Aura Enterprises Pty Limited v Frontline Retail Pty Ltd

Aura Enterprises Pty Limited v Frontline Retail Pty Ltd - [2006] NSWSC 902 - NSWSC 2006 case summary — Zoe

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2140/06 Aura Enterprises Pty Limited v Frontline Retail Pty Limited JUDGMENT 1 HIS HONOUR: The defendant Frontline Retail Pty Limited conducts an employment recruiting business, specialising in the retail industry, by which it sources and places potential employees (called candidates) with employers (called clients). The plaintiff Aura Enterprises Pty Limited is Frontline's franchisee for its Sydney Metropolitan territory, under a franchise agreement for a term of five years from 1 February 2003, with an option to renew for a further five years. Frontline has served several notices asserting that Aura is in default, and that if the defaults are not remedied as required by Frontline, it intends to terminate the agreement. Aura contends that the notices are invalid, and claims declarations that they have no force or effect, and an injunction restraining Frontline from taking any step in reliance upon any of them to terminate the agreement. 2 Frontline has undertaken not to take any step in reliance upon any of the notices until further order of the Court. The proceedings were expedited, and the final hearing was to have commenced on Monday 17 July 2006, but was unable to proceed due to the illness of Frontline's then leading counsel. In order to salvage some of the time which had been set aside, and to reduce the issues for the final hearing, it was ordered, pursuant to Uniform Civil Procedure Rules 2005 (NSW), r 28.2, that certain issues [namely, those raised by paragraphs 1(a)(i), 1(b), 1(e), 2(a), 2(b), 3(a), 4(a), 5, 6(a) and 6(c) of Aura's Points of Claim] be determined separately and before all other issues in the proceedings. Those issues relate to the technical validity of the notices, and the order for separate determination was made on the basis that they turned on the contents of the notices, assuming that Frontline could prove facts sustaining the defaults alleged in them. Thus, as Mr Robb QC, who appeared for Frontline, put it, the issues to be determined are essentially in the nature of a demurrer, in that Aura contends that Frontline would not be entitled to terminate in reliance on the notices, even if the facts said to constitute the defaults alleged can be established. The Notices and the Issues 3 Frontline sent Aura a lengthy notice, entitled "Notice of Default", dated 6 December 2005 ("the 6 December Notice") (which Aura calls the first notice). It recites the right to terminate, and states (Part F) that if the breaches are not remedied as set out in the letter, Frontline will upon expiry of the period granted to remedy the breaches, serve a Notice of Termination on 16 January 2006. For present purposes, this notice contains two relevant parts. The first, Part B1, sets out conduct that Frontline says may justify it in terminating forthwith without notice, and purports to reserve its rights to do so. By par 1(a)(i) of its Points of Claim, Aura contends that Frontline is not entitled to terminate without notice on the grounds asserted in Part B1 of the 6 December Notice. Frontline contends that it has not yet purported to terminate without notice on those or any other grounds, and that in those circumstances there is no utility in determining prospectively whether it would or would not be entitled to terminate without notice. 4 Part B2 of the 6 December Notice contains a statement of intention to terminate upon twelve grounds, 2(a) to 2(l). By pars 1(b) and 1(e) of its Points of Claim, Aura contends that Frontline is not entitled to terminate in reliance on the 6 December Notice in respect of any of those grounds. However, in its written submissions and at the hearing, Aura did not press that contention in respect of grounds (h), (j) and part of (l); and Frontline did not seek to sustain the notice in respect of grounds (a), (g), (i), (k), and the balance of (l). 5 On 9 December 2005, Baybridge Lawyers, acting for Frontline, sent to Matthews Folbigg, solicitors for Aura, a letter ("the 9 December letter"), captioned "Notice of Default - Frontline Retail - Further Complaints", which referred to the 6 December Notice, raised further complaints and alleged breaches by Aura, purported to require certain action of Aura, and concluded: Given the current circumstances around the number of experienced staff resigning from your client's business, your client's suspicion of confidentiality issues in her business and the history of your employees going to competitors our client is extremely concerned that your client is not protecting the goodwill and confidential information (which it is required to do under its franchise agreement) and is now determining if more immediate investigation is required as what steps should be taken to protect these. 