicate my rulings and my reasons for them shortly. The applicant accepted that in the event that this evidence was rejected then the third of the four charges brought against the respondent had to fail.

The Undertakings

5    Each of the four charges is founded upon what is alleged to be a contravention of undertakings which, as is accepted by the respondent, were given to the Court on 9 October 2008. The relevant undertakings are set out in a document which is identified as Schedule 1 (the schedule) to the orders made on that date by Foster J. The first of the undertakings (undertaking 1) as set out in paragraph 1 states:

1.    Allphones will not engage in any negotiations or mediation with any franchisee in relation to any of the matters identified in the Notice of Dispute dated 29 August 2008 (Notice) issued by Allphones to certain of its franchisees unless it first complies with paragraphs 2, 3, 4 and 5 of this Undertaking.

It is not necessary to refer to paragraphs 2 to 7 of the schedule. But paragraphs 8 and 9 of the schedule set out the two undertakings relevant to the present charges. Paragraph 8 (undertaking 8) is in these terms:

8.    Allphones shall not withhold consent to the assignment of any Allphones franchise on the basis that the existing franchisee has not and will not release Allphones from a liability or liabilities which Allphones has or may have to the franchisee in respect of the issues the subject of the Notice or any supplementary notice unless the franchisee requires that Allphones releases the franchisee from liabilities which the franchisee has or may have to Allphones and Allphones requires a mutual release.

Paragraph 9 (undertaking 9) is in these terms:

9.    Allphones will not, without giving 7 days prior notice in writing to the Applicant of its intention to do so withhold consent to the assignment of any Allphones franchise on the basis that the assignee must enter into a form of franchise agreement which is different to the assignor’s franchise agreement.

6    A number of issues arise concerning the proper construction of these undertakings. I will refer to these issues as they arise in my consideration of the four charges.

General Principles

7    It is convenient to set out some general principles applicable to the determination of a charge of civil contempt arising out of an alleged contravention of an undertaking given to the Court.

8    First, such an undertaking is equivalent to an injunction. A person who contravenes an undertaking given by him or her to the Court is guilty of a contempt in the same way as if he or she had contravened an order of the Court (Australian Consolidated Press Limited v Morgan (1964) 112 CLR 483 at 496 per Windeyer J).

9    Secondly, an allegation that a person has committed a contempt of court is a serious allegation which must be proved beyond reasonable doubt. Every element of each charge must be proved to that standard (Witham v Holloway (1995) 183 CLR 525 at 534 per Brennan, Deane, Toohey and Gaudron JJ and McHugh J at 535). In Consolidated Press Ltd v McRae (1955) 93 CLR 325 Dixon CJ and Kitto and Taylor JJ said (at 333): “Like every other offence the facts by which it is made out must be proved by admissible evidence to the satisfaction beyond reasonable doubt of the tribunal. Uncertain inferences from inexact proofs will not support such a charge.” While that was a case involving an alleged criminal contempt, what was said also applies to proof of charges involving an alleged civil contempt.

10    Thirdly, the proper construction of an undertaking is a matter of law. That is not to say that there might not be facts requiring proof which are relevant to an issue of construction. However, the proper construction of the undertakings with which I am concerned is not a matter for proof or disproof.

11    Fourthly, in attempting to resolve an issue as to the proper construction of an undertaking the Court may come to the view that the order or undertaking is not merely ambiguous in the sense that it is reasonably susceptible to more than one interpretation, but that it is also of uncertain application in the circumstances giving rise to the alleged contravention. A charge based upon an alleged contravention of an undertaking which has uncertain application to the facts alleged to give rise to such a contravention cannot be sustained (Universal Music Australia Pty Ltd v Sharman Networks Ltd (2006) 150 FCR 110 at [36]).

12    Fifthly, even if the Court is satisfied that words used in an undertaking should be given a particular meaning or denotation, it may also need to consider whether such meaning or denotation might fairly be expected to have been within the contemplation of the person alleged to have contravened the undertaking at the time he or she gave it: Australian Consolidated Press v Morgan (1965) 112 CLR 483 at 491 per Barwick CJ. Windeyer J said (at 503):

His Honour said that the appellant’s having acted on a mistaken construction of the undertaking did not mitigate the breach of it, construed as his Honour held it should be construed. But, with respect, I cannot altogether agree. This is not a case in which the extent of obligations undertaken is ascertainable simply by construing the undertaking according to ordinary grammatical rules. If that were so, I would agree that a mistake in construction could not excuse disobedience, although it might perhaps mitigate its consequences. Those who give undertakings to a court are bound by the language they use. If its true meaning, although not immediately plain, can be ascertained according to ordinary rules of construction, then the person giving the undertaking is bound by it in that sense. But the uncertainties that lurk in the words of this undertaking, and which were exposed during the argument, cannot be resolved in that way, for they do not arise from a debatable construction but from an uncertain denotation.

13    Sixthly, questions concerning the admissibility of evidence are to be determined by reference to the Evidence Act 1995 (the Act) including, in particular, s 142 of the Act. Section 142 is concerned with (inter alia) the standard of proof to be applied when deciding whether or not evidence should be admitted. It provides:

(1)    Except as otherwise provided by this Act, in any proceeding the court is to find that the facts necessary for deciding:

    (a)    a question whether evidence should be admitted or not admitted, whether in the exercise of a discretion or not; or

    (b)    any other question arising under this Act;

    have been proved if it is satisfied that they have been proved on the balance of probabilities.

(2)    In determining whether it is so satisfied, the matters that the court must take into account include:

    (a)    the importance of the evidence in the proceeding; and

    (b)    the gravity of the matters alleged in relation to the question.

The First AND SECOND CHARGE

14    The statement of charge includes the following particulars referable to the first and second charge:

The first charge against the respondent is that:

(a)    On 11 June 2009 the respondent withheld consent to one of its franchisees, Evelyn Houghton (Ms Houghton), assigning the franchise agreement between her and the respondent on the basis that Ms Houghton had not released the respondent from liabilities that the respondent has or may have to Ms Houghton in respect of the issues the subject of the Notice of Dispute issued by the respondent and dated 29 August 2009;

(b)    Ms Houghton has not required that the respondent release her from liabilities which she has or may have to the respondent;

(c)    By reason of those facts pleaded in paragraphs (a) and (b), the respondent has breached paragraph 8 of the undertakings it gave to this Court on 9 October 2008.

Particulars of Paragraph (a)

    (i)    Consent to Ms Houghton assigning the franchise agreement between her and the respondent was withheld in an email sent at about 10.51 am on 11 June 2009 by the respondent, by its employee and director Mr Dominic Pompeii, to Ms Houghton’s husband Mr Ronald Houghton.

    (ii)    Consent was withheld on the basis stated in the last paragraph of that email.

The second charge against the respondent is that:

(a)    On 11 June 2009 the respondent withheld consent to Ms Houghton assigning the franchise agreement between her and the respondent on the basis that, for consent to be given by the respondent, the assignee must enter into a form of franchise agreement with the respondent which is different to Ms Houghton’s franchise agreement;

(b)    The respondent did not give the applicant 7 days notice in writing of its intention to withhold consent to Ms Houghton assigning the franchise agreement between her and the respondent on the basis that the assignee must enter into a form of franchise agreement with the respondent which is different to Ms Houghton’s franchise agreement;

(c)    By reason of those facts pleaded in paragraphs (a) and (b), the respondent has breached paragraph 9 of the undertakings it gave to this Court on 9 October 2008.

Particulars of Paragraph (a)

    (i)    Consent to Ms Houghton assigning the franchise agreement between her and the respondent was withheld in an email sent at about 10.51 am on 11 June 2009 by the respondent, by its employee and director Mr Dominic Pompeii, to Ms Houghton’s husband Mr Ronald Houghton.

    (ii)    Consent was withheld on the basis stated in the last paragraph of that email.

Evidence

15    Evidence was given by Mr and Mrs Houghton by affidavit. Neither was cross-examined. Mrs Houghton was, at all relevant times, the owner of an Allphones franchise. Her business was conducted from a shop situated in the Centro Shopping Centre at Maddington in the State of Western Australia. Mrs Houghton is married to Mr Houghton and at all relevant times he acted as the manager of Mrs Houghton’s business.

16    Mrs Houghton entered into her franchise agreement with the respondent for the Allphones franchise at Maddington in about September 2007. Her evidence was that she signed a franchise agreement about that time. A copy of her written franchise agreement is in evidence. That document is signed on behalf of the respondent by Matthew Donnellan who is described as a director. While the copy signed by Mrs Houghton is not in evidence, I infer that the copy signed by her was in the same form as that signed by Mr Donnellan. The franchise agreement does not refer to Mrs Houghton by name; the franchisee is instead identified as Allphones Maddington which is, I infer, the name under which Mrs Houghton carries on her business. In the draft new franchise agreement sent by the respondent to Mrs Houghton in September 2008, the franchisee is described as “Evelyn Houghton Trading as Allphones Maddington”.

