Min & Min 2020 Pty Ltd v Chicken V Pty Ltd and Anor

The claim

1. By Statement of Claim filed 29 March 2023, MM seeks damages occasioned as a result of the monies it paid in consideration of the franchise agreement and license, because of what it says was conduct by Chicken V in contravention of s 18 of Schedule 2 of the Competition and Consumer Act 2010 (Cth), otherwise known as the Australian Consumer Law ("ACL"). That conduct is said to have caused MM to enter into the contracts and pay various amounts of money. According to MM, the business at all times ran at a loss, it seeks as a component of damages that loss.
2. As pleaded, the "conduct" is a series of representations as follows: "During the course of the discussions, Chicken V and Sim made the following representations to MM 2020 and Kang (the Representations): a) WMSH Pty Ltd (ACN 627 307 322) trading as Hiew Thai (HT), the then lessee at the Premises, would be vacating the Premises in August 2020 as the term of its lease with Marina Square Retail Pty Ltd (MSR), the landlord, was expiring then. b) HT was agreeable to transfer its liquor licence, being a licence which allowed it to sell liquor from the Premises, to the entity Kang would incorporate immediately upon the expiration of its tenancy in August 2020. c) The entity Kang was to incorporate could sell liquor from the Premises from August 2020 as part of the 'Chicken V' business it was to operate."
3. The fundamental message said to have been conveyed by Chicken V to MM, said to have caused MM to enter into the agreements, was that the liquor licence which was held by the outgoing tenant of the Premises would be transferred to MM, so as to allow liquor to be sold legally from the Premises by MM as soon as it commenced operation of the 'Chicken V' business.
4. As events unfolded, it was not possible for MM to obtain a liquor licence for approximately two years after August 2020. This was because the outgoing tenant of the Premises became embroiled in litigation with the landlord as to whether its lease had come to an end or not. The outgoing tenant refused to consent to transfer the liquor licence to MM. As might be expected, the relevant authorities were not prepared to grant a liquor licence to two people over the same premises at the same time.
5. Chicken V denies that the pleaded representations were made at all. It accepts that there were discussions about a liquor licence and how MM might go about obtaining one, but it contends that anything said in that regard did not rise to the level of some form of guarantee as the pleading suggests, rather it was couched in terms of 'probably'. Chicken V also submits that MM was, through its director Mr Soon Yong Kang ("Mr Kang"), so enthusiastic to sign up to the franchise agreement that whatever might have been said one way or the other about the liquor licence and the previous tenant was of no moment to him, and thus the claimed damages were not in any way caused by any contravention of the Act.
6. Chicken V also contends that the business did not operate at a loss during the relevant period. Its case is the business in fact operated at a profit because, amongst other things, notwithstanding the failure of MM to obtain a relevant liquor licence, alcohol was served extensively by MM during the whole of the period it operated the business. Chicken V submits that profit ought be brought to account on any assessment of damages. Finally, Chicken V relies on Mr Kang's failure, as its sole director, to take any steps to protect MM by failing to seek advice concerning the liquor licence from either his solicitor or accountant at the time as either the real cause of any loss or as a basis to reduce any damages. In this regard, it relies on s 137B of the Competition and Consumer Act 2010 (Cth).

The cross-claim

1. There is a cross-claim whereby Chicken V seeks from MM monies said to be due under the franchise agreement. There is no dispute that some monies are due under the agreement, although there are questions as to the precise amount. MM's answer to the liability aspect of the cross-claim is the same as its claim. MM says that the franchise agreement should either be set aside, declared void, or monies payable under it be declared not recoverable because of the same alleged contravention of the ACL. So it can be seen that the resolution of the issues arising on the claim will be determinative of the question of liability on the cross-claim. The cross-claim also seeks to recover the same amount from Mr Kang, pursuant to a guarantee. No issue is taken concerning the guarantee so that the issues and result against Mr Kang will be the same as against MM.

The Issues

1. The matter can be resolved by answering the following questions: 1. What was the message conveyed concerning the liquor licence and/or the previous tenant i.e. what was the relevant conduct? 2. By reference to those findings and the pleaded case, was the proved conduct of Chicken V misleading or deceptive, and thus a contravention of s 18 of the ACL? 3. If there has been a contravention, did it cause any damage? 4. If some damage was caused, what is the quantum of that damage? 5. Did MM contribute to that damage by failing to take reasonable care for its own interest, and if so, should any amount awarded be reduced to take into account that matter (s 137B)? 6. Issues arising on the cross-claim.

