Case: Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Pty Ltd (2000) 104 FCR 25
Outcome: cited
22 May 2006, Mr Birch wrote to Mr Donnellan. The letter stated that there was a signed contract between Allphones and Hoy Mobile dated 27 June 2003. Mr Birch pointed out that there had been no agreement to any modification, alteration or amendment of that contract, and that Hoy Mobile was not prepared to sign the amended version which had been sent by Allphones. He said that Mr Harkin's assertion at the quarterly review meeting that there was no contract was incorrect. Mr Birch then asserted that the franchise agreement needed rectification because of the entry 'N/A' after the word 'territory'. He pointed out Allphones' contraventions of cl 11 of the Code, prior to entering into the franchise agreement. He said that the territory represented and warranted by Allphones was an exclusive territory with a radius of 5km from the location of the business premises. The letter asserted that the opening of the Randwick store within the radius of 5 km from the Eastgardens store was a breach of Hoy Mobile's exclusive territory. He complained about the 'bullying' style adopted by Mr Harkin and Mr Donnellan in dealing with Hoy Mobile, and referred to the decision of Sundberg J in Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Pty Ltd [2000] FCA 1365 ; (2000) 104 FCR 253 at 268 [43] . On the next day Mr Donnellan wrote an email back to Mr Birch with a copy to Mrs Hoy saying that he had just read Mr Birch's letter and that it was '[p]riceless stuff'. He said that if Hoy Mobile was in breach of the agreement and did not remedy, it would be terminated like any other franchisee and that he did not care who was told. He said that Mr Harkin would respond and that Allphones was 'ready'. No other response was ever made by Allphones to Mr Birch's letter. Nor did Mr Donnelan identify any breach of the franchise agreement that he then alleged against Hoy Mobile. Until this time, (late May 2006) Allphones had no knowledge that Mr Hoy had been committing a fraud over the previous two years. I will now deal with how the fraud arose and Mr Hoy's assertions that Allphones had condoned it before returning to the narrative of events. 15.1 Conversations with Mr Clarke Allphones was not willing to carry out the franchise agreement honestly or in good faith according to its terms. Both parties have been in default of their obligations, both contractual and moral, towards one another in the conduct of the relationship. I have had regard to all of the circumstances, including Allphones' conduct leading up to the notice of intention to terminate, and the consequences on Hoy Mobile of a termination. I am of the opinion that it would be unconscientious for Allphones to insist upon its strict legal rights to force an immediate termination in all the circumstances where the performance of its own obligations under the franchise agreement has been lamentably and dishonestly short of the standards that it ought to have followed. It engaged in unjustified bullying and oppressive conduct: cf Simply No-Knead 104 FCR at 270 [51]. I am of opinion that Allphones should be restrained under s 87 of the Trade Practices Act from relying on the fraud of Hoy Mobile effect a termination of the franchise agreement. The appropriate course is to require the parties to agree upon orders to give effect to these reasons. The orders should also provide for the amount of the damages to be awarded for the breaches of contract that I have found, less the amount of profit that I have found Hoy Mobile to have retained. Interest will need to be added. The interest on Hoy Mobile's receipts from its fraudulent trading should offset some of that due by Allphones. It may not be possible to be mathematically exact, and the parties may need to adopt a practical position of halving each year's interest in respect of the new amount for that year to approximate its progressive accrual over that period. And the parties will need to address the question of costs.