FEDERAL COURT OF AUSTRALIA

RPR Maintenance Pty Ltd v Marmax Investments Pty Ltd

[2014] FCA 514

THE COURT ORDERS THAT:

1.    Within 7 days hereof the parties are to seek to agree the precise amounts of the applicant’s costs and expenses to be included in proposed orders 2, 3(c) and 11 and the cross respondent’s costs in proposed order 12.

2.    If the parties are unable to reach agreement, final orders will be made in the terms of the proposed orders save that the references in proposed orders 2, 3(c) and 11 to the applicant’s costs and expenses and the reference in proposed order 12 to the cross respondent’s costs will be to those: “as assessed”.

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

REASONS FOR JUDGMENT

1    Judgment in the substantive proceedings was delivered on 29 April 2014 (see RPR Maintenance Pty Ltd v Marmax Investments Pty Ltd [2014] FCA 409). The parties were provided with an opportunity to seek to agree final orders which gave effect to the reasons for judgment. They have been unable to reach full agreement and each has filed and served a brief outline of submissions in support of their respective proposed final orders. The parties do not oppose the matter being disposed of on the papers and without a further oral hearing.

2    I will deal with each of the matters which are in dispute and express my view on them, before indicating the proposed final orders. I will use the same abbreviations as in the primary judgment.

(a)    Quantum of damages and interest payable by Marmax for breach of contract

3    Marmax disputes that it should be ordered to pay $9,423 (as at 13 May 2014) to which a further $1.08 per day should be added until the date of the final orders. It contends that the correct figure should be calculated by reference to five jobs only and not include an additional job which RPR says should be included (namely the Bultitude job, as to which see [267] and [270] of the primary judgment). Marmax says that while the lead sheet for the job is dated 29 August 2008 (and therefore within the term of the sub-franchise agreement), the job was not actually done until 12 October 2008, when the sub-franchise agreement had terminated.

4    It is clear from [270] of the primary judgment that there was a finding that the Bultitude job involved a breach of RPR’s exclusivity. Accordingly, it should be included in the calculation of the quantum of damages payable by Marmax. In my view, the source of the contractual relationship between the parties relating to that job is not the lead sheet but is a document entitled “variation to contract”, which is also dated 29 August 2008. The contract was entered into before the termination of the sub-franchise agreement and, in my view, it is not to the point that the job itself was not carried out until October 2008.

(b)    Should Marmax and Spanline be required to pay any taxes on the moneys payable by them to RPR?

5    RPR says that the damages awarded in its favour against both Marmax and Spanline should be grossed up for tax. Although RPR acknowledges that its claim for damages was expressed in terms of its gross profit, it contends that the experts contemplated that some allowance needed to be made for RPR’s potential tax liability in respect of its damages. It says that the accounting witnesses called by both Marmax and Spanline accepted in their evidence that some allowance needed to be made for tax, a view which was also expressed by RPR’s accounting witness.

6    The quantum of any taxation liability is uncertain and is complicated by various factors. They include:

    the fact that RPR will receive in one financial year moneys which would otherwise have been spread over seven financial years;

    RPR’s overall tax position;

    the possibility that Marmax might pay the damages awarded against it in the current financial year; and

    that Spanline has indicated that it proposes to appeal and it might obtain a stay which will have the effect of deferring matters.

7    In the light of these uncertainties and complexities, RPR proposes an order which seeks to accommodate future developments and contingencies relating to taxation.

8    For the following reasons, I do not consider that it is appropriate to include in the final orders an order which makes provision for grossing up for tax. First, RPR sought damages based on its gross, not its net, profit. Secondly, it can be assumed that if in fact RPR had itself done the relevant jobs it would have had to pay tax. I accept that, as RPR points out, there are complications in determining whether the tax which it would have had to pay if it had carried out the jobs would be the same as that which it now seeks to have grossed up in its proposed orders, but it seems to me that this simply serves to highlight the inappropriateness of making such an order.

