Francom Legal Pty Ltd v Prospa Advance Pty Ltd

Texts Cited: K Lewison and D Hughes, The Interpretation of Contracts in Australia (2nd ed, 2025, Thomson Reuters)

Category: Consequential orders

Parties: Francom Legal Pty Ltd (Plaintiff)
Prospa Advance Pty Ltd (Defendant)

Representation: Counsel:
K Smark SC (Plaintiff)
A J Macauley, N J Condylis (Defendant)
Solicitors:
Francom Legal Pty Ltd (Plaintiff)
Bridges Lawyers (Defendant)

File Number(s): 2023/339030

Publication restriction: N.A.

JUDGMENT

1. These proceedings concern a retainer for the provision of legal services entered into on about 12 May 2022 (Retainer). The Plaintiff (Francom) is the provider and the Defendant (Prospa) is the recipient.

2. Francom contends that Prospa repudiated the Retainer, that it accepted the repudiation and so the Retainer was terminated. It seeks loss of bargain damages. Prospa contends that it lawfully terminated the Retainer with the consequence that there can be no loss of bargain damages.

3. On 28 March 2025, the Court made orders for the following two questions to be heard separately:

4. On the proper construction of the Retainer, was Prospa entitled to terminate the Retainer:

(a) at any time after Prospa had terminated the “Forward Flow Debt Sale Agreement” (Sale Agreement), which occurred in early October 2022, by providing to Francom three months’ written notice (as contended for by Prospa); or (b) only immediately upon the termination of the Sale Agreement, or within a reasonable time of such termination (as contended for by Francom)?

2. In light of the proper construction of the Retainer, as set out in question 1, did Prospa validly terminate the Retainer by 30 June 2023 pursuant to its written notice of termination dated 31 March 2023 (as elaborated upon in its communication of 3 April 2023)?

3. For the reasons that follow, the answer to question 1 is “(a)”. Prospa was entitled to terminate the Retainer at any time after it had terminated the Sale Agreement, by providing to Francom three months’ written notice. The answer to question 2 is “yes”.

Terms of the Retainer

5. The Retainer included terms as follows:

Retainer Proposal:

PROSPA will engage Francom Legal as their legal representatives on a retainer basis. Francom Legal are engaged to act for and assist PROSPA on a fixed fee (as per below) to undertake the Works.

Fixed Term:

The initial term of the retainer will be for a fixed period between 1 June 2022 and 30 June 2024, thereafter, as agreed between the parties. During the initial term, Prospa cannot terminate this Retainer and that Francom Legal are only agreeing to the payment amount below is on the basis that this Retainer continues for the term until 30 June 2024 unless Francom Legal has materially breached the terms of this Retainer or the Forward Flow Debt Sale Agreement has been terminated by Prospa. If Prospa terminates the Forward Flow Debt Sale Agreement, then Prospa must give Francom Legal 3 months written notice of termination of this Retainer otherwise, the Retainer proceeds to 30 June 2024.

6. The “Forward Flow Debt Sale Agreement” is the Sale Agreement identified in the separate questions. It is an agreement also entered into on about 12 May 2022, by which Prospa sold to Debtco Pty Ltd (trading as Francom Credit Solutions) its interest in various debts. The Sale Agreement is in evidence, although it seems to be incomplete in various respects (for example, the Purchase Price remains blank in the form of contract in evidence). Debtco is related to Francom. It appears that debt was sold under the Sale Agreement for the amount of 30 cents in the dollar.

7. The Retainer required Prospa to pay Francom $125,000 plus GST per month. In return, Francom was to complete, file and serve up to 600 statements of claim per annum, lodge and file up to 360 caveats per annum and carry out enforcement on up to 480 statements of claim per annum. It is apparent that the Retainer concerned high-volume legal work concerning debt collection.

8. The Retainer also included terms under a heading “General Terms of Business”, which included two terms as follows:

10 Termination by Us

We may cease to act for you or refuse to perform further work, including:

(a) while any of our tax invoices remain unpaid;

(b) if you do not within 7 days comply with any request to pay an amount in respect of disbursements or future costs;

(c) if you fail to provide us with clear or timely instructions to enable us to advance your matter, for example, compromising our ability to comply with Court directions, orders or practice notes;

(d) if you refuse to accept our advice;

(e) if you indicate to us or we form the view that you have lost confidence in us;

(f) if there are any ethical grounds which we consider require us to cease acting for you, for example a conflict of interest;

(g) for any other reason outside our control which has the effect of compromising our ability to perform the work required within the required timeframe; or

(h) if in our sole direction we consider it is no longer appropriate to act for you.

