(d) Findings regarding election
240 I am satisfied that prior to Mr Donnellan sending his letter on 7 July 2006, Allphones had not communicated to Hoy Mobile that it had chosen between two mutually exclusive courses of action with which it had been confronted, at that time and between which, in fairness to Hoy Mobile, Allphones had to choose: Immer 182 CLR at 41. In addition, Mr and Mrs Hoy did not give evidence that they believed that Allphones had affirmed the franchise agreement existence prior to this time. To the contrary they perceived its actions as breaches of the franchise agreement, or denials of its existence.
241 Once Mr Donnellan's letter of 7 July had been received by Hoy Mobile, it was clear to both parties that Allphones wished to discuss a serious matter. By the following Monday, 10 July, Allphones had communicated that it believed Hoy Mobile had committed a fraud. Mr Hoy was instantly aware, on receiving that news from his wife, that the fraud concerned the unlocking of phones. Mr Donnellan's evidence was that he wanted a meeting so that he could hear what Hoy Mobile had to say about the allegations. I accept his evidence that he wanted to give Hoy Mobile an opportunity to provide its response, if any, to the allegations which were being made by Allphones.
242 However, Mr Hoy never attended a meeting with Allphones after 9 May 2006, when Mr Harkin had insulted and berated him during the quarterly review. I have some sympathy with Mr Hoy's reluctance to attend a further meeting after that experience. Allphones submitted that Mr Harkin's behaviour during this quarterly review was merely to be characterised as part of the rough and tumble of business dealings. I reject that submission. Of course, business dealings can be, and often are, robust exchanges. Mr Harkin did not offer any justification for his abusive conduct towards Mr Hoy on 9 May at the quarterly review. Objectively, there was no justification for it. He acted in a bullying, offensive and overbearing manner towards Mr Hoy. I reject the argument that such behaviour should be characterised as acceptable or normal in the relationship between franchisor and franchisee. Obviously, allowances must be made for different people and the way in which they react and interact. Having had the benefit of seeing both Mr Hoy and Mr Harkin in the witness box, I am satisfied that in a commercial negotiation and meeting, Mr Hoy was quite capable of looking after himself and his own interests. He was no 'wilting flower'. However, in his relationship with Mr Harkin, Mr Hoy was not in a particularly powerful position. To be abused and sworn at as Mr Hoy was, during the course of a business meeting, for no good reason, was not something which, in the ordinary course, anyone should have to face. Mr Harkin's behaviour was inappropriate. I do not draw any adverse inference against Mr Hoy for refusing to have a further meeting with Mr Harkin.
243 Hoy Mobile argued that by the time Mr Donnellan wrote the letter of 7 July 2006, Allphones had sufficient knowledge that it was in a position to allege fraud and thereafter to be held to an election to affirm the franchise agreement by its subsequent acts. I reject that submission. I am of opinion that Mr Donnellan's letter of 7 July 2006 and subsequent emails demonstrated that Allphones was asserting that it did not wish finally to elect to terminate the franchise agreement without giving Hoy Mobile an opportunity to explain conduct that, prima facie, appeared to be fraudulent. Allphones was entitled to keep the franchise agreement on foot while it considered whether or not to terminate. And, it was entitled to afford Hoy Mobile the opportunity to explain its conduct so that, if appropriate, the franchise agreement might be kept on foot. Allphones' conduct after 7 July 2006 communicated to Hoy Mobile that a meeting was necessary for the parties to understand how to assess the status of their relationship.
244 Through neither party's fault, a meeting was unable to be arranged between 7 July and 22 August. During that period, Hoy Mobile wished the contract to remain on foot while Allphones had indicated that it was keeping its options open until Hoy Mobile had had an opportunity to explain its, prima facie, fraudulent conduct. A reasonable person in Hoy Mobile's position could not have understood Allphones' conduct at this point to amount to an affirmation of the franchise agreement. Both parties were still pursuing the course of holding a meeting for the purposes set out in Mr Donnellan's letter of 7 July. That course was being pursued with Hoy Mobile's full knowledge, and indeed at its request, through Mr Birch's email of 10 July to that effect. And, neither Mr nor Mrs Hoy gave evidence that they understood that Allphones had chosen to affirm during this period. Allphones was not making a choice of affirming the franchise agreement, while holding matters in abeyance pending the meeting at which Hoy Mobile could explain its position. Rather (as Kitto J observed was permissible in Goonan 111 CLR at 55) Allphones had said that it intended to refrain from electing until the meeting occurred. Nor, in fairness to Hoy Mobile, was Allphones required to make a choice before that meeting had occurred: Immer 182 CLR at 41.