The pre-contract conversations - The conduct - What was said?

1. As can be seen from the extract from the pleading above, the representations fall into two categories, although there is a large degree of overlap between the two when it comes to both questions of breach and causation.
2. The first category is a representation that the outgoing tenant of the Premises was vacating the Premises because the time period of its lease was expiring, and that tenant was agreeable to transferring its liquor licence to the entity which became the Plaintiff. The second and separate category, which is perhaps also consequential on the first, is that the entity that became the Plaintiff could sell liquor from the Premises from August 2020 as part of the Chicken V business it was to operate.
3. I propose to deal with each of those categories separately and in the opposite order. I will then seek to deal with the overarching message, if any, conveyed in the series of conversations.
4. Dealing first then with the representation to the effect that MM could sell liquor from the Premises from August 2020.

Could MM sell liquor from August 2020?

1. The word "could", in context, is ambiguous. To say that someone could do something in the future can mean 'might' and it can mean 'will'. The meaning can only be understood from the context. As the case was run, it became clear that MM's case is that there was a representation to the effect that it was a certain fact that MM would be able to legally sell liquor from the Premises from August 2020. Such a statement may be seen to be a statement of present opinion or a statement as to a future event. Again, this will depend on context.
2. Neither the franchise agreement nor the license agreement which were executed by the parties prior to MM taking possession contain any mention of a potential liquor licence being available for MM at the commencement of the operation of those contracts or at all. It does, however, contain a provision to the effect that no representations other than those contained in the contract had been relied on. The "Deal Sheet" or Heads of Agreement, which was non-binding but exchanged and discussed between the parties pre-contract, is also silent on the topic. There is also some contemporaneous documents from MM's solicitor, who was acting pre-contract, seeking assurances and changes to drafts of the documents. Again, there is no mention of anything to do with the transfer of any liquor licence.
3. It was clear from the evidence of Mr Kang, that the reason the solicitor did not raise the matter is because those behind MM, in particular Mr Kang, did not bring anything about the liquor licence to the solicitor's attention.
4. MM's case is based entirely on oral evidence given by Mr Kang as to what was said in a series of meetings leading up to the entry into the franchise agreement and license agreement.
5. For example, he said in his affidavit that at the very first meeting he attended with both his wife and his son, something to the following effect was said on behalf of Chicken V (my emphasis): Ms Sim: Liquor sales make up a large proportion of profit for the franchise business. Without liquor sales, your business will not make much money. Majority of the customers order alcohol to have it with fried chicken. It is good to also have a tap beer facility installed. Me: That sounds correct. People almost always order fried chicken with alcohol. It is just the customary practice to do so. Ms Sim: Exactly. Ms Jeong: How do you sell alcohol in Australia? Do you need a permit? Ms Sim: You need to apply to the government to obtain a liquor license. Me: Is it hard to get one? Ms Sim: No, it isn't. You just go onto the website of Liquor & Gaming and you apply. With the liquor license, you can make good money from selling alcohol with chicken.
6. Again, at what I think is the second or third meeting between the parties at a Japanese restaurant in July 2020, Mr Kang gave affidavit evidence of a conversation which included the following (my emphasis): Me: What about the liquor license? You told me the other day that will make up the majority of revenue for a Chicken V franchise business. Ms Sim: The existing tenant at the Premises will do everything to get it transferred to you. We already took care of that. They already told me and the landlord this. All you have to do is completing the liquor license training course. Me: And how do I go about that? Ms Sim: By doing the RSA course with an accredited provider and making the application to the Liquor & Gaming NSW afterwards. There are many of them. You can get it in like one or two days. Once you do that, then you can get the liquor license transferred from the Thai restaurant to your business and sell alcohol from the first day of operating. Easy.
7. By reference to a conversation that took place in August 2020 at the Eastwood office of Chicken V, Mr Kang said in his affidavit that the following words were said between his wife and Ms Sim (my emphasis): Ms Jeong: I am a bit nervous about my husband's business getting the liquor license. Based on what you told us earlier, it looks like that liquor sales will from significant part of the revenue for the franchise business. Ms Sim: Do not worry. As long as he does the training, it should be fine. The existing tenant already agreed to transfer the liquor license to your husband's company. The liquor license should all be sorted out before you commence to operate the business meaning that he (referring to me) will always be able lose alcohol as part of the business. Me: l am trusting you for this. I would not have agreed to spend $200,000 in absence of the assurances which you have provided to me before. Ms Sim: Do not worry I will always assist you. That is what a franchise is for.
8. Present at all of these conversations were Mr Kang's wife and son. Although they had prepared affidavits which had been filed, they did not give evidence before me in unusual circumstances. At the commencement of the hearing, the solicitor for MM made an application that Mr Kang's wife give evidence by audiovisual link from Korea. For reasons which I will not go into, I declined the application. During the course of argument in support of that application, MM's solicitor indicated that Mr Kang's son would not be giving evidence as he was "not available". On the second day of the hearing after MM had closed its case, an application was made to reopen so as to allow both Mr Kang's wife and son to give evidence in person, but not until what would have been the fourth day of what was a three-day hearing. As this application was made after Mr Kang's cross-examination had concluded, which cross-examination had proceeded upon the basis that neither the son nor the wife would be called and in light of the delay that it would cause to the hearing, I declined that application. Thus, the position is that neither Mr Kang's wife nor son gave evidence in the proceedings. In those circumstances, I do not think it would be fair to draw any inference adverse to MM as a result of that failure. I do not draw any such inference. However, the fact remains that two witnesses closely related to Mr Kang who were present at the relevant conversations did not give evidence. That is a relevant fact to the question of proof as to what was said.
