Ipsofactoj.com: International Cases [2000] Part 5 Case 4 [NZCA]


COURT OF APPEAL, NEW ZEALAND

Coram

Bilgola Enterprises Ltd

- vs -

DYMOCKS Franchise

Systems (NSW) Pty Ltd

RICHARD P

HENRY J

KEITH J

6 JULY 2000


Judgment

Henry J

  1. The proceedings giving rise to this appeal and cross-appeal followed cancellation of three franchise agreements. The High Court hearing, which commenced 28 September 1998, occupied in all some seven weeks, involving a large volume of evidence and a mass of documentary material. In a judgment delivered on 26 February 1999, and reported at 8 TCLR 612 Hammond J rejected all claims made by the franchisees under the agreements, and allowed one of the several claims made by the franchisor granting a series of orders for relief. This has been a dispute bitterly contested between the parties since the inception of proceedings, with a plethora of issues being raised on both sides. The hearing in this Court was not notable either for any significant narrowing of the trial issues or for focussing on central appeal points. The parties appeared determined to repeat most of the many arguments which were presented to the High Court. 

    GENERAL BACKGROUND

  2. The respondent is the franchise arm of the Dymocks group of companies, which operates a well established retail bookselling business based in Australia. Its franchising system was extended to New Zealand. On 24 May 1994, the third appellants Mr. and Mrs. Todd entered into a franchise agreement with the respondent ("Dymocks") in respect of leased premises known as the Atrium, situated in central Auckland. They assigned their interests to the first appellant, Bilgola a company of which they are the shareholders and directors. On 7 November 1996 Bilgola entered into a second similar franchise agreement relating to premises in Newmarket Auckland. A third franchise agreement was entered into on 18 December 1996 for premises in central Wellington, the franchisee being the second appellant, a company in which the Todds and the fourth appellants Mr. and Mrs. Caddy were shareholders and directors. The Todds and the Caddys feature in the proceedings as guarantors. The premises in respect of each agreement were leased by the franchisee, the lessor in each case being independent of Dymocks. It is convenient to refer to the franchisees as Bilgola.

  3. The respective rights and obligations of the parties are effectively governed by the franchise agreements. The relationship between the parties deteriorated from early 1997, their differences coming to a head when on 6 February 1998 Dymocks issued a notice cancelling the three agreements. This action was treated by Bilgola as a repudiation by Dymocks which it (Bilgola) then by notice dated 13 February 1998 accepted as cancelling the agreements. The undoubted position was that at least by the last mentioned date all three agreements were at an end, except for any continuing consequences. Two sets of proceedings resulted.

    • One by Dymocks, claiming lawful cancellation under a series of different heads with resulting entitlement in particular to the right to purchase certain assets utilised in the business operations, an assignment of the leasehold interests, a restraint of trade injunction, and other incidental relief. Bilgola counterclaimed for damages arising from wrongful repudiation by Dymocks.

    • The other proceeding was issued by Bilgola alleging causes of action based on misrepresentation at common law, breach of contract, the Fair Trading Act 1986, and the Commonwealth of Australia Trade Practices Act 1974. Bilgola sought damages. It also contended for an entitlement to retain the leasehold interests and the business assets claimed by Dymocks, and the right to trade free from any restraint.

  4. Dymocks sought an interim injunction, effectively requiring in terms of its claimed rights under the agreements delivery up to it of the assets of the three businesses and of the premises from which they were operating. Bilgola denied Dymocks had any such entitlement. The interim position was settled on 2 March 1998 and recorded in a memorandum, under which the parties were to continue to operate on an agreed basis but generally in accordance with the terms of the franchise agreements until the High Court determination. This was expressed as being without prejudice to the positions of all parties. The terms were incorporated into consent orders made in March 1998. Following delivery of judgment and an unsuccessful application by Bilgola for a stay, Bilgola ceased operations in each of the premises. The businesses are now being carried on by or on behalf of Dymocks.

    THE FRANCHISE AGREEMENTS

  5. The three agreements are in similar form. They comprise some 41 pages, plus schedules. There are also operating manuals of approximately 250 pages, which are accepted as being part of the contractual documentation. The following provisions are of importance in considering the substantive issues requiring determination:

    5G.

    TRADE SECRETS

    The Franchisee acknowledges that his knowledge of the operation of the Business, the DYMOCKS System, its products and services is derived from information disclosed to the Franchisee by the Franchisor pursuant to this Agreement, during the training course and in the Confidential Operations Manual, and that such information is proprietary, confidential and a trade secret of the Franchisor. The Franchisee agrees that it will maintain the absolute confidentiality of all such information and not use any such information in any other business or in any manner not specifically authorised or approved in writing by the Franchisor. The Franchisee shall not divulge such information to its employees except to the extent necessary for the operation of the Business and subject to the same constraints mutatis mutandis as those placed upon the Franchisee by the Franchisor herein. The Franchisee consents to implement such proper systems and procedures as may be necessary and required by the Franchisor to maintain such confidentiality. A breach of this clause shall be a fundamental breach of this Agreement.

    5P.

    COVENANT NOT TO COMPETE UPON TERMINATION

    Upon termination of this Agreement for any reason whatsoever, the Franchisee and the Guarantor agree that for a period of two (2) years commencing on the effective date of termination of this Agreement, or the date on which the Franchisee ceases to conduct the Business, whichever is the later, they will not, either jointly or singularly have any interest:

    (a)  

    as owner (except of publicly traded securities where the Franchisee and the Guarantors do not own more than 3% of the issued shares), partner, director, officer, consultant, representative or agent, in any book sales business (which could reasonably be regarded as a market competitor or a colourable imitation of the DYMOCKS Image, product or services) within:

    (i)

    10 kilometre radius of the Premises;

    (ii)

    5 kilometers of any other DYMOCKS store then in operation 

    (whether franchised or not); or

    (b)

    as employee or in any other capacity not specified in this Clause in any similar business to that of the business within 10 kilometres of the Premises.

    The provisions of sub-paragraphs (a)(i), (a)(ii) and (b) hereof are severable each from any other.

    5Q.

    COVENANT NOT TO COMPETE UPON EXPIRATION

    Upon the expiration of the Agreement through the effluxion of time, the Franchisee and the Guarantor agree that for a period of two (2) years, commencing on the effective date of termination of this Agreement, or the date on which the Franchisee ceases to conduct the Business, whichever is the later, they will not, either jointly or singularly have any interest:

    (a)  

    as owner (except of publicly traded securities where the Franchisee and the Guarantors do not own more than 3% of the issued shares), partner, director, officer, consultant, representative or agent, in any book sales business (which could reasonably be regarded as a market competitor or a colourable imitation of the DYMOCKS Image, product or services) within:

    (i)

    10 kilometre radius of the Premises:

    (ii)

    5 kilometres of any other DYMOCKS store then in operation

    (whether Franchised or not); or

    (b)

    as employee or in any other capacity not specified in this Clause in any similar business to that of the Business within 10 kilometres of the Premises.