6 By paragraph 2(a) of its Points of Claim, Aura contends that Frontline has no right to terminate the agreement in reliance upon the 9 December letter (which it calls the second notice). Frontline, however, says that the 9 December letter was not, and was never intended to be, a notice of intention to terminate. 7 On 12 January 2006, Baybridge sent to Matthews Folbigg a further letter ("the 12 January letter"), captioned "Notice of Default - Frontline Retail", referring to earlier notices and correspondence, pressing the remedial action which it had sought in Section C of the 6 December Notice, and concluding: Our client is of the firm view that the action sought is necessary. In the event that your client fails to remedy the breaches referred to in the notice of default by 16 February 2006 then our client will be entitled to terminate the franchise agreement. While our client concedes that the inspection of the franchised operation and records may need to take place after this date, your client must provide the records and undertake the other actions required by 16 February 2006. … If there is continued non-compliance by 16 February 2006 our client reserves its right to such action as it deems necessary after that date. Such action may include termination of the franchise agreement. We also note that no attempt appears to have been made by your client to deal with or remedy the complaints made in the letter of 9 December 2005. Our client views these matters seriously and again reserves its right to such action as it sees appropriate. 8 By paragraph 3(a) of its Points of Claim, Aura contends that Frontline has no right to terminate the agreement in reliance upon the 12 January letter (which it calls the third notice). Frontline says that the 12 January letter was not intended by it to be an independent notice of default, but that it had the effect of extending the time required for remedying the breaches notified in the 6 December Notice from 16 January to 16 February 2006. 9 On 30 January 2006, Baybridge sent Matthews Folbigg a further letter ("the 30 January Notice"), captioned "Notice of Default - Frontline Retail", asserting that Frontline had become aware of "another very serious breach of the franchise agreement", and purporting to issue "a further notice of default". The letter identified an alleged breach, and specified action required to remedy it; and it proceeded to assert that Frontline was currently investigating the full extent of the conduct complained of and whether there had been further breaches, reserving any right to take further action - including action arising as a result of fraudulent conduct - should it conclude that the evidence substantiates such an allegation. By paragraph 4(a) of its Points of Claim, Aura contends that Frontline is not entitled to terminate the agreement in reliance on the 30 January Notice (which it calls the fourth notice). Frontline presses the 30 January Notice as a valid and effective notice. 10 On 22 February 2006, Baybridge sent a further letter to Matthews Folbigg ("the 22 February letter"), captioned "Audit/Inspection - Frontline Retail", requiring Aura to provide missing application forms within seven days and reserving its position in relation to other allegedly missing information and documentation. By paragraph 5 of its Points of Claim, Aura contends that Frontline is not entitled to terminate the agreement in reliance upon the 22 February letter (which it calls the fifth notice). Frontline says that the 22 February letter was not intended to be a separate notice, but was part of the course of correspondence in respect of the remedial action required by the original 6 December Notice. 11 On 24 March 2006, Baybridge sent to Matthews Folbigg a further letter ("the 24 March Notice"), captioned "Notice of Default - Frontline Retail Further Complaints". After referring to "our previous Notice of Default dated 6 December 2005 and all subsequent accompanying Breach Notices", this letter described itself as "a further Breach Notice" and proceeded to identify three further alleged breaches, and the action said to be required to remedy them. By paragraphs 6(a) and (c) of its Points of Claim, Aura contends that Frontline is not entitled to terminate the agreement in reliance upon the 24 March Notice (which it calls the sixth notice). However, Aura ultimately did not press this contention in respect of the first breach identified in the 24 March Notice, and Frontline does not seek to sustain that notice as valid and effective in respect of the second and third breaches. 12 The matters in dispute were thus reduced. Frontline does not seek to sustain the 6 December Notice in respect of grounds B2(a), (g), (i), (k), and (l) to the extent that Aura continues to impugn it. While Frontline relies on the 24 March Notice, the parties are agreed that Frontline cannot, in reliance on it, terminate the agreement because of the second and third breaches alleged in it. Frontline does not rely on the letters of 9 December 2005, 12 January or 22 February 2006 as notices of intention to terminate.

