Bodycorp Repairers Pty Ltd v Maisano

Supreme Court of Victoria|2013-09-04|Before: ELLIOTT J

CONTRACT - breach - repudiation - franchise agreement - whether termination unlawful - whether breach by franchisor of essential term - willingness to perform only in manner substantially inconsistent with obligations

CONTRACT - breach - unreasonable restraint of trade

TORT - inducement of breach of contract - attempt to establish case by inference

PRACTICE AND PROCEDURE - application to amend pleadings during trial - leave granted - date from which amendment to take effect - whether new and distinct cause of action - relation back effect of order.

**1 In metropolitan Melbourne there were said to be serious problems with the automotive repair industry in the 1980's and early 1990's. At that time, there were many independent operators performing repair works for damaged vehicles. It was suggested that there were highly unacceptable business practices. The practices engaged in by vehicle smash repairers were said to include coercive conduct and insurance fraud. It was also suggested numerous participants in the industry colluded to ensure anti-competitive and corrupt conduct was able to permeate and prevail. It was said that this caused serious problems for various insurers in the market.

2 The plaintiff, Bodycorp Repairers Pty Ltd ("Bodycorp"), put together a business plan ("the Business Plan") to deal with the issues it perceived existed in the market. The Business Plan involved bringing together a number of independent repairers under a franchise regime operated by Bodycorp. The Business Plan was presented. As a result, a relationship arose between Bodycorp, Bodycorp's franchisees and the 4th defendant ("AAMI"). In time, a relationship also developed between Bodycorp and the 5th defendant ("All States").

3 For a time, the business relationships appeared to be mutually beneficial. Then things changed. Ultimately, there was a falling out between Bodycorp and AAMI. Around the same time, All States ceased sending work to Bodycorp franchisees. This gave rise to a number of claims being made. Those claims include claims against AAMI, parties related to AAMI (including All States), and former franchisees of Bodycorp. In essence, Bodycorp claims others have wrongfully broken their business relationships with Bodycorp. Bodycorp also alleges AAMI has failed to pay moneys owing to Bodycorp. For the reasons that follow, Bodycorp has failed to prove any of its claims.**

**4 As referred to above, Bodycorp is the plaintiff. Bodycorp established a franchise business in the mid 1990s. This franchise had a substantial number of smash repairers as franchisees.

5 The 1st defendant, Anuniziato Enzo Maisano, ("Maisano"), was a franchisee of Bodycorp from on or about 2 February 1996. This franchise related to the Moorabbin area. From in or about December 1997, Maisano also conducted a Bodycorp shop at Malvern. During the relevant events, Maisano also went by the name of Michael Mason.[1]

6 The 2nd defendant was a former partner of Maisano. She died in or about 2010.

7 The 3rd defendant was alleged, in the alternative, to be the company that conducted the Moorabbin franchise. Maisano was a director of the 3rd defendant. The 3rd defendant was last de-registered on 27 November 2011. It took no active part in the proceeding. It was Bodycorp's position at trial that the contractual relationship for the Moorabbin franchise was between Bodycorp and Maisano. Accordingly, the absence of the 3rd defendant was of no consequence.

8 As referred to above, AAMI is the 4th defendant and All States is the 5th defendant. AAMI is a motor vehicle insurer. AAMI entered into an agreement with Bodycorp in November 1997. This agreement was ultimately formalised and reduced to writing in a document executed on 29 June 1998 ("the AAMI Agreement").

9 All States is a company established in the 1990's to provide assessing services for AAMI's shareholder companies. All States was established by reason that the shareholder companies, also being insurance companies, wanted to have an entity in place to implement an efficient and cost-effective quoting system for them. In addition to AAMI's shareholder companies, AAMI itself was also one of the shareholders of All States.

10 The 6th defendant, Barry Martin ("Martin"), is a former employee of AAMI. He is now retired. From 14 July 1997 until September 2010 he held the position of supply and development manager with AAMI. In that role, his duties included liaising with smash repairers and managing the relationship between AAMI and the repairers. Those repairers included franchisees of Bodycorp.

11 At the start of the trial of this proceeding, the 7th defendant ("Melton") and the 8th defendant ("Munro") were being pursued by Bodycorp. On 16 May 2013, consent orders were made dismissing the case against Melton and Munro (collectively "the Melton Defendants"), with no order as to costs.**

**12 By 1995, AAMI had introduced what it called its "2-quote system". This system required a quote to be obtained from 2 smash repairers before AAMI would approve the repairs. The repairers were required to prepare the quotes independently, and were not informed of the amount or other contents of the competing quote. The purpose of the 2-quote system was to prevent colluding between repairers, thereby allowing the possibility of artificially inflating prices quoted for smash repairs. Once the 2 quotes were prepared and submitted, an assessor of AAMI would compare the quotes and then select the most competitive and complete quote; ie not necessarily the cheapest. The AAMI assessors were based at 5 or 6 customer service centres throughout metropolitan Melbourne. It was through these service centres that all quotes and repairs were coordinated by AAMI.

13 In addition to the 2-quote system, AAMI also had a process in place for approving smash repairers. For this purpose, repairers were put on trial and, if after 6 months they had satisfactorily performed work provided by AAMI, they would then be placed on a panel. The repairers placed on the panel were known as "Recommended Repairers". It was the Recommended Repairers who would usually get the opportunity to quote for AAMI. Generally, like or similar opportunities were given to repairers who were on trial as to those who were Recommended Repairers.

14 It was very valuable to a repairer to be given Recommended Repairer status by AAMI. It reflected a high standard of competence and quality. Repairers who achieved this status added substantially to the goodwill of their business. Further, work from AAMI (together with work from All States) represented most of the business done by the Bodycorp franchisees from 1995 to 1998.

15 Bodycorp was incorporated in March 1995. Later in 1995, at the time Bodycorp approached AAMI, it had 2 directors, who were brothers; namely, Antonio Murdaca ("Murdaca") and Ralph Murdaca ("Ralph Murdaca"). Bodycorp was the trustee of the Bodycorp Unit Trust, 50% of which was owned by interests associated with Murdaca and 50% of which was owned by interests associated with Ralph Murdaca. In 2002, Ralph Murdaca ceased his involvement with Bodycorp. Ralph Murdaca and his related parties transferred their beneficial interest in the shares in Bodycorp and the units held in the Bodycorp Unit Trust to Murdaca and Repose Nominees Pty Ltd, respectively.[2]

16 In or about mid 1995, Bodycorp prepared the Business Plan. This document was presented to senior management at AAMI. Murdaca said the Business Plan formed the basis of the "umbrella organisation" of Bodycorp.

17 The Business Plan set out perceived problems with the smash repair industry in metropolitan Melbourne. In addition to the matters referred to in paragraph 1 above, those problems were said to include the unsatisfactory state of repair shops, the unbusinesslike manner of repair shop employees, the absence of customer comfort areas and various other matters. It was said these matters gave a negative impression of the people behind the smash repair industry, and of the repair work itself.

18 In this context, Bodycorp identified its role, as part of the Business Plan, as follows:**

In this regard the need exists for a "Bodycorp", a tightly run franchise headed by a management team with hands on experience in the smash repair industry, as well as organisational and administrative skills necessary to successfully marry operator, insurer and the insured.

...

[Ralph Murdaca and Murdaca] have owned and operated several smash repair shops extremely successfully in the past 15 years, in the recent times controlling 5 outlets and assisting in the management of 3 others.

...

The [group's] main achievement so far has been to assemble a group of 16 shops which were presentable, whose owners were able to produce a quality repair, properly equipped, reasonably honest and had not had a coloured history in their dealings with insurance companies or the police.

**19 The Business Plan recorded that Bodycorp had inspected and investigated 85 shops in metropolitan Melbourne. This exercise was done in order to identify smash repair shops of appropriate standards and to incorporate them into the Bodycorp group as franchisees.

20 The Business Plan also discussed various other advantages to the industry said to exist by reason of the Bodycorp franchise arrangements. These advantages included economies of scale in relation to the purchase of products necessary for repairs, and putting in place administrative and service systems that ensured, amongst other things, quality, service, speed, accuracy and cost control.

21 The Business Plan was a lengthy document consisting of 22 pages, plus a draft franchise agreement and related documents. It is not necessary to set out any further detail. In short, the Business Plan contemplated the Bodycorp franchise expanding beyond the existing 16 franchisees then in place, and, with that expansion, building an ongoing relationship with AAMI.

22 The Business Plan stated that it was Bodycorp's intention to forge a strategic alliance between itself and AAMI. The Business Plan suggested Bodycorp provided AAMI with, effectively, the perfect opportunity to establish a mutually beneficial relationship. It propounded that "all the potential is present to commence a formidable joint venture". As part of the proposed joint venture, Bodycorp's aim was to achieve Recommended Repairer status for all Bodycorp franchisees.

23 Murdaca said that, after discussing the Business Plan with AAMI, Bodycorp went about implementing the plan. This included a checklist that Bodycorp would use to ensure that things were done by the franchisees in accordance with Bodycorp's standards. It also included offering a 5 year warranty to AAMI.