9    Thirdly, none of the parties cited any relevant authorities. It appears that different views have been expressed as to the appropriateness of grossing up for tax in awards of damages and that different considerations may arise in cases involving damages for unlawful termination of employment. There is a helpful discussion of some of the relevant principles in New South Wales Cancer Council v Sarfaty (1992) 28 NSWLR 68 at 79-80 per Gleeson CJ and Handley JA.

10    Finally, and perhaps most significantly of all, I consider that there is considerable force in Marmax’s submission that the grossing up orders proposed by RPR are too uncertain. They depend on various contingencies which may or may not occur. I consider that it is in the interests of finality in litigation that the respondents not be left in the dark for an indefinite period as to their full liability. I decline to make orders 2 and 5 as proposed by RPR.

(c)    Scope of Marmax’s indemnity to RPR

11    RPR contends that an order should be made requiring Marmax to indemnify it in respect of any costs and expenses incurred by it relating to the bringing of the proceedings, not limited to its costs of enforcing the sub-franchise agreement. Marmax says that the indemnity should be limited to the finding that it breached the sub-franchise agreement.

12    I reject Marmax’s submission. It is incorrect of Marmax to assert that its liability was confined to the breaches of the sub-franchise agreement. It is necessarily implicit in the findings at [306] of the primary judgment that Marmax was also in breach of the restraint of trade clause in the TBLA for the period up until September 2008 (it was held that, after that time, the restraint of trade provisions were invalid and unenforceable).

13    I also consider that Marmax’s liability under the indemnity in clause 20.2 of the sub-franchise agreement should include RPR’s costs and expenses of its interlocutory application filed on 8 June 2012. RPR unsuccessfully sought interlocutory injunctive relief against Marmax (see RPR Maintenance Pty Ltd v Marmax Investments Pty Ltd [2012] FCA 681). Yates J subsequently ordered that the respondents’ costs be their costs in the cause (see RPR Maintenance Pty Ltd v Marmax Investments Pty Ltd [2012] FCA 1311).

14    Clause 20.2 of the sub-franchise agreement obliged Marmax to indemnify RPR “… in respect of any claim, action, damages, liabilities, costs and expenses incurred by [RPR]… as a consequence of any breach or default by [Marmax]… under this Agreement or in conduct of the Franchised Business”.

15    In my opinion, the costs and expenses which RPR incurred in respect of its unsuccessful application for interlocutory injunctive relief are properly characterised as costs and expenses which RPR incurred “as a consequence of” Marmax’s breach of the sub-franchise agreement. That breach was established subsequently in the substantive proceeding. I reject Marmax’s submission that the indemnity did not extend this far because the sub-franchise agreement was not relied on for the purposes of interlocutory hearing and was not considered a “viable claim” by Yates J (noting that the sub-franchise agreement was not in evidence in the proceedings at that time and its terms were then unknown). The relevant point is that the sub-franchise agreement was raised by RPR successfully in the substantive proceeding.

(d)    Quantum of damages payable by Spanline to RPR

16    For the same reasons as those given above in respect of Marmax’s challenge to the quantum of damages and interest it is required to pay, the quantum of damages payable by Spanline should also reflect the Bultitude job.

17    In respect of Spanline’s obligation to pay RPR further damages and interest in respect of its failure to perform its contractual obligations to RPR relating to exclusivity, RPR properly raised with the Court whether it intended in the primary judgment to include in the quantum of those damages jobs done by Marmax in RPR’s territory before RPR first told Spanline about Marmax’s activities. These jobs, for which Marmax is not liable because they were done after September 2008 (and before June 2009) relate to the following customers: Chalmers and D’Adam, Conley, Nichols and Hebbard.

18    Spanline itself raises no objection to these jobs being included. Even though the jobs were done before RPR first complained to Spanline, I do not see why they should not be included in the quantum of damages. RPR made clear to Spanline that it may not have been aware of all of the jobs done by Marmax impermissibly in its territory. If Spanline had properly discharged its functions as franchisor and made appropriate inquiries it presumably would have learned of these additional jobs. They should be included.