    The provisions of sub paragraphs (a)(i), (a)(ii) and (b) thereof are severable each from any other.

    9C.

    (TERMINATION) BY FRANCHISOR FOR BREACH

    (b)  

    The Franchisor may also terminate this Agreement forthwith upon delivery of written notice of termination to the Franchisee if the Franchisee or Guarantor permits any one or more of the following acts, which acts shall be treated as fundamental breaches of this Agreement:

    ....

    32.  

    engages in any conduct which impairs or reasonably may impair the goodwill associated with the operation or reputation of the franchise business or of the Franchisor’s reputation, trade names, service marks, logo types or other commercial symbols; or

    9H.

    FRANCHISOR’S RIGHT TO PURCHASE STOCK AND EQUIPMENT

    In the event that the Franchise is terminated for any reason, or expires through the effluxion of time or non renewal the Franchisor shall have the right (but not the obligation) exercisable by written notice delivered to the Franchisee at any time after delivery of a notice of default hereunder or within six (6) weeks after the effective date of termination or expiration to purchase all, or part of, the Franchisee’s physical assets used in the Franchise, to take over some or all equipment leases and to take over the lease of the Premises. There shall be no compensation for goodwill or leasehold improvements. The purchase price for such assets shall be the fair market value provided however that all stock shall be valued at cost price less the DYMOCKS rate of stock depreciation as specified in the Confidential Operations Manual.

    If the Franchisor and Franchisee cannot agree on the purchase price for those assets, other than stock, which the Franchisor wishes to purchase pursuant to this paragraph within two (2) weeks following the Franchisor’s exercise of its option to buy, the said fair market value shall be determined by an independent valuer designated by the President of the Australian Institute of Chartered Accountants (such cost to equally be borne by both parties) and his decision shall be final and binding and there shall be no appeal therefrom. The settlement of the purchase shall take place at a location and on a date chosen by the Franchisor. The Franchisor shall be entitled to set off against the purchase price any amounts then owed by the Franchisee and also to pay out of the purchase price any of the Franchisee’s unpaid trade creditors.

    10B.

    TRANSFER BY FRANCHISEE

    The Franchise is personal to the Franchisee and may not be in whole or in part voluntarily, involuntarily, directly or indirectly assigned, sub-divided, sub-franchised or otherwise transferred by the Franchisee without the prior written approval of the Franchisor provided that approval to assign the Franchise in whole shall not be unreasonably withheld.

    10D.

    FRANCHISOR’S RIGHT OF FIRST REFUSAL

    Notwithstanding the provisions of Clause 10B, if the Franchisee shall at any time determine to sell the Franchise (pursuant to Clause 10B) the Franchisee shall obtain a bona fide, executed written offer to purchase the Business including the Franchise together with his interest in the lease of his premises and all real or personal property, leasehold improvements and other assets used by the Franchisee in the Business from a responsible and fully disclosed purchaser and shall submit an exact copy of such offer, together with an itemised schedule of assets to be sold, to the Franchisor who shall, for a period of three (3) weeks from the date of delivery of such offer, have the right, but not the obligation, exercisable by written notice to the Franchisee, to purchase the Business and the assets of the Franchisee, for the price (minus any sales commission which would have been payable as a result of the proposed sale) and on the terms and conditions contained in such offer, provided that the Franchisor may substitute cash for any form of payment proposed in such offer. If there is a dispute as to the true value of any non cash consideration portion of the purchase price, such consideration shall be valued by an independent valuer as set forth in Clause 9H. The Franchisor may deduct from the purchase price any unpaid debts of the Franchisee to the Franchisor and may pay out of the purchase price any of the Franchisee’s unpaid trade creditors.

    If the Franchisor does not exercise its right of first refusal, the Franchisee may complete the sale of the Business to such purchaser subject to the provisions of paragraph 10B hereof, for a consideration which does not vary from the consideration set out in the written offer and otherwise on the same terms and conditions without further offer of the right of first refusal.

    The Franchisee may only sell the Business including the Franchise by way of written offer. If the sale to such purchaser is not completed within two (2) months after delivery of such written offer to the Franchisor the Franchisor shall again have the right of first refusal herein provided. Nothing herein contained shall prevent the Franchisee executing an agreement to assign conditional on compliance with this Clause.

    10G.

    FRANCHISEE NOT TO CONTRACT WITH INDEPENDENT BOOK RETAILER

    The Franchisee must not during the term of this Agreement (otherwise than in accordance with clause 10B) or within 3 months from the date of termination or expiration of this Agreement, enter into any agreement, arrangement or understanding with any person, firm or company under which or as a direct or indirect consequence of which, a person, firm or company acquires the right or is given assistance to carry on business as a retail bookseller in the Premises or within the area referred to in clause 5Q.

    11H.

    ENTIRE AGREEMENT

    This Agreement, which shall include the provisions of the Confidential Operations Manual, contains the entire understanding and agreement of the parties hereto concerning the matters herein contained. The Franchisee agrees and acknowledges that he has not been induced to enter into this Agreement in reliance upon, nor as a result of any statements, representations, warranties, promises or inducements whatsoever, whether oral or written and whether directly related to the contents hereof or collateral thereto made by the Franchisor, its officers, directors, agents, employees or contractors.

    11L.

    GOVERNING LAW

    This Agreement shall be construed in accordance with and governed by, the laws of the State of New South Wales and the parties hereby consent to the jurisdiction of the courts of the said State.

  6. Clause 10G, which prohibits the franchisee from contracting with another retail bookseller, was not a term of the Atrium agreement. However under cl 9I of that agreement breach of any other agreement between Dymocks and Bilgola is deemed a breach of the Atrium agreement.

    THE GOVERNING LAW

  7. Clause 11L of the agreement declares that the governing law is that of the State of New South Wales, Australia. A consent memorandum placed before the trial Court recorded that the parties were agreed that the New Zealand Courts have jurisdiction to hear all disputes between them, including the two sets of proceedings in question. We have no doubt that the High Court was vested with jurisdiction under the Judicature Act 1908 to determine the issues raised in the proceedings, including the claim based on the Australian Trade Practices legislation. The consent memorandum effectively precluded the parties from promoting a forum objection argument.

  8. Ascertainment of the relevant law of New South Wales therefore became a question of fact to be determined on expert evidence (A-G of New Zealand v Ortiz [1984] AC 1,45). For this purpose, evidence was called from three experts — Sir Laurence Street, former Chief Justice of New South Wales, Mr. Tom Bathurst, a New South Wales Queen’s Counsel, and Professor John Carter, of the University of Sydney. In the High Court, and again in this Court, counsel referred to a large number of authorities, the majority of which were not relied upon by the experts, which have been decided both in Australia and in other jurisdictions. At trial, it appears that the Judge was invited to take a somewhat less than strict approach to determining the relevant foreign law, and encouraged to make his own assessment of the authorities as well as having regard to the expert testimony. Reliance was placed on ss 39 and 40 of the Evidence Act 1908 (the latter in particular) as justifying the approach. They provide:

    39.