24 Murdaca gave evidence that he gave the Business Plan to 2 senior executives of AAMI, being Robert Belleville ("Belleville") and Don Casboult ("Casboult"). However, a contemporaneous memorandum drafted by Ian Rogers ("Rogers"), then of AAMI,[3] suggested the Business Plan was provided to Belleville and Rogers. That memorandum, dated 5 July 1995, indicated AAMI's acceptance of Bodycorp's proposal. It stated:**

As a result of [the meeting with Bodycorp], [Bodycorp] received from AAMI agreement with their concept and corporate ethos. [Bodycorp] were advised to finalise the list of members of their group and submit them to me as the contact point. Once we were in receipt of this list it was agreed that we would bring the relevant staff members together to meet and discuss the non AAMI recommended repairers on the list.

...

Following that [Bodycorp] were told we would advise [Bodycorp] regarding recommended repairer status for the non-recommended members of the group.

...

The attached list of repairers shows [14] in the group. The first [6] are currently recommended repairers. We need new agreements with them to include Bodycorp in the agreement. The last [8] are non recommended repairers and it is these we need to discuss.

(Emphasis added.)

**25 On 18 July 1995, a number of employees of AAMI met to discuss the status of the Bodycorp franchisees. These discussions included whether or not each of the franchisees ought to either remain or become Recommended Repairers. As a result of this process, some of the Bodycorp franchisees, who previously were not Recommended Repairers, were placed on AAMI's panel of Recommended Repairers.

26 Also around this time, AAMI was undertaking a general review of its Recommended Repairers who were not Bodycorp franchisees. AAMI's own internal correspondence refers to a group called the "Dirty 30",[4] and the fact that some of their then Recommended Repairers were giving active support to that group.

27 From time to time, AAMI continued to consider the suitability of smash repairers to be on the AAMI panel of Recommended Repairers.

28 A memorandum to the state manager of AAMI dated 8 September 1997 recorded that there were a total of 119 Recommended Repairers in metropolitan Melbourne. Of those, 19 were Bodycorp franchisees (2 of whom were on trial). That memorandum listed the Bodycorp franchisees that had been included on the AAMI panel of Recommended Repairers since March 1995. The memorandum recorded that in September 1995, Abbotsford, Berwick, Coburg, Laverton, Melton, Mornington, Preston and Sunbury were added to the panel. The memorandum also recorded that in 1996, Heidelberg and South Melbourne were added to the panel. Finally, it was recorded that, in May 1997, Moorabbin was included.

29 The memorandum dated 8 September 1997 also listed Bodycorp franchisees that already had Recommended Repairer status before they joined Bodycorp. Those Bodycorp franchisees were Clayton, Keilor, Maribyrnong, Noble Park, North Melbourne, Reservoir and Spotswood.

30 Each Recommended Repairer was required to enter into an agreement ("the Recommended Repairer Agreement") with AAMI. These were introduced by AAMI in the early 1990s. The Recommended Repairer Agreement was in a standard form, though, from time to time, it was varied in minor ways. Each Recommended Repairer Agreement was substantially in the same form, and included the following clauses or clauses similar to the following clauses:[5]**

In support of the Recommended Repairer Agreement AAMI will agree to:

Ensure all customers obtain at least one quotation from the Recommended Repairer ...
Assess vehicles on a competitive basis which means a minimum of [2] competitive quotes will be obtained on all non-driveable and driveable vehicles.
Arrange for at least one quotation from a Recommended Repairer for non-driveable vehicles and, in the absence of a request by the customer to obtain his own quotation and in the absence of a quotation from the repairer to whom the car was originally towed, AAMI will obtain 2 quotations from Recommended Repairers.

Ensure Recommended Repairers have every opportunity to submit competitive quotations ...
Provide equal opportunity to all Recommended Repairers by towing all non-driveable vehicles to, where available, AAMI Customer Service Centres to enable truly competitive quotes to be written.

Maintain records of all repairer transactions. In particular AAMI will provide monthly details of the number of jobs quoted and won along with the total repair cost authorised and average per job. This information will be strictly confidential between AAMI and the repairer. In addition it will assist both the repairer and AAMI to improve performance.

Pay Recommended Repairers within 30 days of receipt of invoice.
Provide to each repairer an AAMI Recommended Repairer sign.

Not transfer, in the event of the repair business being sold, the entitlements under this Agreement and the AAMI Recommended Repairer sign.

...

Termination of this Agreement shall be made in writing by either party providing 14 days notice of termination.

This Agreement replaces any prior agreement between AAMI and the repairer.

**31 This represented a bilateral agreement between AAMI and the Recommended Repairer. Bodycorp franchisees that achieved the requisite status were required to enter into such an agreement in their own right; ie independent of Bodycorp. Thus, it is important to indentify the relationships that existed between each of Bodycorp, AAMI and its franchisees leading up to the events in November 1997.

32 Notwithstanding the overtures contained in the Business Plan, including reference to a joint venture, no contractual relationship was entered into, formal or otherwise, between Bodycorp and AAMI before November 1997.[6] It seems, from the communications within AAMI,[7] that at some point in 1995 it might have been contemplated that a tripartite arrangement was desirable. However, whatever might have been discussed (about which I have no direct evidence), it was common ground at trial that no legal relationship was ever created as a result of the 1995 discussions.

33 As between Bodycorp and its franchisees, franchise agreements were entered into. It is unnecessary to go into the details of the agreements beyond stating that they contained terms one would expect to see in many franchise agreements.[8] The only matter I refer to presently is the fact that, in the pro forma franchise agreement, restrictive covenants provided restraints upon franchisees conducting business as a smash repairer upon the expiration of the franchise agreement. All of the franchisees had this clause removed prior to entering into a franchise agreement with Bodycorp.[9] In other words, each franchise had only agreed to enter into a franchise agreement with Bodycorp on the basis that no restraint of trade was to be imposed.

34 As may be seen from paragraphs 30 and 31 above, each Bodycorp franchisee who was a Recommended Repairer had a direct contractual relationship with AAMI. Further, in relation to Bodycorp franchisees who were not Recommended Repairers, they fell into 2 categories. Some of these franchisees were placed on trial in an attempt to become a Recommended Repairer, and others were simply given work (referred to as "overflow work"), when there was a surplus of work that could not be handled by Recommended Repairers.

35 In summary, before 1997, no agreement had ever been reached formally to link each of the relationships together. As a consequence, AAMI was able to deal with the Bodycorp franchisees in such manner as it saw fit, subject to the contractual terms of any Recommended Repairer Agreement. In my view, this is of some considerable significance when considering the events in and after November 1997.**

36 The claims made by Bodycorp are set out in its further amended statement of claim ("FASOC").

**37 Two causes of action are pleaded against Maisano; namely, breach of contract and inducing breach of contract.

38 Bodycorp alleges that Maisano breached a franchise agreement entered into between Bodycorp and Maisano ("the Moorabbin Franchise Agreement"). The Moorabbin Franchise Agreement was for a fixed term of 3 years, expiring 2 February 1999. Pursuant to the Moorabbin Franchise Agreement, Maisano was required to pay Bodycorp a management fee of 8% per annum of gross payments received by Bodycorp on behalf of Maisano. There was an option to extend the Moorabbin Franchise Agreement for 3 further terms of 3 years each.

39 It was alleged that on or about 6 July 1998, Maisano breached the Moorabbin Franchise Agreement by ceasing to operate as a franchisee of Bodycorp. The loss claimed by Bodycorp was for the 8% management fee for the remainder of the term (which Bodycorp would have received if Maisano had not ceased operating as a Bodycorp franchisee). Losses were also claimed in relation to rebates Bodycorp says it would have earned.

40 Further or alternatively, it was alleged that in the period between March 1998 and July 1998, Maisano stated to each specified franchisee (collectively "the Category A Franchisees")[10] words to the effect that:**

(a) It would be in the best interests of the franchisee to terminate its franchise agreement with [Bodycorp]; and

(b) If it did so, the franchisee would continue to be recognised by AAMI as a Recommended Repairer, but would no longer have to pay an 8% management fee to [Bodycorp],

The particulars of the Statement were to the effect that the Statement was oral and made to each of the Category A Franchisees.[11]

**41 It was alleged that in making the Statement to each of the Category A Franchisees, Maisano was aware of the existence of a franchise agreement between that franchisee and Bodycorp. It was further alleged Maisano intended that the franchisee should decide to terminate its franchise agreement with Bodycorp and, in so doing, breach the agreement. It was also alleged that each Category A Franchisee was, in fact, induced to breach the relevant franchise agreement and ended it before the fixed term of that agreement had expired.

42 The loss claimed by Bodycorp included not only the loss of the management fee of 8% for the remainder of the term of each of the franchise agreements in question, together with the rebates for that period, but also for 3 further 3 year terms in relation to each franchise. This was claimed on the basis that "each of the former franchisees would probably have exercised its option to extend the term".**

**43 Precisely the same representations the subject of the Statement were alleged to be made by AAMI and Martin between February 1998 and December 1999 to different franchisees (collectively "the Category B Franchisees").[12] These representations were defined as "the AAMI Statement".[13]

44 The allegations referred to in paragraph 41 above were made, with the necessary changes as to identity, in relation to AAMI and Martin and the Category B Franchisees. Loss was claimed in a similar vein, including on the basis that it was assumed each of the Category B Franchisees would have exercised its option to extend the term of the franchise agreement for 3 further 3 year terms.