We will give you reasonable written notice of termination of our services. You will be required to pay our costs incurred up to the date of termination.

11 Termination by You

You may terminate our services by written notice at any time. However, if you do so you will be required to pay our costs incurred up to the date of termination (including if the matter is litigious, any cancellation fees or other fees such as hearing allocation fees for which we remain responsible).

Relevant events

9. The Sale Agreement was terminated by Prospa on 14 October 2022. There were some discussions in the immediate aftermath about the termination of the Retainer but the parties agreed that it would continue, subject to some minor variations.

10. On 31 March 2023, Prospa purported to terminate the Retainer by email, with immediate effect. On 3 April 2023, Prospa contended that by the 31 March 2023 email, Francom was given 3 months’ notice of termination, asserting the Retainer would end on 30 June 2023. On the following day, Francom asserted that the notice was ineffective to bring about a termination because the Retainer was of a fixed duration and would continue until 30 June 2024.

Relevant issues

11. The parties provided written submissions that covered a variety of matters, including on the issue of whether Prospa had elected to affirm the Retainer by its conduct in 2022. However, at the oral hearing it was agreed that there was only one issue that needed to be resolved. It concerned the proper construction of the Retainer.

12. Francom contended that Prospa’s right to terminate the Retainer upon the termination of the Sale Agreement had to be exercised either immediately upon termination of the Sale Agreement or within a reasonable time following termination. Prospa accepted that if this construction is correct, it was out of time when it served its notice of termination and the notice was invalid.

13. Prospa contended that there was no time limit on its right to terminate following the termination of the Sale Agreement, save that it had to give 3 months’ notice. Francom accepted that if this construction is correct, then Prospa validly terminated the Retainer, with effect from 30 June 2023.

The proper construction of the Retainer

14. The parties joined in submitting that the drafting of the section of the Retainer under the heading “Fixed Term”, which I will refer to as the fixed term clause, is not a model of clear drafting. Nevertheless, for the reasons that follow, I consider that the answer to the question of construction is revealed by a natural reading of the provision.

15. The first sentence of the fixed term clause (“The initial term of the retainer will be for a fixed period between 1 June 2022 and 30 June 2024, thereafter, as agreed between the parties”) is plain enough.

16. The second sentence reads:

During the initial term, Prospa cannot terminate this Retainer and that Francom Legal are only agreeing to the payment amount below is on the basis that this Retainer continues for the term until 30 June 2024 unless Francom Legal has materially breached the terms of this Retainer or the Forward Flow Debt Sale Agreement has been terminated by Prospa.

The word “is” in the second line appears to be included by mistake. I read the sentence as if it is not there.

17. The part of the sentence that reads “Francom Legal are only agreeing to the payment amount below is on the basis that this Retainer continues for the term until 30 June 2024” is unusual because it does not appear to be operative in any way, but it recites a fact that can be taken to have been accepted by the parties. It becomes relevant for reasons I come to below.

18. It is clear that Prospa cannot terminate the Retainer during the initial term “unless” one of two things occurs. It can terminate if Francom has materially breached the terms of the Retainer. There is no suggestion of such a breach in this case. The second circumstance that enlivens a right to terminate is where “the Forward Flow Debt Sale Agreement has been terminated by Prospa”. This reads clearly as providing that the prohibition against termination by Prospa does not continue if the Sale Agreement has been terminated by Prospa.

19. The third sentence reads:

If Prospa terminates the Forward Flow Debt Sale Agreement, then Prospa must give Francom Legal 3 months written notice of termination of this Retainer otherwise, the Retainer proceeds to 30 June 2024.

On one reading, this sentence seems to impose an obligation upon Prospa to give 3 months’ notice of termination (“Prospa must give”). But this reading makes no sense in light of the final part of the sentence (“otherwise,…”), which contemplates the possibility that Prospa may not serve a notice. Neither party submitted that Prospa was compelled to give a notice.

20. There is an alternative and better way to read the sentence. The sentence provides that if Prospa terminates the Sale Agreement, thus engaging the exception permitting Prospa to terminate the Retainer, then in order to terminate the Retainer, Prospa is required to (i.e. it “must”) give 3 months’ written notice. That is, the word “must” attaches to the notice period, not to any obligation to give a notice.

21. The issue of construction that then arises is whether, as Francom contends, the right to terminate must be exercised either immediately or at least within a short time thereafter. Francom focuses on the structure or framing of the third sentence, which proceeds in the form: “If … then … otherwise…” That is, “if” an event occurs “then” Prospa may take some step but if it does not do so (i.e. “otherwise”), the Retainer proceeds. This is said to convey a temporal element, so that the word “then” operates much like the words “upon” or “on”.