    Statutes of any country published by authority

    Books purporting to have been printed or published under the authority of the Government of any country, or by the printer to such Government and purporting to contain statutes, Ordinances, or other written laws in force in such country, shall on production be admitted and received by all Courts and persons acting judicially as prima facie evidence of such laws.

    40.

    Certain law books may be referred to as evidence of laws

    Printed books purporting to contain statutes, Ordinances, or other written laws in force in any country although not purporting to have been printed or published by authority as aforesaid, books purporting to contain reports of decisions of Courts or Judges in such country, and textbooks treating of the laws of such country, may be referred to by all Courts and persons acting judicially for the purpose of ascertaining the laws in force in such country; but such Courts or persons shall not be bound to accept or act on the statements in any such books as evidence of such laws.

  9. Section 39 obviates formal proof of statutes or other written laws. Their construction may still require expert assistance. Section 40 permits the acceptance of the stated material as evidence of the law, but again whether a particular report or text represents the current foreign law may require testimony. This is not an appropriate case to embark on a detailed examination of the scope of s 40 and the use to which the material referred to can be put by a Court. Its relevance arose only in the course of argument in this Court, with particular reference to the finding that Dymocks had lawfully cancelled the agreements for breach by Bilgola of an implied term of confidentiality, an issue to which we will return later. Suffice it to say that in a case such as the present, the proper course is to rely on expert testimony, which can be assessed by a consideration of the bases proffered to support the opinion in question. Section 40 does not appear to permit a Judge to decide a question of foreign law from his or her own studies or research, nor to engage in the development of existing and established law of another State.

    CANCELLATION BY DYMOCKS

  10. In the statement of claim on which it went to trial Dymocks alleged that it had cancelled the three agreements by its notice of 6 February 1998. The grounds relied on were first, those set out in the notice, second, those set out in a letter of 2 July 1998, and third words and conduct evincing an intention by Bilgola not to be bound. In the course of the trial, detailed evidence came to light that Mr. Todd, who was one of the original signatories to the Atrium agreement and a director and major shareholder in Bilgola and Lambton Quay Books, had been in communication with representatives of Blue Star Group Ltd, which operated the Whitcoulls and London Bookshop retail bookseller businesses. Discussions began about November 1997, and led to a confidentiality agreement between Bilgola and Blue Star which recorded the following:

    INTRODUCTION

    A.

    The parties have disclosed certain information to each other at their request, and have agreed to disclose further such information to enable them to evaluate and explore the various advantages of the parties entering into a joint venture arrangement as book sellers / book store owners ("Approved Purpose").

    B.

    The information to be provided is of a secret and confidential nature and is of commercial value to the party providing the information. In order to protect and maintain the secrecy, confidentiality and value of such information, the parties have agreed to enter into this deed.

  11. The covenants in the agreement related to protection of the confidential information. The discussions took place on the premise that Bilgola would be able to exit the franchise agreements. By this time the Atrium business was experiencing financial difficulties, and the problems between Dymocks and Bilgola Ltd had assumed significant proportions. In Bilgola’s view, these were attributable to various shortcomings on the part of Dymocks, some of which were relied upon in its subsequent proceedings, in particular the alleged misrepresentations. Following discovery of the extent of Bilgola’s dealings with Blue Star, an amendment to the pleadings was sought and granted on 10 December 1998 to include a claim that Bilgola had breached cl 5G (protection of trade secrets) and cl 10G (no contract with independent bookseller). It was alleged there had been disclosure of particularised confidential information to Blue Star, and entry into the agreement with Blue Star. In an oral exchange with Hammond J, Mr. Asher QC for Dymocks confirmed that reliance was also being placed on an implied obligation of good faith and confidentiality. In the course of final addresses in January 1999, a further amendment was sought by Dymocks to include an allegation of a breach of an implied obligation of confidentiality owed under the franchise agreements. The alleged breach was the provision of the same confidential information as previously pleaded. This last amendment was granted by the Judge in his final judgment of 26 February 1999. Having granted the amendment, the Judge proceeded to hold that the franchise agreements did contain such an implied term, which was breached by Bilgola. As a result, it was held that Dymocks had lawfully cancelled the agreements in February 1999 and was entitled to substantive relief. All other causes of action pursued by Dymocks were dismissed, as was Bilgola’s counterclaim.

  12. The judgment in respect of Dymocks’ claim to have cancelled the agreements is under challenge on all fronts. By Bilgola in respect of the implied term, and by Dymocks in respect of the rejection of its additional claims based on repudiation and breaches of express terms of the agreements — including those which were largely fact dependent.

    (a) The implied term of confidentiality

  13. Preparatory to addressing the implied term issue, Hammond J discussed in some depth what he termed the juridical concept of a franchise. He observed that franchise agreements had become important commercial instruments in 20th Century Australia. He then discussed North American law, Australian law ("still evolving"), and Australian legislation (the Federal Franchising Code of Conduct, newly part of the federal trade practices legislation). In respect of North American law, the Judge referred to a recognition that a significant proportion of private contracts do not easily fit conventional contractual analyses, and the development of the concept of "relational" contracts. These included distributorships, franchise, joint ventures and some employment contracts. He also noted that the North American courts have been prepared to imply terms of unfairness and unreasonableness. As to the position in Australia, Hammond J accepted the expert evidence that conceptions of good faith are developing in the area of contract law.

  14. Turning to the case in hand, Hammond J said that, for reasons he had referred to in his earlier wide ranging discussion on the nature of franchise agreements that the relationship between franchisor and franchisee was not "merely a simple bilateral contract", but a relational contract in which an ongoing relationship was set up for the benefit of both parties. He concluded that it involved no violence or undue extension to the law to hold that as part of an overall duty of good faith a franchisee must not inappropriately disclose even the franchisee’s own information. This was seen as conceptually the same as the good faith obligation which exists between employer and employee.

  15. At this point it is necessary to refer to the information which was said to have been wrongfully disclosed to Blue Star. It is common ground that the information was not confidential to Dymocks in the sense that term is ordinarily used in misuse suits. It did not emanate from Dymocks, but was part of or was extracted from Bilgola’s own financial records. The information identified comprised Bilgola’s consolidated financial statement as at 30 September 1997 and, in respect of the three stores, sales (including forecast) figures, sales and margin growth information, set up costs information, employment costs, and lease details. The pleading in its final form alleged in this respect an implied obligation of confidentiality, the breach found being disclosure of the above information. The issue is whether New South Wales law implies in these agreements a duty so defined.