45 As against AAMI, claims were made for breach of contract. As noted above, Bodycorp alleged an agreement between it and AAMI made in or about November 1997. That agreement was said to provide that, if at any time before 29 June 2000 a Bodycorp franchisee who was a Recommended Repairer ceased to be a Bodycorp franchisee, AAMI would take various steps, the effect of which would be that the former franchisee could no longer conduct its business as a Recommended Repairer of AAMI for 6 months. This agreement of November 1997 was alleged to have been "embodied in a written document dated 29 June 1998". It was common ground between Bodycorp and AAMI that the document executed on 29 June 1998 contained the entirety of the terms of the agreement between the parties.

46 The AAMI Agreement included the following provisions:**

To facilitate the repair of motor vehicles AAMI appoints certain repairers as AAMI Recommended Repairers.

By a letter dated 10 November 1997 Bodycorp alleged that in about 1995 AAMI and Bodycorp entered an agreement that authorised or alternatively AAMI represented that Bodycorp was authorised, to appoint repairers as AAMI Recommended Repairers.
AAMI denies that it entered any agreement or alternatively made the representation to Bodycorp to the effect alleged.
The parties have entered this agreement to clarify their respective rights and interests.

1.1 AAMI must invite the AAMI Recommended Repairers listed in Schedule 1 to execute a new recommended repairer agreement in the terms of Attachment "A".[14]

...

1.3 AAMI agrees that if any of the AAMI Recommended Repairers listed in Schedule 1 cease to be a Bodycorp franchisee the (sic) ("former Bodycorp franchise") at any time within the two year period following the execution of this agreement then:

(a) AAMI will promptly give written notice terminating the AAMI Recommended Repairer Agreement with the former Bodycorp franchisee;

(b) AAMI will take reasonable steps to ensure that AAMI Recommended Repairer signs are not displayed by the former Bodycorp franchisee within 21 days of the giving of notice under clause 1.3(a);

(c) AAMI will in the ordinary course not request the former Bodycorp franchisee to prepare a quote for the repair of a damaged car for a period of six months from the giving of notice pursuant to clause 1.3(a);

(d) AAMI will not re-appoint the former Bodycorp franchisee as an AAMI Recommended Repairer for a period of six months from the giving of notice pursuant to clause 1.3(a); and

(e) AAMI may in its absolute discretion re-appoint the former Bodycorp franchisee as an AAMI Recommended Repairer six months after the giving of notice pursuant to clause 1.3(a).

...

2.4 Bodycorp acknowledges and agrees that:

(a) AAMI retains the right to terminate its Recommended Repairer Agreements on the terms of the agreements. Without limiting the generality of this acknowledgement Bodycorp agrees that AAMI may terminate the Recommended Repairer Agreement with any Bodycorp franchisee on the giving of notice in writing by AAMI;

(b) If AAMI terminates a Recommended Repairer Agreement with a Bodycorp franchisee Bodycorp has no right, title, interest or authority to appoint any other person (including a Bodycorp franchisee) to replace the repairer whose agreement has been terminated.

(c) Bodycorp has no right, title or interest in an AAMI Recommended Repairer Agreement or Recommended Repairer sign; and

(d) AAMI has the sole discretion to appoint Recommended Repairers.

2.5 In respect of AAMI's obligations in paragraph 1.3 of this agreement Bodycorp acknowledges and agrees that:

...

(b) AAMI may and in the ordinary course does and will continue to authorise non-recommended repairers perform repair work if the non-recommended repairer's quote is the most competitive and the AAMI non-recommended repairer has the apparent capacity and equipment needed to perform the repair;

...

(d) AAMI may in its absolute discretion re-appoint the former Bodycorp franchisee as an AAMI Recommended Repairer at any time after six months after the giving of a notice pursuant to clause 1.2(a) or 1.3(a).

2.6 Bodycorp hereby releases and forever discharges AAMI from all actions, suits, causes of action or claims of any type in any way related to the subject matter of the letter from Bodycorp to AAMI dated 10 November 1997.

**47 The AAMI Recommended Repairers listed in schedule 1 (for the purposes of cl 1.3) were the Bodycorp franchisees located at (listing them in the order in which they appear) Mornington, Berwick, Laverton, Coburg, Preston, Heidelberg,[15] South Melbourne, Moorabbin and Sunshine. To this list can also be added Melton, which was the subject of a separate clause; namely cl 1.2 (which, in broad terms, was similar in effect to cl 1.3). Curiously, and without any explanation as to why, the FASOC pleaded the obligations imposed on AAMI pursuant to cl 1.3 arose in relation to all Bodycorp franchisees who ceased to be a Bodycorp franchisee; ie the allegation went well beyond the Bodycorp franchisees listed in schedule 1.

48 Having pleaded the obligations set out in cl 1.3 of the AAMI Agreement, Bodycorp alleged that, after consultation with AAMI, Bodycorp terminated the Berwick franchise in or about July 1998. Further, it alleged that by reason of the termination of the Moorabbin and Melton franchises, AAMI provided notices, pursuant to the AAMI Agreement, that each of those 3 former franchisees were terminated as Recommended Repairers and were required to return their Recommended Repairer signs.

49 The FASOC then alleged that AAMI breached the AAMI Agreement in a number of ways. Bodycorp alleged AAMI either failed to give the requisite notice to the other franchisees that had terminated[16] or, in the case of Moorabbin, Melton and Berwick, revoked the notice which it had previously given terminating the Recommended Repairer status of those franchisees. A further breach alleged was the failure of AAMI to require any of the former franchisees to remove their "Recommended Repairer" signs. Finally, it was pleaded that, by continuing to recognise each of the former franchisees as Recommended Repairers and to provide work to them, AAMI further breached the AAMI Agreement.

50 It was then alleged, by reason of those breaches, AAMI had no need to appoint a Recommended Repairer to replace the former franchisees. Bodycorp claimed that, as a result, Bodycorp was unable to enter into new franchise agreements with any new franchisees in the areas serviced by the former franchisees.

51 As a consequence, Bodycorp claimed it had suffered loss and damage. In substance, this loss was said to arise from the loss of opportunity to enter into new franchise agreements.

52 A further claim against AAMI was made by Bodycorp for "work and labour done". Until day 13 of the trial, the claim was for the sum of $700,000. The claim was based upon an allegation that invoices had been remitted to AAMI but had not been paid by AAMI. Although the invoices were for work done by the franchisees of Bodycorp, Bodycorp claimed to be entitled to the moneys the subject of those invoices. It was alleged Bodycorp was an assignee of a right of each of its franchisees to be paid by AAMI for vehicle repair work done by the franchisees for or on behalf of AAMI. This claim for $700,000 was particularised very specifically. It was said that the "financial records of [Bodycorp] disclosed a deficiency of $700,000". It also said copies of those records were available for inspection.

53 There was no other basis on the pleading by which Bodycorp sought to quantify this claim. It was not until 22 May 2013 (ie more than 2 weeks after the trial had commenced) that Bodycorp put AAMI on notice that it sought to plead a different basis upon which to establish this claim.

54 After leave was granted by the court on 24 May 2013, the claim made for work and labour done was increased to $1,445,335. Further, the basis upon which it was calculated was completely different. In short, the means by which this new claim was made was substantially by reference to documents produced by AAMI as part of its business. These documents were used by Bodycorp's expert, Gregory Blashki ("Blashki"),[17] to prepare an expert report dated 3 March 2013 ("Bodycorp's Expert Report"), which was tendered at trial.

55 Bodycorp also alleged a further agreement made in or about September 1998 between Bodycorp and AAMI. It was pleaded to be partly oral and partly to be implied. It was alleged that Bodycorp would procure that the South Melbourne franchisee would cease quoting for AAMI at its North Melbourne customer service centre, and, in return, AAMI would recognise the Tottenham franchisee of Bodycorp as a Recommended Repairer and would provide quoting opportunities at North Melbourne to the Tottenham franchisee ("the South Melbourne Agreement").

56 It was alleged that Bodycorp duly procured that South Melbourne cease quoting at North Melbourne. It was further alleged that, in breach of the South Melbourne Agreement, in December 1998 AAMI ceased to recognise the Tottenham franchisee as a Recommended Repairer and also ceased to request that franchisee to prepare quotes for AAMI. Until 24 May 2013, loss was claimed in relation to the South Melbourne Agreement in the sum of $220,000. Belatedly, the claim was increased to $330,985. Reliance was placed on Bodycorp's Expert Report to justify the larger claim.

57 The FASOC also contained a claim alleging certain conduct was in breach of the Trade Practices Act 1974 (Cth). Although this claim remained the subject of the pleadings, on day 1 of the trial Bodycorp informed the court that this claim was no longer being pursued.**

**58 An agreement was alleged to have been made, in or about September 1995, between Bodycorp and All States. It was particularised as being partly in writing, partly oral and partly to be implied. According to the FASOC, it was agreed that if Bodycorp established a franchise in a particular area and Bodycorp undertook to be responsible to All States for the quality of the repair work done by that franchisee, All States would send work to that franchisee ("the All States Agreement").

59 It was alleged that, pursuant to the All States Agreement, between September 1995 and September 1998, All States provided work to the Bodycorp franchisees and Bodycorp was held responsible by All States for the work so provided. It was alleged that, in September 1998, All States ceased to provide work to Bodycorp franchisees and as a result Bodycorp suffered loss and damage in excess of $750,000. This claim was made on the basis that Bodycorp had been denied the opportunity to derive management fees from work that would have been done by Bodycorp franchisees.**

60 As the case has now been dismissed against the Melton Defendants, I shall be brief. The FASOC set out claims for breach of contract against Melton. Further, a claim was made against Munro for inducing breach of contract which replicated the claim that was made against Maisano.

