AMC Commercial Cleaning (NSW) Pty Ltd v Coade

CITATION : AMC Commercial Cleaning (NSW) Pty Ltd v Coade [2010] NSWSC 832

DECISION : Held that the master franchisor, principally through the conduct of the first defendant, was in breach of the master franchise agreement in many respects, including a breach of the implied duty of good faith. Matter stood over for draft orders to be prepared based upon the findings contained in the reasons for judgment.

CATCHWORDS : CONTRACTS - general contractual principles - construction and interpretation of contracts - franchise - where master franchisee alleged breach of master franchise agreement by master franchisor

Alcatel v Scarcella (1998) 44 NSWLR 349 Automasters Australia Pty Ltd v Bruness Pty Ltd (2003) ATPR (Digest) 46-229 CASES CITED : Burger King Corp v Hungry Jack's Pty Ltd (2001) 69 NSWLR 558 Far Horizons Pty Ltd v McDonald's Australia Ltd [2000] VSC 310 Gary Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR 41-703 J F Keir Pty Ltd v Priority Management Systems Pty Ltd (administrators appointed) [2007] NSWSC 789

AMC Commercial Cleaning (NSW) Pty Ltd (plaintiff) PARTIES : Stephen Keith Coade (first defendant) Australian Maintenance and Cleaning Pty Ltd (second defendant)

T A Alexis SC (plaintiff) COUNSEL : M Ravech, M Seelig (defendants) (15-19 and 23 March 2010) M A Ashurst SC, M Seelig (defendants) (25 May 2010)

SOLICITORS : Rockcliffs Solicitors (plaintiff) Linacre Lawyers (defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

Date of Hearing: 15-19 and 23 March, 25 May 2010 Date of Judgment: 21 July 2010

2009/289426 AMC Commercial Cleaning (NSW) Pty Ltd v Stephen Keith Coade and anor

JUDGMENT REIN J: Introduction 1 These proceedings relate to a franchise agreement known as the Master Franchise Agreement ("MFA") entered into between AMC Commercial Cleaning (NSW) Pty Ltd ("AMC NSW") and Australian Maintenance and Cleaning Pty Ltd ("AMC National") in 2005. Mr Alexis SC appeared for AMC NSW. Mr Seelig of counsel appeared throughout the hearing for AMC National and its sole director and shareholder, Mr Stephen Coade, but he was led initially by Mr Ravech of counsel, and at a further hearing, by Mr Ashurst SC. 2 By the MFA, AMC National, as franchisor, appointed AMC NSW as master franchisee for New South Wales and the Australian Capital Territory for a 10 year period, with options for extension for a further 20 years. AMC NSW was empowered to enter into sub-master franchise agreements with sub-master franchisees in NSW and the ACT.

Claims 3 Since 2008, a number of disputes have arisen between AMC NSW and AMC National, and it is AMC NSW's case that AMC National has acted in bad faith towards it. The plaintiff seeks reimbursement of various amounts, damages (to be assessed) and declarations in respect of AMC National's conduct, but has not sought to terminate the MFA. 4 At the hearing in March 2010, AMC NSW detailed the following breaches of the franchise agreement by AMC National: (a) failing to refer internet inquiry leads to AMC NSW and preferring the interests of a competitor, namely International Franchise Group Pty Limited/the Saffys; (b) deducting from monies collected and remitted to AMC NSW, charges that are not authorised by the MFA. For example, AMC National deducted the 15 per cent "sign on" fee from monies remitted to AMC NSW before the franchise fee payable by the franchisee to AMC NSW was received; (c) failing to render invoices to customers of AMC NSW and its franchisees within a reasonable period of time. A related issue is the failure of AMC National to provide copies of the invoices so rendered to AMC NSW upon request, so that the date of dispatch can be identified; (d) failing to use reasonable endeavors to collect payment of invoices for AMC NSW and its franchisees and remit payments to them in a timely manner; (e) failing to establish and maintain a trust account in the name of AMC NSW and operate that account exclusively for transactions pursuant to the MFA. A related issue is the failure of AMC National to provide AMC NSW with visual internet access to the account or with bank statements or allow Mr George Kijurina (the managing director of AMC NSW) to be reinstated as a signatory; (f) failing to account to AMC NSW for bank charges and all interest earned on monies in the "trust account" and paying the accrued interest to AMC NSW. There is a related issue concerning the need for an account with respect to the 2 per cent royalty; (g) making threats to Mr Kijurina concerning the future of AMC NSW; (h) making disparaging, derogatory and threatening statements of and concerning AMC NSW and Mr Kijurina to third parties; (i) serving AMC NSW on 19 November 2008 with a "Default Notice" which was baseless; (j) arbitrarily purporting to increase the "sign on" fee from 15 per cent to 50 per cent, issuing AMC NSW with an invoice for $96,250, being 50 per cent of the franchise fee payable by a new sub-master franchisee, and then serving a Creditors Statutory Demand on AMC NSW 26 November 2008 for that sum, when there was no proper basis for doing so; (k) withholding or delaying the giving of consent to AMC NSW granting new franchises or the sale of existing franchises, including delay in the approval of AMC NSW's disclosure document; (l) conducting a survey of AMC NSW's franchisees without any prior consultation and failing thereafter to provide AMC NSW with the results of the survey; (m) purporting to impose on AMC NSW a 10 per cent commission on interstate contracts with "national" customers, with no proper basis for doing so; (n) deducting, or purporting to deduct, from monies collected and remitted to AMC NSW the 10 per cent commission on behalf of AMC Victoria, when there was no proper basis for doing so; (o) purporting to amend arbitrarily the MFA to increase fees etc., by amending the State Master Operations Manual pursuant to clause 6.24 of the MFA; (p) purporting to make it compulsory for AMC NSW and its franchisees to use an insurer nominated by AMC National - after reversing this announcement, AMC National then failed to identify the 17 franchisees it alleges have elected to be included in the national scheme when all of AMC NSW's franchisees are covered by the state scheme, creating the potential for double insurance; (q) directing AMC NSW that all documents relating to the sale of franchises be prepared by Macpherson + Kelley Lawyers in Melbourne at AMC NSW's cost; (r) denying AMC NSW's office/administration manager a right of attendance at the AMC National conference in Adelaide on 26 November 2009; and (s) failing to consider the request of AMC NSW to operate its own website to promote the franchise pursuant to clause 6.2 of the MFA. 5 AMC National admits (b), (i), (j), (o) and (q) of the above.

The Master Franchise Agreement 6 The following clauses of the MFA are relevant to the questions which I need to determine: "1. DEFINITIONS "Business" means the business of operating pursuant to this Agreement a Master Franchisee cleaning business specialising in the servicing of commercial, industrial, office and other cleaning contracts using the System, Image, Marks and the Intellectual Property. "Client" means a client to whom a Franchisee provides cleaning services. "Franchise Agreement" means a franchise agreement to be entered into between AMC, the Master Franchisee and Franchisees in the form provided by AMC, as amended from time to time. "Franchisee" means a franchisee of the Master Franchisee under a Franchise Agreement. "Franchise Fee" means the percentage specified in Schedule 12 of the Initial Fee, Transfer Fee or Renewal Fee (as defined in the Franchise Agreement) required to be paid by a Franchisee on signing, transferring or renewing a Franchise Agreement. "Franchise" means the rights under a Franchise Agreement to operate an AMC franchise. "Franchised Operations" means the network of Franchises conducted by the Franchisees within the Territory pursuant to a Franchise Agreement between Franchisees and the Master Franchisee. "Franchisee Manual" means any manual and/or audio visual presentation and/or other relevant material which may be issued by AMC relating to the Business or the conduct of the Franchised Operations from time to time including any amendments made to such manual, audio visual presentation or other material from time to time by AMC. "Gross Sales" includes all amounts received by the Master Franchisee from the conduct of the Master Franchise whether from sales for cash or credit or on account including sales of Services and all monies or other things of value received by the Master Franchisee from the conduct of the Master Franchise but excludes any GST payable to the Master Franchisee in relation to the supply of goods or services. "Initial Fee" means the amount specified in Schedule 8 to be paid by the Master Franchisee to AMC for the Master Franchisee's initial training program. "Manual" means any manual and/or audio visual presentation and/or other relevant material which may be issued by AMC: (a) relating to the Master Franchise or the conduct of the Master Franchise; and (b) for the Master Franchisee to provide to its Franchisees; from time to time including any amendments made to such manuals, audio visual presentation or other material from time to time by AMC. "Royalty and Management Fee" means the percentage of the Gross Sales specified in Schedule 11. "Term" means the period specified in Schedule 6. "Territory" means the geographical region set out in Schedule 5. "Transfer Fee" means the amount specified in Schedule 16.