17    Mrs Houghton commenced trading as an Allphones franchisee from her shop in Maddington on 1 June 2007. The franchise agreement is expressed to have commenced on that date and to be for a term of five years.

18    Mrs Houghton received a letter dated 23 September 2008 written on what appears to be the respondent’s letterhead signed by Kirsty Silbert. In the letter Ms Silbert is described as “General Counsel”. Enclosed with Ms Silbert’s letter were copies of a draft new franchise agreement (to which I have already referred) and a draft deed of release. The letter included the following:

Allphones Retail Pty Limited (“Allphones”) issued you with a Notice of Dispute (“the Notice”) dated 29 August 2008 in order to seek to resolve the issues in dispute as detailed in that Notice. In that Notice Allphones proposed timetable for the dispute resolution process. In accordance with that timetable Allphones herewith provides you with documentation and information for the purposes of the dispute resolution process.

…

As highlighted in the Notice, outcomes that Allphones’ is seeking as part of the dispute resolution process include entering into a New Agreement and a Deed of Release with Eligible Franchisees. The Franchising Code of Conduct provides that a franchisor must provide a franchisee the documents numbered 5-8 in the list above at least 14 days before a franchisee enters into the agreement. Execution of the documents as part of this process is treated as “a renewal” and as such no cooling off period applies.

It is Allphones’ position that a franchisee must obtain legal and accounting advice prior to entering into a franchise agreement and sign the three certificates appearing at the front of the new franchise agreement, which confirms that they have had opportunity to consider the documents and have sought legal and financial advice before entering into the agreement. If you have legal representation for the purposes of the dispute resolution process we expect you will seek their advice before you enter into the enclosed agreements.

If you do not have legal representation for the purposes of the dispute resolution process Allphones strongly recommends that you seek your own legal advice before entering into the agreements (which will include signing a Deed of Release in the form of the enclosed template as part of a resolution of the dispute). In any event you cannot enter into the agreement until 14 days after the date of this notice.

[errors in original]

19    Ms Silbert’s letter and its enclosures were received by Mrs Houghton on or about 24 September 2008. That is well prior to the date upon which the relevant undertakings were given by the respondent.

20    The draft new franchise agreement enclosed with Ms Silbert’s letter included many provisions which differed materially from the franchise agreement entered into between Mrs Houghton and the respondent in about September 2007.

21    The draft deed of release enclosed with Ms Silbert’s letter contained clauses providing for the giving of mutual releases between the respondent and the franchisee. It is clear from Ms Silbert’s letter that the draft deed of release was intended to serve as a template and this explains why it does not identify Mrs Houghton by name. The draft deed of release contained the following recitals:

A.    Allphones carries on business under the name Allphones as the owner and franchisor of a network of retail stores selling telecommunications products.

B.    Allphones and the Franchisee entered into a franchise agreement dated [insert date] (Old Franchise Agreement).

C.    On about 29 August 2008 Allphones provided to the Franchisee a Notice of Dispute (Notice) commencing a dispute resolution procedure in accordance with the Old Franchise Agreement and the Franchising Code of Conduct.

D.    The Notice identified a number of matters to be addressed by negotiation or mediation between Allphones and the Franchisee.

E.    The Franchisee and Allphones agree to settle these matters and any other matters between the parties that may be identified in the Schedule to this Deed, on the following terms and conditions.

Clause 1 of the draft deed of release provided:

1.    Each party releases and discharges the other party and its Associates from all actions, claims and demands, which a party has now or may in the future have against the other party, whether in law, in equity, under the provisions of the Trade Practices Act 1974 or under any other law or regulation, by reason of or in any way connected with the relationship between the parties and arising out of or in connection with the matters referred to in the Notice or any other matters identified in the Schedule.

22    Between April 2009 and June 2009 Mr Houghton had various telephone conversations with Dominic Pompeii. Mr Pompeii was, at all relevant times, a director of the respondent. During one of these conversations Mr Houghton told Mr Pompeii that he proposed to “sell and get out”. On 10 June 2009, Mr Houghton sent Mr Pompeii an e-mail advising that he had found other employment and that the franchise was for sale.

23    There were further e-mails exchanged between Mr Houghton and Mr Pompeii on 10 and 11 June 2009. In an e-mail from Mr Pompeii to Mr Houghton sent on 11 June 2009, Mr Pompeii stated:

Remember this, to sell your store you will have to sign a deed of release and the new guy will have to sign a new contract. I suggest if you want to do this you may as well do this now … you never know we might be able to help you sell.

[emphasis added]

24    Mr Houghton responded to this e-mail on the same day and advised Mr Pompeii in his reply that Mr Pompeii should find someone interested in buying the store and then he would sign the deed of release and walk away. Mr Pompeii responded to Mr Houghton’s e-mail stating:

I understand however first sign and I will help you by supporting your advertising and web enquiries.

[emphasis added]

25    As the particulars of the first and second charge make clear, it is the applicant’s case that by sending the e-mail of 11 June 2009 referred to by me in para [23] above to Mr Houghton, the respondent:

    withheld consent to the assignment of the franchise on the basis that Mrs Houghton would not release the respondent from a liability that the respondent had or may have had to Mrs Houghton in respect of the Notice of Dispute issued by the respondent and dated 29 August 2009;

    withheld consent to the assignment of the franchise on the basis that the assignee must enter into a form of franchise agreement which was different to the assignor’s franchise agreement.

It is necessary to consider these charges separately. Before I do so I should refer to cl 8.1 and cl 15 of the franchise agreement and cl 20 of the Franchising Code of Conduct (the Code).

26    Both cl 8.1 of the franchise agreement signed by Mrs Houghton and cl 20 of the Code are said by the respondent to be relevant to the proper construction of the undertakings. The respondent draws attention to the fact that both cl 8 of the franchise agreement and cl 20 of the Code contemplate that the franchisee may request the assignor to consent to an assignment (cl 8.1 of the agreement) or a transfer or novation (cl 20 of the Code) to a new franchisee.

27    Clause 8.1 of the franchise agreement signed by Mrs Houghton provides:

8.1    The Franchisee may request the Franchisor’s consent to an assignment of its rights under this Agreement and the Franchisor must not unreasonably withhold its consent provided the following conditions are met:

    (a)    the proposed assignee meets the Franchisor’s selection criteria;

    (b)    the Franchisee must not be in breach of this Agreement and must have paid in full all amounts due and payable to the Franchisor at or prior to completion of the assignment;

    (c)    the assignment will not have a significant adverse effect upon the System as a whole;

    (d)    the Franchisee and the assignee execute the Franchisor’s standard assignment agreement or an agreement which meets with the written approval of the Franchisor;

    (e)    all guarantees required by the Franchisor have been executed by the appropriate person or persons;

    (f)    if the Franchisor so directs, the assignee executes for a term ending on the expiration of this Agreement, the Franchisor’s current franchise agreement, which agreement will supersede this Agreement in all respects;

    (g)    the Franchisee has paid the Franchisor its reasonable costs and expenses incurred in the assignment;

    (h)    the Franchisor has not exercised its first right of refusal (see clause 8.2); and

    (i)    notwithstanding the transfer, assignment or sale of the Franchise, the Franchisee shall not be released from the performance of any outstanding obligations pursuant to this Agreement or to the personal guarantee (if any) executed by, or on behalf of, the Franchisee.

28    Clause 15 of the franchise agreement signed by Mrs Houghton provides:

The terms and conditions of this Agreement may not be modified, altered or amended except by written agreement between the franchisor and the franchisee.

29    The Code is set out in the Schedule to the Trade Practices (Industry Code – Franchising) Regulations 1998 and came into effect on 1 July 1998. Regulation 3 provides that, for the purposes of s 51AE of the Trade Practices Act 1974, the Code is prescribed and is a mandatory industry code. Clause 20 of the Code relevantly provides:

(1)    A request for a franchisor’s consent to transfer or novation of a franchise must be made in writing.

(2)    A franchisor must not unreasonably withhold consent to the transfer or novation.

(3)    For subclause (2), circumstances in which it is reasonable for a franchisor to withhold consent include:

    …

(4)    The franchisor is taken to have given consent to the transfer or novation if the franchisor does not, within 42 days after the request was made, give to the franchisee written notice:

    (a)    that consent is withheld; and

    (b)    setting out why consent is withheld.

The principal issues of construction

30    It is convenient to isolate the issues of construction that arise by reference to the competing contentions of the parties.

31    So far as the first charge is concerned, the applicant accepted that the first charge did not involve a case of consent being sought and then withheld. However, the applicant submitted that it was a case in which the respondent indicated that it would not be consenting to any assignment of Mrs Houghton’s Allphones franchise unless the deed of release was first signed. The applicant submitted that this involved a withholding of consent contrary to the terms of undertaking 8.

