Foxeden v IOOF Building Society Limited [2003] VSC 356

Supreme Court of Victoria|2003-09-19|Before: HABERSBERGER J.

For the reasons already given in respect of the discussion concerning the Taylors' agreement, I reject the dichotomy sought to be drawn between the franchise agreement, which could not be terminated, and the agency agreement, which could. Similarly, I consider that what Mr Hawksworth was concerned about in respect of duration and termination was not to have his business retaken by IOOF in the short term or when he was proposing to assign it to another franchisee, given that he was committing himself to substantial expenditure in order to maintain, and hopefully build up, his valuable asset. Mr Hawksworth's acceptance of Mr Wood's requirement that IOOF be able to reject any proposed purchaser of the branch from Mr Hawksworth on the ground of not being a fit and proper person to carry on Building Society functions in IOOF's name indicates to me that neither Mr Hawksworth nor Mr Wood saw the transaction as an outright purchase of the customers.

However, I accept Mr Hawksworth's evidence that he did not sign the Agency Agreement sent to him on 11 November 1996 (exhibit "D") because it did not represent what he had agreed with Mr Wood. Clause B VIII "Duration and Termination" would have been obviously unacceptable. A 60 day termination without cause clause was far too short from his point of view. Whether these matters were discussed by Mr Hawksworth and Mr Wood on or before 18 November 1996 is not clear, but I am satisfied that no agreement had been reached on the questions of duration and termination by the end of that meeting.

Discussions between Mr Hawksworth and Mr Wood therefore continued. Eventually, the date for the transfer of the Mildura branch's operations was fixed at 28 May 1997, apparently by Mr Wood's memorandum to Mr Hawksworth dated 5 May 1997. This date was confirmed in Mr Wood's memorandum of 9 May 1997, to which was attached another version of "a draft franchise agreement as a basis for further discussion about other matters that need to be included". I find that the document sent was exhibit "B". I accept Mr Hawksworth's evidence that he did not sign the most recent version of the agreement because it still did not reflect what he said was the agreement he had reached with Mr Wood. Apart from the substitution of a differently typed page 11 dealing with the transfer of staff and their entitlements, this version of the agreement was the same as that sent by Mr Wood to Mr Mainprize on 13 November 1996 (exhibit "CB 76"), which in turn was only slightly different in irrelevant ways from that sent by Mr Wood to Mr Hawksworth on 11 November 1996 (exhibit "D"). It is rather unusual, however, that Mr Hawksworth did not immediately complain to Mr Wood about the remuneration clause and the termination clause.

One critical question is whether the agreement between Foxeden and IOOF included the 60 day written notice termination without cause clause. Mr Wood said that he believed that the various drafts he sent to Mr Hawksworth represented the agreement he had reached with him at that stage. But nowhere in his evidence did he say that Mr Hawksworth had specifically agreed to this clause and Mr Hawksworth denied that he had. By 24 March 1977, Mr Wood had agreed with Mr Taylor that the 60 day termination clause was "too short" from "both parties' viewpoint", that a 14 month period was "not unreasonable" and that it would be further negotiated "in the forthcoming franchise agreement". This clause was, therefore, not an issue which Mr Wood would have pressed Mr Hawksworth on, even though he continued to include it in the draft agreement sent to Mr Hawksworth on 9 May 1997. In my opinion, Mr Wood was content to leave this issue unresolved until he was finally able to obtain proper legal assistance in drafting a comprehensive franchise agreement. Mr Hawksworth was also prepared to leave this issue unresolved, even though he said that he expected that as a matter of commercial reality the agreement would be "determinable on some notice".

Mr Beaumont submitted that as Mr Hawksworth never wrote objecting to or querying the inclusion of the termination clause, he should be taken to have accepted it as part of the agreement, even though he never signed any version of the Agency Agreement. I do not agree. Foxeden is not bound by such a clause, in my opinion, unless I am satisfied that Mr Hawksworth agreed to it, and as I have stated, I am not satisfied of that matter.

What then is the situation if there has been no agreement on duration and termination without cause? As with the Taylor proceeding, Mr Hayes submitted that the result was that Foxeden's rights were unlimited as to time, whereas Mr Beaumont submitted that the agreement could have been terminated at will. Applying the previously quoted passage from McHugh JA's judgment in Crawford Fitting[14] to the circumstances of Foxeden's relationship with IOOF in respect of the operation of the Mildura branch of the Building Society, I find that the parties intended their agreement to be terminable on notice and not that it was unlimited as to time, and that there was an implied term that the agreement could be terminated on reasonable notice.