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13 However, there is an issue as to whether any declaratory relief should be granted in respect of the letters on which Frontline does not rely. Mr Robb submits that it is inappropriate to declare invalid as a notice a document that never purported to be and was at no stage relied upon as such a notice. 14 The 9 December letter was captioned "Notice of Default", specified a number of complaints and alleged breaches, and purported to require certain responsive action to be taken, though it did not state an intention to terminate. The 12 January letter specified no new default, but asserted that if there was continued non-compliance with the requirements of the 6 December Notice by 16 February, Frontline reserved its rights, including to terminate; it also referred to the 9 December letter but did not refer, at least explicitly, to any proposed termination in that context. The 22 February letter did not expressly assert a default or breach, nor threaten termination, and was not even captioned "Notice of Default". However, the 24 March Notice refers to earlier "Breach Notices" in addition to that of 6 December, suggesting that there was more than one such additional notice. In those circumstances, Aura was entitled to be concerned that Frontline was relying on at least one or more of the earlier letters as a "Breach Notice". While the use of the words "Notice of Default" in the captions of some of these letters is not conclusive that they purported to be such notices - those words could as well have been a means of identifying the subject matter of the dispute to which the letters relate, as a description of the letters as such a Notice - they are at least ambiguous, especially given their usage in the letters of 30 January and 24 March, which are maintained by Frontline to be valid notices. The lack of formality in the subsequent letters, as distinct from the 6 December Notice, is far from conclusive that they were not notices, since Frontline maintains that two of these less formal letters - those of 30 January and 24 March - are valid and effective notices. However, as Frontline plainly now eschews reliance upon them, it will suffice if I record that Frontline does not rely on the letters of 9 December 2005, 12 January or 22 February 2006 as notices to remedy and/or of intention to terminate, and it will not be open to Frontline to rely on them for that purpose in aid of any termination in the future. 15 As to the grounds for termination that remain in dispute, Mr Alexis SC, who appears for Aura, advances three main submissions. The first relates to all the defaults alleged in Part B2 of the 6 December Notice, and is that those alleged defaults could not justify termination, because each is a breach of a covenant but no separate notice referred to in sub-cl 9.2 of the agreement has been given ("the two notice point"): Aura contends that the breaches alleged in the 6 December Notice are not capable of constituting defaults authorising termination, in the absence of a prior notice under sub-cl 9.2. The second and third, which now relate only to grounds B2(b), (c), (d), (e) and (f) of the 6 December Notice, and to the 30 January Notice, are that, in respect of those grounds, the notice does not sufficiently identify the relevant termination event or breach, and/or the matters alleged in the notice, assuming that they can be made out, do not constitute a termination event. The Content of a Notice of Proposed Termination 16 The requirements of a valid notice depend on the Franchising Code of Conduct, and the agreement. [For convenience, I shall refer to the numbered provisions of the Code as "Regulations", and those of the agreement as "Clauses"]. 17 The Code is made pursuant to Trade Practices Act 1994 (Cth), s 51AC, for the purpose of regulating the conduct of participants in franchising towards other participants in franchising [reg 2(1)]. The notice requirements imposed by the Code vary, depending upon whether the termination is for breach, or for some other reason, or for special circumstances. Regulation 21 deals with termination by the franchisor for breach by the franchisee, and provides as follows: 21 Termination - breach by franchisee