32    Similarly, the applicant submitted that the respondent indicated that it would not be consenting to any assignment of Mrs Houghton’s Allphones franchise unless the franchisee entered into a form of franchise agreement which was different to Mrs Houghton’s franchise agreement. The applicant submitted that this constituted a withholding of consent contrary to the terms of undertaking 9.

33    The respondent submitted that at the time of the relevant communications between Mr Houghton and Mr Pompeii no purchaser of the franchised business had been identified and no request had been made to the respondent for its consent to an assignment in favour of such a purchaser. The respondent submitted that it necessarily followed that consent to an assignment was not withheld because no such consent had been requested. In support of this submission the respondent relied upon McMahon v Docker (1945) 62 WN (NSW) 155 and Eastern Telegraph Co Limited v Dent [1899] 1 QB 835.

34    It is necessary to construe each of undertakings 8 and 9 as a whole. In R v Brown [1996] 1 AC 543 Lord Hoffman spoke of the mistake:

… one common among lawyers … to treat the words of an English sentence as building blocks whose meaning cannot be affected by the rest of the sentence ... This is not the way language works. The unit of communication by means of language is the sentence and not the parts of which it is composed. The significance of individual words is affected by other words and the syntax of the whole.

These observations were approved by the High Court in Collector of Customs v Agfa-Gevaert Limited (1996) 186 CLR 389 at 397.

35    Undertakings 8 and 9 form part of a larger document (ie. the schedule) to which it is necessary to have regard for the purpose of ascertaining their proper construction. To take the most obvious example, undertaking 1 makes clear what is meant by the expression “the Notice” as used in undertaking 8.

36    It is also appropriate to read undertakings 8 and 9 together if only to resolve any ambiguity in a manner which, if possible, produces consistency of meaning. It would be a surprising result if the words “withhold consent to the assignment of any Allphones franchise” (which are used in both undertakings) were found to have different meanings depending on whether they were used in undertaking 8 or undertaking 9. I do not suggest that such a result could never have been intended but it is not one that would ordinarily be arrived at unless there was good reason to find that the same words were intended to carry different meanings from paragraph to paragraph. The point has some significance here given the way in which the word “assignment” is used in the relevant undertakings.

37    The word “assignment” is susceptible to various interpretations depending upon the context in which it is used. If used in the undertakings in its most narrow sense, the word could be taken to refer to nothing other than the transfer by an existing franchisee of the contractual rights which he or she enjoys under a franchise agreement. But the word can also refer to a transfer of a more general kind that is not confined to, and which might not even include, the transfer of any such contractual rights. As I will explain, I think the word as it is used in the undertakings was intended to be understood in its wider sense.

38    An “Allphones franchise” is a business. Like any business, it may consist of tangible and intangible assets. The latter will include the right to carry on business using the Allphones name and trade marks. The transfer of an Allphones franchise may be achieved in several different ways.

39    First, there might be an assignment by an existing franchisee of his or her rights under an existing franchise agreement. That would involve an assignment in the narrow sense of the word. Secondly, there might be a novation of an existing franchise agreement. A novation is not an assignment in the narrow sense of the word. Thirdly, the existing franchisee might sell the physical assets of the franchise business to a new franchisee who in turn enters into a new franchise agreement in place of that to which the existing franchisee was a party. This too would not involve an assignment in the narrow sense of the word. Yet all of these methods of transferring an Allphones franchise might be considered an “assignment” of an Allphones franchise in the broader sense since all will usually include the transfer of the business by the existing franchisee to the new franchisee.

40    It is significant that each of the relevant undertakings refers to “the assignment of any Allphones franchise” rather than the “assignment of a franchise agreement” (emphasis added). While undertaking 9 makes express reference to “franchise agreement” it does so not to describe the subject matter of the assignment but to describe the circumstances in which consent to such an assignment may not be withheld. Thus, the undertakings distinguish between an “Allphones franchise” and an Allphones “franchise agreement”. This suggests that an assignment of the kind referred to is not confined to an assignment of contractual rights in the narrow sense, but also extends to a transfer of the franchise business by different means. If it was intended to use the word assignment in its narrow sense then one would expect the undertakings to have referred not to the assignment of an “Allphones franchise” but to the assignment of a franchise agreement or an Allphones franchise agreement.

41    Undertaking 9, in particular, makes little sense if the word “assignment” is not interpreted in this manner. This is because undertaking 9, when read as a whole, presupposes that, in the absence of the obligation it imposes, there might be an assignment of an Allphones franchise in circumstances where there is a new franchise agreement entered into between the franchisor and the new franchisee.

42    It seems to me that undertaking 9 is clearly intended to ensure that the respondent cannot withhold consent to a transfer of an Allphones franchise on the basis that the transferee must enter into a franchise agreement different to that made between the respondent and the existing franchisee. Its essential purpose is to prevent the respondent requiring a new franchisee to enter into a franchise agreement that is different to the assignor’s franchise agreement as a condition of giving consent to the transfer of an Allphones franchise. Thus, if a franchisee wished to sell his or her Allphones business it would be a breach of undertaking 9 for the respondent to withhold its consent to such a sale on the basis that the purchaser must first enter into a new franchise agreement which was different to the assignor’s franchise agreement.

43    This brings me to the expression “withhold consent” as used in each of the undertakings. Undertaking 8 states that Allphones “shall not withhold consent” while undertaking 9 states that Allphones “will not … withhold consent” (emphasis added). This difference is immaterial.

44    The expression “withhold consent” is usually taken to refer to the act of refusing to give consent to something that is due to another person or expected or desired by him or her. Thus, a person who agrees not to withhold consent to a certain course of action may usually be taken to agree that he or she will not refuse to consent to that course of action.

45    A person can refuse to give consent in anticipation of it being sought. Thus, if a father says to his son, “Don’t bother asking to borrow my car because I will not lend it to you” then the father is refusing his son permission to borrow the car in anticipation of the son asking to borrow it. It is a person’s indication of unwillingness to consent to a course of action that requires his or her consent that is critical. The fact that the refusal is conveyed in anticipation of a request for consent that has not yet been made does not mean that the indication of unwillingness is not a refusal or that it might not involve, in the language of the undertakings, the withholding of consent.

46    It is necessary for me to return to the two cases relied upon by the respondent in support of its submission that there never was any withholding of consent within the meaning of the undertakings.

47    In McMahon v Docker (1985) 62 WN (NSW) 155 a landlord was the owner of a certain property which, up to 27 October 1994, he let to a tenant, as a weekly tenant. On that date it was agreed between the tenant and the defendant that the tenant should assign to the defendant his weekly tenancy and that the defendant should enter into occupation and remain in occupation unless and until the tenant might wish to re-occupy the premises. The defendant went into occupation. The tenancy agreement between the landlord and the tenant contained a clause against assigning or sub-letting without consent. The consent of the landlord to a sub-lease between the tenant and the defendant was never sought. Herron J said:

It is a startling proposition that a tenant, who has covenanted that he will not assign or sub-let without the landlord’s consent, can confer on a complete stranger rights of entry and possession against the true owner. Wing v Kensit [(1921) 21 S.R. 464; 38 W.N. 138] does not support such an obvious fallacy. All that is there decided is that where a lease gives to the lessor a qualified right of veto viz.: that he will not withhold his consent to the assignment in the case of a respectable and responsible tenant, and where such consent has been asked and unreasonably withheld, the consent of the landlord is not necessary to validate the assignment. That principle was well recognised before the decision in Wing v Kensit [(1921) 21 S.R. 464; 38 W.N. 138] – see Hyde v Warden [(1887) 3 Ex. D. 72]. There is, however, no case which suggests that the consent of the landlord need not be asked for. Indeed, it is clear that the consent of the landlord must be asked for: Eastern Telegraph Co. v. Dent [(1899) 1 Q.B. 835] and even if the stipulation is that the consent shall not be arbitrarily, unreasonably or vexatiously withheld the lessee must apply for the consent, or the lease is liable to forfeiture: Barrow v. Isaacs & Son [(1891) 1 Q.B. 417] but if the consent is withheld unreasonably, or the application for consent is ignored for an unreasonable time: Lewis and Alleby v. Pegge Ltd [(1914) 1 Ch. 782] the lessee is released from the covenant, and may assign without consent: Bates v Donaldson [(1896) 2 Q.B. 241].

48    The case of Eastern Telegraph Company Limited v Dent [1899] 1 QB 835 was another in which the consent of the landlord was never sought to a sub-lease of leased premises. The lease contained a covenant that the tenant would not sub-let without the consent of the lessors which was subject to the proviso that such consent could not be unreasonably withheld. It is sufficient for present purposes to refer to the judgment of Romer LJ who said (at 839):

The proviso to the covenant has no application to this case, for it cannot be said that the lessors unreasonably withheld their consent to a sub-letting, because no consent was asked for.