22. Francom relied on the reasons of Gibbs J in Brien v Dwyer (1978) 141 CLR 378 at 392. That case concerned a contract that provided that “the Purchaser shall upon the signing of this agreement pay as a deposit…” Gibbs J held that the word “upon” in this clause meant “immediately after”, not merely “after”. Francom also relied on Mackenzie v Kentcade Properties Pty Ltd (2012) 91 ACSR 399; [2012] QSC 299 at [37]-[40]. That case concerned a contractual obligation to give notice that was expressed as follows (emphasis added):

3.4 The Grantee must, in respect of each lot in Coolum Seaside (other than the Discretionary Lots and the Excluded Lots) which the Grantee intends to sell, transfer or assign (‘Lot Sale’), give Notice to the Seller on both:

(1) the execution of a contract, or reaching of an agreement with the buyer for that Lot Sale; and

(2) the completion of the contract or agreement for that Lot Sale.” (emphasis added)

Applegarth J observed that the words “on” and “upon” can impose different temporal requirements, depending on context. In the context of the contract in that case, his Honour concluded that the word “on” in clause 3.4 meant that notice had to be given on the date of the relevant occurrence or within a few days thereafter.

23. The only real assistance I get from Brien v Dwyer and Mackenzie v Kentcade Properties is that they serve to emphasise that the Retainer has to be construed having regard to the language used in the Retainer and the other usual principles that apply in the construction of contracts (see for example Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104; [2015] HCA 37 at [46]-[52]), and that usually there is little to be gained from looking to see how different words have been construed in different contracts. In both Brien v Dwyer and Mackenzie v Kentcade Properties the contracts (neither of which was remotely similar to the Retainer) imposed an obligation to give a notice and the question was when that notice had to be given. In contrast, the Retainer did not impose an obligation on Prospa to give a notice. It had an option to do so, and the question is whether it had to exercise that option either immediately upon the termination of the Sale Agreement or, alternatively, within a reasonable time of such termination (as Francom contends), or whether it could give the notice at a time of its choosing (as Prospa contends).

24. Francom submitted Prospa’s construction would convert the Retainer from a fixed term agreement to one terminable at the election of Prospa (but not Francom) on 3 months’ notice. It submitted that Francom remained bound to provide the services at the agreed rate for the whole of the fixed term. It submitted that this is an unlikely construction.

25. I do not accept these submissions for two separate reasons. First, I do not construe the fixed term clause as imposing a prohibition on Francom. Rather, Francom was always free to terminate the Retainer under clause 10 of the General Terms (set out above). The prohibition in the fixed term clause is expressed as “Prospa cannot terminate”, and the reason provided was that Francom is only agreeing to the payment amount on the basis of the term of the retainer. This suggests Francom’s concern was to commit Prospa to the fixed term – subject to the two exceptions. Given the fixed term is for the benefit of Francom, it seems reasonable to suppose that the parties contemplated that Francom could give up that benefit by terminating the Retainer if it chose to do so. It is also important that the first exception concerns material breach by Francom and not Prospa. It would be surprising if Francom could not terminate in the event of a material breach by Prospa. It is more likely that it could do so, which would be accommodated if clause 10 applied. There would also be other good reasons why Francom would wish to be able to terminate the Retainer – such as if it was instructed to do things that were inconsistent with Francom’s ethical obligations. All of this is accommodated by clause 10. The alternative is to rely on the often nebulous world of implied terms.

26. Second, even on Francom’s construction, it is Prospa and not Francom that enjoys the right to terminate. If the parties agreed that Prospa but not Francom had that right, I see no reason why the parties would be unlikely to have agreed that Prospa could exercise that right at will (but with 3 months’ notice). Conferring a right upon Prospa to terminate at will on 3 months’ notice in the event one of the exceptions is enlivened does not strike me as an unlikely outcome.

27. Francom also submitted that if the intention of the parties had been to give Prospa the right to terminate merely upon giving 3 months’ notice (rather than immediately upon termination of the Sale Agreement or within a reasonable time of such termination) they would have been likely to use language such as “Prospa may at any time thereafter during the term of this Retainer…” I do not consider that the language that the parties chose to use is inapt to give Prospa the right to terminate merely upon giving 3 months’ notice. That clearer language could have been used does not advance matters all that far, especially in circumstances where the language used in this part of the contract is not an example of fine drafting.