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(g) agrees to termination of the franchise agreement. 20 The distinction between the circumstances in which reg 21 applies and those in which reg 22 applies turns on whether the ground for the proposed termination is or is not a breach of the franchise agreement. In the context of a contract, as a franchise agreement is, a "breach" has two elements: an obligation imposed by the agreement, and a state of affairs inconsistent with that obligation. There will be a breach of the agreement where the franchisee does something that the agreement prohibits, or fails to do something that the agreement requires. But not every "termination event" under an agreement is a breach of contract: an agreement may provide that one party is entitled, upon a specified event happening (which may or may not be in the control of the other), to terminate, without imposing any obligation on the other to prevent that event from occurring. In the context of the Code, such an event is one upon which (subject to reg 22) the franchisor may be entitled to terminate, but not a breach of the agreement within reg 21. [The distinction was recognised, in a different context, by McLelland J, as he then was, in Della Imports Pty Ltd v Birkenhead Investments Pty Ltd (1987) NSW Conv R 55-358]. 21 In a case to which reg 21 applies, a notice will have to satisfy the requirements of reg 21(2), which involve: · reasonable notice that the franchisor proposes to terminate the agreement because of the breach; · information as to what the franchisor requires to be done to remedy the breach; and · a reasonable time (not exceeding 30 days) to remedy the breach. 22 The requisite notice is one that the franchisor proposes to terminate … because of the breach. Although reg 21 does not in terms require that the notice specify the relevant breach, insofar as it requires notice that the franchisor proposes to terminate because of the breach, it is implicit that the breach must be identified. In Wallera Pty Limited v CGM Investments Pty Limited [2001] NSWSC 96, Davies AJ considered a franchise agreement, cl 8 of which provided as follows: 8. This agreement shall be terminated forthwith upon the following grounds: (i) Should either party fail to remedy any breach committed by it of the provisions of this agreement within one month after being given notice by the other party that it requires such breach to be remedied. 23 Although what was required was notice by the giver that it requires such breach to be remedied, his Honour concluded that the notice must make clear what is the breach which is required to be remedied: [22] Clause 8 of the Franchise Agreement requires that notice be given. It may be implied that notice be in writing. The use of the word "notice" imports an act of formality. The notice of 5 August 1999 was appropriate in that respect. In the context of clause 8, a notice must bring to the attention of the recipient the fact that it is alleged that a breach has occurred and that the franchisor requires such breach to be remedied. In this context, a notice must be sufficiently explicit to make it clear to the franchisee what is the breach which the franchisor requires to be remedied. 24 While there is no reference in his Honour's judgment to the Code, those observations are apposite to the terms of reg 21. I therefore accept that the notice referred to in reg 21 must be sufficiently explicit to make clear what the breach in question is. 25 In circumstances where reg 22 applies, a notice will have to satisfy the requirements of reg 22(2), which involve: · reasonable written notice of the proposed termination, and · the reasons for it.

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26 Specification of the reasons for the proposed termination would at the very least require identification of the relevant termination event that gave rise to the right to terminate. 27 The distinctions drawn between different circumstances of termination by regs 21, 22 and 23 of the Code are significant when considering cl 9 of the franchise agreement, which provides as follows: 9 Termination - Default The Franchisor without prejudice to any other rights or remedies provided for hereunder or by law or equity may, upon service of reasonable notice of termination in writing upon the Franchisee, containing reasons for the proposed termination terminate this Agreement upon the occurrence of any of the events set out below. In respect of proposed termination pursuant to sub-clauses 9.1, 9.2, 9.3, 9.6, 9.7, 9.8, 9.9, 9.13, 9.14, 9.15 and 9.16 the Franchisor must inform the Franchisee as to what is required to be done to remedy the breach and allow the Franchisee a reasonable time to remedy the breach in respect of the remaining sub-clauses the termination shall be forthwith: … 28 The terminology of cl 9 makes clear that the draftsperson had in mind the provisions of the Code. This is clear from the use in cl 9 of terms which closely reflect the terminology of the Code: for example, "reasonable notice of termination" [cf reg 21(2)(a), 22(3)]; "reasons for the proposed termination" [cf reg 22(3)]; "inform the Franchisee as to what is required to be done to remedy the breach" [cf reg 21(2)(b)]; and "allow the Franchisee a reasonable time to remedy the breach [cf reg 21(2)(c)]". There is also a correspondence between the provisions excluded from the list referred to in cl 9 (in respect of which notice to remedy is required) with those which are exempted from notice requirements under the Code by reg 23 of the Code. These matters support the conclusion that the draftsperson of cl 9 of the agreement had an eye on, and was endeavouring to give effect to, the relevant provisions of the Code - a conclusion which is fortified by cl 14 of the agreement, which provides that any part of the agreement that does not comply with the Trade Practices Act is void and of no effect to the extent of such non-compliance: 14 Trade Practices Act 14.1 Compliance The parties to this Agreement shall do all such things that are necessary to comply with the Trade Practices Act 1974 ("the Act"). 14.2 Effect of Non-Compliance If any part of this Agreement does not comply with the Act then such part of this Agreement as does not comply with the Act shall be void and of no effect to the extent of such non-compliance without thereby affecting the validity, legality or enforceability of the remaining provisions (or parts of those provisions) of this Agreement which shall continue in full force and effect. However, this Agreement will come to an end where such amendment does defeat the capacity of the Franchisor to grant the Franchise hereby granted and the ability of the Franchisee to lawfully conduct the Franchised Operation. 29 Accordingly, cl 9 should be construed from the perspective that it was drawn conscious of and in an attempt be consistent with the relevant provisions of the Code.