9. Against that evidence, Chicken V called Mr Seung Hoo Kim ("Mr Kim") and Ms Yun Kyong Sim ("Ms Sim"). Ms Sim is the sole director of Chicken V. She gave evidence in two affidavits where she categorically denied any such statements about liquor licences, other than what she says she said in the July meeting which was as follows (my emphasis): 41 I also recall the following conversation in relation to the liquor licence: "Mr Kang: How would the liquor licence be transferred? Do I need to do anything on my end or is it automatic? Me: No, it isn't automatic. Your solicitor will need to lodge an application to transfer the licence to you or your company. I believe this application is online. Sometimes, the government [referring to Liquor & Gaming NSW] can provide an interim liquor licence immediately after lodging the application but I suspect your solicitor will know more about that. I just know it's possible. It can take some time for the transfer to be approved, so make sure you do it ahead of time. Mr Kang: What about this 'RSA'? Does it take a long time? Me: The RSA doesn't take a long time. You can get it pretty easily, you just need to do a training course.""
10. Mr Kim is the husband of Ms Sim, he gave evidence generally consistent with his wife's evidence, although he made it clear both in his affidavit and in cross-examination that, whilst he had a vague recollection of there being discussions about liquor licences and the sale of liquor at the time, that was not a matter that he felt was of great importance at the time and he really did not have any recollection of what was said at all other than there were discussions concerning potential liquor licences being obtained for MM and that statements to the effect that there could possibly be a liquor licence obtained were made.
11. All witnesses were cross-examined as to their respective recollections. I will deal with Ms Sim's and Mr Kim's evidence together.
12. The only relevant thing that I am satisfied of from both those witnesses' cross-examination is that it is accepted between them that there were discussions concerning the potential transfer of a liquor licence from the outgoing tenant to MM and how a Responsible Service of Alcohol (RSA) certificate could be applied for.
13. In my judgement, none of the direct evidence given by either witness as to what was actually said, in the sense of the words used, between them on the topic of liquor licences or the outgoing tenant can be accepted. I do not wish to get involved in what seems to be a controversy as to the use of "direct speech" or "gist" evidence about what was said in conversations (see for example: Kanes Hire Pty Ltd v Anderson Aviation Australia Pty Ltd [2023] FCA 381; Gan v Xie [2023] NSWCA 163; Wild v Meduri [2024] NSWCA 230). Far be it for me to express an opinion on such a weighty matter about which it seems the Court of Appeal itself cannot reach consensus.
14. In this case, it is entirely clear that what was in the affidavits of both witnesses was a product of some form of drafting exercise by the lawyers on both sides, which I doubt the witnesses themselves were much involved in. Even though both witnesses professed at the start of cross-examination to have been entirely familiar with their affidavits and to have read them recently and that they were true and correct, when asked questions about specific conversations without being allowed to refer directly to their affidavits, they were not just unable to come up to proof as to what was said in the affidavit, they gave evidence at the highest and vaguest level which often was entirely contradictory to what they said in their affidavits. When reminded as to what their affidavits said they would revert to professing the truth of the statement but again, within minutes when asked again without reference to the affidavit, they would give contradictory evidence. I consider neither is a reliable witness as to the detail of what was said. In particular, I do not accept any of the evidence of the actual words said.
15. This is a case where the wise and often quoted passage of McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 has real resonance. In the context of the discussions concerning the liquor licence and what is essentially a contest between the parties as to what was possible or even probable - being Chicken V's position and what was a guarantee as to a future event, being MM's case - the "subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition" become obviously centrally important. Whilst I accept that Mr Kang now believes that he was told it was automatic that MM would obtain a liquor licence, I do not think I can give that subjective belief any weight. The same can be said about Ms Sim's evidence to the extent she purported in her affidavit to remember actual conversations.
16. Mr Kim's evidence was in a different category. At no point did he seek to pretend that he had a clear recollection of what was actually said on the topic. He explained that, because he did not think that the matter was important, he would not expect to have a recollection. In cross-examination when pressed, he said that he recalls something being said at one of the meetings to the following effect: "Probably you can get a liquor licence issued because the previous owner has one and it can be transferred to you".
17. As I have said, all of the contemporaneous paperwork is inconsistent with there being anything approaching a cast-iron promise concerning the transfer of the liquor licence and it being issued by August 2020.
18. That surrounding objective evidence includes the actual agreements signed, the solicitors' correspondence, together with the failure of MM to instruct its solicitor as to such a promise playing a part of the proposed deal. It is all consistent with the evidence given by Mr Kim, to the effect that there were discussions about a possible transfer of the liquor licence, there was a statement that probably such a transfer would happen, but there was no promise that it would happen come what may.
19. I think the true position is that both Mr Kang and Ms Sim both remember vaguely there being discussions about the topic, something was said about a possible transfer, something was said about applying for RSA certificates, but it was not considered important enough by anybody at the time to be specifically incorporated into the terms of the proposed deal (which existed at the time of most of these meetings in a draft term sheet), let alone in the final version of the agreement. This makes it entirely unlikely, perhaps even implausible, that something approaching some form of guarantee that a liquor licence would be obtained was ever communicated.
20. Such a conclusion is consistent with Ms Sim's evidence, all of the contemporaneous documents, and in my judgement is most probably what occurred.
21. I am not satisfied on the balance of probabilities that MM has proved anything more than what I have just described.