2. GRANT OF MASTER FRANCHISE 2.1 Grant AMC Grants to the Master Franchisee a Master Franchise within the Territory for the Term subject to the following conditions being satisfied prior to the Commencement Date: … 4. AMC's DUTIES AMC must as it deems necessary or appropriate during the Term: 4.6 Invoicing and Collection of Money Invoice the Clients of the Franchisees and collect and distribute payments to the Master Franchisee and the Franchisee on the following basis: (a) Within 5 days of the end of each invoice period, AMC must issue and send tax invoices to each Client to whom cleaning services were provided by the Franchisees in the previous month, as reported by the Master Franchisee. (b) AMC must use its reasonable endeavours to collect payment of such invoices. AMC may cease pursuing a debt that it reasonably considers is unable or uncommercial to be collected. (c) Within 5 days of the end of each invoice period, AMC must pay to the Franchisees the Gross Sales collected in the preceding period by AMC for cleaning services provided by them, less any amounts required to be paid by the Franchisees to the Master Franchisee. (d) Within 5 days of the end of each invoice period, AMC must pay to the Master Franchisee any amounts required to be paid by a Franchisee to the Master Franchisee based on the Gross Sales colleted in the preceding period by AMC less any amounts required to be paid by the Master Franchisee in accordance with clause 5.3. (e) In addition to any amount payable to the Master Franchisee or Franchisees by AMC pursuant to clause 4.6, AMC must pass on to the Master Franchisee or Franchisee the proportion of any GST received from Clients that relates to the payment being made. (f) AMC has established a trust account in the Master Franchisee's name ("Trust Account"). Any bank fees payable in relation to the Trust Account are the Master Franchisee's responsibility. Any interest which accrues to the Trust Account belongs to the Master Franchisee. 4.12 Referral of Potential Clients and Franchisees Refer any potential Client who has contacted AMC seeking Services or any potential franchisees seeking Franchises to the Master Franchisee if the potential Client or franchisee is seeking Services or franchises to be performed within the Territory. 5. MASTER FRANCHISEE'S FINANCE RELATED OBLIGATIONS 5.4 Franchise Fees Upon execution, transfer or renewal of a Franchise Agreement and payment of any fee by a Franchisee, the Master Franchisee must pay to AMC the relevant Franchise Fee within 7 days of receipt. 6. GENERAL OBLIGATIONS OF MASTER FRANCHISEE The master franchisee must, during the Term: … 6.16 Bank Account Operate, or authorise AMC to operate, a separate bank account in the Master Franchisee's name, to be used exclusively in relation to transactions arising from the conduct of the Franchise.

6.26 To Attend Meetings as Required (a) Attend or ensure that its shareholders, directors, partners or Managers as the case may be, attend all Master Franchisee meetings called by AMC including: (i) all AMC Master Franchsiees' meetings called by AMC which, unless AMC otherwise requires, will not exceed 4 per year only one of which will be compulsory to attend; (ii) AMC annual conference of all AMC Master Franchisees; (iii) any general staff meetings called by AMC at which the Master Franchisee and also all of the Master Franchisee's staff must attend; (iv) such additional meetings as AMC in its sole discretion, deems necessary by giving not less than two (2) weeks notice thereof in writing. (b) Each meeting will be chaired by AMC or a representative of AMC. (c) The Master Franchisee must bear the costs of its or its employees in attending any meeting. The costs of the annual conference may be shared amongst all AMC Master Franchisees.

7. RECRUITMENT OF FRANCHISEES AND GRANTING OF FRANCHISES 7.5 Prior to entering into a Franchise Agreement with any person, the Master Franchisee must give AMC a written notice containing the details of that person (including any financial information required by AMC) and the Master Franchisee must not enter into any Franchise Agreements or grant any rights to carry on business using the Marks, the System, the Image or the Intellectual Property in any circumstances without the prior written consent of AMC, which consent may be withheld in AMC's reasonable discretion. 7.6 The Master Franchisee must only use a Franchise Agreement and disclosure document prepared and issued for the relevant prospective Franchisee by AMC or in accordance with AMC's directions. 12. MARKETING 12.1 The Master Franchisee must within the Territory: (a) actively market and promote the Master Franchise and businesses of Franchisees; (b) comply with all reasonable marking initiatives proposed by AMC; (c) spend such amounts on promoting the Master Franchise and businesses of Franchisees as AMC may reasonably require from time to time; and (d) not undertake any form of marketing or promotion (including for the sale of the Master Franchise) until such marketing or promotion is approved in writing by AMC ("Approval"). AMC will not reasonably [sic] withhold the Approval and will provide the Approval within a reasonable time. 15. INTERNET 15.3 AMC will refer to the Master Franchisee any leads pertaining to the Territory received via the AMC web site.

16 AUDIT AND INSPECTION 16.2 Audit AMC may at any time appoint an independent auditor to audit the Records of the Master Franchise.

17 MANUAL 17.1 Compliance with Manual The terms and contents of the Manual are incorporated into the terms of this Agreement and the Master Franchisee must observe and comply with the Manual. 17.2 Breach A breach of any term, standard or procedure contained in the Manual is a breach of a term of this Agreement. 17.3 Amendment of Manual AMC may amend the provisions of the Manual from time to time in order to: (a) protect the Marks, business names, reputation and other Intellectual Property owned, under the control of or used by AMC; (b) comply with any statutes or judicial or administrative decisions; (c) maintain administrative efficiency and profitability; (d) improve the quality of facilities and the Services offered by AMC, the Master Franchisee or Franchisees. 20. TRANSFER BY MASTER FRANCHISEE 20.4 Transfer Prohibition (a) Except as set out in this Agreement, neither the Master Franchisee nor any director, shareholder, immediate or remote successor to the Master Franchisee's interest in this Master Franchise may sell, assign, transfer, convey, give away, pledge, mortgage, charge or otherwise encumber or deal with any interest in this Master Franchise or in the Master Franchisee. (b) Interest in the Master Franchise or the Master Franchisee includes any indirect interest such as a share in a corporation or entity which is the Master Franchisee, or the declaration by a shareholder that a share is held on trust for another person, without the prior written consent of AMC. (c) No partial transfer of the Master Franchisee's interest is allowed nor, in the case of a corporate Master Franchisee, any change whatsoever which has the effect of altering the underlying beneficial ownership of the Master Franchise, or the control of the Master Franchise in any way. 34. MISCELLANEOUS 34.3 Entire Agreement This Agreement contains the entire agreement and understanding between the parties as to the subject matter of this Agreement and merges all prior discussions between them. The parties will not be bound by any conditions, definitions, warranties or representations with respect to the subject matter of this Agreement other than as set out in writing and attached to this Agreement. 34.4 Modifications to be in Writing Any modification, alteration, change or variation of any provision of this Agreement will only be made in writing executed by the parties to this Agreement."

7 There was no dispute as to the legal principles relevant to franchises. In J F Keir Pty Ltd v Priority Management Systems Pty Ltd (administrators appointed) [2007] NSWSC 789, I summarised the submissions made on behalf of the franchisee in that matter, which I accepted as to the content of the duty of good faith. In short, and relevantly, the franchisor is required to act reasonably and honestly (to an objective standard), not to act for an ulterior motive, to recognise and have regard to the legitimate interest of both parties in the enjoyment of the fruits of the contact, and to avoid rendering the franchisee's interest under the agreement nugatory or worthless or seriously undermining it: see Burger King Corp v Hungry Jack's Pty Ltd (2001) 69 NSWLR 558; Alcatel v Scarcella (1998) 44 NSWLR 349; Far Horizons Pty Ltd v McDonald's Australia Ltd [2000] VSC 310; Gary Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR 41-703; Automasters Australia Pty Ltd v Bruness Pty Ltd (2003) ATPR (Digest) 46-229. 8 At the hearing in March, AMC National accepted that it had breached the MFA in a number of respects, including by issuing a default notice for which there was no justification and making a demand for a debt that could not be supported. 9 After the hearing in March, AMC NSW sought to ventilate a fresh matter - the refusal of AMC National to approve a sub-master franchise for the ACT to a Mr Walid Ajaj ("the ACT sub-master franchise"). I shall deal with this matter separately later in these reasons, but there is a point at which that issue and one of the sub-issues intersect.