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31 The second sentence of cl 9 has the effect that, except when any of the specified termination events to which it specifically refers [namely, those referred to in sub-cll 9.1, 9.2, 9.3, 9.6, 9.7, 9.8, 9.9, 9.13, 9.14, 9.15 and 9.16] is to be relied upon, "the termination shall be forthwith"; but in the case of the termination events referred to in the specified sub-clauses, the Franchisor must first inform the Franchisee as to what is required to remedy the breach and allow the Franchisee a reasonable time to do so. This sentence closely reflects reg 21 of the Code, and the termination events that are excluded from the notice requirement closely correspond with those covered by reg 23. It is concerned, at least primarily, with breaches, as distinct from events. For the same reasons that apply to reg 21 of the Code, the requirement to inform the Franchisee of what is required to remedy the breach necessarily involves specifying the alleged breach. 32 Accordingly, cl 9 contemplates a notice of proposed termination, the precise requirements of which depend upon whether or not it relies upon a termination event in one of the sub-clauses specified in the second sentence. In any event, it must contain the reasons for the termination, which at a minimum requires identification of the relevant termination event. It must be "reasonable notice", but where the termination event is not one of the specified sub-clauses, immediate termination is reasonable. Where the termination event is one of the sub-clauses specified in the second sentence, the notice must inform the recipient of what is required to remedy the breach, and allow a reasonable time to do so. Once again, in order to do so, the notice must be sufficiently explicit to make clear what the breach in question is. 33 In this case, the termination events relied upon are all "breaches" within reg 21 of the Code. The sufficiency of the notices depends, in part, upon the extent of particularity and detail that a notice must contain in respect of the relevant obligation and inconsistent state of affairs said to constitute the breach.