The previous tenant's position

1. As can be seen from the pleading, a part of MM's case is that it was represented to MM that the previous tenant was vacating because the term of their lease had expired. For example, Mr Kang referred to the existing tenant being prepared to do anything to assist with a liquor licence being transferred, whereas Ms Sim says that she told MM's representatives that the previous tenant was being "evicted".
2. Again, there is a subtle but important distinction and nuance when people are talking about a tenant vacating premises because the term of their lease has expired on the one hand, or a tenant vacating under some sort of compulsion of law on the other. At one level, both could be described as an "eviction". If a lease expires by effluxion of time, as a matter of law the tenant has a right to hold over, usually on a month-to-month basis unless given appropriate notice by the landlord. If a landlord does give notice in such circumstances and the tenant leaves, such circumstances could be fairly described by some people as an "eviction". At the other end of the spectrum, a tenant who is forcibly removed from premises by the Sheriff executing a writ issued by a Court could also be described as an "eviction". Lawyers may well understand this distinction, but I think most businesspeople would not.
3. It became clear during the cross-examination of Ms Sim, that there is also a translation/interpretation issue with the word "eviction". Its meaning in both Korean and English is very much dependant on the context in which the word is used.
4. It is not clear on the evidence what exactly happened between the landlord and the previous tenant, but two things are known. Firstly, the Premises were vacant and available for MM to take possession when they signed the franchise agreement and license, so it is a fact that the previous tenant had vacated. Secondly, there was then litigation between that tenant and the landlord concerning, I assume, who as between them had a right to possession. When that litigation commenced is not known.
5. Having considered all of the contemporaneous evidence and listened carefully to the oral evidence of the relevant witnesses, I am not satisfied that there was conduct that conveyed a message to MM to the effect that the previous tenant was leaving simply because the earlier lease had expired. Nor do I think there was a statement that the tenant would consent to a transfer of the licence. No doubt there was a statement that the tenant was vacating, and vacant possession would be available, but I do not think the manner of that happening was discussed at any level of detail other than perhaps that the landlord wanted the tenant to vacate. There was probably a statement that ordinarily outgoing tenants consent to a transfer of liquor licence to a new tenant, but no statement that the tenant would definitely do so or had been spoken to on the topic. Rather, I think what probably happened is that there was a statement to the effect that I have already identified by reference to Ms Sim's evidence that the previous tenant did have a liquor licence and that there probably should not be a problem having it transferred. This means that this aspect of the pleaded representation has also not been proved.