61 It is convenient to deal first with the various contract claims made by Bodycorp.

**62 The issues in relation to the contract dispute between Bodycorp and Maisano are easily identified. Bodycorp and Maisano accept the existence of the Moorabbin Franchise Agreement. They accept it was in writing, was entered into on 2 February 1996 and that it was for a term of 3 years. Maisano admits that on or about 8 July 1998 (ie 2 days after Bodycorp's alleged date) he ceased operating as a franchisee. He says he did so because the Moorabbin Franchise Agreement was terminated by a letter dated 8 July 1998 sent by Maisano's solicitors to Bodycorp ("the Termination Letter"). Accordingly, the only real issue is whether Maisano was acting lawfully when he purported to terminate, and ceased to continue to act in accordance with the terms of, the Moorabbin Franchise Agreement.

63 By his defence, Maisano alleged that Bodycorp breached the Moorabbin Franchise Agreement and thereby repudiated the agreement. Accordingly, the Termination Letter was sent on 8 July 1998, accepting that repudiation and thereby bringing the Moorabbin Franchise Agreement to an end.**

**64 The breaches alleged by Maisano against Bodycorp are twofold. Both of them relate to appointments or purported appointments of new franchisees by Bodycorp within Maisano's franchise territory ("the Territory"). There was a dispute as to what the Territory encompassed. There were also issues as to the nature and extent of Bodycorp's conduct in its dealings with the new, or, at least, proposed new, franchisees.

65 It would be expected that the Moorabbin Franchise Agreement would make it clear as to what the Territory was. This is not the case. Because of the unsatisfactory state of the documentation concerning the Moorabbin Franchise Agreement, it is necessary to refer to some evidence about its execution, and the events leading up to its execution.

66 "The Territory" was a defined term in the Moorabbin Franchise Agreement. It was defined by reference to schedule 8. Schedule 8 defined the Territory "[a]s represented in the map attached". The map attached was a photocopy from page 77 of the Melways ("the Melways Map"). The Melways Map in the court book had no markings on it at all and encompassed an area from, in the north west, Brighton East, to, in the south west, Cheltenham, to, in the south east, Heatherton and to, in the north east, Oakleigh South. More particularly for the purposes of this dispute, it included Bay Road in Cheltenham, from Nepean Highway to Bluff Road ("the Bay Road Area").

67 The Moorabbin Franchise Agreement contained in the court book is unexecuted. Bodycorp was unable to produce an executed copy, and had not discovered such a document previously.[18]

68 When asked about the Territory, Murdaca was not able to give clear evidence about its precise dimensions. He was also unable to give any meaningful explanation as to why the executed document was unable to be produced, other than that Bodycorp had had a number of lawyers over the years. He also could not give an explanation as to why the original signed version of the Moorabbin Franchise Agreement had never been accounted for in any affidavit of documents filed on behalf of Bodycorp.

69 In light of the fact that an executed version of the Moorabbin Franchise Agreement was not produced, evidence was led by Maisano about the circumstances giving rise to its execution. Maisano never had an executed copy of the Moorabbin Franchise Agreement; upon its execution Bodycorp took the document into its custody. However, Maisano did have in his possession a document in precisely the same form as that produced by Bodycorp, save that the Melways Map had green highlighting specifically identifying the Territory for the purposes of schedule 8 of the Moorabbin Franchise Agreement. The green highlighting showed a smaller area than the entire map on the Melways Map. But most of the Melways Map was incorporated in the highlighted area. In particular, the Bay Road Area was well within the boundaries identified. Maisano gave evidence that this map, as highlighted, replicated the document he and Murdaca executed, being the Moorabbin Franchise Agreement.

70 Thus, on the 2 unexecuted versions of the Moorabbin Franchise Agreement put before the court, the Territory is either the whole of the Melways Map, alternatively the area within the green highlighting on the Melways Map. Either way, both incorporate the Bay Road Area. Accordingly, unless there were compelling evidence from Bodycorp as to different dimensions of the Territory, there can be no proper basis for suggesting that the Bay Road Area was not within the Territory.

71 Maisano gave evidence that immediately before signing the Moorabbin Franchise Agreement he and a representative of Bodycorp, Charles Pellegrino ("Pellegrino") went through an earlier draft Maisano had been given. Maisano said together they went through the earlier draft with the document to be executed and compared them page by page. Maisano said this was done to ensure that the details were the same as the earlier draft, which had been agreed to at an earlier meeting. Maisano also said the agreed area of the Territory was the subject of discussions at the initial meeting between Maisano and Bodycorp (T1180.04). Murdaca did not give any contradictory evidence in this regard.

72 Pellegrino was an accountant acting for Bodycorp at the time. He was not called to give evidence on behalf of Bodycorp. Indeed, no one was called on behalf of Bodycorp to corroborate Murdaca's evidence.

73 Maisano stated that, as part of the execution process, each page was signed, including the Melways Map. Maisano was also able to give evidence that an erroneous address referred to in schedule 3 had not been corrected, as previously requested by Maisano. He said this error was amended as part of the execution process. In summary, Maisano was able to give very specific evidence about this process and, in particular, that the Melways Map as produced by him from his copy was the one the subject of the executed version.[19]

74 As I have stated above, Murdaca suggested that the Bay Road Area was not within the Territory. However, his evidence in this regard was very vague. In particular, he was unable to point to any conversation or document which identified what Bodycorp said was the Territory. Indeed, Murdaca stated that at the time it was Pellegrino and one other person that were preparing the maps for the various franchises. When challenged about the size of the Territory, Murdaca put his evidence in terms of his belief as to the Territory rather than giving direct evidence. In closing submissions, counsel for Bodycorp accepted there was no evidence from Bodycorp as to what the Territory was, but submitted, based on Murdaca's evidence, I should find it did not include the Bay Road Area.

75 There are some further observations to be made on this issue. Notwithstanding the issue of the Territory was directly raised in Maisano's defence well before the trial, no allegation was made by Bodycorp on the pleadings as to what it said the Territory was.

76 Further, outlines of evidence were filed on behalf of the parties. This issue was not referred to in Bodycorp's outlines. It appears the first time Bodycorp sought to make an issue about the extent of the Territory was when Murdaca gave his evidence-in-chief on day 2 of the trial.

77 Finally on this issue, evidence was led to demonstrate the integrity of the Melways Map with highlighting, as produced by Maisano. His solicitor gave evidence that in 2000 a brief was sent to counsel which contained the unexecuted Moorabbin Franchise Agreement, including the Melways Map with highlighting. At that time it was a bound document. The solicitor said this bound document was the same document Maisano had discovered in this proceeding and had tendered in evidence. He said he removed the binding himself for the purposes of photocopying and did not rebind the document.

78 In the circumstances, the only finding properly open to the court is that the Melways Map with highlighting, being the version produced by Maisano, reflects the actual Melways Map in the Moorabbin Franchise Agreement executed by Maisano and Murdaca on behalf of Bodycorp.**

E.1.3 The importance of the terms relating to the Territory

79 It is now necessary to refer to the clauses in the Moorabbin Franchise Agreement relevant to the Territory. Those clauses are as follows:

2.2 The Franchisee acknowledges that this Franchise is not an exclusive franchise and that the Franchisor may grant other Bodycorp Franchises outside the Territory and, subject to the prior consent of the Franchisee ... inside the Territory.

...

In consideration of the Franchisee paying the Franchise Fee and performing all other obligations under this Agreement, the Franchisor will, as and when it deems necessary or appropriate throughout the duration of this Agreement:

...

3.15 Subject to ... the Franchisee honouring its obligations under this Agreement, not open another Business or grant another Franchise within the Territory without the prior written consent of the Franchisee.

**80 Of their nature, it would be expected that both a franchisor and a franchisee would consider terms concerned with the territory of a franchise to be essential to any agreement to enter into a franchise. In relation to a franchisor, the territory confines the area in which a franchisee may exploit the business sold by the franchisor. Equally, such clauses allow a franchisee to have some protection from competition and to establish some goodwill within a particular area. Although the terms of the particular contract need to be considered, speaking generally, it would be expected that terms of a contract which define or protect the territory of a franchisee would be understood as being essential promises, being of such importance that the parties would not have entered into the contract unless they were assured that both parties would respect the territory of the franchise.[20]

81 Clause 2.1 granted Maisano the right to operate the business within the Territory. Maisano was required to pay a franchise fee for this right. Having reviewed the whole of the Moorabbin Franchise Agreement, I am of the opinion that Bodycorp's obligation as set out in cl 3.15, and as reflected in cl 2.2, contains an essential promise, the breach of which would entitle Maisano to terminate.

82 The evidence shows that there was a direct relationship between the location of a Bodycorp franchisee and the ability of that franchisee to quote for work for AAMI. Also, for work other than for AAMI, the value and potential profitability of a Bodycorp franchise would be likely to be greatly diminished if Bodycorp were able to authorise other Bodycorp franchisees to establish businesses proximate to Maisano. The fact that written consent from Maisano was required before the Territory could be infringed also suggests the essentiality of the terms relating to the Territory.