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The notice must state with sufficient particularity the breach of which the landlord complains, and that breach the tenant must satisfy within a reasonable time. If he does satisfy it, it would not be open to the landlord to allege that there was another breach of another covenant, which had been referred to in the notice, but had not been sufficiently specified, which had not been remedied. 37 In Wallera, Davies AJ (at [25]) relied on those cases to conclude that the term "notice" in cl 8 of the franchise agreement there under consideration required that the notice make clear what is the breach which if not remedied will lead to termination. However, as his Honour acknowledged, there was no equivalent in cl 8 of that agreement of the phrase "specifying the particular breach complained of", and in Hometeam Constructions Pty Ltd v McCauley [2005] NSWCA 303, the Court of Appeal (McColl JA; Ipp and Tobias JJA agreeing) considered (at [147]) that this was a significant distinction. Nor is there any equivalent in reg 21 of the Code or in cl 9 of the agreement. 38 In Re Stewardson Stubbs and Collett Pty Ltd & Bankstown Municipal Council [1965] NSWR 1671, a building contract entitled the proprietor to terminate if the builder continued in default for 14 days after being given "a notice … specifying the default". Moffitt J (as he then was) explained the requirement of such a notice in a way which shows that it will often be sufficient to identify the relevant clause of the contract under which the obligation arises, though it will sometimes be necessary to go further in particularising the manner in which the default has occurred (at 1675): The question still remains, however, whether the notice 'specifies the default' … A default can be specified in two ways; one is by directing attention to the provision in the contract in respect of which default is made. The other is by giving particulars of the manner in which a breach has occurred. In order to specify the default I think at least the former must be pointed out. But each case will depend on its own circumstances as to whether in order to specify the default there must be added some particulars such as will identify the particular breach alleged … with regard to subclause … (2) … the mere reference to the clause said to be in breach may be sufficient to specify the default. 39 In Hounslow London Borough Council v Twickenham Garden Developments Ltd [1971] Ch 233, Megarry J said that all such a notice had to do was "to direct the contractor's mind to what is said to be amiss" [see also Minister for Public Works v Renard Constructions (ME) Pty Ltd (1989) NSWSC, Brownie J, BC8902548]. In Hometeam v McCauley, McColl JA, after an extensive review of the authorities, concluded that it was sufficient for a notice of default to recite the terms of the contractual provision (which required that the building works be done with due diligence and within the time stipulated within the contract), and allege that the builder had failed to proceed with the building works with due diligence.

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52 It follows that before Frontline can terminate under cl 9, pursuant to sub-cl 9.2 for breach of covenant, three conditions must be satisfied. The first is that Aura has been given notice to remedy and the breach has continued for 14 days thereafter [sub-cl 9.2]. The second is that Aura has been informed what is required to be done to remedy the breach and allowed a reasonable time to remedy it [cl 9, second sentence]. The third is that Aura has been given reasonable notice of the intention to terminate, stating the reasons for the proposed termination. 53 However, there is nothing that requires these three conditions to be satisfied consecutively, as opposed to concurrently, nor that there be separate notices to satisfy each of them. In my opinion, it is not essential that separate notices be served, first under sub-cl 9.2, and subsequently under the introductory part of cl 9, before the franchisor is entitled to terminate for breach of covenant. The same notice can require the breach to remedied, specify what is required to be done to do so, allow a reasonable time to do so (provided that that reasonable time is not less than 14 days), and state that reason for the proposed termination, namely the breach continuing for (at least) 14 days after service of notice to remedy. The franchisee is not entitled to two notices to remedy and two periods of grace. The same notice can satisfy the requirements of the second sentence of cl 9, as well as the requirements of sub-cl 9.2. 54 For present purposes, each of the matters alleged in paragraphs B2(a) to (l) of the 6 December Notice is, if established, a breach of covenant. The 6 December Notice, in Part B2, specifies 12 alleged breaches of covenant, stating "If you fail to rectify breaches as required then the Franchisor will take immediate action, which may include terminating the Franchise Agreement". Part C specifies the remedial action that the Franchisor requires to be taken, by setting out in detail the what Frontline asserts is required to remedy the breach; the validity of those requirements does not fall for determination at this stage, but is to be assumed. Part F, headed "Failure to Remedy", states: "Should you fail to remedy the breaches set out above, we will, upon expiry of the period granted to remedy the breaches, serve a Notice of Termination of the Franchise Agreement effecting termination on 16 January 2006". Thus the notice specifies breaches of covenant, requires the franchisee to remedy the breaches, specifies what is required to be done to remedy them, allows at least 30 days (excluding the Christmas holiday period) - which, self-evidently, is more than 14 - for that remedial action, and states that Frontline will terminate if the breaches have not been remedied at the expiry of that time. Accordingly, Frontline has informed Aura of what is required to be done to remedy the breach and, upon expiration of the notice, will have at least the maximum 30 days required to do so; and it has served notice requiring Aura to remedy the breach, upon expiration of which the breach will (unless Aura has remedied it, and for present purposes the contrary is to be assumed) have continued for (at least) 14 days after service of the notice to remedy. The notice has the effect of giving, as the reason for the proposed termination, the failure to remedy the relevant breaches by 16 January 2006 - which is at least thirty days after service of the notice to remedy. Subject to (1) proof of the breaches and their continuance until 16 January 2006, which for present purposes is to be assumed, and (2) the sufficiency of the notice in specifying certain of the alleged breaches, addressed below, the three conditions for termination required by cl 9 are satisfied, and no further notice is required.

