Case: Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993] HCA 27 ; (1993) 182 CLR 26
Outcome: followed
Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993] HCA 27 ; (1993) 182 CLR 26 at 41, Deane, Toohey, Gaudron and McHugh JJ said: 'The true nature of election is brought out in this sentence from the seminal work of Spencer Bower and Turner, The Law Relating to Estoppel by Representation (3rd ed (1977), p 313): 'It is of the essence of election that the party electing shall be "confronted" with two mutually exclusive courses of action between which he must, in fairness to the other party, make his choice.' Their Honours had pointed out that the consequences of an election may well be serious for the party electing and that, in particular, election involves the abandoning of a right that is available. Thus, they held that a party could only be held to have elected if he had so communicated his election to the other party in clear and unequivocal terms: Immer 182 CLR at 39. They noted that there was a distinction between the situation where a party to a contract, faced with the choice of terminating it or keeping it on foot, chooses to terminate as opposed to when the contract remains on foot. In the case of a termination, the party ordinarily will have acted in a way that leaves no doubt as to the choice made, which would be clearly inconsistent with the exercise of the right to keep the contract on foot, because it no longer exists: Immer 182 CLR at 41. Deane, Toohey, Gaudron and McHugh JJ emphasised that at the heart of election was the idea of a confrontation which, in turn, produced the necessity of the party confronted making a choice: Immer 182 CLR at 42. Mere awareness of a right to rescind or terminate or of facts giving rise to a right to rescind or terminate will not necessarily have the consequence that the party will be held to have elected to affirm the contract if he or she acts on the basis that the contract remains on foot. As Deane, Toohey, Gaudron and McHugh JJ noted ( Immer 182 CLR at 43): 'Such an implication is at odds with the notion of being confronted with the necessity of making a choice.' In the present case, Hoy Mobile did not identify when, in the period between Allphones learning of the transaction with Mr Quarmby in late May and giving its notice of intention to terminate in late August 2006, Allphones was required to make an election either to terminate the franchise agreement or abandon its right to do so. While in Mr Donnellan's email of 10 July 2006 Allphones had stated that it was relying on fraud, the precise nature of the fraud on which it was relying had not been revealed by it, despite requests through Hoy Mobile's solicitor, that it do so. Nor, had Hoy Mobile disclosed anything about the existence, nature or extent of its fraud to Allphones. Hoy Mobile, however, was acutely aware of the fraud it had committed and uniquely placed to understand its full implications. And, his Lordship said that where there is a right to elect '... the party is not bound to elect once; he may wait and think which way he will exercise his election, so long as he can do so without injuring other persons ...' ( Scarf 7 App Cas at 360, emphasis added). Lord Blackburn emphasised that election involved, first, the making of the choice between one of two inconsistent rights and, secondly, the notification or communication of that choice to the party against whom the rights existed in a way that affected that other party. Hence, in Immer 182 CLR at 43 Deane, Toohey, Gaudron and McHugh JJ referred to the party being '... confronted with the necessity of making a choice'. As at 9 June 2006, when Allphones demanded the return of an unamended RCTI agreement from Hoy Mobile, I am satisfied that it had knowledge of what happened in the sale to Mr Quarmby. However, I am not satisfied that at that time it had discovered or fully absorbed the implications of two recharge cards appearing on its point-of-sale records in connection with the payment of $199 for Mr Quarmby's phone. Nor am I satisfied that Allphones' asking for the complete RCTI agreement to be signed was inconsistent with Allphones keeping alive its right to terminate. After all, there was no provision in the franchise agreement which required Hoy Mobile to execute the RCTI agreement. Its execution was proffered by Allphones as a means of facilitating prompt payment of money which was payable once the requirements of the Goods and Services Tax (GST) legislation were satisfied. I am not satisfied that, at this time, Hoy Mobile had any belief that Allphones had made a choice to affirm the franchise