Mr Wood stated that by the time he left IOOF in August 1997, agreement had still not been reached with Foxeden in respect of the formula for remuneration in respect of loans. I accept that this was the case. I read Mr Smart's memorandum dated 20 June 1997 to Mr Hawksworth as a clear indication that the question of commission on loans was still being discussed at that stage, in contrast to the agreed rates of commissions on deposits, and that no fees had been agreed to be paid in respect of new loans to customers of the Mildura branch. This view is confirmed by Mr Wood's memorandum dated 17 July 1997 to Mr Smart which stated that "the loans formula" was still being worked on. I therefore reject Mr Hawksworth's evidence that Mr Jennings had agreed on 17 March 1997 that IOOF would pay fees and commissions on loans and that he had subsequently received documents recording these commission levels from IOOF, which he no longer had. I have reached this conclusion despite the fact that Mr Jennings was not called by the defendants. I also consider that I cannot act on Mr Smart's evidence that at some time, which he could not identify, the fees and commission on loans had been agreed during a meeting in Ballarat between Mr Smart, Mr Hawksworth, Mr Wood and Mr Jennings. It is just too vague, particularly when initially neither Mr Hawksworth nor Mr Wood referred to such a meeting. I also cannot accept Mr Wood's claim that the $500 fee for new loans had been agreed "early on". It is not mentioned in either the draft agreement he sent to Mr Hawksworth or in his relevant correspondence.

I might have been more disposed to accept this evidence if there had been some prompt reaction by Foxeden to the failure by IOOF to pay any fees and commissions on loans after Foxeden commenced operating the branch on 28 May 1997. However, it was not until 10 August 1998 that Mr Graeme Hawksworth made the first request for payment in respect of the period from commencement of the franchise to 30 June 1998. When Ms Pearce rejected the claim by her letter dated 23 September 1998, one might have expected that the response would have been to refer to Mr Warwick Hawksworth's agreement with Mr Jennings on 17 March 1997 or to the agreement reached at the meeting in Ballarat between Messrs Hawksworth, Smart, Wood and Jennings on some unknown date in 1997. Instead, there was further silence on the part of Foxeden. Furthermore, the fact that Foxeden did not include the income allegedly earned on loans in its taxation returns for the 1997/98 and 1998/99 financial years, which Mr Hawksworth conceded it should have done if the extra fees and commissions were in fact due and payable, damages his claim that fees and commissions on loans had been agreed with IOOF.

I am not prepared, therefore, to find that IOOF agreed to pay Foxeden "0.25 per centum of the value of all loan balances relating to customers of the Business" or "$500 for each new loan to a customer of the Business generated by Hawksworth or his nominee and their officers, employee sand agents", as pleaded by Foxeden in its claim.

Although Mr Wood stated that he did not reach agreement with Foxeden in respect of commissions on loans, it is clear, I believe, that IOOF's position always was that it was prepared to pay commission at the rate of 0.25% on loans written at the Mildura branch after 28 May 1997. Mr Wood said as much in his memorandum to Mr Smart dated 7 July 1997. Ms Pearce said the same thing in her letter to Mr Graeme Hawksworth dated 23 September 1998. In the circumstances, I can see no reason why IOOF should not be kept to this promise and I find that it was a term of the agreement between Foxeden and IOOF.

It is interesting to note that in the "amended copy of the Mildura franchise agreement" sent by Ms Peoples to Ms Rodwell on 8 August 1997 the remuneration was said to include commission on "drawn down loan funds retained by the agent". It was common ground that this must be read as an agreement to pay commission on total loan balances and it therefore goes beyond what Mr Wood and Ms Pearce agreed to pay. Unfortunately for Foxeden, the clause can have no operation given that there was no evidence that this document was ever sent to, or received by, Foxeden.

The Authority of Mr Wood to Make the Agreement with Foxeden

Throughout the period of his negotiations with Mr Hawksworth, Mr Wood was the Senior Manager in charge of Branch Distribution. He reported to the General Manager, Mr Mainprize. Thus, Mr Wood was no longer the acting General Manager. Nevertheless, Mr Mainprize said that he delegated to Mr Wood the authority to negotiate the franchise for the Mildura branch. I see no reason to doubt that evidence.