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57 Aura contends that the facts particularised in this part of the notice do not amount to fraud within reg 23(f), and that Frontline is therefore not entitled immediately to terminate the franchise agreement on that ground. 58 Clause 9 of the agreement permits immediate termination for a cl 9.10 event. Regulation 23(f) of the Code permits termination without notice if the franchisee "is fraudulent in connection with the operation of the franchised business". If reg 23 is inconsistent with cl 9, then reg 23 prevails, and the franchisor may invoke it. If reg 23 is not inconsistent with cl 9, then it is available. Thus, whether or not reg 23 is inconsistent with cl 9, the franchisor may terminate without notice, if the ground referred to in regulation 23(f) is made out. 59 While, by Part B1 of the 6 December Notice, Frontline has informed Aura that it is investigating and reserving its right immediately to terminate on that ground, Frontline has not in fact purported to terminate the franchise agreement without notice. If it decides to do so, reg 23 means that it does not have to first give notice of proposed termination, so no question of validity of any notice arises, or would arise; the only question is whether the ground can be sustained when, if ever, it is invoked. In the case of termination for fraud under reg 23(f), there is no need to have given a valid notice of proposed termination. 60 There is therefore no utility in deciding whether in this respect the 6 December Notice is valid, or in declaring that Frontline would not be entitled to terminate immediately on the grounds specified in Part B1 of that notice, since the validity of any immediate termination does not depend on the adequacy of any notice. Accordingly, it would be inappropriate to grant any declaration in respect of Part B1 of the 6 December Notice. 6 December Notice - Ground B2(b) 61 Ground B2(b) in the 6 December Notice is as follows: (b) You have breached the Franchise Agreement by submitting a candidate to an interview with a potential employer without requiring the candidate to complete an application in breach of franchise policy contrary to clause 3.16.3 of the Franchise Agreement and the Frontline Retail Policies and Procedures. PARTICULARS

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Lee Carver was submitted to City Beach on 26 August 2005 without an application form having been completed. 62 The agreement provides for Frontline to lend Aura manuals detailing procedures involved in carrying on the business, and deems a breach of any terms or conditions of any such manual to be a breach of the agreement. Clause 3.16.3 of the agreement provides as follows: 3.16.3 Property of the Franchisor The parties agree that such material and Manuals must remain the property of the Franchisor and that copyright in such Manuals must on no account whatsoever pass to the Franchisee and that a breach of any terms or conditions of any manuals must be deemed to be a breach of this Agreement. 63 The agreement also obliges Aura to observe and maintain standards in the conduct of the franchised operation at least equal to those prescribed from time to time upon reasonable notice by Frontline, and, in particular, in all respects to comply with the regulations procedures and standards prescribed by Frontline in the "Frontline Retail Policies and Procedures Manual", known as the "PPM", a manual produced by Frontline (cl 2.20.1), and fully to comply with all regulations, procedures and standards prescribed in the PPM, provided that to the extent of any inconsistency, the franchise agreement prevails (cl 2.20.2). 64 The PPM is a document of some 124 pages, containing policies under several sections. In the section entitled "Consultant and Admin Policies and Procedures", there is a policy entitled "Using Collection Statement", which relevantly provides as follows: From the above date any information collected from an individual, be it personal details i.e. candidates applying for positions; or personal opinion i.e. opinions from referees when conducting a reference check. 1. New Candidates · Every candidate is to be provided with a copy of the Frontline Retail Collection Statement when they are given an Application Form to complete. · Prior to the commencement of an interview, the interviewing Consultant must check that all four (4) Declarations on the Application Form are signed and dated. 65 The subject matter of that policy is not completion of applications, but collection statements for privacy purposes. Mr Robb did not identify, and I cannot find, any other suggested source of an obligation not to submit a candidate to interview without requiring the candidate to complete an application. The conduct alleged could not constitute a breach of any obligation imposed by the contract.