83 The question of the essentiality is to be derived from "the intention of the parties as appearing in or from the contract".[21] However, if it be relevant, the view I have formed is fortified by discussions that occurred prior to the Moorabbin Franchise Agreement being entered into.[22] Maisano gave evidence that Murdaca told him that there was a guarantee that Maisano would get an allocated area and that no one could quote in the area. Murdaca said it would be a restricted area. Further, in cross-examination, Murdaca accepted that the Territory was important to both Bodycorp and Maisano. Murdaca accepted all franchises were governed by a territory.

84 Accordingly, the terms of the Moorabbin Franchise Agreement (and the discussions between the parties) clearly demonstrate that the parties considered the Territory to be fundamental to the relationship of franchisor and franchisee. Also it is plain that it was the intention of the parties that they act in accordance with the existence and exclusivity of the Territory (subject to the exception of prior consent as expressly provided). In the circumstances, if Bodycorp were to deliberately infringe the relevant clauses by appointing a new Bodycorp franchisee within the Territory without the permission of Maisano, it would be expected that such a breach of contract would justify Maisano terminating the Moorabbin Franchise Agreement if he was so minded.**

**85 There is no doubt on the evidence that Bodycorp investigated and then pursued the opportunity of appointing another franchisee within the Territory. This occurred in 1998 when the Moorabbin Franchise Agreement was still on foot. The issue is whether the conduct engaged in by Bodycorp actually gave rise to a new franchise or new franchises within the Territory, and thereby breached the Moorabbin Franchise Agreement. There is also an ancillary issue as to what effect, if any, the conduct may have had on Maisano's business.

86 Maisano alleges that on 2 separate occasions Bodycorp sought to appoint a franchisee within the Territory. He alleges that in relation to 1 of these, namely Body Line Panel Works Pty Ltd ("Body Line"), he became aware of the appointment in early July 1998. The evidence Maisano gave suggested he was first aware of this issue in April 1998. In relation to the other franchisee, Cheltenham Accident Repair Centre Pty Ltd ("Cheltenham Accident Repair"), he alleges that he learned of this after he had already terminated the Moorabbin Franchise Agreement. However, he relies upon it as justifying his conduct in terminating the Moorabbin Franchise Agreement.[23]

87 In relation to Body Line, Murdaca was directly involved in seeking to have Body Line become a new franchisee. Twice he attended the proposed premises at 321 Bay Road, which was within the Bay Road Area. Murdaca did so to assess the suitability of the premises and the business, with the intention of Body Line becoming a franchisee. He even took representatives of All States, including Garry Austin (the national operations manager[24]), to these premises so they could inspect them.

88 Also Murdaca executed a franchise agreement on behalf of Bodycorp in early 1998; it is undated. The franchise agreement has a common seal of Body Line affixed to it. It also has a signature for that company. Murdaca said that after this document was executed he soon found out it was "useless". He said this was because the person who signed on behalf of Body Line was not a director.

89 There is also another franchise agreement signed by Body Line. This agreement is dated 25 March 1998, and was executed by Anke Kaufer, who was a director of Body Line at the time. This agreement was also executed by Rogers on behalf of Bodycorp. Rogers was employed by Bodycorp at the time. Murdaca gave evidence that, as the document did not contain his signature, Bodycorp did not enter into any such agreement. Nevertheless, Murdaca did concede that the intention of Bodycorp was to enter into such an agreement.

90 There are at least 2 difficulties for Bodycorp arising out of these events concerning Body Line. First, there is no specific evidence as to when Bodycorp learned of the apparent absence of authority of the person who signed on behalf of Body Line. Given Murdaca was giving evidence in mid 2013 about events that occurred back in 1998, there is a considerable margin for error as to how soon it was that this position became apparent. Equally, in relation to the document executed by Rogers on behalf of Bodycorp, it is unclear as to when Bodycorp decided not to act in accordance with that signed document. Other evidence would suggest that whichever signed agreement was acted upon by Bodycorp, the intention of Bodycorp to treat neither of these documents as binding did not occur until after 8 July 1998.[25]

91 Secondly, at the time Murdaca, on behalf of Bodycorp, executed the franchise agreement with Body Line, he believed he was executing a legally binding agreement. He gave specific evidence that that was his view. He also met with the director of Body Line personally. Accordingly, regardless of the legal effect of the document, there can be no doubt as to what the intention of Bodycorp was, namely to appoint another franchisee within the Territory (as that term was defined in the Moorabbin Franchise Agreement). The same observation may be made in relation to the document signed by Rogers. Bodycorp's intention, objectively viewed with the conduct it engaged in, was inconsistent with its obligations under the Moorabbin Franchise Agreement.

92 I now turn to the other proposed franchisee. The knowledge of Maisano in relation to Bodycorp establishing another alternate franchisee within the Territory arose from a document filed in this proceeding by Bodycorp.

93 In 2007, Bodycorp sought leave to amend its case by a further amended statement of claim. This proposed pleading attempted to introduce further allegations concerning the conduct of the defendants. Leave to make those amendments was refused both at first instance and on appeal.

94 It is not necessary to go into the detail of much of the further amended statement of claim as proposed in 2007. It is sufficient for present purposes to note that the amendments included allegations that as "at February [1998], and at all relevant times thereafter" there were franchise agreements in place between Bodycorp and various franchisees, including "Cheltenham Accident Repair Centre Pty Ltd trading as Bodycorp Cheltenham". The allegations were that the goodwill of Bodycorp had been developed by developing franchises, including "Bodycorp Cheltenham". Finally, it was suggested that various persons were induced to terminate their franchise agreement, including the franchise agreement in relation to Cheltenham. It was said that this occurred in April/May 1998.

95 A company search of Cheltenham Accident Repair shows it was registered on 16 June 1998, ie 1 or 2 months after the alleged inducement. The search also showed that from 1 July 1998 (until 8 November 2009) one of its principal places of business was 321 Bay Road, Cheltenham.

96 Murdaca said that he gave instructions in relation to the further amended statement of claim advanced in 2007. He gave evidence that there were other influences at the time. There was a funder involved and he was also given advice on the various issues. However, his evidence was clear that, having been given advice, he gave instructions as to the content of the proposed pleading in 2007. It follows that in 2007 Bodycorp gave clear and unequivocal instructions that a Bodycorp franchisee was established by Bodycorp in the Territory in 1998.

97 There is another fact relevant to determining Bodycorp's intention in 1998. The relationship between Murdaca and Maisano became problematic in early 1998. Murdaca conceded that by February 1998 their relationship had become "strained". The breakdown in the relationship arose largely out of events concerning another shop at Malvern. Those events give rise to a dispute over moneys paid by Maisano. It is unnecessary to go into that matter here. However, the difficulty in the relationship makes it all the more likely that Murdaca was looking for an alternative Bodycorp franchisee to conduct work in the Territory without the consent or involvement of Maisano.

98 Therefore, although the facts are not clear as to precisely when the events occurred, there are 2 separate bases upon which it can readily be established by Maisano that Bodycorp intended to establish a new franchise within the Bay Road Area at 321 Bay Road, Cheltenham. It also seems that work was being referred to this new franchise. I draw this conclusion not so much from the representations made by All States to Maisano, but from the fact that when confronted by Maisano with the suggestion of the existence of an alternate franchisee, Murdaca did not deny its existence.[26]

99 As to who the new franchisee was, I cannot be certain. The evidence is incomplete. Also what was pleaded in the proposed further amended statement of claim contradicts some of the objective evidence. However, it is not necessary for me to determine which of the 2 possible franchisees ultimately became the franchisee. I am satisfied on the evidence that at least 1 of them was a franchisee within the Territory.**

E.1.5 Was Bodycorp in breach as at 8 July 1998?

**100 The only remaining issue is whether the breach or breaches by Bodycorp were continuing as at 8 July 1998, when Maisano purported to terminate the Moorabbin Franchise Agreement. Given the very extensive lapse of time between these events and the trial, there is considerable uncertainty about precisely when these events occurred. However, there are some matters which, in my view, clearly indicate that it is highly likely the breach was continuing at the time the Termination Letter was sent by Maisano.

101 First, before 8 July 1998, Murdaca discussed this issue with Maisano and Murdaca never denied the existence of a new franchisee. Maisano learned of another franchisee in the Territory in April 1998. It was because of this, he said he was upset with Bodycorp from April until July 1998. He confronted Murdaca in April, only to be told by Murdaca that the franchisee had been signed up because All States had excessive workload for the area.[27]

102 As a result of this information, Maisano contacted All States. A person from All States, by the name of Jillian, informed Maisano that she had been told by Bodycorp to split work between Maisano and the new franchisee in the area. Maisano said he then spoke again to Murdaca about the issue and discussed it with him at length. At no time was there any suggestion by Murdaca that there was not a new franchise on foot within the Territory.

103 During one of these discussions about the new franchisee, Maisano said it was the last straw and that he was going to get advice about terminating the agreement. Again, there was no suggestion that Murdaca comforted Maisano by stating that there was no alternate franchisee. The last of these conversations was in mid June 1998, when Maisano said to Murdaca that he "was going". It was accepted in closing submissions that Bodycorp did not dispute this conversation occurred in mid June 1998. When I inquired of counsel for Bodycorp why Murdaca did not say in June 1998 that the new franchise was not going ahead if that was Bodycorp's actual position, he said he could not answer that. The obvious answer is that as at mid June 1998 when the issue was last discussed, Bodycorp did intend to have (and probably already had) another franchisee in the Bay Road Area.

104 In summary, there were a number of occasions where Murdaca had the opportunity, prior to the Termination Letter being sent, to indicate to Maisano that there was no alternate franchisee. Notwithstanding that the very subject matter of the discussion was an alternate franchisee taking work away from Maisano, Murdaca said no such thing.