49    Both of the cases were concerned with quite different facts in which the lessee purported to grant a sub-lease without the knowledge or consent of the landlord. Neither involved a situation where the landlord indicated any unwillingness to consent to any sub-lease in advance of any such consent being sought. Neither stands as authority for the proposition that consent to an assignment may only be withheld in circumstances where such consent has first been sought.

Did the respondent contravene undertaking 8?

50    I should say at the outset that the fact that relevant telephone and e-mail communications may have occurred between Mr Houghton and Mr Pompeii rather than Mrs Houghton and Mr Pompeii is, to my mind, of no significance. I say this because I would infer, in the absence of evidence to the contrary, that Mr Pompeii knew that the franchise agreement for the Maddington franchise was between the respondent and Mrs Houghton. Moreover, Mr Pompeii’s e-mail communications were addressed to “Allphones Maddington” which was, as I have said, the name under which Mrs Houghton carried on business. Thus, Mr Pompeii was directing his e-mail communications to Mrs Houghton as well as Mr Houghton.

51    This brings me to another submission made by the respondent. It appears from the e-mails exchanged between Mr Houghton and Mr Pompeii on 10 and 11 June 2009 that Mr Pompeii sought to encourage Mrs Houghton to sign a deed of release in return for Mr Pompeii assisting Mr and Mrs Houghton in finding a purchaser for the Maddington franchise. The respondent submitted that to act in this manner did not give rise to any breach of the undertaking. But this is an oversimplification. It may still be open to find that the respondent “withheld consent” in the sense that expression is used in the undertakings even if the respondent was at the same time offering to provide assistance in finding a purchaser. In particular, that Mr Pompeii may have offered such an inducement to Mr and Mrs Houghton does not necessarily mean that the respondent was not also withholding consent to an assignment in breach of the relevant undertakings. In the present case, I do not think the respondent’s submission is an answer to the charge.

52    Mr Houghton made clear to Mr Pompeii that he and, by implication, Mrs Houghton, were proposing to “sell and get out”. In Mr Pompeii’s e-mail of 11 June 2009, sent to “Allphones Maddington”, Mr Pompeii indicated in no uncertain terms that the respondent would not consent to any assignment unless certain things were done. He said “… remember this to sell your store you will have to sign a deed of release and the new guy will have to sign a new contract.”

53    I am satisfied that this constituted a clear indication by the respondent of its unwillingness to consent to any assignment of the Maddington franchise unless Mrs Houghton first executed a deed of release in favour of the respondent. The deed of release which the respondent insisted be signed by Mrs Houghton was, I infer, a deed of release in the form of the document sent by the respondent to Mrs Houghton under cover of the letter of 24 September 2008. Mr and Mrs Houghton both gave evidence, which was not challenged, that they never asked the respondent to provide them with a release.

54    In the circumstances, I find that Mr Pompeii’s insistence that Mr and Mrs Houghton execute a deed of release as a condition of any transfer of the Maddington franchise amounted to a refusal to consent to any assignment of the franchise agreement on the basis that Mrs Houghton must first execute a deed of release in favour of the respondent in the form which the respondent had previously submitted to Mrs Houghton. I am also satisfied that this amounted to, within the meaning of undertaking 8, the withholding of consent to an assignment of the franchise agreement on a particular basis namely, that Mrs Houghton had not, and would not, execute a deed of release which would release the respondent from a liability that the respondent had or may have had to Mrs Houghton in respect of the Notice of Dispute issued by the respondent and dated 29 August 2009.

55    Accordingly, in relation to the first charge, I find that on 11 June 2009 the respondent withheld its consent to the assignment of Mrs Houghton’s Allphones franchise on the basis that Mrs Houghton had not and would not provide such a release to the respondent. This was at a time when Mrs Houghton had not required the respondent to give her any release. I am satisfied of these matters beyond reasonable doubt. I am therefore satisfied that the first charge has been made out.

Did the respondent contravene undertaking 9?

56    But for one additional argument raised by the respondent, it follows from my interpretation of the language forbidding the withholding of consent that the respondent also contravened undertaking 9. This is because in the 11 June 2009 e-mail Mr Pompeii referred not only to the need for a release to be signed but also to the need for the purchaser to sign a new franchise agreement. As Mr Pompeii said in his e-mail, “to sell your store … the new guy will have to sign a new contact.”

57    However, the respondent submitted that Mr Pompeii may have been referring not to a different franchise agreement but to the franchise agreement as it stood at the time the e-mail of 11 June 2009 was sent. To summarise this submission more precisely, the respondent submitted that the applicant had not established that the respondent required that a purchaser of the Maddington franchise enter into an agreement which was different to the agreement as it then stood between the respondent and Mrs Houghton. This was because, according to the submission, the agreement between the respondent and Mrs Houghton had been, or may have been, varied by conduct since the time the franchise agreement was first entered into and it had not been established that the respondent required that a purchaser of the Maddington franchise sign an agreement that was different to what was then Mrs Houghton’s franchise agreement.

58    I do not accept this submission. Mrs Houghton produced and identified a copy of the franchise agreement for the Maddington store. The clear effect of her evidence, which was not challenged in any way, was that the document produced by her, which was admitted into evidence without objection, recorded her agreement with the respondent. There was no suggestion raised in cross-examination (there was none) or in evidence from the respondent (there was none), that this was not the true position. Moreover, the contents of Ms Silbert’s letter as well as Mr Pompeii’s e-mail of 11 June 2009 are consistent with what I take to be the position as it appears to be from Mr Houghton’s evidence. Ms Silbert referred in her letter to “a New Agreement” while Mr Pompeii referred in his e-mail to “a new contract”. There is no suggestion in either document that the new agreement or new contract is not new at all in the sense that it merely reflected variations that may have been made to the franchise agreement since it was originally signed by Mrs Houghton.

59    Moreover, there is also cl 15 of the franchise agreement which provides, in effect, that the agreement may not be varied except by written agreement between the franchisor and the franchisee. There is no suggestion in the evidence that Mrs Houghton was party to any such agreement. As is clear from what I have previously said about Mrs Houghton’s evidence, the clear implication of it was that no such agreement had been made.

60    For completeness, I should also refer to certain parts of Mr Kiley’s evidence in so far as it relates to the second charge. He gave evidence, which was admitted without objection, that the respondent had not given the applicant notice that it intended to withhold consent to the assignment of Mrs Houghton’s franchise agreement. That evidence was not challenged and I find that no such notice was given.

61    In relation to the second charge, I find that on 11 June 2009 the respondent withheld its consent to any assignment of Mrs Houghton’s Allphones franchise on the basis that the assignee must first enter into a form of franchise agreement different to Mrs Houghton’s franchise agreement. It gave no notice of its intention to do so to the applicant. I am satisfied of these matters beyond reasonable doubt. I am therefore satisfied that the second charge has been made out.

The Third ChaRge

62    The statement of charge includes the following particulars referable to the third charge:

The third charge against the respondent is that:

(a)    In February 2009 the respondent withheld consent to one of its franchisees Deep End Investments Pty Limited (Deep End) assigning the franchise agreement between it and the respondent on the basis that, for consent to be given by the respondent, the assignee must enter into a form of franchise agreement with the respondent which is different to Deep End’s franchise agreement;

(b)    The respondent did not give the applicant 7 days notice in writing of its intention to withhold consent to Deep End assigning the franchise agreement between it and the respondent on the basis that the assignee must enter into a form of franchise agreement with the respondent which is different to Deep End’s franchise agreement;

(c)    By reason of those facts pleaded in paragraphs (a) and (b), the respondent has breached Undertaking 9.

Particulars of Paragraph (a)

    (i)    Consent was withheld in letters (sent by email) from Allphones, signed by “Kristy Silbert General Counsel”, to Deep End dated 13, 16 and 20 February 2009;

    (ii)    The purport and effect of the letters of 13, 16 and 20 February 2009 is that Allphones withheld consent on the basis stated in paragraph (a).

Evidence

63    Evidence in support of the third charge was given by Mr Kiley. As I have mentioned, there were numerous objections taken to his affidavit including various documents exhibited to it.

64    There are a number of provisions of the Act which are relevant to my consideration of the respondent’s objections to the various documents exhibited to Mr Kiley’s affidavit. In particular, s 48(1), s 55(1), s 58(1) and s 183 of the Act establish the basic framework within which the admissibility of these documents is to be determined.

65    Relevantly, s 48(1) provides:

A party may adduce evidence of the contents of a document in question by tendering the document in question or by any one or more of the following methods:

…    

(b)    tendering a document that:

    (i)    is or purports to be a copy of the document in question; and

    (ii)    has been produced, or purports to have been produced, by a device that reproduces the contents of documents;

…

(e)    tendering a document that:

    (i)    forms part of the records of or kept by a business (whether or not the business is still in existence); and

    (ii)    is or purports to be a copy of, or an extract from or a summary of, the document in question, or is or purports to be a copy of such an extract or summary;

…

Section 55(1) provides:

The evidence that is relevant in a proceeding is evidence that, if it were accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding.