10 Before I detail my findings in relation to the other conduct alleged by AMC NSW, I should identify the only matter of which the Court has been appraised that might explain the rift between Mr Coade, the sole director and secretary of AMC National, and Mr Kijurina, the sole director and secretary of AMC NSW, that has spilled out into the relations of franchisor and franchisee. 11 Mr Coade and Mr Kijurina established a company called International Franchise Group Pty Ltd ("IFG") with a Mr Joseph ("Joe") Saffy. Mr Saffy had been employed on a contract basis by AMC NSW to sell franchises. It appears that IFG was established to obtain domestic cleaning services and ancillary services such as window cleaning for both domestic and commercial clients. It was not intended that IFG compete with AMC NSW. It appears that IFG was initially to be funded out of commissions earned by IFG through Mr Saffy selling franchises on behalf of AMC NSW. Mr Saffy's wife, Valda, and their son, Christopher, were involved in AMC NSW before IFG was established and they continued their involvement for some time after IFG was established in 2007. In early 2008, Mr Kijurina had become very dissatisfied with Mr Saffy's work in selling franchises and (whether justified in doing so or not) he regarded Mr Saffy as responsible for AMC NSW having to refund money to a number of franchises to whom representations had been made by Mr Saffy. 12 Mr Kijurina's decision to cease using Mr Saffy to sell franchises imperilled an income stream to IFG which, it seems to be accepted, meant that IFG was not viable: see T289. IFG was subsequently placed in liquidation and wound up. I do not need to consider the merits of the positions of Mr Kijurina and Mr Coade in respect of this issue, but Mr Coade regarded Mr Kijurina as responsible for the demise of IFG, in which he (like Mr Kijurina) had a one-third interest: see T287-289 and T292.9-38. Although Mr Coade denied that the relationship had deteriorated significantly from his point of view (see T292.38), Mr Ravech said (at T96.49-97.1) that "there is no evidence to suggest that Mr Coade was not entitled to be upset at what Kijurina was doing to IFG at the time, because both companies, AMC NSW and IFG, could exist side by side and there would be no problem. One is doing commercial work, one is doing domestic work." Mr Saffy also had an interest in IFG, although it appears that he had not made any financial contribution to IFG. The witnesses 13 Two affidavits of Mr Kijurina were read: 25 June 2009 and 4 December 2009. Cross-examination of Mr Kijurina did nothing to damage his credibility and no submissions were made attacking his credibility. Also called in AMC NSW's case were Mr Kijurina's wife, Mrs Nana Kijurina, Ms Amine Ayoub, who became a sub-master franchisee, and Ms Sofia Lazos, AMC NSW's administration manager/office manager. Their credibility was not impugned. 14 A number of affidavits of Mr Coade were read: 24 July 2009, 23 September 2009, 14 October 2009, 28 October 2009, 9 March 2010, 11 March 2010, 12 March 2010 and 16 March 2010. In support of AMC National's case, an affidavit of Mr James Han sworn 8 March 2010 was read. He is the managing director of AMC Commercial Cleaning (VIC) Pty Ltd ("AMC Victoria"), which is the master franchisee for Victoria and operates out of the same building as AMC National. Mr Han gave evidence about the AMC annual general meeting of state master franchisees in 2008, but no reference was made to his evidence in submissions. Mr Coade is a shareholder of AMC Victoria.

15 Mr Coade's credibility was significantly damaged. He is not a witness whose evidence I would accept without independent corroborative evidence. My reasons for this conclusion are that: (1) he swore an affidavit in support of a statutory demand for $96,000 that, on his admission, was false: see T68-69, T357-358 and Exhibit L, and see further [18]-[20] below; (2) he issued a default notice that was, in reality, bogus; (3) in opening, Mr Ravech stated on behalf of the defendants that the reason that leads were not sent to AMC NSW in November 2009 was that "there was a crash in the system and the system didn't work, and none of the States got any leads, the system just crashed. We didn't get any leads so we couldn't pass them on. That's what we say": see T23.33-36. Mr Coade's evidence at T404.48 was that he thought that the problem was a "slow server": see T404-409 further on this topic. Mr Coade in his affidavit sworn 9 March 2010 says at paragraph 5(c) that AMC National did not receive any leads in November, but he says nothing about any computer problems. The email of 3 December 2009 annexed to Mr Coade's affidavit sworn 16 March 2010 does not support the "crash" evidence, but it does refer to the slow server, although no period is specified. It does not indicate that leads had been, or might have been, lost; (4) Mr Coade, through his counsel, asserted that he had prepared the Notice of Default because he believed that what was set out in the notice was correct and that he had not engaged solicitors in relation to this issue (see T67.1-19), but no basis for that belief was ever demonstrated. The notice asserted that there was a lack of support by AMC NSW, but at T97-98, Mr Ravech accepted that there was no evidence of a lack of support by AMC NSW; and (5) there are a number of examples where Mr Coade appears on the face of matters to have taken steps that could not be justified and the explanation given is to assert malfunction, misapprehension or error on the part of others, for example: (i) his explanation for refusing to approve a sale to a prospective franchisee was that he thought there had been no disclosure to the prospective franshisee of these proceedings, when in fact there had been: see T113; (ii) I have referred to the asserted computer crash in November 2009; (iii) he claimed that he thought that clause 7.6 of the MFA gave AMC National the right to require all franchises to have documents prepared by Macpherson + Kelley Lawyers (see T116), but accepted now that it does not; (iv) he claimed that the failure to send back documents regarding a prospective franchisee, Mr Wei Guo, was "just an error" (T73.49); (v) he claimed during cross-examination that he had advice from Mr Linacre, his solicitor, that AMC National could deduct the sign on fee from AMC NSW even before AMC NSW received money from the franchisee (see T392) - clause 5.4 is clear in its terms, requiring "payment" within seven days of receipt (see page 101 of Exhibit A1). Mr Linacre was not called to corroborate Mr Coade's evidence; and (vi) the matters dealt with in [18]-[40] below. 16 In relation to the second last point, the plaintiff says that AMC National's attempt to collect the 15 per cent franchise fee from AMC NSW on execution by the franchisee of the franchise agreement, rather than when the franchise fee was received by AMC NSW, is another example of Mr Coade's attempt to place pressure on AMC NSW. The defendants assert that Mr Kijurina laboured under the same misapprehension as Mr Coade: see the affidavit of Mr Coade sworn 11 March 2010. To the extent that AMC NSW sent money to AMC National before it had received payment from franchisees, then there can be no criticism of AMC National, but it is not established that AMC NSW did send money before it had received payment from franchisees, and from February 2009, AMC National deducted the 15 per cent fee before AMC NSW had received any money. Mr Kijurina's evidence was that he paid the 15 per cent fee when he received money from the franchisees and that he did not wait until he had received the full amount due: see T218.14-30. Very little seems to turn upon this point given AMC National's concession (see T24-26), save that it might be added to the long list of items with which Mr Coade sought to vex Mr Kijurina. The defendants' submitted that the money paid by a franchisee who did not proceed was not refundable. Where a franchisee was withdrawing due to misrepresentations made, then it would seem to be entirely appropriate for AMC NSW to refund any money paid. 17 Mr Coade sought to justify the suspension, in December 2008, of AMC NSW's authority to enter into franchise agreements on the basis that AMC NSW had insufficient contracts to make good its obligations to franchisees. As Mr Alexis' submissions dated 4 April 2010 point out at paragraph 84 (in addition to the unexplained form of the email suspending Mr Kijurina's authority), AMC National did not put forward any evidence that that concern was in fact justified at the time of the purported suspension (see T383-384) and there is Ms Lazos' evidence at paragraphs 23.1 and 23.2 of her affidavit sworn 3 December 2009. I think that this is another example of Mr Coade taking whatever steps he could to oust Mr Kijurina. 18 In relation to , AMC National's claim for $96,250 was based on an invoice raised by AMC National following the entry by AMC NSW into a sub-master franchise agreement with Ms Ayoub. It was not an invoice which itself purported to be based on the MFA. In cross-examination, Mr Coade said that the claim was not based on the MFA, but that he had a verbal agreement with Mr Kijurina about this (see T353), which supported the claim for 50 per cent of the initial sign on fee. However, his statutory demand referred to the MFA and to no agreement other than the MFA (see page 213 of Exhibit A2), and Mr Coade put forward no evidence of any agreement reached with Mr Kijurina about this. Cross-examination by Mr Alexis was predicated upon the absence of any reference in the MFA to sub-master franchises (see T352-354), although Mr Coade stated (see T354.5-6) that: "we knew sub-masters existed so there must have been some structure for putting them together". 19 Thus the position of AMC NSW, it seems, was that the MFA did not have any special regime for sub-master franchises, and hence there could be no claim by AMC National for a percentage of the fee earned by AMC NSW in respect of the new sub-master franchise agreement. AMC National's position was to accept that the MFA did not provide a basis for issue of the invoice.