28. A submission that if the parties had intended a particular outcome they would have said so, generally has force only as a rhetorical device: Abergeldie Contractors Pty Ltd v Fairfield City Council [2017] NSWCA 113 at [30]. However, as a rhetorical device, it works better against than for Francom. It contends that the clause means either that the notice had to be given immediately upon termination of the Sale Agreement by Prospa or, in the alternative, the notice had to be given within a reasonable time after termination. If the parties had intended that the notice had to be given within one of these two different time periods, they might be expected to have done so expressly, and so avoid the ambiguity that results in Francom now advancing two alternative constructions. The parties went to the trouble of specifying a notice period. If they had also intended to impose a temporal restriction on the exercise of the right to serve a notice, they might be expected to have done so expressly.

29. The parties made arguments based on what was said to be commercial purpose. For the most part, I consider that the commercial purposes advanced by the parties required speculation, especially about the interaction between the Retainer and the Sale Agreement. It is clear that a commercial purpose was to confer Prospa an avenue to terminate the Retainer in the event that it terminated the Sale Agreement. The requirement to give 3 months’ notice is plainly a provision that serves a commercial purpose for Francom, giving it time to organise its affairs once it has notice. In terms of purpose, I do not think I can go any further on the evidence. I do not think that the commercial purpose framed in these terms speaks strongly in favour of either construction. It is not at all obvious that any demonstrated commercial purpose is achieved by conferring upon Prospa a right to terminate only within a short timeframe. It is, if anything, more likely to serve a commercial purpose if, once the Sale Agreement falls by Prospa’s hand, Prospa is able to also bring the Retainer to an end at the time of its choosing, with Francom getting the benefit of 3 months’ notice.

30. Prospa did not contend that clause 11 of the general terms provided it with an independent right to terminate, quite apart from the fixed term clause. It accepted that the operation of clause 11 was qualified by the fixed term clause. It submitted that there was room for clause 11 to operate after the Sale Agreement was terminated by Prospa because, strictly speaking, the fixed term clause did not give an express right to terminate; rather, that right comes from clause 11. Prospa accepted that the right to terminate based on clause 11 that is enlivened by the termination of the Sale Agreement is also qualified by the fixed term clause in that 3 months’ notice must be given. I accept that this is an appropriate way to read the Retainer. It reads the Retainer as a whole, recognising that the fixed term clause qualifies clause 11, but gives both clauses meaning and effect: see Re Media*,* Entertainment & Arts Alliance; Ex parte The Hoyts Corporation Pty Limited (1993) 178 CLR 379 at 386-387; Lewison and Hughes, The Interpretation of Contracts in Australia (2nd ed, 2025) at [7.02.1]. The fixed term clause is in the nature of a specially drafted special condition and outweighs the general condition found in clause 10: see Pittmore Pty Ltd v Chan (2020) 104 NSWLR 62; [2020] NSWCA 344 at [108]; Lewison and Hughes at [7.04]. Prospa’s construction gives due weight to the fixed term clause but enables clause 11 to operate where the two terms do not conflict. Conversely, Francom’s construction renders clause 11 (and also clause 10) superfluous.

Conclusion

31. After Prospa terminated the Sale Agreement, it was free to terminate the Retainer at any time, provided it gave 3 months’ written notice. The Retainer was validly terminated, effective 30 June 2023.

32. I will hear from the parties on costs and any other orders required for the future conduct of the matter.

Orders

33. I make the following orders:

34. On the proper construction of the Retainer Agreement entered into by the Plaintiff and the Defendant on 12 May 2022 (Retainer Agreement), was the Defendant entitled to terminate the Retainer Agreement:

(a) at any time after the Defendant had terminated the "Forward Flow Debt Sale Agreement" (Sale Agreement), which occurred in early October 2022, by providing to the Plaintiff three months' written notice (as contended for by the Defendant); or (b) only immediately upon the termination of the Sale Agreement, or within a reasonable time of such termination (as contended for by the Plaintiff)?

Answer: (a).

2. In light of the proper construction of the Retainer Agreement, as set out in question 1, did the Defendant validly terminate the Retainer Agreement by 30 June 2023 pursuant to its written notice of termination dated 31 March 2023 (as elaborated upon in its communication of 3 April 2023)?

Answer: yes.

3. The parties are to confer about the question of costs and orders for the future conduct of the matter, and are to report to my Associate on the outcome of that conferral by 4pm on 23 May 2025.
4. Subject to anything arising from (3), the matter is listed before me at 9.30am on 30 May 2025 for directions.

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Amendments

14 May 2025

Formatting issue para [33]