  16. It is not entirely clear how the argument in support of the implied term was developed in the High Court. In this Court, Mr. Asher contended that the implication was properly made on two bases. First, under the common law test for implying a term to repair an intrinsic absence of expression. The expert evidence established that the principles enunciated in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 283 represented current New South Wales law. This approach does not appear to have received consideration by Hammond J, although we understand it was relied upon in the course of argument in the High Court. There are obvious difficulties bringing the pleaded term within the BP Refinery parameters. The first lies in attempting to formulate the term with any clarity of expression. It was submitted that it was implied that the parties would "act in good faith to each other". The meaning of such a general obligation in the context of these detailed commercial contracts, comprising as they do extensive documentation, is quite unclear and uncertain. Mr. Asher sought to refine the duty in this particular case to a duty "during the term of the agreement not to take steps which would harm the business of the franchisor, including the disclosure of information which in the hands of the party to whom it was disclosed would be harmful to the franchisor". The scope of that formulation is also unclear and uncertain. What is the extent of the prohibition? What information is protected?

  17. Secondly, such a term cannot be said to be necessary to give the agreements business efficacy. They are carefully constructed, detailing the parties’ respective rights and obligations. The implied term does not fill any gap which, if left unfilled, would somehow result in the parties expressed intentions not being met.

  18. Thirdly, the parties expressly provided for the protection of information confidential to the franchisee by means of cl 5G (trade secrets). Hammond J held, and his finding is not under challenge, that the information in question was not protected by that provision. To impose the wider implied term which would embrace cl 5G information would give a curious if not inconsistent result. Of relevance also in this respect is the express notation making the operations manual confidential, again demonstrating that the parties have identified the material which requires protection. In addition, for reasons which we will discuss later, cl 10G (no contract with independent book retailer) was not breached by Bilgola by reason of its dealings with Blue Star. Again, if the contract did not infringe an express provision, there is obvious difficulty in implying a wide term which would incorporate in its breadth that very provision.

  19. Fourthly, it would be unreasonable to restrain the franchisee from disclosing its own business information, particularly in light of its entitlement to sell or assign the franchise. As Hammond J recognised, there would appear to be no reason why disclosure of this same information should not be made near to expiry date of the agreement to a potential partner in a new venture. Once that is accepted, prohibition of disclosure at an earlier date has the appearance of illogicality. The same adverse results to the franchisor occur regardless of the time of disclosure.

  20. In the alternative Mr. Asher submitted that the term was to be implied by law because of the relationship created by the franchise agreement. This in essence is the basis of the finding in the High Court. It raises what is an insurmountable problem for Dymocks — the expert evidence called at trial did not address the issue. By the time the amended pleading came into focus, the experts had completed their evidence and had returned home. There was no attempt to have them recalled. The only context in which the question of good faith or reasonableness had surfaced as an identifiable question of law concerned the exercise (by Dymocks) of its contractual powers of cancellation. That question was one of construction of the terms of the contract, and did not involve the imposition of a wide general duty of good faith or reasonableness. We were not pointed to evidence which could justify the imposition of such a duty sought, and indeed Hammond J, without reference to the experts, regarded this as a developing area of law. In addition, several of the matters relevant to the BP Refinery test are relevant also to a consideration of this submission. Clarity of expression, and the express terms of the agreement which govern the protection of information (cls 5G and 10G) are examples. Mr. Asher also enlisted support from cl 5E which required both parties at all times to perform their obligations faithfully honestly and diligently, and to use their best efforts to promote the business. Rather than forming a basis for imposing a far wider duty of good faith extending beyond performance of express obligations, the clause could be seen as limiting or defining the duty in that way. There is no room for superimposing further undefined obligations of good faith.

  21. Whether New South Wales law should now develop in a way to recognise the relational nature of some contracts such as franchise agreements, with consequences which will as a general proposition confer rights or impose obligations which are not expressed by the parties is beyond the proper scope of a Court applying that foreign law. That said, the significance of the need for certainty, particularly where parties to an arms length commercial transaction have carefully set out the details of their relationship, must be an important factor in any particular case. The implication of obligations must always be able to sit comfortably with the express terms of an agreement. In this case, that presented a difficulty for Dymocks.

  22. We do not see the analogy with employment law as assisting Mr. Asher’s argument. That is established law, and arises from the special relationship between an employer and an employee which has long been recognised. We were not drawn to evidence from any of the experts which would justify an extension by analogy of that principle to agreements such as those now in question.

  23. We are satisfied that it was not open to the Judge to conclude that under the law of New South Wales a term such as that pleaded, defined in the judgment, or discussed in the course of argument in this Court is to be implied into these agreements.

    (b) Clause 10G

  24. Dymocks seeks to support the finding that it lawfully cancelled the agreements on the alternative ground of breach of cl 10G of the agreements. This cause of action was included in the amended pleading, and relied on Mr. Todd’s dealings with Blue Star as its foundation. It was not considered by Hammond J, presumably because of his finding on the implied term cause of action. The issue is whether on the facts as found by the Judge, a breach of clause 10G was established. It is convenient to restate its provisions:

    The Franchisee must not during the term of this Agreement (otherwise than in accordance with cl 10B) or within 3 months from the date of termination or expiration of this Agreement, enter into any agreement, arrangement or understanding with any person, firm or company under which or as a direct or indirect consequence of which, a person, firm or company acquires the right or is given assistance to carry on business as a retail bookseller in the Premises or within the area referred to in cl 5Q.

  25. The only "agreement, arrangement or understanding" which could come within the prohibition is the so-called confidential agreement between Bilgola and Blue Star. There were no other dealings between those parties identified as coming within the ambit of the clause. The clause must be construed, and the relevant facts applied, in the context of the agreement as a whole.

  26. The clause did not feature in the Atrium agreement, but is contained in both the Newmarket and Wellington agreements. It is in the section of the agreement headed "Transfer", but does not seem to fit comfortably into that concept. It is in substance a non-competing covenant by the franchisee. Its purpose is to restrain the franchisee from entering into an arrangement under which a competitor is given assistance by the franchisee. The validity of the provision does not appear to have been in question.

  27. Under the confidentiality agreement, the recipient covenanted not to use the information for any purpose other than the possible joint venture arrangement, and in particular not to use it in furtherance of competition with the provider, or in a way which was detrimental to the provider’s interests. As the argument developed in this Court, when analysing the clause and the relevant facts, the contention became clear. It was submitted that Bilgola had entered into an agreement "as a direct or indirect consequence of which (Blue Star) is given assistance to carry on business as a retail bookseller within the (prohibited) area"; the assistance was the provision of the information earlier identified which was based on Bilgola’s own business records; and this was of use or benefit to Blue Star in carrying on its existing businesses (Whitcoulls and London Bookshop) in Newmarket and Wellington. Clearly giving that kind of assistance was not the intention or purpose of the agreement. To the contrary, the agreement prohibited such use of the information. It is difficult to see how in this situation Blue Star was given assistance in carrying on its existing businesses. It is beside the point that viewed objectively possession of this information may have been of use or benefit to Blue Star in the ways suggested in evidence and accepted by the Judge if it breached its express obligation. This was not an agreement of the kind contemplated by cl 10G as giving assistance to Blue Star in its existing operations. Even if it could be said that the "indirect consequence" reference is wide enough to catch what occurred here, we would not see the agreement to investigate the feasibility of a joint venture, which would be conditional on exiting the franchise agreements, as constituting a breach of such seriousness as warranting termination. It is relevant that a breach of cl 10G is not stipulated as one of the many grounds set out in the comprehensive provisions of cl 9C giving Dymocks an express right of termination.