Conclusion

19    Apart from the matters which I have dealt with above, the parties were able to agree the remaining final orders.

20    RPR indicated that, having regard to the determination of the disputed issues concerning the final orders, the parties might be able to agree on the precise amount of RPR’s costs and expenses to be included in various orders.

21    In those circumstances, I will indicate that I am minded to make final orders in the terms set out below, but I will allow the parties 7 days hereof to seek to agree the amounts to be included in particular orders. If they are unable to do so, final orders will be made that the relevant costs and interest be as assessed.

Proposed final orders

22    The final orders which I propose to make, subject to the parties having the opportunity to seek to agree on the quantum of relevant costs and interest, are as follows:

Damages for breach of contract and pre-judgment interest:

23    The Court ORDERS that:

1.    The first respondent pay to the applicant damages, together with interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) (FCA Act), totalling $9,423 [as at 13 May 2014, to which a further $1.08 should be added per day until the date of the final orders], in respect of which the second respondent is jointly and severally liable.

2.    The first respondent indemnify the applicant in respect of any costs and expenses incurred by the applicant relating to the bringing of these proceedings against the first respondent, such costs and expenses to include the applicant’s costs of its interlocutory application filed on 8 June 2012.

3.    The second respondent:

(a)    pay to the applicant damages, together with interest pursuant to s 51A of the FCA Act, totalling $9,423 [as at 13 May 2014, to which a further $1.08 should be added per day until the date of the final orders], in respect of which the first respondent is jointly and severally liable;

(b)    pay to the applicant damages, together with interest pursuant to s 51A of the FCA Act, totalling $120,834 [as at 13 May 2014, to which a further $17.79 should be added per day until the date of the final orders]; and

(c)    pay to the applicant damages being all of the applicant’s costs and expenses of and incidental to the proceedings against the second respondent, such costs and expenses to include the applicant’s costs of its interlocutory application filed on 8 June 2012, together with interest pursuant to s 51A of the FCA Act.

The option

24    The Court DECLARES that:

4.    The term of the Spanline Retail – Manufacturing Agreement dated 23 March 2009 between the applicant and the second respondent is 5 years plus an option of a further 5 years, such option being exercisable by the applicant.

5.    On 3 September 2013 the applicant validly exercised the option for a further 5 years.

25    The Court ORDERS that:

6.    The second respondent execute a franchise agreement with the applicant for a term of 5 years:

(a)    in the form and with the current terms and conditions used by the second respondent;

(b)    except with the same terms and details as in the first schedule to the current franchise agreement;

failing which a Registrar of this Court will execute same on behalf of the second respondent.

The purported termination

26    The Court DECLARES that:

7.    The purported notice of termination issued by the second respondent to the applicant on 17 September 2013 is invalid and of no force or effect.

27    The Court ORDERS that:

8.    Order 1 made on 10 December 2013, being:

On the usual undertaking as to damages provided by the applicant to the second respondent, until further order, or unless the applicant agrees in writing, the second respondent, its servants and agents are restrained from taking any steps to act upon the Purported Termination,

be discharged.

9.    The second respondent, its servants and agents, be permanently restrained from taking any steps to act upon the purported notice of termination.

Cross Claim

28    The Court ORDERS that:

10.    The further amended cross claim is dismissed.

Costs

29    The Court ORDERS that:

11.    Subject to orders 2 and 3(c), the respondents are to pay the applicant’s costs of these proceedings.

12.    The cross applicant is to pay cross respondent’s costs of the cross claim.

Undertakings and security for costs

30    The Court ORDERS that:

13.    The usual undertaking as to damages provided by the applicant to the first respondent, noted in orders made by Yates J on 29 June 2012, is discharged.

14.    The usual undertaking as to damages provided by the applicant to the second respondent on 10 December 2013 is discharged.

15.    The undertaking given by Mr Richard Marron and Mrs Paula Marron to the second respondent dated 7 November 2012 and filed on 28 March 2013 is discharged.

Associate:

Dated:    22 May 2014