the November 2001 dealings
196 It is arguable that the applicant has a stronger case in relation to its claim that the November 2001 dealings constituted a breach of Franklins' contractual obligations. The real substance of this claim is that Franklins "jumped the gun" in terms of seeking the ACCC's consent to sell the Mentone store to Coles, and in concluding an agreement with Coles to do so. It did both these things, according to the applicant, while it still owed obligations, both contractual and fiduciary, to the applicant.
197 The Mentone BSA and the litigation agreement were both still on foot on 23 November 2001. Notice to terminate these agreements was not served until 28 November 2001. The Mentone BSA required seven business days notice to be terminated. Accordingly, the Mentone BSA remained on foot until 7 December 2001. However, in relation to the litigation agreement, the applicant accepts that it came to an end on 28 November 2001.
198 There is no dispute between the parties that Franklins made a submission to the ACCC on 23 November 2001 seeking its consent to offer the Mentone store, as well as a number of others, to Coles. There is, however, a dispute as to whether the agreement to sell the store to Coles was concluded at around this time as well, or whether that agreement was only concluded after ACCC approval had been obtained on 21 December 2001.
199 The evidence the applicant relies upon to support this aspect of its case is as follows:
· the internal Coles document dated 23 November 2001 referred to agreement to a price of $18.2 million for a group of stores. This included the Mentone store;
· the Coles documents referred to due diligence being undertaken on the Mentone store at least by early December 2001. Both Mr Cornell and Mr Masters gave evidence that due diligence was only undertaken after an in principle deal in terms of price had been struck;
· the inference that a deal must have been done between Mr Cornell and Mr Masters prior to 21 December 2001, because that date was a Friday, and both Mr Masters and Mr Cornell said they did not negotiate on weekends;
· the inference that the $2.3 million figure could not have been arrived at as a result of genuine negotiation, given that it was the same figure that the applicant had agreed to pay, yet Franklins was in a deteriorating bargaining position; and
· Franklins would not have terminated the Mentone BSA unless it was sure it could sell the store to Coles at a pre-agreed price.
200 I am not persuaded by these contentions. The evidence does not satisfy me that Franklins and Coles agreed the final price of the Mentone store on or about 23 November 2001, at a time when Franklins still owed obligations to the applicant.
201 In relation to the Coles document of 23 November 2001, the lack of any breakdown of the figure of $18.2 million for a group of stores, including Mentone, is consistent with Mr Cornell's evidence that "ballpark" figures only were discussed on that date. Moreover, five out of the 13 stores identified in the note did not end up being sold to Coles. Nor did the sale price of the eight stores that were sold to Coles in December add up to $18.2 million. Accordingly, the document cannot, in my view, properly be regarded as evidence of an agreement between Franklins and Coles to sell the Mentone store to Coles, as at that date. It seems to me that the note merely records an optimistic view by either Ms King or Mr Kop of Coles' position in relation to its negotiations with Franklins at that time. It does not purport to record a legally binding agreement, and there is no evidence that it was written by anyone who had first hand knowledge of the precise state of the negotiations between Franklins and Coles at the time.
202 The other evidence relied upon by the applicant in support of this aspect of its claim is at most tenuous. It is circumstantial in nature. That, of itself, does not pose a problem since circumstantial evidence can be both cogent and reliable. The difficulty is that much of the material does not point all one way.
203 To take one example, in relation to the due diligence point, although reference is made in the due diligence documents to inspections of cooling towers having been conducted in late November, it appears that these inspections were mandatory inspections carried out for Franklins, the reports of which were then provided by Franklins to Coles. The individual due diligence reports on the Mentone store are dated 11 December 2001 (detailing a walk through inspection conducted the previous day), 12 December 2001 (reporting on refrigeration), and part of a due diligence report written by Allens Arthur Robinson (Coles' solicitors) which appears to be dated 12 December 2001, and which analyses the cooling tower reports previously mentioned. This evidence indicates that at least part, and possibly all, of the due diligence was not conducted at Mentone until after the Mentone BSA came to an end, on 7 December 2001.