The defendants denied that Mr Wood had any authority on behalf of IOOF to enter into any agreement with Foxeden "which contained terms not contained in, or additional or different to the written terms contained in either exhibit "B" or exhibit "CB 160". This is an interesting statement because it implies, in my opinion, that Mr Wood did have authority on behalf of IOOF to enter into an agreement with Foxeden in the terms of either of those exhibits Yet, the defendants were at pains to stress that the Board of IOOF had never approved any form of agreement with Foxeden, so that Mr Wood must have had some authority to enter into agreements on behalf of IOOF without specific Board approval. Just where the line was said to be drawn, between agreements which Mr Wood had authority to enter into without specific Board approval and other agreements where he did not, was not clear. As with the Taylors, the answer probably lies in the inability of Mr Wood to sell the customers of an IOOF branch to another party As I have held that this did not occur in the case of Foxeden, the issue of lack of authority to make the agreement once again disappears.

Issues such as the commissions payable to the agent/franchisee or the period of notice to terminate the agreement clearly seem to have been within the accepted authority of Mr Wood. I would also be prepared without further examination to hold that it was also within Mr Wood's authority to enter into an agreement on behalf of IOOF in the nature of a franchise of a branch's operation, that is, that the other party would have exclusive access to the customers and the customer lists and that IOOF would not compete with the franchisee in providing financial services to these customers.

Nevertheless, it is appropriate to look briefly at the history of Mr Wood's dealing with the Board in respect of the agreement with Foxeden and senior management's and the Board's knowledge of, and involvement with, that agreement. As early as June 1996, the Board was told by senior management (Mr Flipo) that it was exploring the possibility of a sale of the Mildura branch or "a franchising arrangement, whereby they [former staff] take over all branch costs, and receive a commission or business retained and new business written". Then the "Franchising Concept Mildura Branch" document was said by Mr Mainprize to have gone before the Board, perhaps in July 1996. The Board was told by the General Manager in October 1996 that "Mildura is being discussed for franchising to Warwick Hawksworth". No Board member appears to have queried either the concept of franchising the branch or the authority of those acting on behalf of IOOF in the discussions. The General Manager's Reports to the Board for the months of December 1996 and January 1997 repeated the reference to the proposed franchising of the Mildura branch to Mr Hawksworth. Thus, by the time Foxeden took over the operation of the Mildura branch on 28 May 1997 the Board should have been well aware of what was happening in respect of the Mildura branch.

Subsequent internal IOOF documentation revealed that the Mildura branch was consistently referred to as a franchise. There is no querying of this description by any of the many senior managers involved, including Mr Turner, nor is there the slightest suggestion that either Mr Wood (or Mr Mainprize) had exceeded his authority in entering into, on behalf of IOOF, the agreement with Foxeden.

Was the Agreement with Foxeden Breached by IOOF?

The defendants submitted that IOOF had not breached the agreement with Foxeden because it had been validly terminated following appropriate notice from the Building Society. They again relied on the public announcement of the sale of IOOF to Bendigo Bank made on 3 March 1999, or the circular dated 20 April 1999 sent by Bendigo Bank to all IOOF staff, which Mr Hawksworth acknowledged he had received on or about that date, or the oral notification by Mr Bice when he told Mr Hawksworth at a meeting on 12 May 1999 that "the Mildura agency would be closed down".

For the reasons already discussed in respect of notice to the Taylors, I do not consider that the public announcement on 3 March 1999 or the 20 April circular constituted valid notice of termination by IOOF of the agreement with Foxeden. Also, the conversation in which Mr Bice told Mr Hawksworth that "the Mildura agency would be closed down" was not notice of termination of the agreement, but a statement of intent by Bendigo Bank regarding the future of the Mildura branch. I find that IOOF's conduct in electronically transferring the customers to Bendigo Bank's Mildura branch on 30 June 1999 meant that it breached the agreement with Foxeden because it had failed to give any, let alone reasonable, notice of termination. This was a repudiation of the agreement with Foxeden.

What then was reasonable notice to terminate the agreement with Foxeden in June 1999? By that time, the agreement had been in existence for just over two years. Under the agreement, Foxeden had agreed to take over an excessive lease payment and to meet substantial other expense. Mr Hayes submitted that three years' notice was reasonable. He relied on Mr Hawksworth's evidence that five years was the minimum period of time he would have considered to warrant incurring the burden of operating the branch. In my opinion, despite the heavy initial expenditure which Foxeden committed itself to and the relatively short period which had elapsed since Foxeden commenced operating the Mildura branch, a longer period of notice than I have found the Taylors were entitled to is not required. In all the circumstances, bearing in mind the nature of the relationship between Foxeden and IOOF which was being brought to an end without default on the part of Foxeden, I consider that a period of one year would have been reasonable notice of termination to Foxeden at the end of June 1999.