Section 58(1) provides:

If a question arises as to the relevance of a document or thing, the court may examine it and may draw any reasonable inference from it, including an inference as to its authenticity or identity.

Section 183 provides:

If a question arises about the application of a provision of this Act in relation to a document or thing, the court may:

(a)    examine the document or thing; and

(b)    draw any reasonable inferences from it as well as from other matters from which inferences may properly be drawn.

66    Mr Kiley gave evidence that he is the General Manager of the Enforcement Brand of the applicant with responsibility for managing investigations into possible contraventions of the Trade Practices Act 1974 (Cth) and for proceedings taken by the applicant with respect to such contraventions. He also gave evidence that he was responsible for managing on behalf of the applicant the proceedings brought by it against the respondent. There was no objection to any of this evidence.

67    Mr Kiley also deposed in para 14 of his affidavit (there was no objection to this paragraph) that:

In the course of performing my functions as General Manager of the Enforcement Branch of the ACCC and in supervising the conduct of these proceedings I have learned that Deep End Investments Pty Limited (Deep End) is a franchisee of the respondent trading from a shop in Loganholme in Queensland. I have also learned that Jade Monkee Pty Limited is currently a franchisee of another Allphones franchise store.

68    On the basis of the evidence in para 14 of Mr Kiley’s evidence I am satisfied that Deep End was a franchisee of the respondent trading from a shop in Loganholme Queensland at the time he made his affidavit in August 2009. The evidence he gave to that effect was not the subject of any challenge. I am also satisfied on the basis of that evidence that Jade Monkee Pty Limited (Jade Monkee) was, in August 2009, the franchisee of another Allphones franchise.

69    A company search which is in evidence shows that Trevor Anthony Mann was appointed a director of Deep End Investments Pty Ltd (Deep End) on 26 April 2005 and that Megan Mann was also appointed as a director of Deep End on 4 May 2005. Neither Mr Mann nor Ms Mann gave evidence.

70    This brings me to those parts of Mr Kiley’s affidavit which were objected to by the respondent and which were received by me subject to the respondent’s objections. In para 16 of his affidavit Mr Kiley states that “Deep End has provided the ACCC with the following documents”. In paras 17-24 (inclusive) Mr Kiley exhibits various copies of the various documents which he says were provided to the applicant by Deep End. The respondent objected to paras 16-24 (inclusive) and I will now explain why in my opinion these paragraphs (and the documents referred to in them) are, subject to one exception (para 19 and the draft deed of assignment), admissible.

71    The first of the documents exhibited by Mr Kiley in the paragraphs of his affidavit which are objected to is what he says is a copy of the franchise agreement between Deep End and the respondent. I make the following observations in relation to this document.

72    First, the document appears to be a franchise agreement made between the respondent and Deep End, signed on 23 May 2005. What appears as the execution page of the document bears the signature of a person who I infer to be Matthew Donnellan. As I have already mentioned, Mrs Houghton’s franchise agreement, which is in evidence, was also signed by Mr Donnellan. It and other evidence, including a company search of the respondent, establishes independently of what appears in the document that Mr Donnellan was, at all relevant times, a director of the respondent. The document also appears to have been signed by Mr Pompeii who was, as I have previously found, also a director of the respondent.

73    Mr Kiley’s evidence is that the copy of what he identified as the franchise agreement between Deep End and the respondent was given to the applicant by Deep End. His evidence on that point is unhelpfully lacking in detail. On the other hand, Mr Kiley obtained the documents from somewhere and I think the evidence in para 16 is admissible to explain where they came from. In any event, and even in the absence of what appears in para 16, I consider that I am entitled to look at what Mr Kiley asserts is the franchise agreement between Deep End and the respondent in light of other evidence for the purpose of ascertaining whether or not the document is what Mr Kiley asserts it to be. Other evidence which is particularly relevant on this question includes the evidence of Mr Donnellan’s and Mr Pompeii’s position within the respondent at relevant times.

74    The document also appears to have been signed on behalf of Deep End by a director by the name of Trevor Anthony Mann which, as other evidence establishes, is the name of one of the directors of Deep End. It also appears to have been signed on behalf of Deep End by another person, also described as a director, by the name of Megan Trestrail. The company search of Deep End which is in evidence indicates that there were various documents received by ASIC in April and May 2006 advising of (inter alia) “Change to Officeholder Name or Address”. There is also other evidence which suggests that Trevor Mann and Megan Mann are husband and wife. For example, the company search shows that they live at the same address. In the circumstances I infer that Trestrail is a former name of Megan Mann who, with Trevor Mann, are the directors of Deep End who signed the document on Deep End’s behalf.

75    The document includes a schedule which specifies a commencement date of 1 June 2005. The term of the Deep End franchise agreement is stated in the schedule to be five years from the commencement date. The schedule identifies the franchised premises as a shop situated in Loganholme, Queensland.

76    The respondent’s objection to the document which Mr Kiley identified as the franchise agreement, and the other documents exhibited to his affidavit to which the respondent took objection, was the subject of a detailed submission. In summary, the respondent argued that there was no evidentiary basis for finding that the documents in question are what they purport to be or that they are what Mr Kiley asserts them to be. In support of that submission the respondent relied upon the decision of Bryson J in National Australia Bank Ltd v Rusu (1999) 47 NSWLR 309.

77    The respondent submitted that a proper application of the rules of evidence requires that the applicant adduce evidence to positively prove that all the documents exhibited to Mr Kiley’s affidavit are what he asserts them to be and that they were sent and received by the persons identified within them and that this occurred on the dates identified in those documents. It was submitted that Mr Kiley is not able to give this evidence and what he has done is draw inferences from what appears on the documents and sought to put his own conclusions forward as evidence of fact. The respondent submitted that, to the extent that the contents of the documents were relied upon as evidence of these matters, such reliance is precluded by the hearsay rule.

78    So far as the business records exception to the hearsay rule created by s 69 of the Act is concerned, the respondent relied on what was said by Bryson J in Rusu at [17]:

Before a business record or any other document is admitted in evidence it is obviously necessary that there should be an evidentiary basis for finding that it is what it purports to be. Documents are not ordinarily taken to prove themselves or accepted as what they purport to be; there are exceptions under the common law and under statutes for public registers and for many kinds of documents when certified in various ways: and see the method of proof provided in some cases by s 170 and s 171 of the Evidence Act 1995. At the simplest, the authenticity of a document may be proved by the evidence of the person who made it or one of the persons who made it, or a person who was present when it was made, or in the case of a business record, a person who participates in the conduct of the business and compiled the document, or found it among the business’ records, or can recognise it as one of the records of the business.

79    Rusu has been both approved and doubted in various cases that were analysed by Austin J in Australian Securities and Investment Commission v Rich (2005) 216 ALR 320 at paras [95]-[121]. At paras [116]-[118] Austin J said:

116.    It would be absurd, according to Bryson J in Rusu (at 315), for the law to dispense on a general basis with the need to prove the authenticity of a document, for that would “put the court entirely in the hands of whatever a document which a party chose to tender purported to be, subject to whatever opportunity another party had of overcoming its apparent effect”. On the other hand, it is important not to set the bar too high for the authentication of documents, because if too much is demanded, the authentication requirement will fight against the policy underlying the business records provisions which, as Hope JA remarked in Albrighton v Royal Prince Alfred Hospital [1980] 2 NSWLR 542 (at 548), is “of great importance in the search for truth”. That policy recognises that any significant organisation depends for its efficiency upon the keeping of proper records, to be used and relied upon in the everyday carrying on of the activities of the business and therefore likely to be accurate, and “likely to be a far more reliable source of truth than memory”: Albrighton at 548–9 per Hope JA; see also Australian Law Reform Commission, Interim Report on Evidence, Report No 26, vol 1, at [709]. It is reflected in the terms of s 69, which makes hearsay representations in business records admissible without requiring evidence from their authors.

117.    The law responds to these competing concerns in a commonsense way, bearing in mind the distinction between authentication and the weight or probative value of the documents. In Rusu, Bryson J did not deny that inferences may be drawn from the document itself, relevant to the question of authenticity. Apart from s 58(1), there is express statutory authority to do so in s 183, when a question arises about the applicability of a provision of the Evidence Act. But Rusu insists on the need for authenticity to be established, and asserts that authentication cannot be achieved solely by drawing inferences from the face of the document where there is no other evidence to indicate provenance. The other cases do not deny these propositions, in my opinion.