105 Secondly, after the Termination Letter was sent on 8 July 1998, there was a discussion between Maisano and Murdaca. Again, during that discussion Murdaca made no suggestion that there was no alternate franchisee. Murdaca said in this discussion that he wanted to meet with Maisano to discuss matters.

106 The fact that a conversation between Maisano and Murdaca took place is recorded in a letter dated 13 July 1998. The letter from Maisano's solicitors to Bodycorp referred to alleged threats said to have been made by Murdaca in relation to Maisano's business. The short point is that it does not record any suggestion that Murdaca had said that there was no alternate franchise in the Territory at the time.

107 Thirdly, and tellingly, in response to a suggestion that the Termination Letter indicated Maisano's absence of consent to a new franchisee, Murdaca gave evidence under cross-examination that the franchise was not in the Territory and Bodycorp did not need his consent.

108 On 3 August 1998, solicitors for Bodycorp, somewhat belatedly, responded to the letters from Maisano of 8 and 13 July 1998. They asserted that the factual contention contained in the 8 July 1998 letter concerning the granting of an alternate franchise in the Territory was incorrect. Maisano gave evidence that this was the first time it had been asserted by Bodycorp that there was no alternate franchisee. Based on the evidence before the court, there is no reason to doubt Maisano's evidence. Indeed, Murdaca never at any time suggested that, prior to 3 August 1998, he disabused Maisano, in their discussions leading up to, or immediately after, the Termination Letter, of Maisano's belief of an alternate franchisee in the Territory.

109 It may well be that Bodycorp desisted in having an alternate franchisee after 8 July 1998. It also may be that in 1999 an alternate franchisee did operate in that area (as was suggested by Maisano). In my view, none of this evidence is helpful in determining the issues at hand. The simple question for me was whether or not, as at 8 July 1998, when Maisano purported to terminate the Moorabbin Franchise Agreement, there was a continuing breach of cll 2.2 and 3.15 of the Moorabbin Franchise Agreement. For the reasons set out above, in my view there was. Alternatively, if I am wrong about whether an agreement was actually entered into, there can be no doubt that Bodycorp unequivocally intended to enter into a further franchise agreement in the Territory, and that this intention continued until some time after 8 July 1998.[28]**

110 The final question to determine is whether Bodycorp's conduct entitled Maisano to terminate the Moorabbin Franchise Agreement. That question is determined by asking:

(1) Whether the conduct of Bodycorp is such as to convey to a reasonable person, in the situation of Maisano, renunciation either of the Moorabbin Franchise Agreement as a whole or of a fundamental obligation under it. Renunciation in this context means conduct which evinces an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with the party's obligations.[29]

(2) Does the breach of the Moorabbin Franchise Agreement justify termination by Maisano.[30]

In relation to the latter of these 2 questions, even if the breach is not the breach of an essential term, the impugned conduct may manifest an unwillingness or inability to perform in circumstances that are such that Maisano is entitled to conclude that the Moorabbin Franchise Agreement will not be performed substantially according to its requirements.[31] In relation to the former question, the High Court has observed that actions may speak louder than words.[32] It seems this observation might be applicable to both questions. As the High Court noted, there is an overlapping in relation to the 2 questions posed.

**111 The conduct of Bodycorp up until 8 July 1998 unequivocally conveyed to Maisano that it did not intend to perform the Moorabbin Franchise Agreement in accordance with its terms. In particular, from April 1998 through to 8 July 1998, Bodycorp indicated on a number of occasions that it had appointed a new franchisee. Murdaca may have believed that it was not within the Territory, but I have found that he was wrong about this. In those circumstances, Maisano was entitled to conclude that Bodycorp renunciated the Moorabbin Franchise Agreement in relation to a fundamental obligation, namely the exclusivity of the Territory for the purposes of Maisano's business. That conduct alone entitled Maisano to terminate the Moorabbin Franchise Agreement.

112 If I am wrong about the classification of cll 2.2 and 3.15 as essential terms of the Moorabbin Franchise Agreement, in any event I find that the conduct of Bodycorp justified termination by Maisano by reason of the deliberate and continuing breach of the Moorabbin Franchise Agreement. The ongoing insistence by Bodycorp that it could maintain another franchisee within the Territory was sufficiently serious to entitle Maisano to terminate, even if cll 2.2 and 3.15 are properly classified as non-essential or intermediate terms.[33]

113 In circumstances where Bodycorp was confronted with the breach which Maisano reasonably claimed adversely affected his business, and Bodycorp decided to continue with its wrongful conduct, the breach must be viewed as serious. This is particularly so where the evidence suggests that the new franchisee had the direct effect of taking business that otherwise would have gone to Maisano. Even without that evidence, the inference open to be drawn is that a new franchisee located in the Territory would take business opportunities away from Maisano. Given there is only a finite number of quoting opportunities throughout metropolitan Melbourne that would have been available to Maisano, an additional franchisee in the same area, who was able to provide competitive quotes for AAMI's business, must necessarily affect Maisano's business adversely.

114 Further, even if, contrary to some of the evidence, it could be argued that Bodycorp failed to enter into a binding agreement with a new franchisee, the evidence shows it acted as if a new franchise agreement was in place. Bodycorp's continuing and unequivocal intention to seek to enter into a new franchise agreement and to allow business to occur as if a new agreement were on foot amounted to breach of the Moorabbin Franchise Agreement. Such conduct, of itself, would justify Maisano terminating the Moorabbin Franchise Agreement.[34]

115 The onus is on Maisano to establish that the conduct of Bodycorp definitely intimated that Bodycorp no longer regarded itself as bound, or was only willing to act inconsistently with its obligations.[35] Consistent with the onus being on the party acting on a repudiation, courts are slow to infer repudiation.[36] However, the onus has been discharged. The facts indicate that Bodycorp was only willing to perform the Moorabbin Franchise Agreement in a manner substantially inconsistent with its obligations and not in any other way.[37] That conduct entitled Maisano to terminate whichever way the relevant clauses of the Moorabbin Franchise Agreement are characterised.

116 In summary on this issue, Maisano was entitled to terminate the Moorabbin Franchise Agreement. The claim by Bodycorp for Maisano failing to perform in accordance with the Moorabbin Franchise Agreement after 6 or 8 July 1998 must fail.[38]**

117 As may be seen from section D.2 above,[39] there are 2 separate contractual claims against AAMI. I will deal with these in the order in which they are pleaded.

118 The relevant clauses of the AAMI Agreement have been set out in paragraphs 46 to 47 above.

**119 As noted in paragraph 47, there was a preliminary point to address in relation to the ambit of the claims made under the AAMI Agreement by Bodycorp. On its face, the AAMI Agreement was confined to the Bodycorp franchisees expressly referred to in it. There was simply no basis to seek to expand its operation beyond those Bodycorp franchisees. This was effectively acknowledged by Murdaca. He said the "agreement took forever" to get signed up and by the time the parties signed "half the business was gone by then". Accordingly, I proceed to address the issues raised on this confined basis.

120 Although AAMI appeared to dispute the issue, there is no doubt that the agreement was originally struck in November 1997. This is acknowledged in correspondence coming from AAMI.[40] However, nothing turns on the point of whether the agreement was entered into in November 1997 or on 29 June 1998. This is because it is pleaded that, whenever the agreement was struck, its terms were embodied in the written document executed on 29 June 1998, being the AAMI Agreement, and the breaches are alleged to have occurred after this date.

121 As noted in footnote 15 above, there is some issue about whether or not Heidelberg was a franchisee of Bodycorp. There is conflicting evidence in this regard. It is clear that Bodycorp referred to Heidelberg as a franchisee in some of its correspondence. However, it is also clear that Bodycorp put in place a licence arrangement in relation to that shop.

122 When confronted with the conflicting evidence, Murdaca was steadfast in his evidence that the relationship between Bodycorp and whoever was running Bodycorp Heidelberg was that of franchisor and franchisee.

123 Murdaca said a lease, a licence and a franchise were granted to Century Capital Pty Ltd ("Century Capital"), who then effectively on-licensed the operation on 3 separate occasions; first to the Lantieris of Bodycorp Airport West; secondly to Alex and Charlie Fasoulis, and thirdly to Overall Panels, the proprietor of which was Raymond Chaiban ("Chaiban") of Bodycorp Coburg. Murdaca also said that while Bodycorp itself had signed a Recommended Repairer Agreement with AAMI in respect of Heidelberg, Bodycorp never operated the Heidelberg business.

124 When challenged, Murdaca conceded the franchise agreement with Century Capital related to Malvern. Bodycorp was unable to produce a franchise agreement for Century Capital that was for the Heidelberg business. Murdaca also accepted that in correspondence with AAMI, Bodycorp asserted it owned the Heidelberg business, and that it had either leased the premises or licensed the business to Alex and Charlie Fasoulis and later to Chaiban.

125 When the correspondence referred to was put to Murdaca, he maintained it was Century Capital who had granted the respective leases or licenses, in line with the evidence referred to above.