The combined effect of the alleged representations

1. The alleged relevance of the representations concerning the manner by which the earlier tenant vacated the Premises, is it is said that, if MM had understood that there was some dispute between the outgoing tenant and the landlord, then either that would have made them concerned that the transfer of the liquor licence may not be straight forward or that in fact there might be problems with any lease they signed unless and until the earlier dispute was sorted out.
2. I have my doubts about the plausibility of such a thought process occurring, but be that as it may, looked at in that way, it can be seen that there is a very large degree of overlap between the two categories of representations. Perhaps neither makes sense without being in the context of the other.
3. On my findings, I am not satisfied that either category of representation as pleaded has been proved. Accordingly, there is no need for me to consider the overlapping effect of what was said, other than to say that on my findings, I do not think the combined effect of the pleaded representations has been made out. I will discuss this issue further when I come to the question of reliance.

Contravention of s 18 of the ACL

1. On those findings, the pleaded conduct/representations have not been made out by MM. It follows from that finding that there was no contravention of s 18 of the ACL and for that reason alone MM's claim ought be dismissed.

Damages/quantum

1. Against the possibility that I am wrong as to liability, I will consider the question of damages.
2. As is well known, if there be a contravention of the ACL, it is a relatively low hurdle to prove that any loss is the result of that contravention.
3. For "causation" to be proved for the purpose of the ACL, it does not matter that there may be other causes or indeed the conduct of a Defendant was the primary cause, all that needs to be shown is that it was a material cause: see for example Travel Compensation Fund v Robert Tambree (t/as R Tambree & Assocs) (2005) 224 CLR 627 at [32]; Henville v Walker (2001) 206 CLR 459.
4. MM must prove that loss or damage was suffered "because of" conduct in breach of the ACL. The word used in s 82 of the Trade Practices Act (1974) (Cth) was "by", but it has been held that the new drafting makes no difference to the meaning: Flogineering Pty Ltd v Blu Logistics SA Pty Ltd (No 3) [2019] FCA 1258; Flogineering Pty Ltd v Blu Logistics SA Pty Ltd (No 4) [2021] FCA 1219.
5. The relevant question must always be whether there is sufficient connection between the conduct and the damage suffered. What is necessary is to find a causal connection between the conduct identified and the loss and damage suffered: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304.
6. The question should ordinarily be determined objectively without too much, if any, weight being given to direct evidence of reliance from the party claiming damages. Such evidence as to what a person claiming reliance would have done if not for the information is necessarily hypothetical and must be clouded by the fact that, at the time the evidence is given, that person knows that the consequences of their act have been detrimental to them: see for example Dominelli Ford (Hurstville) Pty Ltd v Karmot Auto Spares Pty Ltd (1992) 38 FCR 471; and Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640.
7. Chicken V's submission is that it ought be found that, even if the representations as pleaded occurred, that conduct did not in any way cause MM to enter into the transaction, and thus did not cause any damages. I think that submission ought be accepted because, even if I am wrong as to what was said in the conversations, it is clear to me by reference to the objective material that whatever was said about the liquor licence was not considered even of peripheral importance to MM at the time.
8. In my view, even if MM had been told that there might be a delay in obtaining the liquor licence because the outgoing tenant might not cooperate, I think MM would have proceeded to enter into the relevant contracts and pay the money the subject of the damages claim. It is not to be overlooked that MM paid some money to Chicken V before some of the important conversations even occurred and never raised the issue with its lawyer or accountant, nor recorded the statement in writing. This is because, in my opinion, any such statements were of no moment to Mr Kang at the time.
9. Moreover, whilst causation in this area of the law is considered a low hurdle, there is a point where a person's failure to take reasonable steps to protect their own position and make obvious enquiries becomes the only cause of any loss. I think in this case the failure of MM to seek advice from its solicitor or its accountant at all in relation to the question of a liquor licence and the failure to record in the written form of the agreement the promise, nor confirming the outgoing tenant's position directly with the outgoing tenant, which I have of course taken into account when determining what I consider was actually conveyed in the conversation, can be said to be the only true cause of the loss contended for by MM.
10. On those findings, MM's claim would fail in any event for lack of proof of any damage.

Quantum of any damages?