20 It follows that the invoice was not validly issued (and Mr Ravech for AMC National conceded that this was so: see T69.18-21). For reasons which will be explained when dealing with the further issue of whether sub-master franchises are permitted, I think that, contrary to the position of both AMC NSW and AMC National, AMC National did have a basis for invoicing AMC NSW, although not the basis asserted by Mr Coade and not in the amount claimed. For Mr Coade, the sole director of AMC National, to have sworn an affidavit in support of a statutory demand for an amount that was not owing impugns Mr Coade's honesty. Further, Mr Coade had not even allowed sufficient time for payment before issuing the statutory demand: see T358-359. 21 Persons who might have given evidence on behalf of AMC National, for example, Ms Katrina White, Ms Courtnee De Graaw and Ms Sharmila Raymond, all still work for AMC National (and indeed Ms White was in Court for at least part of the hearing: see T287) but did not give evidence. Nor did Mr Saffy, who is now a master franchisee of AMC National for Western Australia. 22 There are a number of examples where AMC NSW wrote to AMC National (Mr Kijurina to Mr Coade) requesting or seeking confirmation of something, which either was not responded to or was responded to only after a very long delay: (1) On 10 July 2008, Mr Kijurina expressed concern about the failure of AMC National to forward leads and sought confirmation that all internet leads would be passed on to AMC NSW in a timely manner, asking what steps would be put in place to ensure that this occurred: see page 288 of Exhibit A1. No reply was sent by Mr Coade, and he could not give any reason for this failure to respond; (2) Mr Kijurina requested that AMC NSW be permitted to establish a website, a request that was ignored; (3) AMC NSW requested approval of Mr Guo, a proposed franchisee, which approval was not forthcoming in any realistic period (the fact that Mr Guo may not have been able to proceed for other reasons is relevant to damages, but not to the conduct of AMC National); (4) Mr Kijurina requested details of the results of a survey conducted by AMC National without the involvement or knowledge of AMC NSW, which details were not provided, nor was the request answered; and (5) AMC National failed to approve Mr Shi Yin as a franchisee (see Exhibit A1 at page 390) and there was a long delay in approving Mr Singh and Mr and Mrs Macleay (see Exhibit A1 at page 35), which related to an alleged failure by AMC NSW to disclose the existence of these proceedings when it has been accepted that they had not failed to do so. 23 Mr Coade said a number of things in the witness box that were demonstrated, without recourse to the evidence of other witnesses, to be untrue: (1) He asserted at T296.29 that he had apologised for issuing the default notice. He was forced to admit at T297.2 that he had never apologised, officially or otherwise. (2) He asserted, as I have noted, that there was no deterioration in the relationship with Mr Kijurina on his part, but at T435.41 he gave as his explanation for not responding to Mr Kijurina's request to establish a website that "we were fighting at the time": see T435.41 and T359.10-12; and see also his email at page 259 of Exhibit A1 in which he said that Mr Kijurina was "solely responsible for the demise of IFG. And you will be responsible for damaging the relationship between us". (3) He denied that he had made threats to Mr Kijurina. For reasons which I explain below, I think that was demonstrated to be untrue. (4) He said that the issuing of the default notice was intended by him to open up "an opportunity for discussion to try and resolve problems" (see T347.11-13), but Mr Alexis points out that the notice contains no information on what was said to have been AMC NSW's default. Mr Coade said that he had followed up the notice with a letter within a few days. The letter was called for and not produced, and it was not referred to in any of Mr Coade's affidavits. (5) He said that he had suspended AMC NSW's authority to enter into franchises only on a temporary basis, but the email is not so constrained: see T379. 24 Mr Coade knew in late 2008 that AMC NSW was in financial difficulty (see T303-305), but he said that his was not the reason he sent the auditors (Pitcher Partners) in: see T305-308. He asserted that the reason he sent the auditors in was because AMC NSW had not provided him with any of the reports required to be provided under the MFA: see T306.25-28. No evidence was produced of any written request by AMC National to AMC NSW for information, and no evidence of any failure to meet any obligation was given in Mr Coade's affidavits - there is only his assertion at T307.20 that "I have been asking him [Kijurina] for years". Mr Coade could not explain why he had put on no evidence to support that contention: see T307.49-T308.2. 25 Thus Mr Coade's position was that he did not send the auditors in because he was concerned that AMC NSW was insolvent (he being aware that AMC NSW was in dire financial straits), but he sent them in because AMC NSW had not provided documents which AMC National was entitled to receive from AMC NSW. I do not accept his assertion. 26 Mr Coade accepted that he had rung Ms Ayoub, who had agreed to enter into a sub-master franchise agreement with AMC NSW. He did not recall, he said, asking Ms Ayoub if she had paid any money to Mr Kijurina. Mr Coade had suspended Mr Kijurina's authority to enter into a sub-master franchise agreement: see T308. Mr Coade agreed that he had told Ms Ayoub not to pay Mr Kijurina another cent (when she told him she had paid over the deposit). He does not admit that he said, "Do not trust George" and that he had described Mr Kijurina as a liar: see T309.10-49. He denied that he said anything to impugn Mr Kijurina's integrity. Mr Coade said that he may have regarded Mr Kijurina as a liar - his explanation for why he may have thought that is at T310.41-43: "Well, at the time, at the time he had sold a sub-master franchise when I specifically requested that until he provided me more information I wasn't going to allow - approve any. And he had gone ahead and done it." That explanation does not establish any lie. It was conceded on behalf of the defendants (see T108.31-34) that if Mr Coade had said what Ms Ayoub recounts (and I note that Ms Ayoub also informed Ms Lazos and Mr Kijurina at the time of what she says she had heard), it would be "quite inimical to the franchisor or franchisee relationship".

27 Mr Coade attempted to justify his concern about the sub-master franchise agreement on the basis of an inadequate definition of the territory to be covered by the sub-master franchise, but this assertion ran into the difficulty that postcodes were given, and he never mentioned that concern to Ms Ayoub. He endeavoured to deal with the postcode problem by saying that he did not know where the Sydney postcodes were, he being from Melbourne: see T314-317. I do not find his explanation plausible, and if he had had a concern, it was easily remedied. 28 I note that the email that AMC National proffered in evidence in connection with the suspension of authority (see page 66 of Exhibit A2) had text missing which Mr Coade was unable to explain: see T379-380.

29 Mr Kijurina deposed to a conversation with Mr Coade in which Mr Coade said the following, in the context of the winding up of IFG (see paragraph 21 of Mr Kijurina's affidavit sworn 25 June 2009): "I am going to come after you … I'll come after you … You f***ed up a lot of lives." and "How about I start serving a breach of notice on the franchise up in Sydney now."

30 Mrs Kijurina said that she had been sitting in the car when she overheard that conversation and that words to that effect were spoken by Mr Coade.