118.    Hidden J’s reasoning in New South Wales Crime Commission v Trinh [2003] NSWSC 811, distinguishing between authenticity and accuracy, identifies part of a wider distinction, between matters of authenticity going to the adducing of evidence, and matters going to the credibility and weight of documentary evidence once it has been authenticated and judged admissible. Authentication is about showing that the document is what it is claimed to be, not about assessing, at the point of the adducing of the evidence, whether the document proves what the tendering party claims it proves …

80    In the present case the applicant does not simply rely upon the contents of the documents themselves for the purpose of establishing their admissibility and it does not suggest that the documents “prove themselves”. It relies upon other evidence in support of its contention that the documents are what they purport to be. It asks me to examine the documents in question and draw inferences as to their identity and authenticity in light of the other evidence. As explained by Austin J in Rich, the decision in Rusu does not preclude this approach.

81    I have decided that what Mr Kiley describes as a copy of the franchise agreement between Deep End and the respondent is admissible and that the document is what it purports to be. In particular, I am satisfied, on the balance of probabilities, that the document is admissible under s 48(1)(a) and (e) of the Act. In coming to this conclusion I have had regard to the fact that the proceeding in which the document was tendered is a proceeding for contempt of court which is, of course, a serious matter. I am also mindful of the fact that the document is a critical part of the evidence upon which the applicant relies in support of the third charge. Nevertheless, taking those matters into account, I am well and truly persuaded that the document is what it purports to be and that it ought to be admitted as such.

82    There are other documents exhibited to Mr Kiley’s affidavit to which the respondent objects which are also critical to the third charge. They are the three letters said to have been sent by e-mail dated 13, 16 and 20 February 2009 respectively which are referred to in the particulars to the third charge. Each of them appears to be on the letterhead of the respondent and to have been signed by Ms Silbert who again describes herself in each letter as “General Counsel”.

83    I am satisfied that each of the letters is admissible under s 69 of the Act. There is other evidence before me, including the letter from Ms Silbert to Mrs Houghton, which satisfies me that what appear to be letters sent by Ms Silbert to Deep End on or about 13, 16 and 20 February 2009 are likely to be what they purport to be. In my view each of them is admissible.

84    I am also satisfied that the document which appears to be a letter sent by HopgoodGanim Lawyers (HGL) to Ms Silbert, copied to Mr Mann, dated 19 February 2009 is also admissible as a business record under s 69. In arriving at this conclusion I have had regard to the letter written by Ms Silbert dated 20 February 2009. Ms Silbert’s letter of 20 February 2009 is addressed to HGL and in the first paragraph of her letter Ms Silbert herself refers to HGL’s letter of 19 February 2009.

85    Another document exhibited to Mr Kiley’s affidavit to which objection was taken is what appears to be a copy of a draft Deed of Assignment between Deep End and Jade Monkee. The correspondence between HGL and Ms Silbert which I referred to suggests that there may have been various versions of this document. When this particular version was created, or whether it was even sent to the respondent, is not disclosed in the evidence save for in para 19 of Mr Kiley’s affidavit. In these circumstances, I am not satisfied that para 19 of his affidavit is admissible nor am I satisfied that the document referred to therein is relevant in the absence of admissible evidence that it was sent. Accordingly, I do not think it is admissible.

86    The only other documents referred to in Mr Kiley’s affidavit to which objection was taken (see para 22 of his affidavit) appear to be copies of e-mails between Ms Silbert and “Trevor” sent on 16 February 2009. The “Trevor” referred to is clearly a reference to Mr Mann. These e-mails are also admissible under s 69. One such e-mail sent by Ms Silbert to Mr Mann attaches what is described as “Allphones disclosure document_31Oct2008.pdf”. Mr Kiley has also exhibited to his affidavit a copy of that document. It is dated 31 October 2008 and signed by Matthew Donnellan. I am satisfied this document is also admissible under s 69 of the Act.

87    In summary, with the exception of the draft Deed of Assignment referred to by Mr Kiley in para 19 of his affidavit, I am satisfied that each of the documents referred to by him in the remaining paragraphs that were objected to (paras 17-18 and 20-24) are admissible. I will also admit into evidence each of the paragraphs of Mr Kiley’s affidavit which refers to these documents but solely on the basis that these paragraphs conveniently record what Mr Kiley asserts the documents to be.

The letter of 13 February 2009

88    It is now necessary to look at the correspondence relied upon by the applicant in support of the third charge. It is convenient to begin with Ms Silbert’s letter to Deep End dated 13 February 2009. Relevantly, the letter states:

Dear Mr and Mrs Mann,

SALE OF FRANCHISED BUSINESS: “ALLPHONES LOGANHOLME” FROM DEEP END INVESTMENTS PTY LIMITED (“Deep End”) TO JADE MONKEY PTY LIMITED ACN 121 325 219 AS TRUSTEE FOR THE ADAMS SANDHU FAMILY TRUST (“Jade Monkey”)

I refer to the sale of Deep End’s franchised business pursuant to the Sale of Business Agreement dated 16 January 2009 and subject to the terms of the Franchise Agreement with Allphones Retail Pty Limited (ACN 008 168 090) dated 1 June 2005 (“the Agreement”).

As we have previously communicated the assignee Jade Monkey has been approved by Allphones to take an assignment of the franchised business and become an Allphones’ franchisee. Allphones’ usual process to effect the assignment, pursuant to clause 8.1(vi) of your franchise agreement is for the assignee to execute Allphones’ current franchise for the remainder of the unexpired term of the Agreement. This is not an uncommon provision in the franchising industry. You have advised that instead you wish to pursue assignment pursuant to clause 8.1(iv) of the Agreement and accordingly have provided Allphones the draft deed of assignment for Allphone’s review and approval.

I have reviewed the Deed of Assignment you have provided and unfortunately it does not meet with Allphones approval for this process.

First, the Deed of Assignment seeks to assign the Agreement and identifies this in item 5 as “the Franchise Agreement between the Franchisor and the Franchisee dated 1 June 2005.” As you are aware there have been a number of variations by conduct to the Agreement during the contractual period, which have not been reduced to Deed of Variation to the Agreement. Whilst the variations to the Agreement are apparent or can be ascertained between the continued conduct between Deep End and Allphones it would not be readily ascertainable to a third party taking an assignment without this being documented. These variations are expressly addressed in Allphones’ current franchise agreement which, as noted, an assignee would usually sign when taking an assignment so that the document between the franchisor and franchisee accurately reflects the agreement between the parties. Without a deed of variation between Deep End and Allphones reflecting the variations to the Agreement it is not clear how the parties can agree to an assignment of an agreement that is no longer a valid reflection of the contractual relationship between the current parties.

In addition, the Deed of Assignment does not any address:

(1)    execution of a licence to occupy premises, which is a standard document when a franchisee operates its franchised business from a site where the lease is held by Allventures Pty Limited, a related entity of Allphones;

(2)    the assignee providing executed guarantees from the directors or shareholders of the assignee (which are a standard requirement of Allphones franchise agreement); and

(3)    the directors of the assignee providing executed non-compete agreements (which are a standard requirement of Allphones franchise agreement).

…

Allphones considers that the proposed Deed of Assignment is not suitable for the assignment to the assignee, does not meet with Allphones’ approval for this purpose and accordingly Allphones cannot consent to the assignment on the form of document proposed.

Allphones is keen to assist you in progressing your sale, particularly as the assignee has already met the approval criteria for a new franchisee, however the documents to effect this need to be suitable for the process.

…

Yours faithfully

[signed] Kirsty Silbert

Kirsty Silbert

General Counsel

[errors in original]

89    The fourth paragraph of Ms Silbert’s letter clearly implies that the respondent was not willing to consent to any assignment of the Allphones Loganholme franchise by Deep End to Jade Monkee unless Jade Monkee was to be bound to a franchise agreement which was different to that dated 1 June 2005. Ms Silbert asserts, in the same paragraph, that the franchise agreement dated 1 June 2005 was subsequently varied by conduct. When the particular variations were alleged to have been made is not specified in the letter and the letter does not indicate whether the variations that are referred to were variations that were the result of mutual agreement and supported by consideration (as they would need to be if they were true variations) or whether Ms Silbert was merely referring to changes in the way in which the respondent went about its business during the term of the franchise agreement.

90    In this context, cl 15 of the franchise agreement dated 1 June 2005 is significant. It is in precisely the same terms as that found in Mrs Houghton’s franchise agreement. By cl 15, the parties to the franchise agreement agreed that it could only be varied by written agreement. Ms Silbert’s letter recognized that there had been no written agreement between the franchisor and the franchisee varying the franchise agreement. In my view, the absence of any written agreement varying the franchise agreement provides some evidence that the variations referred to by Ms Silbert were not actual variations to the franchise agreement. I will return to this aspect of the evidence shortly.

The letter of 16 February 2009

91    I next turn to the letter of 16 February 2009 which was again addressed to Mr and Mrs Mann. The letter was headed in the same manner as the 13 February 2009 letter. Relevantly, it stated:

I refer to the letter sent to on 13 February 2009 regarding the above sale.