    (c) Other grounds for cancellation

  28. The written submission on behalf of Dymocks on the cross appeal directed to supporting alternative grounds for justifying the cancellation seem to cover two broad heads - repudiation by Bilgola, and breaches of contractual obligations. In the written material there is a considerable overlap between the two as well as a collection of selected pieces of evidence put forward as supporting individual points. However in his oral submission, Mr. Asher was able to bring more focus to the basic contentions, which has enabled the Court to consider the matters in question in a more analytical manner. Mr. Asher expressly accepted that the relevant findings of fact made by the Judge could not properly be challenged, and must be accepted for present purposes. He submitted that Hammond J had made three errors of approach to the Dymocks case which had led him wrongly to hold that its purported termination of the agreements on these alternative grounds was ineffective. The errors were identified as being: first, the Judge failed to consider a facsimile message of 3 February 1998 sent by Bilgola to other Dymocks franchisees in context; second, he failed to interpret that document properly; and third, he failed to take into account the totality of the breaches committed by Bilgola and their overall significance. Because it formed an important part of the argument on repudiation and was also the primary basis for the allegation that cl 9C(b)(32) giving the right of termination for conduct impairing goodwill, the full content of the facsimile should be stated. It originated from Mr. Todd, was addressed to "NZ franchise owners", and read:

    • Message:

    As mentioned in our recent telephone conversation, I have had a lengthy dispute with DFS ("Dymocks") over representations made at the time of entering into franchise agreements still not being fulfilled. After three and a half years, these misrepresentations focus on projected profitability and anticipated market presence of Dymocks in New Zealand.

    In basic terms, the non-delivery of DFS services has meant that our supplier discounts are no better than those available to other independent booksellers in New Zealand and, frequently, not as good as can be achieved by a number of independent buying groups. Clearly, discounts fall well short of those received by the major groups, players in the book trade (e.g. Blue Star, Paper Plus). In addition, the relatively small size of Dymocks severely limits our ability to generate special deals with publishers (the recent issue with the new John Grisham title is a case in point where we would have had to buy four to five months stock for the additional discount and, given the cost of holding that stock, the deal did not make economic sense.) Furthermore, Dymocks do not receive anywhere near the same generous advertising and promotional subsidies from publishers which are granted to our competitors. Following the latest developments announced by Blue Star for its upmarket bookchain, Bennetts Books, proposing the establishment of up to 20 to 25 stores in this country, the growth prospects for Dymocks in New Zealand, both for sales through existing stores and in establishing new stores, are now heavily constrained, if not downright non-existent.

    What is quite apparent is that the Dymocks name in New Zealand does not put franchise owners on the same footing as our major competitors with publishers, so that the effect on profitability is two-fold, namely:

    1.

    Publisher discounts and subsidies are significantly smaller than those of our competitors, resulting in a relatively smaller gross profit which handicaps our ability to compete; and

    2.

    Payment of substantial franchise fees each month which confer no perceptible competitive benefit erode, or eliminate, net profit (or increase the size of monthly losses) and thus our ability to build up reserves (goodwill, etc) in our business, a vital factor in being able to meet the stronger competition in the New Zealand market expected over the next few years.

    This huge impost on profitability is certainly affecting the on going viability of my own business. Not only does it mean that earnings fall well short of projected DFS representations, they also do not meet "reasonable rate of return" criteria. Consequently, I cannot justify my existing investment, let alone consider putting in additional funds to meet the competitive threat which will be posed by Bennetts Booksellers. Quite simply, we would be better off just putting our money in the bank and living off the interest.

    Given that some of you have also experienced similar difficulties from the failure of DFS to deliver promised services, the following course of action would seem to be appropriate:

    1.

    I will no longer participate in any DFS activities until the dispute is resolved;

    2.

    As Dymocks franchise owners, we should get together in the near future to discuss common problems and objectives. Towards this end, and at the invitation of DFS to talk the various issues over with you, I am sending copies of recent correspondence between DFS and myself to you under separate cover.

    The failure of DFS to deliver on core services seriously jeopardises the livelihood of us all, and I believe that we must take urgent action now rather than delay these matters further. After all, it is our capital which is being put at risk by the failure of DFS to deliver on representations and to reach the critical mass necessary to ensure the ongoing viability of the Dymocks name in New Zealand. It is my considered view that Dymocks now has no future in this country because current franchise arrangements will do nothing other than ensure we will eventually all go broke. Opportunities to consolidate the name while the main opposition was in hiatus over the past few years have been lost and cannot be recovered except with huge capital expenditure which, again, cannot be justified under current arrangements.

    Please advise me your comments etc a.s.a.p. and suggested dates and venue for a meeting. It goes without saying that these matters must be treated with the strictest confidentiality.

  29. Before considering the ramifications of the facsimile, Hammond J traversed a period of approximately 3 months "in order to appreciate the context". By the end of October 1997, the Bilgola business was in a critical state financially, and there was concern over the performance of all three stores. Communications between Bilgola and Dymocks included expressions of concern on both sides, complaints by Bilgola as to Dymocks’ responsibility for problems which had arisen, and references to Bilgola exiting the franchise system and operating independent stores. The latter suggestion was unacceptable to Dymocks. The relationship between the parties had become tense and strained. On 13 January 1998, Bilgola was advised by Mr. Perkin, managing director of Dymocks and based in Sydney, that there was no objection to Mr. Todd discussing his (perceived) complaints with other franchise owners. The 3 February facsimile resulted.

  30. Mr. Asher submitted that the Judge disregarded the history of what Dymocks complained was Bilgola’s failure to comply with its obligations, and the context in which the facsimile was sent when he concluded that it did not amount to a breach of any pleaded provisions of the agreement. We find no substance in this complaint. The Judge clearly had in mind cl 9C(b)(32) which prohibited conduct impairing the Dymocks goodwill, and was at pains to cover the matters leading up to 3 February in some detail. He had earlier in his judgment considered other allegations of breach stating:

    [These points] covered such things as alleged refusals or failures to participate in group buying deals and promotional activities; book returns; book transfers; alleged direct negotiation with suppliers without Dymock’s agreement; failure to maintain store housekeeping standards in relation to the Atrium; and failure to pay suppliers on time.