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67 For two reasons, then - first, that the conduct alleged could not constitute a breach of any obligation imposed by the contract, and secondly, that the 6 December Notice does not sufficiently specify the alleged breach, because it does not identify the obligation said to have been breached - the notice is not a valid notice in respect of Ground B2(b), and Frontline is not entitled to terminate the agreement because of ground B2(b) referred to in the 6 December Notice, in reliance upon that notice. 68 In reaching this conclusion, I have not taken into account that the notice does not negative the applicability of the policy "Putting a Candidate Forward Prior to a Candidate Interview", in the section "Candidate Policies and Procedures", which provides as follows: Sometimes extreme urgency is required in the process of filling a position or placing a candidate. A consultant may need to act outside of our standard procedure and discuss a candidate's details with a client prior to that consultant meeting the candidate for a face-to-face interview. 69 If, contrary to my view, there were an obligation not to submit a candidate to interview without an application form having been completed, then the availability of an exception in circumstances of "extreme urgency" would not invalidate the notice: there would be a factual issue as to whether there was "extreme urgency" such as to justify departure from the (hypothetical) policy. A notice not requiring the formalities of a pleading does not need to allege every material fact necessary to sustain a breach, let alone to negative potential exceptions. 6 December Notice - Ground B2(c) 70 Ground B2(c) in the 6 December notice is as follows (sic): (c) You have breached the Franchise Agreement by being involved in or permitted the alteration of a candidate's curriculum vitae contrary to clauses 2.15, 2.22, 2.31 and 9.10 of the Franchise Agreement and the frontline Retail Policies and Procedures and its Ethical Code of Conduct. PARTICULARS

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6 December Notice - Ground B2(e) 78 Ground B2(e) in the 6 December notice is as follows (sic):- (e) You have breached the Franchise Agreement by being involved in or permitting inadequate or misleading reference checks to be submitted to clients contrary to clauses 2.15, 2.22, 2.31 and 9.10 of the Franchise Agreement and the Frontline Retail Policies and Procedures and its Ethical Code of Conduct. PARTICULARS Complaints regarding the information submitted by the Sydney Agency to Colorado as follows: (i) Daniel Beniston who was placed at Colorado Penrith on 4 July 2004. Colorado was not informed that he had been suspended from his position with City Beach for physical assault. Daniel Beniston was then placed in a position with Esprit (started 15 November 2005) and no reference checking with City Beach was undertaken by the Sydney Agency before proceeding with the Esprit placement; (ii) Rebecca Sewtell who was placed at Colabro Formal Wear starting 26 May 2005. A reference was provided from Video Ezy from a person described as an Area Manager. Colorado later tried to check out the referee. He refused to give a reference check. Colorado then found out that Video Ezy does not have "Area Managers and that from the relevant Video Ezy Franchisee that Ms Sawtell had taken out a claim of constructive dismissal. This information was not forwarded by the Sydney Agency as part of its reference check; (iii) Catherine Criniti who was placed as a store manager at Colorado Penrith. Two reference checks were sent to Colorado. Both of these were form Sportsgirl. They only had mobile numbers, they did not state employment dates and are not from a regional manager even though they both state "direct report". The referee's positions were simply described as causal and causal manager. A third reference check, although required under the policy and procedure, was not completed. Colorado has rejected these checks. 79 Once again, only cl 2.22 and 9.10 are now pressed, together with the PPM. 80 Aura submits (1) that the conduct alleged could not sustain a breach of any of the clauses mentioned, and (2) that the notice, by referring to numerous provisions of the agreement and to the PPM without specifying any specific part of a relevant clause, does not make explicitly clear what is the breach required to be remedied.

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Judgment (84 paragraphs)

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Legislation Cited (3)

Cases Cited (8)