126 Murdaca also said there was definitely a signed franchise agreement in relation to Heidelberg. None was produced. Murdaca said he would find it and make enquiries. If he did such things, they apparently came to nought. However, it seems there may have been a franchise agreement executed in February 1996. AAMI's records in 1997 recorded that this was the position.[41]

127 In addition to Murdaca, Mimma Lantieri ("Lantieri") gave evidence on this topic. She said they leased the shop from Bodycorp, and made lease payments accordingly. She said the Lantieris, through their company, L&M Panels Pty Ltd ("L&M Panels"), were a franchisee at Heidelberg. However, she accepted there was no written franchise agreement between L&M Panels (or the Lantieris) and Bodycorp.

128 The state of the evidence makes it very difficult for the court to reach a conclusion with any degree of certainty. Given L&M Panels had a written franchise agreement in relation to Airport West, it is possible that it was agreed that that document would apply, with any necessary amendments, in relation to Heidelberg without a further document being required. However, there was no evidence to this effect.

129 In any event, I am willing to proceed on the basis that L&M Panels was located at Heidelberg and was either a franchisee, or in a contractual relationship with Bodycorp similar to a franchise agreement which could be the subject of a breach if the proprietors of the business were wrongfully induced to end their relationship with Bodycorp. Consistent with this finding, it seems that the contemporaneous documents demonstrate that Heidelberg was being treated as a franchisee.

130 There is no real dispute that each of the Bodycorp franchisees referred to in schedule 1 of the AAMI Agreement ceased to be Bodycorp franchisees within the 2 year period referred to in cl 1.3 of the AAMI Agreement. However, AAMI did not accept this was the position. AAMI submitted, with the exceptions of Moorabbin and Melton, Bodycorp had failed to prove each of the relevant franchisees left in the 2 year period because the evidence was not specific as to the dates of departure.

131 Although there is not direct evidence on the point, the only proper inference open is that each of the relevant franchisees listed in schedule 1 of the AAMI Agreement ceased to be franchisees during the relevant 2 year period. This must follow from the fact that each of them had been franchisees for more than a year. The franchise agreements were for a 3 year term.[42] The only basis which might make it possible for any of them not to have ceased lawfully (or otherwise) in the 2 year period would be if they renewed their franchise agreements in the 12 months leading up to 29 June 1998. There is nothing in the evidence to suggest this occurred.[43]

132 As noted above,[44] the allegations do not include all franchisees listed in schedule 1; they are confined to franchisees that meet the description of Category A Franchisees, Category B Franchisees and are listed in schedule 1. It follows the allegations are limited to Berwick, Heidelberg, Moorabbin and Mornington. To this list, Melton must be added.[45]

133 There was no dispute that, in relation to the relevant franchisees, AAMI either failed to give written notice in accordance with cl 1.3(a) or, with respect to Moorabbin and Melton, withdrew notices previously given under that clause. The evidence in relation to Berwick is less clear. It lost its Recommended Repairer status, but this was said to be because of quality issues, rather than its relationship issues with Bodycorp. In any event, it appears its status was reinstated after it ceased to be a Bodycorp franchisee, but within the relevant 6 month period. It is also common ground that AAMI did not take steps to ensure that the AAMI Recommended Repairer signs were not displayed by those franchisees that ceased to be Bodycorp franchisees. Finally, AAMI's key witness, Martin, expressly acknowledged that none of these repairers lost its Recommended Repairers status after the relationship with Bodycorp ceased.[46]

134 Accordingly, there can be no doubt AAMI breached the AAMI Agreement. AAMI accepted this position, at least in relation to Moorabbin and Melton.**

E.2.1.2 Were the restraints of trade unreasonable?

**135 The key issue between Bodycorp and AAMI is whether or not the obligations imposed on AAMI pursuant to cll 1.2 and 1.3 of the AAMI Agreement are enforceable or whether they are unreasonable restraints of trade. Of course, the restraints of trade are imposed directly upon AAMI, rather than the Bodycorp franchisees. However, in considering whether or not the restraints are reasonable, the court should also consider the effect the restraints have upon the businesses of the franchisees. It was common ground between all the parties that to be a Recommended Repairer was extremely valuable to the Bodycorp franchisees.[47]

136 By imposing the restraints in cll 1.2 and 1.3, not only did Bodycorp seek to restrict the conduct of AAMI; Bodycorp also sought to shut down a substantial part of the business of its former franchisees while it attempted, or created the opportunity, to establish its own new franchisee in the relevant area. Indeed, Bodycorp expressly acknowledged this was the purpose of the restraints. Bodycorp submitted the benefit to be derived by Bodycorp was the ability to protect the integrity of its franchise network and having the opportunity to procure a Recommended Repairer for a new franchisee in the region served by the former franchisee. This was submitted to be a legitimate business expectation of Bodycorp.

137 There were a number of contemporaneous statements made by Bodycorp as to why they sought to enforce the restraints against AAMI. For example, in a letter dated 12 June 1998, Bodycorp's solicitors stated the restraints were "to protect our client's franchise business from any current or future Bodycorp franchisees leaving Bodycorp". AAMI submitted this was the very vice the court should find as being unreasonable. Also, both Murdaca and Ralph Murdaca gave evidence to the effect that Bodycorp wanted to be in a position where it could tell its franchisees that if they left Bodycorp they would lose their AAMI Recommended Repairer sign.

138 There is a further, and critical, fact that needs to be addressed. As set out in paragraph 33 above, the pro forma franchise agreement proffered by Bodycorp to its franchisees contained a restraint of trade in it. However, none of the executed versions of the franchise agreements between Bodycorp and its franchisees contained such a restraint. Thus, it is plain that, at the time each of the franchisees entered into the Bodycorp franchise agreements, they expressly rejected that agreeing to become a Bodycorp franchisee included the imposition of a restraint of trade if that franchise agreement ceased.

139 In this context, cll 1.2 and 1.3 of the AAMI Agreement must be seen as an attempt by Bodycorp, having failed to impose the restraint itself, to have a third party impose a restraint upon its own franchisees in the event that they ceased to be Bodycorp franchisees. In my view, this factual background at the time the AAMI Agreement was entered into[48] makes it a difficult task for Bodycorp to establish that the restraints the subject of the AAMI Agreement were reasonable.

140 A restraint of trade may be described as a contract in which one party agrees with any other party to restrict its liberty in the future to carry on trade with other persons not parties to the contract in such a manner as it chooses.[49] Bodycorp accepts cll 1.2 and 1.3 impose restraints of trade. Bodycorp also accepts that it has the onus of establishing that the restraint of trade sought to be imposed was reasonable.[50] To be enforceable, the restraint must afford no more than adequate protection to the interests of Bodycorp.[51]

141 When a court applies the doctrine of restraint of trade, the relevant matters are not to be considered on legal niceties or theoretical possibilities. They are to be determined by reference to the practical working of the restraint.[52] This includes the effect the restraint may have upon persons who are not parties to the relevant contract.[53]

142 A restraint of trade is contrary to public policy. The general position is that depriving a trader of the liberty to trade is contrary to the public interest.[54] It is void unless it "may be justified by the special circumstances of a particular case".[55] In order to do this, the covenantee (ie Bodycorp) must establish the restriction is reasonable by reference to both the interests of the parties and by reference to the interest of the public.[56] Reasonableness is a question of law.[57]

143 There are a number of reasons why, in my view, the restraint of trade sought to be imposed is unreasonable.

144 First, it seeks to severely harm[58] any Bodycorp franchisee who ceased to be a franchisee of Bodycorp, even if this were done lawfully at the end of a franchise agreement. In this regard, counsel for Bodycorp submitted that the use of the word "cease" in cl 1.3 of the AAMI Agreement should not be read down, but should be given its natural and ordinary meaning. He submitted that, even if a Bodycorp franchisee ceased to be a franchisee lawfully (eg the term of the franchise agreement came to an end), it would be the subject of the restraint. This construction of the clause was the only construction contended for by Bodycorp.

145 In circumstances where such a franchisee has received nothing in return for the restraint being imposed,[59] this would clearly be unreasonable in relation to it. This position is fortified by the fact that each Bodycorp franchisee successfully negotiated with Bodycorp not to be the subject of a restraint.

146 Secondly, Bodycorp sought to create a restraint of trade at a time when its franchisees were already starting to leave Bodycorp. Complaints were made to Bodycorp by some of its franchisees from 1997 onwards. In particular, a number of franchisees were unhappy about paying a fee of 8% of their turnover to Bodycorp. Indeed, in closing submissions counsel for Bodycorp submitted that the catalyst for the AAMI Agreement, and the restraints of trade agreed upon, was the fact that the Abbotsford franchisee wanted to leave the Bodycorp group. Therefore, Bodycorp was seeking to interfere with the freedom of trade enjoyed by the Bodycorp franchisees at the very point in time when that freedom was either in the process of being exercised, or its exercise was imminent (ie at the expiry of the respective franchise agreements).

147 Thirdly, the restraint prevents the Bodycorp franchisee from obtaining Recommended Repairer status in circumstances where it would be capable of obtaining that status independently of Bodycorp, either before or after the franchise agreement. Although some franchisees obtained such status while being a franchisee, and most likely with the assistance of Bodycorp, it would be unreasonable then to necessarily tie the ongoing maintenance of that status to remaining a franchisee of Bodycorp.

148 Nothing in the individual franchise agreements gives rise to this position. And yet counsel for Bodycorp boldly submitted that the court ought to uphold that the only way a franchisee would have been able to keep its Recommended Repairer sign would be to renew the franchise agreement with Bodycorp. He submitted that was a reasonable position because the franchisees in question had obtained their Recommended Repairer status after becoming franchisees. In my view, this circumstance does not make it reasonable for Bodycorp to maintain that, unless a repairer continues to be a franchisee, Bodycorp is entitled to deprive a repairer of the substantial part of its business.[60] Such a position places Bodycorp in an extraordinarily strong bargaining position. It was not the basis upon which the Recommended Repair status was obtained.