31 Mr Coade did not dispute that he had had a telephone conversation with Mr Kijurina concerning the demise of IFG, but he denied having said the words set out in [29] above. 32 Having regard to the lack of credibility of Mr Coade, I would unhesitatingly accept, on the basis of Mr Kijurina's sworn testimony and that of Mrs Kijurina, that Mr Coade did make the threats. Further corroboration is that within a few months, Mr Coade issued a notice for no good reason and had his solicitors look at termination of the MFA: see Exhibit G. There is another matter, which is that a tape was played of a conversation between Mr Kijurina and a third party, which tape contains threats identical to those asserted by Mr and Mrs Kijurina. A transcript of the tape has been provided to the Court, in addition to a copy of the conversation on a computer disk, now Exhibit J. 33 When the tape was played in Court, Mr Coade said that the voice of the person speaking to Mr Kijurina did not sound like him (Mr Coade) (see T302.30-31), leading him to deny that it was him (see T302.43): see T303.16-19 and T318-319. Mr Coade said that he was not aware of Mr Kijurina having any other franchise businesses. Given the fact that Mr Kijurina's addresses "Stephen", who then threatens to issue a notice on "the franchise", I think there are really only two logical possibilities concerning that recording. The first possibility is that the second voice is that of Mr Coade. The other possibility is that Mr Kijurina engaged a third person to pretend to be Mr Coade and provided that person with a script to follow, to retrospectively support his version of events. I think that the first possibility is far more likely, and the second possibility was not raised in the defendant's submissions. 34 There is evidence of other attempts by Mr Coade to destabilise AMC NSW. An employee of an ACT franchisee, a Mr Oscar Chavez, wrote to Mr Kijurina stating that Mr Coade had advised him that no franchises were for sale as "some issues need to be sorted out first in the Sydney office". Mr Coade, in cross-examination, denied that he had that conversation (see T425.20), but in paragraph 6(f) of his affidavit sworn 12 March 2010, he said that he could not recall a conversation with Mr Chavez. In February 2009, Mr Kijurina was informed that a franchisee of AMC NSW, "Omar", had been contacted by a Mr Rick Nash of AMC Victoria enquiring about monies owed by AMC NSW. Mr Kijurina emailed Mr Nash, asking him why Mr Nash had conducted the enquiry and who had instructed him to do so. Mr Kijurina emailed Mr Coade, asking him to explain, but never received a reply to these emails: see pages 138-140 of Exhibit A3. The absence of any response supports the contention, along with other material, that Mr Coade was behind this as well. Mr Coade rang Clearchoice Products, a major supplier of cleaning products to AMC NSW, and asked questions about AMC NSW's credit position. Given all of the other material, I do not accept Mr Coade's explanation for having done so, which was that he had heard that AMC NSW was on stop credit and merely wanted to confirm whether or not this was true: see T386-388.

35 The impression that I was left with was that Mr Coade had decided that Mr Kijurina had wrecked the IFG business, and Mr Coade wanted to remove AMC NSW as a master franchisee. The IFG conflict had nothing to do with the franchise business, and it seems that Mr Coade was so keen to remove Mr Kijurina as a master franchisee that he did not care whether his program for removal was harmful to the interests of the entire AMC franchise or not, although he may well have thought that it would suit his own interests if he could bring AMC NSW to its knees. 36 Ms Lazos' evidence is that at the AMC annual general meeting of state master franchisees held at a hotel at the Gold Coast from 27-28 November 2008, Mr Coade made statements attacking Mr Kijurina: see paragraph 26.5 of Ms Lazos' affidavit sworn 3 December 2009. These criticisms included: "George's franchisees are bringing a class action against George due to them not being happy with AMC NSW." "I had AMC NSW audited by Pitcher Partners as I thought AMC NSW may be trading insolvent, but that was not the case." "George owes a lot of work to franchisees and a number of franchisees have posted unfavourable comments on a Chinese website, that is creating a bad name for AMC." 37 It will be observed that Mr Coade's comments (as reported by Ms Lazos) about his reason for sending in the auditors is inconsistent with his sworn testimony. In cross-examination, Mr Coade said that he only mentioned class action as a "possibility", which I do not accept: see T364. 26-32 and T362.45. There is no evidence that AMC NSW has not been able to supply the guaranteed work to its franchisees, except an assertion by Mr Coade that Ms Lazos had agreed that was so (see T381), which assertion was not referred to in Mr Coade's affidavit and was not put to Ms Lazos. There is no evidence that unfavourable comments were posted on a Chinese website. Mr Coade said that he had heard about the class action from Mr Lyle Holm and Mr Joseph Jensen, and that Mr Jensen had sent him an email before the conference about problems he had had and that other franchisees wanted to launch a class action: see T363.39-43. Mr Coade agreed that he had not annexed the email to his affidavit, but he insisted that it existed. In reply, Exhibit 2 was admitted provisionally, the objection to it being that it was not an email from Mr Jensen and in fact was dated after the conference, with a check to be made as to whether Mr Coade had identified the source of information precisely in his evidence in chief. The tender should be rejected since it did not meet the description given in cross-examination, post-dated the conference, and it was not previously put into evidence by the defendants.

38 Ms Lazos then had a conversation with a Mr Steve (Sayer) Hussain and Mr Greg Harpur, two state sub-master franchisees, in which Mr Hussein indicated that he understood that relations between Mr Kijurina and Mr Coade were bad and that he and Mr Harpur were looking to have Mr Kijurina sell the AMC NSW business to them. They sought Ms Lazos' help in bringing this about by encouraging her to give her notice to Mr Kijurina. 39 Ms Lazos stated that she subsequently rang Mr Coade and in that conversation he told her (see paragraph 20.2 of Ms Lazos' affidavit sworn 3 December 2009): "Look Sofie, George has three options: a. Sell the business to Greg, Steve and Lyle to be paid at an agreed amount per annum for an agreed period of time; or b. Appoint a general manager to take over the running of the business without any involvement by himself and still retain his business; or c. The business will be taken over by the Franchisor."

40 What Ms Lazos' evidence, if accepted, demonstrates, is that Mr Coade was endeavouring to create an atmosphere of crisis which would be resolved only by Mr Kijurina selling the business, or at least taking no active part in it. Mr Coade clearly had in mind as one possibility the prospect that AMC National would take over AMC NSW. He had already previously indicated that he had such an idea: see paragraphs 17 and 18 of Mrs Kijurina's affidavit sworn 20 October 2009 and see paragraph 13.9 of Mr Kijurina's affidavit sworn 25 June 2009, in which a warning was given by Mr Saffy. Given Mr Coade's good relations with Mr Saffy, I infer that Mr Saffy was communicating that warning on behalf of Mr Coade; and see also Mr Kijurina's account of his conversation with Mr Holm at paragraph 22 of Mr Kijurina's affidavit sworn 4 December 2009. I accept Mr Alexis' submission that Mr Coade was involved in the attempt by Messrs Holm, Hussain and Harpur to force Mr Kijurina out of the business. That Mr Harpur (the NSW north coast sub-master franchisee) was favoured by AMC National can be seen by the fact that Mr Harpur was permitted by AMC National to change his password (see T262) without any involvement by AMC NSW and with the result that AMC NSW could not ascertain what royalties were due to it from Mr Harpur: see T262.36-38. 41 In order to destroy AMC NSW's business, Mr Coade essentially deployed five weapons: (1) the creation of a false dispute that would cause AMC NSW to expend money on lawyers, money that Mr Coade thought Mr Kijurina did not have; (2) seeking to impose charges on AMC NSW to place AMC NSW under financial pressure - AMC National accepted at the hearing that much of what had been done was not permitted under the MFA. (3) doing his best to foment trouble for AMC NSW with its franchisees and potential franchisees and to inhibit the grant of franchises; (4) attempting to divert business or potential business away from AMC NSW and to avoid doing anything that would promote AMC NSW's business; and (5) encouraging a revolt by a number of NSW sub-master franchisees and franchisees.