245 Based on what Mr Quarmby and Mr Shepherd had revealed, Allphones had knowledge by mid-June 2006 of Mr Hoy's modus operandi and the general nature of what he had done from late 2005 to mid-March 2006. But, Allphones was not aware of other fraudulent acts by Mr Hoy before or after that period. When she first discussed the matter with Mr Birch on 10 July 2006, Mrs Hoy did not know how many unlocked phones had been sold by her husband after he unlocked them or the extent of his failure to account. There is no evidence that Allphones knew the full picture at that time. And, at that time, Mrs Hoy raised with Mr Birch the question whether they could lose the store. He told her that if Allphones were able to terminate the franchise agreement because of the fraud, then Hoy Mobile would not be entitled to compensation. That showed that, as at 10 July 2006, Hoy Mobile had not been affected adversely by any delay on Allphones' part to communicate its election.
246 From 10 July 2006, the parties were acting on the common understanding that Allphones had postponed an immediate termination of the franchise agreement at Hoy Mobile's express request, so that Hoy Mobile could meet with it and discuss the serious matters involved. In that context, acts and performance required by Allphones in the period leading up to any meeting could not have been understood by a reasonable person in Hoy Mobile's position - and I find were not understood by Mr and Mrs Hoy - to be an unequivocal affirmation of the franchise agreement. Rather, these were matters which a reasonable person would have understood as occurring in the context of the position being left open by Allphones while the parties waited to have an arranged meeting to discuss what was to happen. The meeting was delayed for over a month through no one's fault. In that context, both parties knew that contractual performance had to occur in the interim. Commissions had to be collected, remitted, and then paid. Stock had to be ordered, delivered and other usual incidents of their contractual relationship had to be given effect.
247 Of course, there are limits to the ability of a party to a contract to act 'without prejudice' to the legal consequences of those acts in the particular relationship. Unlike a landlord accepting a payment of rent and thus electing to waive reliance upon any pre-existing breach, Allphones did not communicate an unequivocal intention that the franchise agreement remain on foot. Rather, at Hoy Mobile's request Allphones had agreed to postpone making an election until the meeting occurred: cp: Goonan 111 CLR at 55. In that context, a reasonable person in the position of the parties would have understood that Allphones was acting on the basis that it was acceding to Hoy Mobile's request to postpone making an election. It was not electing once for all by its conduct in offering and requiring performance pending the meeting to make a choice. Allphones, in the context in which the parties then found themselves, was not evincing by its actions an unequivocal choice to keep the franchise agreement on foot and not to terminate it.
248 I find that both parties proceeded on the agreed footing that Allphones would refrain from terminating for fraud until the meeting, ultimately arranged for 22 August 2006, had occurred. Both parties knew that, in the interim, they had to carry out the normal incidents of their relationship under the franchise agreement.
249 The principle of election operates to hold a party to a position it has communicated to the other party as the choice that it has made between two inconsistent rights. Communication of the choice cannot occur in a factual vacuum. The circumstances and context of the communication affect how a reasonable person in the position of the other party would understand it. A landlord accepting rent (Matthews v Smallwood [1910] 1 Ch 777 per Parker J) or a fire insurer, exercising rights to take possession of the insured's damaged premises (Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305 per Knox CJ, Isaacs and Starke JJ) acting unilaterally, could not say that it was acting 'without prejudice'.
250 However, those situations are far removed from that presented here. Hoy Mobile asked Allphones not to terminate pending a meeting. It cannot now say that, because Allphones expressly acceded to its request on 10 July for a meeting, it affirmed the franchise agreement. At the heart of the principle of election, as Deane, Toohey, Gaudron and McHugh JJ showed in Immer 182 CLR at 41, is not only the confrontation of the elector with a choice, but also the requirement that when so confronted the elector '… must, in fairness to the other party, make his choice' (emphasis added). Having requested Allphones not to make the choice before Hoy Mobile could meet with it, Hoy Mobile cannot complain that, in fairness to it, Allphones should be held to have made a choice that neither party intended it to have made.
251 Each party accepted that neither would be taken by the other as having unequivocally chosen between inconsistent rights until at least the time after the meeting had occurred. Fairness, in the sense referred to in Immer 182 CLR at 41, would be eschewed, not advanced, if Allphones' accommodation of Hoy Mobile's request not to terminate until a meeting occurred, were used to preclude it from terminating at or immediately after that meeting.
252 The position is analogous to the situation in which parties to a contract enter into a course of negotiation which has the effect of one leading the other reasonably to suppose that the strict legal rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, pending the outcome of the negotiation. Here, Hoy Mobile's request of 10 July that Allphones hold a meeting on its terms, can be seen as such a suspension. In those circumstances equity would not allow the parties' strict legal rights to be enforced so as to deprive Allphones of a right to terminate the franchise agreement because it acted on Hoy Mobile's request to delay doing so: cp Hughes v Metropolitan Railway Co (1877) 2 App Cas 439 at 448 per Lord Cairns LC (explaining the doctrine of equitable estoppel). Although no equitable estoppel was alleged here, a reasonable person in the position of the parties would have understood that nothing Allphones did after the exchange of emails on 10 July 2006 and until the meeting of 22 August 2006 amounted to an unequivocal election involving a choice between inconsistent rights.