204 To take another example, it is entirely possible that Mr Cornell and Mr Masters agreed upon the final price of the Mentone store on 21 December 2001, as Mr Cornell claimed, and that documentation was prepared by Franklins' advisers over the weekend of 22-23 December 2001. I accept that there is no actual evidence that Franklins' advisers did draft documentation over that weekend. However, when I am invited to draw inferences, I am bound to consider alternative explanations as well. There is nothing particularly complex about the documentation in question, and I am conscious of the evidence concerning how much pressure there was upon Franklins, at that stage, to wind up its Australian operations.
205 There remains, however, the issue whether Franklins' breached any contractual, fiduciary, or statutory obligations by seeking the ACCC's consent to sell the Mentone store to Coles while the Mentone BSA was still on foot. This requires some discussion of the detail of those obligations.
206 Franklins had an express obligation under clause 4.2(a) of the Mentone BSA to use reasonable endeavours to obtain the Lessor's consent to the assignment of the lease. The applicant relies upon a further three terms that it contends are implied in the Mentone BSA.
207 First, the applicant says that the Mentone BSA contained an implied term not to deprive a party of the benefit of that agreement. The applicant submits that this term should be implied by operation of law or, alternatively, on an ad hoc basis. I understand that latter category of implied term to refer to what is sometimes described as an "implication of fact", and to which the rules laid down in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 ("BP Refinery") and Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 ("Codelfa") apply.
208 In Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 ("Renard"), Priestley JA commented upon the notion of implications on an ad hoc basis. His Honour said, at 255-6:
"Questions of construction and different kinds of implication tend to blur together. In recent years terms implied in contracts have been said to fall into two classes the first of which has come to be called, somewhat misleadingly, implication in fact, the second, implication by law. The so-called implication in fact is really implication by judge based on the judge's view of the actual intention of the parties drawn from the surrounding circumstances of the particular contract, its language, and its purposes, as they emerge from the language and in the circumstances. This has been called implication ad hoc (see Professor Lucke "Ad Hoc Implications in Written Contracts" (1973-1976) 5 Adelaide Law Review 32) a usage I will adopt."
209 In relation to the implied term not to deprive a party of the benefit of that agreement, the applicant relies upon Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 at 378, where Dixon J stated that the express promise of the appellant to use his best endeavours to obtain fabric orders for the respondent fabric manufacturer "necessarily includes an obligation not to hinder or prevent the fulfilment of its purpose". The applicant contends, by analogy, that the express promise of Franklins to use reasonable endeavours to satisfy the condition precedent necessarily includes an obligation not to hinder or prevent fulfilment of it.
210 Second, the applicant contends that a duty to act in good faith should also be implied into the Mentone BSA generally, or into the right to terminate specifically. The general duty is said to include an obligation of full and frank disclosure of all matters relevant to the implementation of the agreement. The applicant submits that the term is to be implied ad hoc, and as a matter of law. See Renard; Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151 at 190-98 per Finn J; Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349; Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR ¶41-703; Central Exchange Ltd v Anaconda Nickel Ltd (2001) 24 WAR 382; GEC Marconi Systems v BHP-IT (2003) 128 FCR 1 at [920] per Finn J; and Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2005] FCA 288 at [61]-[65] per Finkelstein J. I note that the latter case was the subject of a Full Court appeal in which judgment was given following the hearing of this proceeding. However, the majority of the Full Court did not deal with the findings of the primary judge in relation to the implied duty of good faith in the exercise of a termination right: see Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40 at [119] per Finn and Sundberg JJ.
211 Third, the applicant submits there is an implied term requiring Franklins to do all such acts as are necessary on its part to enable the applicant to enjoy the promised benefits of the agreement. The applicant contends that this term is to be implied by operation of law or, alternatively, on an ad hoc basis. It referred to Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607 per Mason J to support its contention.
212 The applicant also relies upon two implied terms it submits constitute part of the litigation agreement. The first term is the same term implied into the Mentone BSA, namely an obligation not to deprive a party of the benefit of an agreement. The second term is an implied term requiring each party to provide full and frank disclosure of any matter relevant to the Supreme Court proceedings. This term is said to be implied by operation of law as a concomitant of the duty to act faithfully or, alternatively, on an ad hoc basis. See BP Refinery and Codelfa.