1. Against the possibility that I am wrong on the questions of liability and causation, I will deal with the claim for damages propounded by MM.
2. The case is presented as a "no transaction" case. In other words, MM says that, if not for the representations, it would not have entered into the franchise agreement and related arrangements at all.
3. Upon that basis, MM claims all money paid pursuant to the agreement, together with what it contends is the net loss from operating the 'Chicken V' business from late November 2000 to late October 2022.
4. MM paid $200,000 as an initial fee under the franchise agreement and $13,200 as franchise service fees, pursuant to the franchise agreement.
5. If one accepts the premise that the franchise agreement would not have been entered into but if not for the alleged misleading or deceptive conduct, such amounts would be properly recoverable as damages.
6. The third head of damages, that being the $56,148 net loss claim is much more problematic.
7. MM called evidence from an expert accountant, Mr Paul, and relied on and tendered a report from him dated 8 December 2023. Chicken V relied on a competing expert accountant, Mr Damien Bevan, and relied on his report dated 30 August 2024.
8. The experts discussed the matter between them in the days leading up to their giving evidence and prepared a joint report dated 15 October 2024 and gave evidence before me concurrently. I am very grateful to both of them for the professional and co-operative manner with which they went about the task. It meant their oral evidence was short but entirely on point and of great assistance to me.
9. On behalf of Chicken V, it is contended that MM in fact made a profit (or at least, to use the words of the experts, produced some "free cash" during the relevant period). Chicken V submits that such profit should be brought to account by MM and any payments of money by way of damages to which it might otherwise be said to be entitled to should be reduced by the amount of such profit. I think that is right as a matter of legal theory. It cannot be the law that a party who is induced to enter into a contract as a result of a contravention of the ACL, is entitled to recover by way of damages all detriments occasioned to it by the entry into that contract, whilst at the same time keeping for itself any benefit.
10. There are a number of things that need to be said about the competing expert opinions. The first is that both experts have proceeded to try and calculate damages on what I think is an incorrect legal analysis of the claim. As I have said, the case is presented by MM, and on the evidence could only be presented by MM as a "no transaction" case. Damages for loss caused by a contravention of the ACL ought ordinarily be calculated to put the person back in the position they would have been in if not for the contravention. In other words, they are analogous to tortious damages: Wardely Australia Ltd v Western Australia (1992) 175 CLR 514. It is not the law that, absent very unusual circumstances, damages are awarded pursuant to the ACL upon the basis that the successful party is put in the position it would have been in if the representation had been true. In other words, it is not assessed in the same way as a breach of contract case where the successful party is put back in the position it would have been in if the contract had been performed pursuant to its terms.
11. Yet that is just what the experts have sought to do. They both sought to quantify what they think is the difference between the position MM found itself in without a liquor licence as against the position it would have been in if it had an operative liquor licence from the first day of business. I do not think that is the correct legal approach to the measure of damages in this case.
12. The second thing to say about the evidence is that it is based on entirely incomplete, and I think unreliable, information. As always, an expert's opinion is only as good as the assumptions made. In this case the assumptions made by both experts are based on nothing more than some Business Activity Statement (BAS) returns lodged by MM at the time, together with some profit and loss and other type documents. There are very complicated questions when seeking to analyse what profit or loss an entity made or incurred because of the way things like depreciation are dealt with, and issues produced by timing and whether accounts are being produced on an accruals or cash basis.
13. I think at the end of the evidence of the experts, it was agreed that there was double counting involved on either analysis because the amount of $200,000 claimed by MM as damages was used, at least in part, to purchase capital equipment and to the fitting out. If that be the case, then I do not think depreciation should be included in any calculation of loss, because it would involve double counting.
14. Having read the various expert's reports and having listened carefully to their evidence, I am not satisfied on the balance of probabilities one way or the other as to whether the business made a profit or made a loss. What this means is that, for the purpose of the claimed damages by MM, I would not make an award that includes the claimed $58,148 for net lost profit.
15. It also means that I will not deduct any amount for any profits made from the amount of damages otherwise proved.
16. The result is that, if I am wrong on the question of liability and leaving interest to one side, I would have awarded MM damages of $213,200.