42 I make the following findings of fact: (1) The conversations deposed to by Mr Kijurina, Ms Ayoub and Ms Lazos all occurred in the terms to which those witnesses depose. (2) Mr Coade told Ms Ayoub in 2008 that Mr Kijurina was a liar and a person who could not be trusted, when he had no honest belief that that was so; (3) Mr Coade, in August 2008, threatened to destroy Mr Kijurina's business; (4) Mr Coade regarded Mr Kijurina as having been responsible for the demise of IFG and was determined to take revenge by doing everything he could to put Mr Kijurina out of business. To that end, he: (a) issued a default notice that had no basis, as he well knew; (b) sent in the auditors in an endeavour to establish that AMC NSW was insolvent; (c) tried to prevent AMC NSW from selling sub-master franchises and franchisees; (d) deliberately delayed in responding to AMC NSW's requests for approval of franchises; (e) issued a statutory demand for an amount that was not owing and swore a false affidavit in support of it; (f) ignored requests for action that would or could be beneficial to AMC NSW and were not inimical to the interests of AMC National or its franchises; (g) secretly conducted a survey of AMC NSW's customers in an endeavour to obtain damaging material to use against Mr Kijurina; (h) authorised the raising by AMC National, in favour of AMC Victoria, of a 10 per cent charge on AMC NSW for business obtained by NSW from a national company; (i) endeavoured to pressure Mr Kijurina to sell AMC NSW and encouraged sub-master franchisees and/or franchisees to take action against Mr Kijurina; and (j) contacted at least one major supplier of cleaning products to AMC NSW in a manner calculated to induce a doubt as to AMC NSW's credit-worthiness, with the intention of producing a restriction of credit. 43 It follows that AMC National, through Mr Coade, has conducted itself in a manner entirely inconsistent with the obligations of a franchisor and has breached the implied duty of good faith owed to AMC NSW. 44 The defendants admitted that AMC National was in breach of the MFA by virtue of 4, (i), (j), (o) and (q), but I find on the basis of the conclusions above that AMC National was also in breach of (g), (h), (k), (l) and (s). To the extent that amounts have been wrongly deducted by AMC National from monies due to AMC NSW but subsequently repaid, interest ought to be paid by AMC National to AMC NSW or monies withheld at the rate specified in the Uniform Civil Procedure Rules for pre-judgment interest. To the extent that monies have been agreed to require repayment (see paragraph 131 of Mr Alexis' submissions where he sets these out) and have not been repaid, or are held to be repayable pursuant to these reasons, interest will need to be calculated and added to the claims for outstanding amounts. A schedule of amounts still unpaid in these two categories should be prepared as part of the proposed orders to be made. 45 I turn now to consider the remaining subparagraphs of breaches alleged by AMC NSW set out in [4] above.

4 and (d) - failure to render invoices within a reasonable time and failure to use reasonable endeavours to collect debts 46 The MFA (clause 4.6) provides for invoices to be issued by AMC National, and AMC National is to collect and distribute payments to AMC NSW and the franchisees. AMC National "within 5 days of the end of each invoice period" must issue and send tax invoices to each client to whom cleaning services were provided in the previous month. AMC National is required to "use its reasonable endeavours to collect payment of such invoices", but it is entitled to cease pursuing a debt "that it reasonably considers is unable or uncommercial to be collected". 47 There is evidence that the staff allocated by AMC National to deal with debtors were not able to cope: see paragraph 26.9 of Mr Kijurina's affidavit sworn 25 June 2009. It seems that AMC National sought to reduce its responsibility for collection, including ensuring that calls by disgruntled franchisees that had not been paid were diverted to AMC NSW. The latter step may not have been a breach of any express term of the MFA, but if AMC National was responsible for the issue of invoices and the collection of debts, there needed to be some means of communicating with the franchisees about issues relevant to debt collection, including raising issues of the completion of work by a franchisee if a debtor was asserting that as a reason for non-payment. 48 There were only two cases when AMC National referred an invoice back to AMC NSW: see the affidavit of Mr Coade sworn 11 March 2010 and paragraph 53 of the defendants' submissions dated 30 April 2010. It does appear that AMC National has attempted to shift responsibility for debt collection back to AMC NSW, contrary to the terms of the MFA, but I am uncertain what, if any, loss is claimed by AMC NSW in respect of uncollected debts, and there is an admission by Mr Kijurina at T244.9 that AMC National now uses appropriate measures to chase up bad debts. 49 So far as failing to render invoices within a reasonable time is concerned, the evidence is very limited and there appears to be a question of whether AMC National can wait until the end of the month, even if the invoice period is weekly. The reference to services provided "in the previous month" is somewhat confusing given the reference to "within 5 days of the end of each invoice period", but the latter requirement is the determinative one, and the invoices, in my view, must be sent out within five days of the end of each invoice period. 50 AMC National is required to provide sufficient staff to ensure despatch, invoice and collection of debts in accordance with the terms of the MFA. 51 I also find that AMC National's failure to provide to AMC NSW copies of invoices sent, when requested to do so by AMC NSW, was unreasonable.

4 and (f) - trust account 52 The MFA provides by 4.6(f) that AMC National must (implicitly) establish a trust account in AMC NSW's name, that any bank fees payable in relation to the trust account are payable by AMC NSW, and that any interest which accrues is to the credit of AMC NSW. AMC National did establish an account in the name of AMC NSW. I accept AMC National's position that is was entitled to control of the account, but it has co-mingled other funds in that account and no interest has been paid to AMC NSW. The MFA makes AMC National the trustee of the bank account and AMC NSW the beneficiary. AMC NSW is entitled to know what amounts have been deposited by AMC National, what charges are payable, and what interest has accrued. It is entitled to an account of all monies paid or payable into the bank account and to interest on amounts owed to it, and if monies have been co-mingled with funds placed in the account on behalf of AMC NSW, then this needs to be unravelled at AMC National's expense. I think it is implicit in the MFA that the account so established would be an interest-bearing account. I do not think it assists AMC National that it has done the same thing vis a vis other master franchises as it has with AMC NSW. However, the MFA does not require AMC NSW to be provided with "visual internet access" to the account, however good an idea that might be.

4, (n) and (o) - commission AMC National claimed that it was entitled to impose a 10 per cent commission on interstate contracts with AMC National customers, because it was agreed at a meeting of AMC and master franchisees that it could. This was challenged. AMC National conceded that it could not insist on charging the 10 per cent charge (see T114-115). This is yet another example of Mr Coade endeavouring to find ways to impose a financial burden on AMC NSW, with the added dimension that he owns 40 per cent of AMC Victoria, in whose favour the charge was raised by AMC National. Mr Alexis' submissions in relation to the anomalies in Mr Coade's evidence and AMC National's documentation on this point (see [64]-[72] of the submissions) were not the subject of any response in the defendant's closing submissions, presumably because AMC National accepts that no requirement to pay a commission is imposed on AMC NSW.

4 - failure to supply leads 53 This is, in a sense, the most significant matter in the case now, apart from the ACT sub-master franchise issue, because AMC National has, in the main, made adjustments that are needed to be made, or has agreed to make them. The loss of leads has not been the subject of any computation or calculation, and the plaintiff seeks an order that the issue be referred to an Associate Judge of this Court for assessment of damages. 54 Pursuant to clause 4.12 of the MFA, AMC National is obliged to "refer any potential Client who has contacted AMC seeking Services or any potential franchisees seeking Franchises to [AMC NSW] if the potential Client or franchisee is seeking Services or franchises to be performed within the Territory". Clause 15.3 of the MFA provides that AMC National will refer to AMC NSW any leads pertaining to the Territory received via the AMC National website. 55 There are two strands to the issue of leads. The first is: (a) whether in the period January 2008 to 4 April 2008, leads were received by AMC National that AMC National was required to pass on to AMC NSW; (b) whether AMC National did send them when it received them; and if so (c) whether AMC NSW received them when sent by AMC National. There is no dispute about (a), because after Mr Kijurina complained, a bundle of leads (most of them, it appears, out of date) were sent to AMC NSW - on AMC NSW's case, for the first time, and on AMC National's case, for the second time. 56 AMC National's case was that it did send them, and AMC NSW's case was that it did not receive them. Interestingly, Mr Ravech indicated in opening that AMC National accepted that AMC NSW may not have received the emails passing on leads, and that is why a test email was sent: see T93.34-36. 57 The second strand to the leads issue is that the plaintiff contends that AMC National's failure to forward the leads is yet another example of Mr Coade's animosity towards Mr Kijurina. The second strand is only be available if the first stand is made out. 58 I note that Mr Kijurina's evidence is that in 2007, leads were sent to himself, Mr Saffy and "AMC NSW", the last mentioned being received by the receptionist. Mr Kijurina would then copy them to Ms Lazos. Ms Lazos confirmed that she did not start receiving leads directly until November or December 2007. Exhibit B indicates that that change had occurred by December 2007. 59 Mr Kijurina's evidence is that he did not receive the 95 leads that were received by AMC National from late December 2007 to 4 April 2008. If they were not sent to Mr Kijurina and Ms Lazos, it would be open to infer that they were sent to Mr Saffy, even though the plaintiff cannot establish directly that they were. Only a few emails have been shown to have been sent to Mr Saffy after he left AMC NSW, but the allegation that they were sent to Mr Saffy when they should not have been is only one part of the matter.