213 In addition, the applicant contends that it was owed fiduciary obligations by Franklins at least until the litigation agreement was terminated on 28 November 2001.
214 Turning to the issue of breach, I am not persuaded that Franklins' submission of 23 November 2001 to the ACCC constituted a breach of clause 4.2(a) of the Mentone BSA. The submission should, in my view, be regarded as nothing more than the commencement of contingency plans for the remaining parcel of stores. As far as Franklins was concerned, it still had an outstanding offer to the Lessor to pay it "compensation" in return for its consent to the assignment of the lease. Had the Lessor accepted this offer some time between 23 November 2001 and 27 November 2001, I infer that Franklins would have gone ahead with the sale of the Mentone store to the applicant. My view is strengthened by the fact that the ACCC would plainly not have consented to the sale to Coles, at that time, if the Lessor's consent had been forthcoming. The Mentone BSA was only terminated once this last offer to the Lessor was rejected. Accordingly, the submission to the ACCC, seeking its consent to offer the store to Coles, can properly be regarded as precautionary, rather than representing, at that stage, an effort to subvert the sale to the applicant. I do not regard the submission as a breach of Franklins' obligation under the Mentone BSA to use reasonable endeavours to obtain the Lessor's consent to the assignment of the lease.
215 I am also not persuaded that Franklins owed any fiduciary obligations to the applicant. In R Meagher, D Heydon and M Leeming, Meagher Gummow & Lehane's Equity: Doctrines & Remedies (2002, 4th ed), the learned authors describe the distinguishing characteristic of a fiduciary relationship in the following terms, at [5-005]:
"its essence, or purpose, is to serve exclusively the interests of a person or group of persons; or, to put it negatively, it is a relationship in which the parties are not free to pursue their separate interests, Thus, the essence of a trust is that a trustee holds and deals with property in the interests of beneficiaries; the purpose of a partnership is to conduct a business in the joint interest of the partners; the agent acts for (in the interests of) the principal." (emphasis added)
216 It is true that the parties in this case agreed to join together to procure the Lessor's consent to the assignment of the lease, including jointly commencing proceedings against the Lessor in the Supreme Court. However, the basis for those arrangements was a conditional, commercial, arms length agreement for the sale of a business from one party to another. While Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 per Mason J at 99-100 makes clear that commercial transactions do not "stand outside the fiduciary regime", it does not follow that such transactions necessarily give rise to fiduciary obligations.
217 The applicant relied upon the following passage in United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 12 per Mason, Brennan and Deane JJ to support its case:
"In particular, a fiduciary relationship with attendant fiduciary obligations may, and ordinarily will, exist between prospective partners who have embarked upon the conduct of the partnership business or venture before the precise terms of any partnership agreement have been settled. Indeed, in such circumstances, the mutual confidence and trust which underlie most consensual fiduciary relationships are likely to be more readily apparent than in the case where mutual rights and obligations have been expressly defined in some formal agreement. Likewise, the relationship between prospective partners or participants in a proposed partnership to carry out a single joint undertaking or endeavour will ordinarily be fiduciary if the prospective partners have reached an informal arrangement to assume such a relationship and have proceeded to take steps involved in its establishment or implementation."
218 The relationship between Franklins and the applicant was not one of "mutual trust and confidence". The arrangements between Franklins and the applicant concerning the efforts to obtain the consent of the Lessor to the assignment of the Mentone store lease had a singularly fragile quality. They could be terminated on short notice. At the first directions hearing in the Supreme Court proceedings on 19 October 2001, counsel then appearing for the applicant and Franklins submitted, in support of the application for expedition, that there was "nothing to stop the parties walking away". When counsel spoke of "the parties" he was referring to the applicant and Franklins. He also said that it was "a fair inference, given the nature of the commercial dealings between the parties, that the matter is quite fragile". That was an accurate statement of the parties' legal position vis-a-vis one another.