As Foxeden has succeeded in its contractual claim against IOOF in that I have found that there was an implied term of its agreement with IOOF that it could be terminated on reasonable notice, it is unnecessary to consider whether or not the alternative claims against IOOF would have succeeded. As previously stated, counsel acknowledged this consequence in their final submissions.

For the reasons already given in respect of the Taylors' claims, I consider that Foxeden has failed to establish that it has any claim against Mr Turner.

Foxeden's Claim in Conversion against Bendigo Bank

The claim in conversion against Bendigo Bank must fail for the same reasons that the Taylors' claim failed.

Foxeden's Claim against IVFS and Bendigo Bank for Interference with Contractual Relations

For the reasons already given in respect of the Taylors, I consider that Foxeden's claim against both IVFS and Bendigo Bank for intentional interference with the contract between Foxeden and IOOF must fail.

Subject to hearing from the parties once they have had an opportunity to consider these reasons, I would propose answering the questions in each proceeding as follows:

See the above reasons for the terms of the agreement. In particular, it was a term of the agreement that it could be terminated without cause by either party on reasonable notice. It was also a term of the agreement that IOOF would pay Foxeden commission at the rate of 0.25% on loans written at the Mildura branch after 28 May 1997.

Yes, actual authority, and if not, apparent authority.

See the above reasons for the terms of the agreement. In particular, it was a term of the agreement that it could be terminated without cause by either party on 60 days' notice in writing. However, IOOF is estopped from relying upon or seeking to endorce that term. Instead, it became a term of the agreement that it could be terminated without cause by either party on reasonable notice.

Yes, actual authority, and if not, apparent authority.

I will also hear from the parties in due course about what, if any, orders should be made at this stage and what steps should now be taken in respect of the assessment of damages.

[2] Ranoa Pty Ltd v BP Oil Distribution Ltd (1989) 91 ALR 251

[3] Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 at 360 per Dixon CJ, McTiernan and Kitto JJ

[6] Hankey v Clavering [1942] 2 KB 326 at 329-330 per Lord Greene MR

[9] LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2001] NSWSC 886 at [79] per Barrett J, referring to Said v Butt [1920] 3 KB 497 and O'Brien v Dawson [1942] HCA 8; (1942) 66 CLR 18.

[10] Yu v Kwok [1999] NSWSC 992 at [75] per Simos J.

[11] Lloyd's Bank Ltd v Chartered Bank of India, Australia and China [1929] 1 KB 40 at 55-56 per Scrutton LJ.

[12] LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2001] NSW SC 886 at [98] per Barrett J

[13] [2001] NSW SC 886 at [98] per Barrett J

"Goodwill has been said to be 'the attractive force which brings in custom' (Inland Revenue Commissioners v Muller & Co's Margarine Ltd [1905] HCA 57; (1905) 3 CLR 393). Hence, to determine the nature of the goodwill in any given case, it is necessary to consider the type of business and the type of customer which such a business is inherently likely to attract as well as all the surrounding circumstances. Now, customers vary. In Whiteman Smith Motor Co Ltd v Chaplin (1901) AC 217 at p.224 the types were zoologically classified into cats, dogs, rats and rabbits. The cat prefers the old home to the person who keeps it, and stays in the old home although the person who has kept the home leaves, and so it represents the customer who goes to the old shop whoever keeps it, and provides the local goodwill. The faithful dog is attached to the person rather than to the place; he will follow the outgoing owner if he does not go too far. The rat has no attachments, and is purely casual. The rabbit is attracted by mere propinquity. He comes because he happens to live close by and it would be more trouble to go elsewhere. These categories serve as a reminder that the goodwill of a business is a composite thing referable in part to its locality, in part to the way in which it is conducted and the personality of those who conduct it, and in part to the likelihood of competition, many customers being no doubt actuated by mixed motives in conferring their custom."

"In such a situation, it is the holding company's volition which, sometimes formally by exercise of legal powers but often informally ... determines the making, the performance or the breach of the subsidiary's contract. The holding company does not engage in what Herring CJ described in Rutherford v Poole [1953] VicLawRp 23; [1953] VLR 130 as "actionable intervention". There is really no "intervention" at all. The subsidiary makes the relevant decision but that decision proceeds from an exercise of the holding company's will within and through the subsidiary, rather than upon it."[13]

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Judgment (47 paragraphs)

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Cases Cited (10)