60 There was an attempt by Mr Coade through the "screen shot" at pages 29-32 of Exhibit A4 to attempt to establish that AMC National had evidence that emails were sent by AMC National and received by AMC NSW. This suffered from the problems that: (1) Mr Coade did not know how the screen shot was generated, or even by whom, and did not print it off: see T401.47; (2) Ms Lazos highlighted emails that she had in fact received from AMC National employees that were not included in the screen shot and could not find any of the emails found on the screen shot: see T261.11-262.18 and Exhibits B and C; (3) There was no attempt made by AMC National to establish that AMC NSW's computer or email system was defective or not working prior to 4 April 2008; and (4) Whilst expert evidence the screenshot might establish, based on the screenshot or otherwise, that AMC National did in fact send the emails, there is no expert evidence relied on.

61 There is no dispute that in early April 2008, Mr Kijurina wrote to AMC National complaining about the lack of leads. Ms de Graaw, an employee of AMC National who was not called as a witness, told him that the leads had been sent to Mr Saffy on Mr Coade's instructions: see paragraph 20.1 of Mr Kijurina's affidavit sworn 25 June 2010. Later, Mr Coade said that Ms de Graaw had been in error in so advising Mr Kijurina. There is no dispute that following this complaint, AMC National forwarded all of the leads received between January and April 2008. AMC National's case is that this was a further copy, and AMC NSW's case is that it was the first time the leads were sent to AMC NSW. 62 Ms Lazos gave evidence that she did not receive the missing leads before April 2008. I accept her and Mr Kijurina's evidence that the leads were not sent by AMC National until April, both because I accept their evidence generally and for the following reasons: (1) I note that no evidence has been called from Ms Raymond of AMC National; (2) I think that Ms de Graaw's admission to Mr Kijurina that leads had been sent to Mr Saffy on Mr Coade's instructions, although later controverted by Mr Coade, is relevant; (3) Mr Coade's position seems to be that he added Mr Saffy but did not take away Mr Kijurina, but AMC National had no reason to send leads to Mr Saffy after Mr Saffy had ceased to be contracted to AMC NSW, and the emails were no longer sent to Mr Kijurina or Ms Lazos and there is no explanation for that; (4) I think that AMC National's failure to supply leads in November 2009 is supportive of AMC NSW's position; (5) There is no credible evidence that the "screen capture" relied on by AMC National was reliable. Mr Coade did not know how it was prepared and was unable to explain the unreliable context of the document: see T402-403; (6) There is a strong degree of coincidence between the termination of Mr Saffy's role and the change in practice for leads that had existed up to then. Mr Coade's assertion was that Mr Kijurina had asked for a change, but no evidence in support of that assertion was found in Mr Coade's affidavit and it was not put to Mr Kijurina; (7) As Mr Alexis points out at paragraph 16 of his submissions, Exhibit C demonstrates that Ms Lazos received emails from Ms Raymond that were not recorded on the screen dump; (8) The fact that AMC National sent a "test email" after AMC NSW complained about the lack of leads is not supportive of AMC National having sent the emails to AMC NSW prior to that. Indeed, it points to there being no technical obstacle to the transmission of leads over the preceding three months, suggesting that it is more likely that Mr Coade had told Ms de Graaw to send the leads to Mr Saffy, rather than Mr Kijurina and Ms Lazos; and (9) Mr Kijurina deposed to a reduced amount of sales as a result of the loss of leads. Matters were put in submissions concerning other reasons for the loss of sales that were not put to him in cross-examination. 63 I do not accept the defendants' submission that the plaintiff should have accepted an offer made by Mr Seelig on behalf of AMC National during the hearing to permit a computer expert to have access to AMC National's computers. It was for AMC National to adduce whatever evidence it wished in support of its case. AMC NSW was not required to take up AMC National's offer and to fill a gap in AMC National's case.

64 It is, I agree, surprising that Mr Kijurina did not notice the absence of leads for a number of months, and the submissions on his behalf sought to rely on his ill health, but the only relevance of his failure to notice is that it might suggest that he was in fact receiving the emails, and this has not been established. I think it is revealing that when Mr Kijurina sought confirmation from Mr Coade that leads would be sent in a timely manner, the letter was ignored: see page 288 of Exhibit A1. 65 Not only is there evidence that Mr Coade regarded Mr Kijurina as responsible for the demise of IFG and that he was bitter about this, but there is also evidence that he wanted to assist the Saffys. When Mr Kijurina complained about conduct of the Saffys, Mr Coade did not appear to be active in assisting: see pages 19-23 of Exhibit GK2 to Mr Kijurina's affidavit sworn 4 December 2009 and pages 19-20 of Mr Kijurina's affidavit sworn 25 June 2009. When Mr Kijurina expressed concerns about the establishment of a business by the Saffys called Maid2Clean, which Mr Kijurina believed was attempting to take commercial cleaning business from AMC NSW, Mr Coade responded by saying that he would have no hesitation in taking over the NSW business: see paragraphs 17 and 18 of Mrs Kijurina's affidavit sworn 20 October 2009. Mr Saffy communicated a warning to that effect as well on 1 February 2008: see paragraph 13.9 of Mr Kijurina's affidavit sworn 25 June 2009. Whilst there is some material which supports the contention that leads were sent to Mr Saffy instead, particularly the admission made by Ms de Graaw to Mr Kijurina that the leads had been sent to Mr Saffy in accordance with Mr Coade's instructions. I do not think that it is necessary to reach a firm conclusion on this point as breach is established if leads were not sent to AMC NSW, and I would limit the conclusion of breach to the first part of 4. 66 By reason of consent orders made by Deputy Registrar Cottam on 3 July 2009, AMC National was required to forward all leads to AMC NSW. Mr Kijurina obviously doubted that Mr Coade would comply with that order, and he created seven or eight false names with domain addresses and sent emails to AMC National from those addresses in respect of an interest in purchasing franchises or entering into cleaning contracts in NSW. No leads were forwarded to AMC NSW. Mr Coade's explanation for this initially was that no leads had been received, and then, through his counsel, that AMC National's computers had crashed. There was no corroborative evidence of a crash, and Mr Coade asserted in cross-examination that the computers had been working more slowly than usual, which does not constitute a crash. There is no expert evidence from the defendants supporting a conclusion that a slow server should result in not one single lead being received, although that may be possible. The plaintiff does not know how many genuine leads were received by AMC National and not forwarded to it.

67 I conclude on the balance of probabilities that AMC National did not forward leads in November 2009, notwithstanding its consent to a court order that it do so, but there is no means of determining how many were in fact received by AMC National and not forwarded to AMC NSW. 68 I find that AMC National has breached an express obligation of the MFA by failing to provide to AMC NSW all leads obtained via the internet and pertinent to New South Wales. I will refer the matter to an Associate Judge of this Court to determine the damages, if any, suffered by the plaintiff by reason of the breach of the defendant's obligations between January and April 2008 and in November 2009.

4 - insurance 69 So far as this item is concerned, the letter from AMC National (page 51 at tab 10 of Exhibit A2) did assert that the insurance scheme was compulsory, but it resiled from this position within two days: see page 52 at tab 10 of Exhibit A2. I think that the first letter, the subsequent refusal of AMC National to identify to AMC NSW which of the NSW franchisees had joined in the scheme and the later advice, when pressed, that none had done so are further examples of Mr Coade's practices, but are of very limited consequence. 4 - denying Ms Lazos a right of attendance at the 2009 National Conference 70 Paragraphs 167-168 of Mr Alexis' submissions refer to this issue, pointing out that Ms Lazos fell within the definition of "manager" within clause 6.26(a) of the MFA and that Mr Coade had proposed a resolution and a vote was taken to exclude Ms Lazos. The defendants' submissions do not respond to this and they therefore do not seek to rebut the contention that Ms Lazos was wrongly excluded from the Adelaide conference. The only basis for exclusion appears to be that Ms Lazos had had her authority curtailed by AMC NSW at the Gold Coast conference the year before, but no such argument was advanced in submissions, so I conclude that AMC National was in breach of the MFA in this respect.