219 The reality of the litigation agreement was that Franklins lent its name to the Supreme Court proceedings, but the applicant's solicitors, Mason Sier Turnball, and counsel conducted the proceedings, and the applicant funded them. However, at the same time, Franklins retained HWL to maintain what Mr Colbran QC, counsel for Franklins, described as a "supervising brief" over the proceedings.
220 To give an example of exactly what the "supervising brief" entailed, on 14 November 2001, HWL wrote to Mason Sier Turnball complaining, inter alia, that a reply had been filed and served in the Supreme Court proceedings without seeking instructions from HWL. HWL insisted on Mason Sier Turnball seeking instructions from Franklins through HWL "when there are documents filed by our opponents, or are to be filed and served by us in the proceedings, before responding to any request or document". Under cross-examination, Mr Fischbacher of Mason Sier Turnball agreed that HWL's request was in accordance with what had been agreed between the parties. Such arrangements hardly bear the characteristics of a relationship of mutual trust and confidence.
221 The applicant and Franklins had no obligation of a fiduciary nature to refrain from pursuing their own, separate and individual interests, save for their contractual obligations to one another and, in Franklins' case, the restrictions imposed on it by the undertakings. The contractual obligations were limited in their terms. For example, as Mr Colbran correctly noted, the obligation in clause 4.2(a) of the Mentone BSA was merely to use "reasonable endeavours" to obtain the Lessor's consent to the assignment of the lease. It did not extend to using "best endeavours". In my view, the relationship between the parties in this case did not go beyond their contractual obligations to each other, and did not manifest characteristics of a fiduciary nature.
222 In relation to the implied terms, I am prepared to assume, without finally deciding, that there should be implied into the Mentone BSA a duty on the part of Franklins "not to deprive the applicant of the benefit of that agreement", a duty "to do all such acts as were necessary on its part to enable the applicant to enjoy the promised benefits of the agreement", as well as "a duty to act in good faith". I am also prepared to assume, without finally deciding, that the litigation agreement contained the implied terms pleaded by the applicant, including the duty of full and frank disclosure. Franklins, while not accepting that the terms the applicant contended should be implied into the Mentone BSA and litigation agreement, did acknowledge that there was a general duty on the parties to a contract to cooperate in the performance of that contract.
223 Even so, the applicant must still overcome the hurdle of demonstrating that Franklins, by making the submission to the ACCC, breached these implied terms. Indeed, the applicant must go further. It must establish that any breach of these implied terms caused it to suffer the loss or damage claimed.
224 The applicant argues that if it had known of the Franklins submission to the ACCC, it would have responded immediately. It says that it would have joined Franklins as a defendant in the Supreme Court proceedings, and that it would have sought interlocutory relief preventing Franklins from terminating the Mentone BSA. By implication at least, it asserts that it would have been successful in gaining such relief.
225 The difficulty with this submission is that it leaves a great deal to speculation and conjecture. It may be that the applicant would indeed have taken the steps outlined above. Whether or not it would have been successful in gaining interlocutory relief of the type foreshadowed is problematic. Even if it had gained such relief, it must be doubtful that this would have resulted in the applicant ultimately obtaining the Mentone store. It must be remembered that the Lessor's attitude had repeatedly been made clear. Mrs Wasser would not consent to the applicant taking the lease, even when offered "compensation" to do so. She wanted a "major". In the face of such intransigence, and an apparent willingness to vigorously contest the matter in court, it is highly speculative to assume that anything that the applicant could have done, at this stage, would have altered the course of events.
226 Accordingly, I am not prepared to find that Franklins, by making the 23 November 2001 submission to the ACCC, and by not disclosing this to the applicant, caused any loss or damage to it. That is assuming that these actions did constitute breaches of Franklins' contractual obligations in the first place, a matter that is open to serious doubt.
227 For the same reasons, irrespective of whether Franklins' conduct in this regard gave rise to a breach of s 52 of the TPA, the evidence falls short of establishing any loss or damage brought about by such contravention, and therefore any right to relief pursuant to that Act.