As indicated in that letter, the most expedient way forward is for the assignee to execute Allphones’ current franchise agreement for the remainder of the unexpired term of the existing agreement. Alternatively, Deep End may enter into a current franchise agreement and assign that to the assignee. The preference for a current franchise agreement is based on the fact that the agreement you are seeking to assign does not reflect the current relationship between the parties and the way the business is currently operated. The agreement is also inconsistent with our current Disclosure Document (updated as at 31 October 2008 and in accordance with the code.)

If the current franchise agreement is not to be executed and you wish to proceed with the proposal to assign the existing franchise agreement then, at a minimum, the assignee needs to be clearly notified by means of a document agreed between us that the parties have varied the existing agreement in relation to the following:

    •    Revenue from data, broadband, upgrades and value added services has been added to the commission base;

    •    Allphones provides the grace system, IT and retention services and charges for them (as well as allowing for the introduction and charges for Pronto – the new point of sale system – when this is introduced later this year); and

    •    Allphones charges for administration and rectification of telecommunications contracts where a franchisee has failed to comply with the carrier’s procedure for completion of such contracts.

I am attaching a copy of our current Disclosure Document, which is consistent and cross-referenced to our current franchise agreement. As discussed, Allphones is compelled by the Franchising Code of Conduct to provide a prospective assignee with a current disclosure document before it enters into a franchise agreement.

I trust this clarifies that you can if you choose proceed with an assignment of the existing agreement provided the above steps and those points numbered 1-3 raised in our letter of 13 February 2009 are suitably dealt with to avoid any misunderstanding of the status of the agreement.

I will wait to hear from you on how you wish to proceed with the sale.

Yours faithfully

[signed] Kirsty Silbert

Kirsty Silbert

General Counsel

[errors in original; emphasis added]

The letter of 19 February 2009

92    I turn now to HGL’s letter of 19 February 2009 which was sent by HGL to Ms Silbert via e-mail on or about that date. The letter states:

Dear Kirsty

Sale of Franchised Business “Allphones Loganholme”

We refer to our telephone conversation on 17 February 2009.

Our client has instructed us to request that you provide for our client’s consideration your suggested amendments to the current draft Deed of Assignment (Deed) that we understand Trevor has provided to you, addressing the areas identified in your letters to Trevor and Megan Mann dated 13 February 2009 and 16 February 2009.

In particular we understand that Allphones Retail Pty Ltd (Allphones) requires clauses to be inserted into the draft Deed that address the following issues:

1.    The issue of a licence to occupy the premises;

2.    The assignee providing executed guarantees from the directors or shareholders of the assignee;

3.    The directors of the assignee providing executed non-compete agreements;

4.    Revenue from data, broadband, upgrades and value added services has been added to the commission base;

5.    Allphones providing the grace system, IT and retention services and charges for them (as well as allowing for the introduction and charges for Pronto – the new point of sale system – when introduced later this year); and

6.    Allphones charges for administration and rectification of telecommunications contracts where a franchisee has failed to comply with the carrier’s procedure for completion of such contracts.

In this regard, I note that you have indicated that in the relation to the above 6 points, you will be merely copying and pasting from your current franchise agreement. Though, it would be preferable to have these clauses drafted into the existing Deed, we note you have indicated that given that you are under resourced at this point in time it would not be possible.

Therefore, in light of your comments and our client’s eagerness to proceed with what already has been a delayed sale of business, our client is prepared to consider the proposed amendments that you will make to the Deed in an attempt to try and work together towards completion of the sale.

We note that at this point in time Allphones is reluctant to provide our client a copy of the current disclosure document that is applicable to their existing franchise agreement. Further, you have indicated that this disclosure document will not be made available to the new franchisee. Therefore, given that you have indicated you will be cutting and pasting particular provisions of your new franchise agreement into the existing Deed we would ask that you also attach a proposed disclosure document that may be provided to the new franchisee.

Please note that any requests contained in this letter should not be treated as our client agreeing to any amendments to their existing franchise agreement or otherwise providing consent to, or altering our client’s position or current franchising agreement terms. In addition, our client reserves all rights under the Franchising Code of Conduct (Code) and their existing franchise agreement including, but not limited to a right to request a disclosure document under Clause 19 of the Code. Further, this letter should not be in any way taken to be a request for the current disclosure document under the Code.

Once we receive your suggested amendments to the Deed, we will seek our client’s instructions on the same.

If you have any queries or wish to discuss this matter further please do not hesitate to contact either Nicole Radice or myself.

Yours faithfully

[signed]

HopgoodGanim Lawyers

[emphasis added]

The letter of 20 February 2009

93    Ms Silbert responded to HGL’s letter of 19 February in the following terms:

Dear Emily

SALE OF FRANCHISED BUSINESS “ALLPHONES LOGANHOLME”

I refer to your letter dated 19 February 2009 and our telephone conversation on 17 February 2009.

As discussed on 17 February 2009, Allphones’ does not bear the onus or cost of preparing the Deed of Variation or Deed of Assignment by which your client seeks to assign its franchise agreement. Notably under the Sale of business agreement between your client and the purchaser clause 13.5 provides “The cost of preparing any assignment or novation will be borne by the Vendor.” Accordingly, we will not be preparing or incurring the cost of preparation of the deed of variation as you have requested. I have however attached the New form of agreement and Allphone’s current disclosure document as at 31 October 2008 to assist you in advising and taking instructions from your client on the preparation of the Deed of Variation to ensure that the agreement to be assigned reflects the current relationship to be assigned.

You have alleged that Allphones’ is “reluctant” to provide your client a copy of “current disclosure document applicable to their existing franchise agreement”, which requires clarification. Allphones current disclosure document was last updated 31 October 2009 (“Current Disclosure Document”) and is a document prepared in accordance the Code. As already noted I have attached the Current Disclosure Document. Allphones is not “reluctant” to provide the Current Disclosure Document to your client or to the new franchisee, however, as your have been notified the Current Disclosure Document is inconsistent with the form of franchise agreement your client is seeking to assign. This brings us to the current matter in issue being a deed of variation to the franchise agreement to put the assignee on notice of variations to the agreement. Under the code a franchiser must provide a renewing franchisee or prospective franchisee a current disclosure document at least 14 days before they enter into the agreement. You have asked Allphones’ to provide a disclosure document that is not the Current Disclosure Document, being the disclosure document that was provided to your client when it entered into the franchise agreement for the purpose of providing to the new franchisee, which would have the effect causing Allphones’ to breach the Code. If your understanding of the requirements of the code differs from the above then please advise and I will consider your position.

It is necessary to point out that any delay in progressing the sale has not been on the part of Allphones’, which was a little unclear in your letter. Since your client first advised that it was keen to sell its business the purchasing entity has changed, the purchaser failed to provide all necessary information to make a timely assessment of their application to become a franchisee and we now have the unusual challenge of the formal documentation by which the changeover is to occur being inconsistent with contractual relationship between the parties. You and your client will appreciate that post-completion of a sale of business all responsibility and exposure will be on Allphones’ vis-à-vis any new party and as such Allphones’ needs to ensure that the contracts are clear as to the relationship between the parties and are comply with Allphones’ obligations under the Franchising Code of Conduct.

Allphones’ is keen to have the sale progress as expediently as possible. Allphones’ believes the most efficient way forward is for the assignee to execute Allphones’ current franchise agreement for the remainder of the unexpired term of the existing agreement or for your client to execute the current franchise agreement and you can then utilize the standard deed of assignment you previously proposed subject to separate execution of the licence to occupy premises, guarantees and non-compete agreements. In our telephone conversation I also raised the fact that your client’s current franchise agreement expires on 31 May 2010 and pursuant to clause 3 of the current agreement any renewal of the agreement would require the new franchisee to sign the franchisors then current agreement, which is likely to be the new agreement being proposed currently. Allphones’ is keen to understand our client’s position on this factor as it may save time and cost in relation to the preparation of a variation document that will only have to be superseded in a little over 12 months.

Yours sincerely

[signed] Kirsty Silbert

Kirsty Silbert

General Counsel

Allphones Retail Pty Limited

[errors in original; emphasis added]

94    There was no evidence from Ms Silbert, or any other person associated with the respondent, which might support the suggestion that the franchise agreement of 1 June 2005 had been varied. The evidence suggests, quite strongly to my mind, that Mr and Mrs Mann had not agreed to any such variations. There are three reasons for thinking that they had not done so.

95    First, it is clear from the correspondence that Deep End had contracted to sell the Allphones Loganholme franchise to Jade Monkee on the basis that the franchise agreement between Deep End and the respondent was as set out in the document dated 1 June 2005. It seems unlikely that Mr and Mrs Mann would have caused Deep End to enter into such a contract if the franchise agreement had been varied as asserted by Ms Silbert in the correspondence.