Deduction of $32,301 71 AMC National has deduced amounts totalling $32,301 over a period of 30 weeks from monies due to AMC NSW. There is no dispute between the parties that the amounts deducted are in fact not monies due from AMC NSW to AMC National and that if monies were due, they were due from Mr Kijurina to Mr Coade's company, Sheepwash Creek Pty Ltd. Mr Coade initially asserted that the deductions had been approved in writing and reliance placed on emails passing between AMC National's solicitors and an accountant. The defendants rely on those emails and evidence of Mr Kijurina given in cross-examination at T214-215. Mr Kijurina says that he told Mr Coade that he would pay him money due "once the business was sold" and "if there is any money due and payable". A question was raised as to whether dividends had in fact been declared, and there is no evidence as to what amount, if any, is in fact owed by Mr Kijurina to Sheepwash Creek. The notice of dispute sent by AMC NSW to AMC National included this as a dispute. I am not persuaded that Mr Kijurina has authorised deductions from monies due to AMC NSW, and I do not need to consider AMC NSW's further point in respect of s 12 of the Conveyancing Act 1919 (NSW).

The ACT sub-master franchise 72 I turn now to the issue that was raised at the hearing in May. AMC NSW had entered into an agreement with a Mr Walid Ajaj whereby Mr Ajaj was to become the sub-master franchisee for the ACT in the same way that Ms Ayoub became the sub-master franchisee for the Blue Mountains and two other sub-master franchisees had been appointed. The fee that Mr Ajaj is willing to pay is $280,000. He has been working as a subcontractor to AMC NSW for some time now. 73 Mr Kijurina sought AMC National's agreement to the sub-master franchise agreement, which was in its terms very similar, if not identical, with the terms of the agreement used previously, an agreement prepared by Macpherson + Kelley, the then solicitors for AMC National. 74 AMC National's consent to the agreement was not forthcoming, and on 1 March 2010 (a few days before the hearing commenced), by letter, AMC National wrote to indicate that it would not consent. AMC NSW asserts that the refusal to consent was wrongful and that it is another example of the desire of Mr Coade to wreck AMC NSW's business.

75 Given the nature of the correspondence and the existence of other sub-master franchise agreements, both with AMC NSW and with other master franchisees (and see T354.5-6), it is rather remarkable that it was only after the first part of the hearing that AMC National asserted for the first time that there is no power given to AMC NSW (and by inference, any of the master franchisees) to grant a sub-master franchise to anyone. I should note that AMC NSW eschewed any claim based on estoppel of any kind, but rather asserts that as a matter of construction, the MFA does grant a power to master franchisees to enter into sub-master franchises. 76 The issues for determination are: (1) Does the MFA grant a power to AMC NSW to enter into the proposed agreement with Mr Ajaj? (2) If the answer to (1) is yes: (a) what was required of AMC NSW? (b) was AMC National's refusal to give its consent reasonable? (c) what consequences flow if the answer to (b) is yes? 77 The clauses of the MFA said to be relevant to the issues are the Recitals, the definitions of "cleaning contract", "franchisee", "franchise", "initial fee" and "sub-master franchise", and clauses 2.3, 4.6 and 5.1.

78 Were it not for the State Masters Operations Manual ("the manual") (Exhibit L), to which I refer below, I would not regard the sub-master franchise agreement as falling within the MFA, not only because an agreement which transfers the right of creating franchises (which is given to AMC NSW under the MFA) to another person does not appear to me to be a franchise agreement, but also because clause 20.4(c) prohibits the partial transfer of AMC NSW's interest or any change which has the effect of altering the underlying beneficial ownership of the master franchisee or AMC National's control of the master franchisee. 79 However, by the MFA itself, the manual is made a part of the MFA, and the manual expressly contemplates the entry by the master franchisee into sub-master franchise agreements: see pages 18-19, in which it states as part of the section "Fees and Royalties (Master Franchisee)": "State Master Franchise Fees · The State Master Franchisee receives the following fees from their franchisee's [sic]. Franchisee · Initial/sign on fee (Schedule 8 of their Franchise agreement) * 14% of gross income · $50.00 a month Marketing Fee # $50.00 a [sic] hour Operational Training support Submaster Franchisee · 2% of gross income · Initial/sign on fee (Schedule 8 of their Franchise agreement) · 50% of the 15% of the new Franchise Initial/sign on fee (Schedule 8 of their Franchise agreement) Ø The percentage of gross income (as defined in the Disclosure Document/Franchise Agreement) varies depending on the Franchisee's income. # Ongoing Training (see page 77)

Franchisor The Franchisor receives the following fees from the State Master Franchisee. · 2% of gross sales · Initial/sign on fee (Schedule 8 of their Franchise agreement)

Franchisee Ø 15% of the Initial/sign on fee (Schedule 8 of their Franchise agreement) Submaster Franchisee Ø 15% of the Initial/sign on fee (Schedule 8 of their Franchise agreement) Ø 50% of the 15% of the new Franchise Initial/sign on fee (Schedule 8 of their Franchise agreement)

The Initial Fee payable by Submaster Franchisees has been increased to 20% as of 1 January 2009 for any Submaster signed after that date." (emphasis added) 80 There is a tension between the MFA and the manual, but in my view, AMC National must be taken to have agreed that sub-master franchise agreements were a legitimate form of franchise agreement within the terms of the MFA; not only that, but the manual provided what amount would be paid to AMC National should a master franchisee enter into such an agreement, that is: (a) 15 per cent of the initial/sign on fee set out in Schedule 8 of the MFA; and (b) 50 per cent of the 15 per cent of the initial/sign on fee. Although poorly expressed, these would seem to be cumulative.

81 By virtue of clauses 7.5 and 7.6 of the MFA, AMC NSW was required to: (1) give AMC National a written notice containing the details of the proposed franchisee; (2) provide any financial information required by AMC National; (3) obtain the prior written consent of AMC National; and (4) use a franchise agreement and disclosure document prepared and issued for the relevant prospective franchisee by AMC National or in accordance with AMC National's directions. 82 AMC NSW did give notice in writing of the details of Mr Ajaj. It did not obtain the prior written consent of AMC National, but it has sought that consent and has not as yet entered into the agreement with Mr Ajaj. It has used a form of sub-master franchise agreement which was prepared by AMC National's lawyers at an earlier time, but not one specifically prepared for Mr Ajaj. No issue has been raised about the particular terms of the draft, as opposed to the general concept of sub-master franchise agreements. 83 AMC National relies on the requirements of clause 7 of the MFA. Given my view that sub-master franchises are only dealt with by the manual and incorporated into the MFA by that means, I have a real doubt as to whether the requirements of clause 7 have any relevance, but I shall consider the matter further on the basis that they do. 84 Mr Coade sought the provision of a business plan, and AMC National's argument is that it was reasonable to require that information. I am satisfied that AMC NSW did not provide a business plan, because what was sent was in no way specific to the ACT (and in fact was the business plan AMC National had provided to AMC NSW in 2002). However, in my view, the reference to financial information was clearly a reference to financial information about the proposed sub-master franchisee, Mr Ajaj, and further information about him, and no complaint has been made about the absence of such information. 85 Even if it is accepted that the request for a business plan was not information of the type referred to in clause 7.5 of the MFA, it does not mean that the request was not a valid request, provided that AMC National can establish that it was reasonable for its consent to be withheld because of the failure to provide that plan. AMC National, however, chose to put on no evidence as to why the business plan was relevant to the exercise of its discretion. Mr Alexis made the point that given that AMC NSW required the sub-master franchisee to guarantee the contract work being offered by the sub-master franchisee to their franchisees and that there was a statement by the franchisee purporting to exclude all warranties, it is not clear what relevance the business plan would have to AMC National's decision whether to approve or not. AMC National had knowledge of all of the contracts entered into in the ACT, so it knew the capacity of that region to absorb new franchisees, and indeed AMC National insisted that the number of franchisees per year be set at three, rather than two. I am not persuaded that the business plan was relevant to AMC National's decision, and hence I am not satisfied that AMC National's refusal to consent was reasonable. 86 It follows that, in my view, AMC National should be compelled to execute the ACT sub-master franchise agreement.

Conclusion 87 It follows that with only a few exceptions, AMC NSW has established the breaches of the MFA alleged and has established a breach of the obligation of good faith owed by AMC National to AMC NSW. The parties should bring in proposed Short Minutes of Order to reflect these reasons and identify precisely the questions that should be referred to an Associate Justice of this Court. Costs 88 I will hear the parties on the issue of costs.

A further matter 89 Consideration will need to be given by the Court as to whether the issuing of a statutory demand upon AMC NSW and the swearing by Mr Coade of an affidavit in support necessitates referral of these reasons and the evidence to the appropriate authority.

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