Reduction of any damages

1. Section 137B of the Competition and Consumer Act 2010 (Cth) allows for the reduction of any amount of loss or damage if the claimant fails to take reasonable care themselves.
2. I have already concluded that MM would have proceeded to enter into the franchise agreements whatever it was told about the liquor licence and the like.
3. If I am wrong about that, I find that MM, at the time, had a solicitor and an accountant acting for it, both of whom signed certificates saying that they had advised MM respectively as to the legal and financial potential consequences of the agreements. MM accepts that it did not bring to either of those persons attention whatever assumption was being made as to the availability of the liquor licence. It would have been obvious from reading not just the documents, but from reading the summary documents which were available to MM, that there was no provision in any of the contractual documents which recorded anything to do with the liquor licence. Nor did MM, knowing that what was required at least as a starting point was a transfer of the liquor licence from the outgoing tenant, make any enquiries prior to entering into the franchise agreement of the outgoing tenant. It seems to me that this was the most obvious thing to do and is something that should have been considered even without legal or accounting advice.
4. In all those circumstances, I do think that MM failed to take reasonable care to protect its own position concerning the availability of the liquor licence.
5. Doing the best I can and taking into account that I do consider that failure to take care to be significant, I would reduce the amount of any damages to which MM may otherwise be entitled by 50%.

The cross-claim

1. As I said at the outset of these reasons, the cross-claim assumes that the claim fails and is thus a claim based on contract for unpaid monies that would otherwise be due under the franchise agreement.
2. The cross-claim can be broken down to the following components: 1. A claim for $4070 for unpaid franchise fees; 2. A claim for $14,300 for unpaid franchise service fees; and 3. A claim for $138,619.86 for unpaid monies under the licence fees being the amount of rent and outgoings attributable to the Premises.
3. As to the first two items claimed, the only answer MM has put forward is based on one disputed oral conversation. Having heard the competing evidence of the witnesses, I am not satisfied that there was such a conversation and/or that it had the effect contended for, that is a release of the debt.
4. The claim for the licence fees component of the cross-claim turns out to be much more complicated than might have been first thought. It raises complex questions of the construction of a number of poorly drafted contracts and an interesting question of equitable assignment of future property.
5. The contractual relationship between MM and Chicken V is contained in two documents. The first is a license agreement (tab PP 710 of the court book) which is sparse, but nonetheless commendable for its brevity. It defines licence fees as follows: "Licence fee an amount equal to the rent, the outgoings and other levies payable by the franchisor under the lease"
6. The lease is defined as a lease said to be annexed to the license agreement and marked "A". However, there is no lease annexed. The lease is described in the body of the document as a lease between the franchisor (Chicken V) of the Premises.
7. At the time the license agreement was entered into, there was a lease in place in relation to the Premises, but the lessee was not Chicken V, but rather a related company Chicken V Property Management Pty Ltd (CB 622).
8. On the assumption, which I think is reasonable, that the lease referred to in the license agreement is that lease, and by reference to the definition of licence fee contained in the license agreement, it is submitted on behalf of MM and Mr Kang that there is no licence fee payable because there is no amount of rent, outgoings, and other levies payable by Chicken V under the lease because it is not a party to the lease.
9. The franchise agreement was signed at a point in time after the statutory information and disclaimers required to be given prior to franchises being entered into, had been provided by Chicken V to MM.
10. That document (CB 555) clearly discloses, in excruciating detail, the amount of rent and other outgoings payable under the lease that I think was being referred to in the license agreement, and in particular discloses monthly payments of rent and other payments.
11. To make the matter slightly more complicated, there is one other document which I need to refer to. That is a document described as a Master License Agreement between Chicken Property Management Pty Ltd and Chicken V Pty Ltd, dated 1 October 2018 (CB 487).
12. That document involves Chicken V Property Management Pty Ltd conferring on Chicken V Pty Ltd a license over a property at Gosford.
13. It also contains the following provision as part of its "introduction": "C. The Licensor [Chicken V Property Management Pty Ltd] furher (sic) agrees to grant the exclusive right to grant to use and sublease any premises leased and to be leased by the Licensor (sic) [Chicken V Pty Ltd]."
14. The question becomes, as a matter of construction, whether the parties to the license intended monies payable pursuant to the lease then in place relating to the Premises, were intended to be paid by MM to Chicken V, notwithstanding that on the face of the lease of the Premises, Chicken V had no obligation itself to pay that rent and outgoing to the landlord under the lease.
15. It needs to be said at the outset that it is clear enough that there has been a mistake made in the drafting of a complicated set of contractual documents in the context of the "Chicken V" group of companies itself having some complexity. It is clear enough to me that as within "Chicken V" there was a property holding company whose task, amongst other things, was to hold leases of properties with the intention that Chicken V was the entity who would grant franchise agreements. Chicken V would be granted a licence of such properties, and in turn would grant a licence to the franchisee. The person taking a franchise would be obliged to pay to Chicken V monies due under the lease.
16. However, the license agreement does not say that. Rather, if the definition is applied strictly, it limits itself to monies payable by the franchisor (Chicken V) under the lease.
17. It is beyond doubt that such an outcome was not the intention of the parties. Apart from anything, that would mean that the disclosure document provided by Chicken V to MM under force of law was wholly inaccurate and significantly overstated the amount that would be payable under the franchise arrangement. It would also mean that Chicken V had no obligation to pay any rent or outgoings. To construe the document strictly produces not just a result that seems contrary to business common sense, it results in a commercially absurd result.
18. Whilst there is no claim for rectification before me and this Court does not have jurisdiction to hear such a claim, the matter can be resolved by a process of construction. It seems to me that, notwithstanding the clear words of the license agreement, when I consider those words in the context of the suite of documents and the matters known to both parties at the time they entered into the license, together with their obvious mutual intention, that what was intended was for Chicken V to be paid by MM any monies that had to be paid under the lease. The definition of "licence fee" is therefore in its terms inaccurate. It is however, a definition provision and I do not think it does violence to the language used, nor is there is any difficulty in implying a term into the license agreement that the definition applies unless the contrary intention can be discerned from the balance of the contract and surrounding circumstances. I think in this case the contrary intention is obvious. Without application of the definition, the meaning of the document becomes clear.
19. For those reasons, I have concluded that, as a matter of construction of the license agreement, MM is liable to pay Chicken V the amount for rent and outgoings.
20. Chicken V had an alternative argument, based on the Master License Agreement, dealing with the Gosford property.
21. Chicken V's submission is that the Master License Agreement does not just deal with the Gosford property, but also by the words "agrees to grant the exclusive right to grant to use and sublease any premises leased and to be leased by the licensee…", amounts to an assignment by Chicken V Property Management Pty Ltd to Chicken V of any future property so described which would capture its license of its lease of the Wentworth Point property.
22. And thus, so the argument goes, at least in equity, Chicken V had a right to be granted a license by Chicken V Property Management Pty Ltd.
23. That may well be so, however that then raises a question as to whether that right, recognised by equity, itself creates some sort of interest in land creating an equitable sub-licence before the grant was actually made, or rather gives a right to enforce a grant by way of a writ of specific performance.
24. I think this argument raises complex legal issues. As I have decided the matter by the root of construction, I prefer not to decide the matter by reference to this argument.
25. What this all means is that I allow all of the claims, the subject of the cross-claim against both MM and Mr Kang as guarantor.
26. There is a contractual right to interest. I have not heard the parties, nor sought to calculate that amount.
27. What I will do is direct the parties to agree, in the first instance, as to the quantum of an appropriate judgement and failing such agreement, will hear further argument.