    I heard a substantial volume of contentious evidence on all of these issues. I am quite satisfied that if any breaches under these heads occurred, they were de minimis, substantially historical, and none of them, whether alone or cumulatively, would come anywhere near the standard I would find as a question of fact to have been sufficiently serious to warrant the termination of one or all of these franchise agreement.

  31. Having made this assessment, and having gone on to discuss in some detail the events leading up to 3 February and the reaction of the Dymocks’ personnel to it, he concluded that it was the facsimile which caused Dymocks to issue the termination notice. He expressly held that the other matters, which it is now said were not taken into account, cumulatively did not materially contribute to that decision. It is clear that the relevant background leading up to the facsimile was not overlooked, and there is no cause to question the Judge’s findings as to the relevant insignificance of the earlier breaches relied upon by Dymocks.

  32. It was next submitted that the facsimile had been misconstrued. Mr. Asher stressed that the message to other franchisees was unambiguous and was a statement of intention no longer to be bound by the franchise agreement. The misconstruction is not apparent. The Judge was conscious of the evidence given on behalf of Dymocks as to what they took from the document, and what he thought was over-reaction. He saw as relevant that there were areas of dispute, other franchisees had their own concerns, and there was no communication external to Dymocks franchisees. Also significant was the clearance by Dymocks for Bilgola discussing its complaints with others. A careful reading of the judgment does not show that in reaching a final view that this "strong and provocative" action by Bilgola did not constitute a breach justifying termination was in any way reliant on some misconception or lack of appreciation of the contents or import of the facsimile.

  33. Neither are we persuaded that the Judge failed to look at the overall effect of the wide range of matters advanced by Dymocks as amounting to breaches of the agreements or as demonstrating an intention no longer to be bound. This ground of complaint in effect involved an attempt to revisit the Judge’s assessment of the facts relevant to the various matters and their importance. There is no basis for this Court to do other than accept the findings of fact and the assessment which resulted. The clear finding that grounds for cancellation (excluding the implied term and breach submission) had not been made out was available to the Judge, as was his further finding that notice of the alleged breaches giving opportunity to rectify or explain was required and not given. We can discern no error in his approach to that issue, or in his acceptance of the expert evidence that New South Wales law could imply a contractual term that in the context of an express termination power it must be exercised reasonably. This effectively answered the contention that there was an absolute and untrammelled power given Dymocks under cl 9C(b).

    CONCLUSION AS TO CANCELLATION BY DYMOCKS

  34. For the above reasons we are satisfied that the Judge erred in determining that Bilgola had breached an implied term of confidentiality. We are also satisfied that he was not in error in determining that the other causes of action relied upon by Dymocks as justifying cancellation of the agreements had not been established. It must follow that Dymocks actions in giving notice of cancellation amounted to repudiation, which was then accepted by Bilgola as bringing all three agreements to an end.

  35. In its counterclaim to Dymocks’ action, Bilgola pleaded cancellation for wrongful repudiation by Dymocks and sought damages. At trial, extensive evidence was called as to losses suffered by Bilgola, but it would seem directed primarily if not entirely to its own claims under the proceeding it had instituted. It was far from clear either that the true measure of damages under this particular cause of action had been identified, or that the evidence established what was the resulting loss. This Court is not in a position to reach a decision on those matters, which will necessarily need to be referred back to the High Court. Whether further evidence is to be received will be for the High Court to decide if either party seeks to adduce it, but we note that there was an express pleading claiming damages for wrongful repudiation, with a consequential evidential burden being placed on Bilgola for trial purposes.

    THE BILGOLA PROCEEDING

  36. Bilgola went to trial on causes of action based on misrepresentation and the fair trading legislation. Although the proceeding was dismissed in its entirety, the appeal is pursued only in respect of the claim under the Australian Trade Practices Act 1974. The pleading alleged that Dymocks had engaged in conduct that was misleading or deceptive or was likely to mislead or deceive (s 52). The particulars given were a series of misrepresentations which was also relied on in respect of the common law cause of action. The particulars were identical in each cause of action. As to misleading representations as to future conduct, s 51A was relied upon. It provides:

    51A

    INTERPRETATION

    (1)

    [Representations as to future matters]

    For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.

     

    (2)

    [Deeming provision]

    For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation.

  37. Hammond J identified in summary some 11 areas of misrepresentation which were relied upon by Bilgola. Only one of those is now put forward as having been determined by the Judge on an erroneous basis, namely the provision of financial projections to the Todds prior to entry into the franchise agreements. The financial projections were produced utilising a model which had initially been constructed in Australia. It contained a base sales performance curve, which was used as a starting point for assessing the likely sales for a store of a particular size. It then incorporates a number of inputs or adjustments. Certain assumptions are made, resulting in forecasts as to financial performance. The integrity or validity of the model was challenged, but the Judge found on the evidence that challenge could not succeed. In his submissions Mr. Fardell endeavoured to again argue that the model was flawed and was therefore an unrealistic basis for providing the projections.

  38. We are not persuaded that from the volume of evidence put before him by way of testimony and documentation the Judge was not entitled to reach the conclusion he did. This was a factual assessment and the selected passages of evidence to which reference was made do not demonstrate any error. As to the use of the model for the purpose of making projections for the New Zealand stores, the Judge correctly observed that assumptions had to be made, and accepted that those which were made were reasonable. We see no reason to disagree. Neither are we persuaded that Hammond J erred in finding that the projections did not in fact breach s 52. Again, there was a volume of evidence from both parties which required and was given consideration which resulted in a factual assessment. What is relevant in this regard is the Judge’s additional finding that Bilgola’s financial difficulties were attributable in a material way to management practices and managerial inexperience.

  39. In oral argument it became clear that the real thrust of Mr. Fardell’s submissions under this head was based on the failure by Dymocks to disclose to Bilgola what was termed the primary material which related to the model, in particular the actual Australian returns which showed a considerably smaller figure for earnings before interest and tax than those projected for the New Zealand stores. To the extent this was a factor in final submissions on behalf of Bilgola, there is no cause to think Hammond J overlooked it or failed to give it such weight as he felt appropriate. It was but one of a multitude of criticisms made by Bilgola, many of which went to matters of detail and received close examination and dissection. In a lengthy trial which involves so many diverse and overlapping issues, it is not incumbent on a judge to deal expressly with every aspect of a party’s case as put forward in evidence and addressed in closing. In this case the Judge is to be commended for his promptness in preparing and delivering a judgment in recognition of what was an ongoing difficult situation for the parties which required urgent resolution. As he noted, this resulted in somewhat less detail being included than otherwise may have been the case. The approach does not in any way detract from the integrity of his findings.