agreement. At that time, Hoy Mobile was ignorant that Allphones had any awareness of its fraud. It did not believe that Allphones made an election at any time in June 2006. Indeed, Hoy Mobile was then complaining directly, and through its solicitor, that Allphones was refusing to recognise the existence of any franchise agreement. Hoy Mobile was hardly in a position to suggest that, in fairness to it, Allphones was confronted with the requirement to make a choice then and there: see Immer 182 CLR at 41. Nor, apart from ease of administration, and the obligation to pay Hoy Mobile more promptly, was there any identifiable 'benefit' accruing to Allphones from seeking execution of the RCTI agreement. I am of opinion that Allphones had insufficient knowledge by the time its receipt of the RCTI agreement on 15 June to find that it had elected not to terminate the franchise agreement by reason of Mr Hoy's fraudulent conduct. (b) Store refresh requirement By the time the store refresh letter was sent to all franchisees on or after 29 June 2006, Allphones was aware of skimming having occurred at Hoy Mobile through both Mr Quarmby's transaction and Mr Shepherd's revelations as to what had happened while he worked there. However, Allphones was still seeking legal advice as to its position. Mr Berner only interviewed Mr Quarmby on 30 June 2006, although I infer that the information Mr Quarmby had given to Mr Ilievski had been passed on to Allphones' solicitors by that time. And, by 30 June, Allphones' solicitors were proceeding on the basis that they were acting in anticipation of litigation as well as giving Allphones advice as to its position. I am satisfied that prior to Mr Donnellan sending his letter on 7 July 2006, Allphones had not communicated to Hoy Mobile that it had chosen between two mutually exclusive courses of action with which it had been confronted, at that time and between which, in fairness to Hoy Mobile, Allphones had to choose: Immer 182 CLR at 41. In addition, Mr and Mrs Hoy did not give evidence that they believed that Allphones had affirmed the franchise agreement existence prior to this time. To the contrary they perceived its actions as breaches of the franchise agreement, or denials of its existence. Once Mr Donnellan's letter of 7 July had been received by Hoy Mobile, it was clear to both parties that Allphones wished to discuss a serious matter. By the following Monday, 10 July, Allphones had communicated that it believed Hoy Mobile had committed a fraud. Mr Hoy was instantly aware, on receiving that news from his wife, that the fraud concerned the unlocking of phones. Mr Donnellan's evidence was that he wanted a meeting so that he could hear what Hoy Mobile had to say about the allegations. I accept his evidence that he wanted to give Hoy Mobile an opportunity to provide its response, if any, to the allegations which were being made by Allphones. However, Mr Hoy never attended a meeting with Allphones after 9 May 2006, when Mr Harkin had insulted and berated him during the quarterly review. I have some sympathy with Mr Hoy's reluctance to attend a further meeting after that experience. Allphones submitted that Mr Harkin's behaviour during this quarterly review was merely to be characterised as part of the rough and tumble of business dealings. I reject that submission. Of course, business dealings can be, and often are, robust exchanges. Mr Harkin did not offer any justification for his abusive conduct towards Mr Hoy on 9 May at the quarterly review. Objectively, there was no justification for it. He acted in a bullying, offensive and overbearing manner towards Mr Hoy. I reject the argument that such behaviour should be characterised as acceptable or normal in the relationship between franchisor and franchisee. Obviously, allowances must be made for different people and the way in which they react and interact. Having had the benefit of seeing both Mr Hoy and Mr Harkin in the witness box, I am satisfied that in a commercial negotiation and meeting, Mr Hoy was quite capable of looking after himself and his own interests. He was no 'wilting flower'. However, in his relationship with Mr Harkin, Mr Hoy was not in a particularly powerful position. To be abused and sworn at as Mr Hoy was, during the course of a business meeting, for no good reason, was not something which, in the ordinary course, anyone should have to face. Mr Harkin's behaviour was inappropriate. I do not draw any adverse inference against Mr Hoy for refusing to have a further meeting with Mr Harkin. Through neither party's fault, a meeting was unable to be arranged between 7 July and 22 