Costs

1. The outcome of the proceedings will be that the claim by MM will be dismissed and the cross-claim by Chicken V upheld.
2. In those circumstances, I do not see any reason why costs should not follow the event and will order, on a preliminary basis, that MM pay Chicken V's costs of the claim and the cross-claim, and that Mr Kang pay Chicken V's costs of the cross-claim. However, I will give the parties a short opportunity to be heard to vary those orders.

Orders

1. For those reasons, I make the following orders: 1. The Plaintiff's claim is dismissed. 2. Judgment for the Cross-Claimant against both Cross-Defendants on the cross-claim in an amount to be agreed or determined by Judge Newlinds SC. 3. Order the Plaintiff/First Cross-Defendant pay the Defendant/Cross-Claimant's costs of the proceedings and the cross-claim. Order the Second Cross-Defendant pay the Cross-Claimant's costs of the cross-claim. 4. Direct the parties to seek to agree as to the quantum of the judgment on the cross-claim. If they can agree, short minutes can be sent to the chambers of Judge Newlinds SC and orders made without the need for a further hearing. If there is no agreement by close of business on Wednesday 23 October 2024, the matter will be listed for directions hearing to resolve any disputes at 9:30 AM on Monday, 28 October 2024. 5. If either party wishes to be heard to vary the costs order, notice of such application together with short submissions should be provided to the chambers of Judge Newlinds SC by email by close of business Wednesday, 23 October 2024. Any outstanding issues as to costs will also be determined at the directions on Monday, 28 October. 6. Stand the matter over for directions on 28 October 2024 at 9:30 AM. 7. If there are no contested issues to be dealt with, short minutes can be sent to my chambers. If I am satisfied as to those orders, I will make them from chambers and the matter will be removed from the list.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 October 2024