  40. Mr. Fardell also submitted that intention to mislead was not a necessary element of a s 52 breach, and it was sufficient if the conduct in question in fact misled or was likely to mislead. We can discern no error of approach by the Judge in this respect. Following a careful consideration of the evidence and the respective contentions, he found there was no past or present misrepresentation of a matter of fact. The projections were as to future performance of the proposed business operations, and the Judge further found on the evidence that the projections were based on reasonable grounds or assumptions. It is important to consider this head of complaint in proper context, and not in a simplistic way. The pleading was that projections and data represented to Bilgola that the stores would achieve or be able to achieve a certain level of sales and earn a certain profit before tax. It was claimed the representation was false because it was inaccurate, misleading, over optimistic, and the sales or profit could not be achieved. It is impossible to read the pleaded representation as a warranty - it can only be a statement of belief as to future performance. In essence, the representation was that the projections were properly and reasonably based - which the Judge has expressly found they were. A further problem for Bilgola under this head of argument is that in the circumstances of this case, any distinction between a common law misrepresentation and misleading conduct under s 52 is difficult to discern. Yet the failure of the common law plea is not under challenge.

  41. It is desirable to refer briefly to one other aspect of the Trade Practices Act claim which was also the subject of challenge in this Court. It is whether Bilgola placed reliance on the financial projections. Hammond J expressed his conclusion in this way:

    I find that Mr. Todd, at the relevant times, did not rely, in the required sense, on these projections and statements. He took them into account, but this is perhaps an unusual case in which, in my view, Mr. Todd, in the full sense of the term, made his own quite independent decisions.

  42. Reasons for the conclusion then followed. Mr. Fardell based the substance of his challenge on the use by the Judge of the words "he took them into account." We are satisfied that it is reading too much into the observation to equate it to a finding there was some measure of reliance, sufficient to found relief under the Act. The Judge's assessment clearly was that the projections played no real part in the final decisions to proceed — they did not operate as an inducement. Mr. Todd had accounting expertise, and there were disclaimers or warnings as to the use of the projections. The further point that the time to test the reliance aspect was when Bilgola became committed to a lease or leases, rather than later when a franchise agreement was entered into, is difficult to follow. The pleading alleges inducement to enter into the agreements, and it also appears that commitment to all leases may not have preceded provision of the projections. The point has little substance and would seem to be raised in order to meet an additional difficulty posed by cl 11H of the franchise agreements, which is an "entire agreement" clause. This provision did not feature as significant in the judgment. We would not interfere with the Judge’s conclusion.

  43. We find it unnecessary to embark upon a consideration of the further finding that Bilgola has not proved its claimed losses were caused by Dymocks actionable conduct. Additional issues as to jurisdiction to entertain a claim under the Australian legislation, on which we have expressed an opinion, and as to limitation in respect of the Atrium agreement, fall away and do not require discussion.

  44. For the above reasons, the appeal by Bilgola against the dismissal of its action against Dymocks must fail.

    CLAUSE 9H

  45. The position now reached being that Bilgola lawfully cancelled the agreements for repudiation by Dymocks by reason of its unlawful cancellation, the effect of cl 9H must be considered. Under that provision Dymocks is given a right of purchase of the physical assets used in the franchise, and to take over the leases. Dymocks exercised those rights and enforcement of them is directed in the relief granted under the present judgment.

  46. It was first submitted by Mr. Fardell that the clause had no operational effect if the franchise was lawfully terminated by Bilgola. He contended that the opening words should be read as "In the event that the Franchise is terminated for any reason other than for breach by the Franchisor ...." We can see no justification for reading down the clause in that way. The words are clear — the clause becomes operative if the agreement is terminated for any reason. It must also operate if the agreement expires through effluxion of time. It is understandable that in a commercial setting such as this the franchisor would wish to retain a store, established as part of a network, within that network once the particular agreement came to an end. The reason for the agreement coming to an end would be quite irrelevant to what happens to the store when that occurs. The parties have expressed their respective rights and obligations which arise when their relationship ends.

  47. The primary submission made in the High Court and renewed in this Court was that the clause was a penalty, and therefore unenforceable. Hammond J reviewed the expert evidence on this topic and held that a clause which can activate whether with or without a breach of contract, is capable of being a penalty. He then went on to hold that this particular clause did not offend. In so deciding, the Judge applied the well established principles enumerated in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79, which he found represented current New South Wales law. He saw as relevant that it operated not only for breach but also on termination for whatsoever reason, its purpose was not compensatory, nor was it designed to compel performance, and the clear purpose was to retain franchises within the Dymocks network. We agree with his analysis. Clause 9H does not have the effect of providing the franchisor with a measure of compensation for loss suffered on termination, and is absent the elements which are normally associated with a penal provision. It has not been demonstrated that unfairness results from its implementation. The method of stock valuation is not unreasonable, and leasehold improvements would be to the benefit of the lessor, although of some intermediate use to a lessee while the lease remains in force. Goodwill is reasonably excluded, having regard to the fact that Dymocks is the owner of the property which underlies the very existence of the franchise agreement. The claim must also be viewed in the light of the law, as found by the Judge, that despite the wording of cl 9C(b), not every breach of the agreement or of the Operations Manual would justify termination. Clause 9H must therefore take effect according to its terms.

    CLAUSE 5P

  48. Like cl 9H, cl 5P is expressed as applying upon termination for any reason whatsoever. Again, it is impossible to give those words anything other than their natural and clear meaning. Hammond J found on the expert evidence that whether such a provision survives termination is a question of construction. He concluded that cl 5P did survive, noting that under cl 9K obligations which by their nature survive expiration at termination continue in full force notwithstanding expiration or termination. The Judge also followed Photo Production Ltd v Securico Transport Ltd [1980] AC 827, relied upon by one of the experts as providing an appropriate approach to New South Wales law, and classed the restraint provision as ancillary or secondary to the privacy obligations, and therefore surviving. It must also be said that cl 5P itself envisages survival when the parties primary obligations are brought to an end during currency of the contractual term of the agreement. There is a separate provision (cl 5Q) which relates to expiration. The Judge treated the clause as vesting in Dymocks a right at the time of execution of the agreement, not affected by termination. Although he expressed possible concern if there was unlawful termination, as a matter of construction it is difficult to see how that could bring about a different result. Termination is termination, and as the clause says it matters not what brings about the termination. Mr. Fardell relied on Kaufman v McGillicuddy (1914) 19 CLR 1, also referred to in evidence as representing New South Wales law But there it was held that on the true construction of the contract of service, the restraint stipulation ceased to operate when the contract was rescinded. There is no statement of principle contained in the judgments which detract from the proposition that it is a matter of construing the particular agreement in proper context. The context here is that of a franchise operation. There is nothing to indicate that the covenant not to compete was dependent upon the franchisee continuing to be able to operate the business in terms of the agreement. It was not submitted in this Court that the terms of the restraint are unreasonable. Clause 5P must therefore also be given its effect.