149 Fourthly, the restraint goes well beyond what was reasonable for the protection of Bodycorp's interests in seeking to have a franchisee with Recommended Repairer status in a particular area. There appears to be no good reason why Bodycorp could not seek to establish a competing business in the area which, if of a satisfactory standard and satisfactory to AAMI, could not obtain Recommended Repairer status in due course (whether at the expense of the former franchisee or otherwise). The evidence shows that AAMI reviewed its Recommended Repairers from time to time. The fact that the restraint made it easier for Bodycorp to achieve this desired outcome does not make it reasonable.

150 Fifthly, it was highly likely that Bodycorp was seeking to achieve an outcome by the restraint of trade which was futile or had minimal prospects of success. As at 29 June 1998 the relationship between Bodycorp and AAMI was less than harmonious. For Bodycorp to achieve its desired outcome, it required AAMI give Recommended Repairer status to a new franchisee in the relevant area within the 6 month period after cessation. Whether this would occur was entirely within the sole discretion of AAMI.[61] Given the state of the relationship, it was improbable that AAMI would ever agree to such an arrangement. This position is compounded by the fact that before the AAMI Agreement was entered into, AAMI stated in substance it would not be appointing any new Recommended Repairers for the foreseeable future.[62] If it be relevant, this position was maintained by AAMI throughout 1998 and 1999.

151 Both individually and collectively, the above factors demonstrate the restraint of trade was unreasonable at the time it was entered into.

152 For completeness, AAMI submitted it received no advantage in agreeing to the restraints of trade. AAMI submitted that all it obtained were the acknowledgements in cll 2.4 and 2.5 of the AAMI Agreement and they were merely restatements of the factual position as otherwise prevailed. As the issues the subject of the trial have not included such matters, I am in no position to state whether or not those clauses accurately state the true position. In any event, an acknowledgement of the kind given is adequate consideration, even if it reflected the true position, as it precluded Bodycorp from taking proceedings it otherwise might have taken in relation to those matters.[63]

153 Indeed, it is likely that the only reason AAMI was willing to give the restraints of trade that it did was because it saw that there was some risk in relation to allegations that Bodycorp might have otherwise made.[64]

154 In circumstances where AAMI led no evidence as to any adverse effect on its business by reason of the provisions of cl 1.3 of the AAMI Agreement, I am not in a position to find that the effect of those clauses on AAMI's business is another reason for finding that they are unreasonable. Indeed, the evidence shows that AAMI had a large number of Recommended Repairers throughout metropolitan Melbourne.[65] It is highly likely that the loss of up to 5 Recommended Repairers for a period of 6 months[66] would have very little impact on AAMI's ability to run its business.

155 Even though the restraints of trade would have a minimal impact on AAMI's business, this does not overcome the fact that the restraints were for an illegitimate purpose. That purpose compels the court to find that the restraints of trade are unenforceable.

156 Submissions were made by Bodycorp in relation to the superior bargaining power of AAMI. Those submissions were misconceived. If any unequal bargaining power existed,[67] the circumstances in which unequal bargaining power might be considered relevant to the issue of reasonableness is when the covenantee has superior bargaining power; not the covenantor. This circumstance would weigh against the restraint being upheld as reasonable.[68] However, it does not follow that if the covenantor has the stronger bargaining power, that results in a restraint of trade that is plainly unreasonable being treated otherwise.**

**157 The South Melbourne Agreement is alleged to have arisen out of the dissatisfaction of the South Melbourne franchisee with its success rate at the North Melbourne customer service centre of AAMI. The South Melbourne franchisee considered an inappropriate number of its quotes were being rejected by that centre.

158 Some time in 1998, Ralph Murdaca sought to address this issue on behalf of Bodycorp South Melbourne. Ralph Murdaca said he had a discussion with Linda Sparnenn ("Sparnenn"), the manager of the North Melbourne service centre. According to Ralph Murdaca, Sparnenn approached him and said she understood the Tottenham Bodycorp franchisee was seeking to get into the North Melbourne centre. Sparnenn said that there were too many repairers for the North Melbourne centre, but if South Melbourne was willing to start quoting in Moorabbin instead of North Melbourne, then "we will let Tottenham in".

159 As a result of this discussion, Ralph Murdaca said he then made inquiries of the South Melbourne franchisee. In accordance with what was discussed from that time on, the South Melbourne franchisee quoted at the Moorabbin customer service centre and ceased to quote at North Melbourne.

160 As is set out above,[69] it is said by Bodycorp that in December 1998 AAMI ceased to recognise the Tottenham franchisee as a Recommended Repairer. This allegation cannot be maintained in circumstances where the Tottenham franchisee was never a Recommended Repairer. No Recommended Repairer agreement was produced in relation to this franchisee.

161 Further, correspondence from Bodycorp itself acknowledged this lack of status. In a letter dated 8 November 1999, Bodycorp stated that as a result of the South Melbourne Agreement, Bodycorp Tottenham took on the status of a Recommended Repairer "on trial". It further alleged that after receiving some quoting opportunities, Bodycorp Tottenham ceased receiving further quoting opportunities.[70] There was no suggestion by Bodycorp in this letter that Bodycorp Tottenham ever actually became a Recommended Repairer. The letter also acknowledged that, prior to this time, Bodycorp Tottenham had no status as a Recommended Repairer "other than it was used for overflow work at Christmas". Accordingly, insofar as the breach makes an allegation as to Recommended Repairer status, it fails at the threshold.

162 There are further problems with this claim. First, as noted in paragraphs 30 and 35 above, even if Tottenham had become a Recommended Repairer it had no right to remain a Recommended Repairer. According to the terms of the Recommended Repairer Agreement, AAMI could at any time terminate the Recommended Repairer status by giving 14 days' notice. It must also follow that Bodycorp could not insist upon AAMI keeping any Bodycorp franchisee as a Recommended Repairer beyond the term expressly stated in the Recommended Repairer Agreement.

163 Secondly, by the AAMI Agreement itself, Bodycorp expressly acknowledged and agreed that AAMI could decide who and when a repairer was to be a Recommended Repairer.[71] There was no suggestion that the South Melbourne Agreement varied the AAMI Agreement.

164 Thirdly, a further fact which undermines any claim for loss for any breach of the South Melbourne Agreement is the fact that the claim is premised on the basis that South Melbourne was not getting enough work from the North Melbourne customer service centre. Essentially, the arrangement was put in place to assist the South Melbourne franchisee with getting further work by quoting at the Moorabbin customer service centre. In those circumstances, it cannot be readily apparent, without some form of reconciliation, that the failure to make the Tottenham franchisee a Recommended Repairer at the North Melbourne service centre would actually result in any loss of business to Bodycorp.[72]

165 For the reasons set out above, on the evidence of Bodycorp alone, the allegations concerning the South Melbourne Agreement are simply not made out.

166 AAMI also led evidence in relation to the South Melbourne Agreement. Although Sparnenn was not called, Peter Camilleri ("Camilleri") was called on behalf of AAMI. He was the other person with whom it was alleged Ralph Murdaca discussed the South Melbourne Agreement.

167 In 1998, Camilleri was an assessing supervisor of AAMI at the North Melbourne customer service centre. He said it was not part of his role to make any kind of agreement with any repairer. In particular, he said it was not part of his role to evaluate repairers or to make any decisions about whether or not they took on the status of a Recommended Repairer.

168 In response to the suggestion that both Sparnenn and Camilleri attended a meeting with Ralph Murdaca at which the South Melbourne Agreement was reached, Camilleri said he recalled no such conversation. Under cross-examination, he could not expressly deny the conversation took place, but he said he had no recollection of it. Given the lapse of some 15 years, I do not think there is any significance in this particular piece of evidence. Bodycorp accepted in its closing submissions that Camilleri was a credible witness.

169 Finally, in reliance upon the decision of Jones v Dunkel,[73] I was asked to draw adverse inferences in relation to the absence of a large number of witnesses Bodycorp suggested AAMI should have called. However, I was not asked by Bodycorp to draw any adverse inference based upon the fact that Sparnenn was not called to give evidence on behalf of AAMI. Accordingly, I must assume it was a conscious decision on the part of Bodycorp not to make any point in relation to the absence of this witness.

170 In conclusion, the evidence does not make out the case as pleaded. For completeness, I note that even if the evidence did substantiate the allegations in the FASOC, a promise to send work in the future to a particular franchisee for an unspecified period of time is extremely vague. I seriously question whether a discussion to that effect in a relatively informal meeting as described by Ralph Murdaca, with officers of AAMI at the management level of a service centre, would have been likely to have been intended to give rise to a binding contractual arrangement. In any event, based on the evidence, there was clearly no basis to infer an intention to create legal relations and enter into a legally binding contract.**

**171 Central to the case put by Bodycorp against All States is a letter dated 25 September 1995 from All States to Bodycorp. The letter was signed by Austin. Austin had previously worked with AAMI for many years. From 1995, he was employed by All States as the national operations manager. He was responsible for the day-to-day operation of All States on a national basis. In this capacity, Austin reported to the then CEO of AAMI.

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