August. During that period, Hoy Mobile wished the contract to remain on foot while Allphones had indicated that it was keeping its options open until Hoy Mobile had had an opportunity to explain its, prima facie, fraudulent conduct. A reasonable person in Hoy Mobile's position could not have understood Allphones' conduct at this point to amount to an affirmation of the franchise agreement. Both parties were still pursuing the course of holding a meeting for the purposes set out in Mr Donnellan's letter of 7 July. That course was being pursued with Hoy Mobile's full knowledge, and indeed at its request, through Mr Birch's email of 10 July to that effect. And, neither Mr nor Mrs Hoy gave evidence that they understood that Allphones had chosen to affirm during this period. Allphones was not making a choice of affirming the franchise agreement, while holding matters in abeyance pending the meeting at which Hoy Mobile could explain its position. Rather (as Kitto J observed was permissible in Goonan 111 CLR at 55) Allphones had said that it intended to refrain from electing until the meeting occurred. Nor, in fairness to Hoy Mobile, was Allphones required to make a choice before that meeting had occurred: Immer 182 CLR at 41. However, those situations are far removed from that presented here. Hoy Mobile asked Allphones not to terminate pending a meeting. It cannot now say that, because Allphones expressly acceded to its request on 10 July for a meeting, it affirmed the franchise agreement. At the heart of the principle of election, as Deane, Toohey, Gaudron and McHugh JJ showed in Immer 182 CLR at 41, is not only the confrontation of the elector with a choice, but also the requirement that when so confronted the elector '... must, in fairness to the other party, make his choice' (emphasis added). Having requested Allphones not to make the choice before Hoy Mobile could meet with it, Hoy Mobile cannot complain that, in fairness to it, Allphones should be held to have made a choice that neither party intended it to have made. Each party accepted that neither would be taken by the other as having unequivocally chosen between inconsistent rights until at least the time after the meeting had occurred. Fairness, in the sense referred to in Immer 182 CLR at 41, would be eschewed, not advanced, if Allphones' accommodation of Hoy Mobile's request not to terminate until a meeting occurred, were used to preclude it from terminating at or immediately after that meeting. I find that, in July and August 2006, Allphones was unaware that Mr Hoy had been committing the fraud beginning sometime early in 2004. All that Allphones knew at the time was what Mr Shepherd and Mr Quarmby had told it. There is no evidence that Allphones had any other knowledge of when, or the circumstances in which the fraud first commenced. Nor did Allphones have knowledge that the fraud continued after Mr Quarmby had purchased his phone, although I have no doubt it suspected that this had occurred. But suspicion is one thing, and knowledge another. Mr Hoy had made no, let alone full and frank, disclosure of what he was doing at any time prior to Allphones issuing the notice of intention to terminate. While Allphones may have suspected that more was involved than it knew, given the element of fairness inherent in the concept of election ( Immer 182 CLR at 41) Hoy Mobile's assertion of election by Allphones based on incomplete information and disclosure by Hoy Mobile, does not provide any occasion to find that Allphones elected to affirm the franchise agreement. So far as Hoy Mobile relied on matters occurring after 7 July 2006, I find that the lifting of the stock and commission holds were not unequivocal affirmations of the franchise agreement. Commissions had been earned prior to that time. It would be unjust to impute to Allphones an election, once for all to give up its right to terminate for Hoy Mobile's undoubted fraud, simply because, in ignorance of the full nature and extent of that fraud, it acceded to Hoy Mobile's request not to terminate until the 22 August meeting could occur. And, Hoy Mobile's argument that Allphones had delayed unreasonably, until 28 August, from issuing the notice of its intention to terminate is, in my view, without substance. Hoy Mobile had requested the delay. Through neither party's fault, the meeting could not be arranged earlier than 22 August. Any delay in the six days after that was inconsequential. Mr Harkin said Allphones would issue the notice. Hoy Mobile did not contend that anything occurred, after he said this and before 28 August, which amounted to an election by Allphones.