    FRANCHISE FEES

  49. We earlier referred to consent orders made in relation to the application by Dymocks for an interim injunction. Under the terms of that consent, Bilgola continued in possession of the premises and carried on business under the Dymocks banner in terms of the franchise agreements. On 19 November 1998, during the course of the hearing, Hammond J varied the consent by releasing Bilgola from its obligation to pay franchise fees for the month of October 1998, and thereafter until further order of the Court. Financial hardship was the primary ground for allowing the variation. As part of the relief granted Dymocks in his final judgment, Hammond J ordered Bilgola to pay franchise fees down to 31 October 1998. Mr. Fardell submitted that in the event this court held, as it now has, Dymocks’ termination of the agreements was unlawful, the order should be reversed.

  50. We see no reason to do so. Whether the agreements were properly cancelled by Dymocks or by Bilgola does not seem to be of significance on this point. Bilgola continued to operate the business, for practical purposes in terms of the agreements under the terms of the consent orders. The Judge was fully aware of the matters relied upon by Bilgola in claiming franchise fees should not be paid, and of those relied upon by Dymocks in claiming they should. He made a considered decision as to where the justice of the matter lay for the period from termination (whether by Bilgola or by Dymocks) down to delivery of judgment and the consequential requirement for Bilgola to yield up the premises and the assets in question. There is no cause to differ from that assessment.

    COSTS

  51. In a supplementary judgment, Hammond J made separate orders as to costs under the Dymocks action and under the Bilgola action. Bilgola’s appeal against the dismissal of its claim being unsuccessful, it is now necessary to deal with its further appeal against the costs order relating to that proceeding.

  52. The order comprised solicitor and client costs of $555,000.00, expert witnesses’ fees of $104,210.00, plus disbursements to be fixed by the Registrar. The written submissions include a challenge to the amount allowed for legal expert witnesses. However, it is clear from the judgment that those particular expenses were not included in the Judge’s assessment, which concerned only accounting experts. That aspect can accordingly be ignored.

  53. The actual solicitor and client costs incurred by Dymocks was $1,395,687.50, covering the two sets of proceedings from initiation down to judgment. An apportionment of this as to 60 percent for the Bilgola proceeding was suggested and adopted by the Judge. The apportionment has not been challenged so the actual costs can be regarded as amounting to $837,412.50. Hammond J considered the reasonableness of that figure, and after making allowance for factors which he identified, used a figure of $750,000.00 as a starting point. For reasons he then enunciated, he considered it appropriate to allow 75 percent of that figure, arriving at a rounded award of $550,000.00.

  54. The first issue is whether the Judge’s assessment of reasonable costs as being $750,000.00 should stand. On this point the only submission of substance made was that the claimed total figure of $1,395.687.00 compared unfavourably with the equivalent liability incurred by Bilgola of $858,918.96, 60 percent of which would be $515,350.00. The Judge considered that using the Bilgola costs as a benchmark, a figure of at least $500,000.00 was justified. He considered that there had to be some addition to recognise the more extensive disclosure obligations which fell on Dymocks, involving the employment of the Australian solicitors, which accounted for an additional $250,000.00. We have not been provided with any sufficient basis for concluding that this approach was erroneous. A breakdown of the account was available to the Judge, who discounted what appears to have been the figure proffered by Dymocks as to the extent of the difference between the parties in respect of the cost of discovery. No error of approach has been identified. The real question is whether the end result was excessive.

  55. The claim by Bilgola was for damages amounting to $7,891,658.91 including interest. Party and party costs under the Second Schedule to the High Court Rules would amount to $298,684.94. Also of relevance is the rejection by Bilgola of an overall settlement offer contained in a Calderbank letter. Against this background, Hammond J discussed possible approaches to the issue. One, to discount actual costs, two, to have regard to the scale of costs on a mark up basis, three, to consider the awards in comparable cases, and, four, to traverse all relevant factors and reach a rounded decision. He referred to ten instances of commercial litigation determined in the last seven years, and noted the range of awards from $150,000.00 to approximately $1,000,000.00. A further but exceptional figure relating to the Equiticorp litigation can probably be disregarded because of its unique features. On a percentage of actual, the range was from 11 percent to 60 percent. The Judge then referred to a number of factors which he saw as having potential relevance in the exercise, before reaching the conclusion earlier noted as the final result of his overall consideration.

  56. Having regard to the change recently effected to the award of costs in the High Court, it is unnecessary to embark on a detailed consideration of the earlier authorities, and the attempts to grapple with the formulation of guidelines or factors which may go to determining what is a reasonable contribution to the costs of a successful party. In the present case, it is sufficient to note that this case was relatively complex. It involved consideration of common law principles as they apply to New South Wales and also of Australian federal legislation. There was a wide range of factual issues involving detailed consideration of management practices, and the examination of the breakdown of a business relationship where numerous side issues, described by the Judge as wide ranging, were brought into account. Pre trial matters were comparatively extensive, and required contested hearings. The trial was lengthy, and the stakes were high. Bilgola failed on all aspects of its claim.

  57. On the face of it, the award is high. But when regard is had to the basic factors we have referred to, it is difficult to say it is outside the range available to the Judge, who was particularly well placed to make an assessment. Mr. Fardell has not been able to draw our attention to any error of approach on the part of the Judge, nor to demonstrate why the result takes the contribution outside the requirement of reasonableness.

    RESULT

  58. The appeal by Bilgola against the judgment declaring that Dymocks lawfully terminated the franchise agreements is allowed, and the declaration made in the High Court is quashed. The declarations and orders numbered 2 to 10 inclusive in the sealed judgment dated 18 March 1999, which relate to the continuing operation of cls 9H and 5P of the franchise agreements and the delivery up of Dymocks materials, are confirmed. The order for an enquiry into damages set out as number 11 of that order is quashed. The orders numbers 12 to 15 inclusive relating to the payment of franchise fees are confirmed.

  59. The cross appeal by Bilgola is allowed, and there will be a declaration that the franchise agreements were lawfully terminated by Bilgola for repudiation by Dymocks. The question of damages resulting from that termination is remitted to the High Court, as is the question of trial costs in that proceeding.

  60. Bilgola’s appeal against the dismissal of its action, including the costs order made against it, is dismissed. Both parties having been successful in part and unsuccessful in part, there will be no orders as to costs in this Court.


Cases

A-G of New Zealand v Ortiz [1984] AC 1; BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266; Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79; Photo Production Ltd v Securico Transport Ltd [1980] AC 827; Kaufman v McGillicuddy (1914) 19 CLR 1

Legislations

New Zealand

Evidence Act 1908: s.39, s.40

Australia

Trade Practices Act 1974: s.51A, s.52

Representations

J R F Fardell, A I C Denton & M Peters for Appellants (instructed by Russell McVeagh McKenzie Bartleet & Co, Auckland)
R J Asher QC, J L Land & R E Butcher for Respondent (instructed by Kensington Swan, Auckland)


all rights reserved