253 Where one of the parties to a contract has committed a fraud in its performance, the fraudster cannot complain that he or she has been prejudiced by acts of the other party done without sufficient knowledge of his or her fraud. That is why the courts have always held that fraud fundamentally affects the way in which relations between parties are viewed. As Denning LJ said in Lazarus Estates Ltd v Beasley [1956] 1 QB 702 at 712 (see also SZFDE v Minister for Immigration and Citizenship (2007) 237 ALR 64 at 68 [15]-[16]):
'No court in this land will allow a person to keep an advantage which he has obtained by fraud. ... Fraud unravels everything.'
254 By concealing from Allphones the nature and extent of what he was doing, Mr Hoy and Hoy Mobile continued to benefit from his fraudulent activity at least to 7 July 2006. Part of that 'benefit' involved concealing from or not disclosing to Allphones circumstances knowledge of which would entitle Allphones to terminate the franchise agreement.
255 Even where fraud is involved, it is possible for the innocent party to be held to have elected between inconsistent rights accruing to it in consequence of that fraud. But before the innocent party is held to such an election, clear evidence is necessary that it, with full knowledge of the facts, intended to do so. There would be an inherent unfairness if one party to a contract, who has already achieved, or sought to achieve a benefit by his or her own fraudulent conduct, was able to take advantage of the other party's ignorance of the fraud by holding the innocent party to an election that he or she has affirmed the contract.
256 The insidious nature of the fraud begins with the deception inherent in its commission. The innocent party to the contract, or sometimes a third party, is deceived by the fraudster's conduct. The nature of the deception is to convey a state of affairs, contrary to fact, on which the innocent party proceeds. Here, Hoy Mobile had for over two years unlocked phones and made undisclosed profits. Each of those activities put Allphones in breach of its arrangements with the carriers. Each was dishonest. And each was, at all times prior to the discovery of Mr Quarmby's transaction, unknown to Allphones.
257 I find that, in July and August 2006, Allphones was unaware that Mr Hoy had been committing the fraud beginning sometime early in 2004. All that Allphones knew at the time was what Mr Shepherd and Mr Quarmby had told it. There is no evidence that Allphones had any other knowledge of when, or the circumstances in which the fraud first commenced. Nor did Allphones have knowledge that the fraud continued after Mr Quarmby had purchased his phone, although I have no doubt it suspected that this had occurred. But suspicion is one thing, and knowledge another. Mr Hoy had made no, let alone full and frank, disclosure of what he was doing at any time prior to Allphones issuing the notice of intention to terminate. While Allphones may have suspected that more was involved than it knew, given the element of fairness inherent in the concept of election (Immer 182 CLR at 41) Hoy Mobile's assertion of election by Allphones based on incomplete information and disclosure by Hoy Mobile, does not provide any occasion to find that Allphones elected to affirm the franchise agreement.
258 So far as Hoy Mobile relied on matters occurring after 7 July 2006, I find that the lifting of the stock and commission holds were not unequivocal affirmations of the franchise agreement. Commissions had been earned prior to that time. It would be unjust to impute to Allphones an election, once for all to give up its right to terminate for Hoy Mobile's undoubted fraud, simply because, in ignorance of the full nature and extent of that fraud, it acceded to Hoy Mobile's request not to terminate until the 22 August meeting could occur.
259 And, Hoy Mobile's argument that Allphones had delayed unreasonably, until 28 August, from issuing the notice of its intention to terminate is, in my view, without substance. Hoy Mobile had requested the delay. Through neither party's fault, the meeting could not be arranged earlier than 22 August. Any delay in the six days after that was inconsequential. Mr Harkin said Allphones would issue the notice. Hoy Mobile did not contend that anything occurred, after he said this and before 28 August, which amounted to an election by Allphones.
260 Nor do I consider that the conduct of Allphones amounted to it invoking contractual procedures for dispute resolution in such a way as to preclude it from terminating. If disputes could not be resolved under the franchise agreement, the parties were entitled to exercise their rights under it, including, as it contemplated, terminating the relationship. The franchise agreement did not require the disputes to be resolved. It merely required the parties to follow a particular procedure in certain cases. Were the procedure not to produce the result of resolution, I am of opinion that, had it been ready and willing to perform, it would have been open to Allphones to terminate. I will consider this issue below.
261 For these reasons, I am of the opinion that Allphones did not make an election depriving it of any right to terminate the contract.