96    Secondly, cl 15 of the franchise agreement is significant because it plainly records the parties agreement that there would be no variation of the franchise agreement except as agreed in writing. Given that clause, I regard the absence of any writing recording the terms of the alleged variations to the franchise agreement as strong evidence that there were no variations to the franchise agreement agreed to between the parties.

97    Thirdly, while Ms Silbert’s letters assert that there were variations agreed by the parties, the correspondence from the solicitors for Deep End suggests otherwise. Although HGL’s letters do not include any explicit denial that any such variations had been agreed, they clearly imply that the client’s instructions were that no such variations have been agreed. Thus, in their letter of 19 February 2009 HGL refer to their client’s “existing franchise agreement” and state that their letter should not be understood as implying any agreement on the part of their client to any amendments to the existing franchise agreement.

98    I am mindful that the respondent is not required to prove its innocence of any of the charges against it. But, on the other hand, doubts of the kind raised by the respondent about the evidence relied upon by the applicant may be easier to resolve if that evidence is left uncontradicted by evidence from the respondent: see Weissensteiner v The Queen (1993) 178 CLR 217 at 227-228.

99    As I have explained, the evidence strongly suggests that there had been no variations to the franchise agreement of 1 June 2005 agreed between Deep End and the respondent. While the respondent points to statements in Ms Silbert’s letters suggesting that the franchise agreement had been “varied by conduct”, there is nothing else before me to suggest that the parties had agreed to vary the franchise agreement in any respect. In light of cl 15 of the franchise agreement, I would be strongly inclined to find that there were no such variations. I am even more inclined to find that there were no such variations given the failure of the respondent to call any evidence to show what the variations alleged to have been agreed to were or when or how they were alleged to have been agreed. The evidence that the franchise agreement dated 1 June 2005 was not varied is rendered more convincing than it otherwise might have been given the failure of the respondent to call such evidence.

100    I infer that the document dated 1 June 2005 signed by Mr and Mrs Mann on behalf of Deep End and signed by Mr Donnellan and Mr Pompeii on behalf of the respondent reflected the terms of the franchise agreement between Deep End and the respondent at all relevant times including, in particular, in February 2009.

101    I am satisfied that the respondent withheld its consent to an assignment of Deep End’s franchise agreement on the basis that the assignee must enter into a franchise agreement different to the franchise agreement between Deep End and the respondent dated 1 June 2005.

102    I am satisfied that the respondent would not consent to any assignment of Deep End’s Allphones franchise unless the purchaser of that business entered into a franchise agreement that was materially different to the franchise agreement between Deep End and the respondent dated 1 June 2005. I am also satisfied that the respondent thereby withheld consent to the assignment of Deep End’s Allphones franchise on the basis that the assignee must enter into a form of franchise agreement different to Deep End’s franchise agreement with the respondent. Mr Kiley’s evidence establishes that the respondent did not give the applicant notice of any intention to withhold such consent.

103    I am satisfied that the third charge is made out. Its elements have been established to my satisfaction beyond reasonable doubt.

The Fourth ChaRge

104    The statement of charge includes the following particulars referable to the fourth charge:

The fourth charge against the respondent is that:

(a)    On 8 July 2009 the respondent withheld consent to two of four directors of one of its franchisees, Chat Communications Pty Limited (Chat), resigning on the basis that the resignation of the two directors was an assignment of the franchise agreement between Chat and the respondent and that, for consent to be given by the respondent, Chat must enter into a form of franchise agreement with the respondent which is different to Chat’s current franchise agreement;

(b)    The respondent did not give the applicant 7 days notice in writing of its intention to withhold consent to Chat assigning the franchise agreement between it and the respondent, by reason of a change of directors of Chat, on the basis that Chat must enter into a form of franchise agreement with the respondent which is different to Chat’s exiting franchise agreement;

(c)    By reason of those facts pleaded in paragraphs (a) and (b), the respondent has breached Undertaking 9.

Particulars of Paragraph (a)

    (i)    Consent was withheld in an email from the respondent, sent by Nicole Bahn who is described by the respondent as its “Legal Counsel”, to Austin Ainley, a director of Chat, at about 4.37am (Western Standard Time) on 8 July 2009;

    (ii)    On the terms of the email of 8 July 2009 the respondent withheld consent on the basis stated in paragraph (a).

Evidence

105    A company known as Chat Communications (WA) Pty Ltd (Chat) was at all relevant times the owner of an Allphones franchise at Mirrabooka in Western Australia. Mrs Naomi Ainley gave evidence that she was at all relevant times a director of Chat and she produced a copy of the franchise agreement made between Chat and the respondent.

106    As with Mrs Houghton, there was no cross-examination of Mrs Ainley and so it was not suggested to her that the franchise agreement which she identified as the franchise agreement made between Chat and the respondent was subsequently varied in any respect.

107    The franchise agreement signed by (among others) Mrs Ainley is dated 16 September 2005. It includes cl 15 which is in the familiar form. It also includes cl 8.2 which provides:

8.2    Where the Franchisee is a corporation (other than a company listed on the Australian Stock Exchange) any change in the beneficial ownership of any substantial shareholding (within the meaning of Part 6.7 of the Corporations Law) or of the directors of the Franchisee shall be deemed to be an assignment of this Agreement and the Franchisee shall not permit any such change without the consent of the Franchisor which consent shall not be unreasonably withheld if the provisions of clause 8.1 (or such of them as required by the Franchisor) are complied with as if the company after such change were the assignee.

108    Mr Austin Ainley, Mrs Ainley’s husband, was also a director of Chat as was their son, Mr Blake Ainley. Mr Blake Ainley acted as the manager of the Chat Allphones franchise. There was another person, Mr Grant Williams, who was also a director of Chat Communications.

109    On 6 July 2009 Mrs Ainley sent to Nicole Bahn, who described herself in correspondence with Mrs Ainley as “Legal Counsel” for Allphones, an e-mail which was in the following terms:

Hi Nicole

We advise you of our intention to change the structure of the Directors of Chat Communications (WA) P/L.

Both Austin and Naomi Ruth Ainley intend to resign as directors of the company due to retirement plans.

We confirm there will be no other changes to the company structure, both Blake Ainley & Grant Williams will remain as Company Directors.

We would appreciate your response within 14 days.

Kind regards

Austin & Naomi Ainley

Blake Ainley

Grant Williams

Directors

Chat Communications (WA) P/L

T/as Allphones Mirrabooka

110    Ms Bahn responded to Ms Ainley’s e-mail on 8 July 2009. Ms Bahn said:

Dear Austin, Naomi, Blake and Grant,

Thank you for your email of 6 Jul 2009, advising Allphones of the resignation of Austin and Naomi as directors of the franchisee entity.

Under clause 8 of your franchise agreement this is a deemed assignment of the franchise. Accordingly, a new form franchise agreement will be sent to Blake and Grant for execution.

Please advise the correct address for us to send the documents to and I will arrange their despatch as soon as possible.

Yours sincerely

Nicole Bahn

Legal Counsel | Allphones

111    The applicant submits that by Ms Bahn’s e-mail of 8 July 2009 the respondent withheld consent to the assignment of the franchise agreement on the basis that the assignee must enter into a form of franchise agreement different to that made between Chat and the respondent.

112    A question which arises in relation to this charge is whether the respondent withheld consent to an “assignment”. Even if the word “assignment” is given a broad interpretation, it would not include a transaction involving no more than a resignation of directors such as Mrs Ainley proposed in her e-mail to Ms Bahn of 6 July 2009.

113    It is true that cl 8.2 of the franchise agreement deems a change in directors of the franchisee to be an “assignment” for the purposes of the franchise agreement. Whatever this might mean for the purposes of the franchise agreement, it does not follow that such a change is an “assignment” within the meaning of the relevant undertakings. Clause 8.2 of the franchise agreement deems something to be an assignment which could never be properly so described. I do not think it is open to interpret the word “assignment” so as to encompass a change in directors of the franchisee in the absence of a clear indication in the language of the undertakings that such an interpretation was intended.

114    The applicant argued that the word “assignment” should be construed “purposively” so that it would extend to all situations that the franchise agreement deems to constitute an assignment. I do not think it is open to me to approach the interpretation of the undertakings in this loose way. The franchise agreement deemed a change in directors to constitute an assignment for the purposes of the franchise agreement but the undertakings do not contain any similar provision. It would have been easy enough to draft the undertakings in a form that ensued that a withholding of consent to a change in directors was within the scope of the undertakings provided by the respondent. That was not done. That is in no sense a criticism of anyone involved in the drafting. My point is that the failure to address this question in the undertaking in the way that it has been addressed in the franchise agreement is not something that it is open to me to correct by purposive construction.

115    It follows that the fourth charge has not been made out.

DISPOSITION

116    Since I have found that three of the four charges have been made out, it will be necessary for me to hear from the parties further in relation to the questions of penalty and costs. I will order that the notice of motion stand over to a date to be fixed by arrangement with my associate for that purpose.

Associate:

Dated:    12 April 2011