Montedeen Pty Ltd v Bamco Villa Pty Ltd [1999] VSCA 59

Montedeen Pty Ltd v Bamco Villa Pty Ltd [1999] VSCA 59 - VSCA 1999 case summary — Zoe

[38]

Clause 1.1 of the written franchise agreement - which is to be read in conjunction with cl.1.3 - grants to the franchisee the "exclusive right" to use the parts of the system specified at the location or locations within the territory approved by the franchisor. The description of the right as "exclusive" not only prevents the franchisor from licensing another franchisee in respect of the area of activity but also prevents it from itself exploiting the rights in question in respect of that area. We have chosen the vague phrase "area of activity" to leave open the breadth of the restriction. A licence granting "the exclusive right" to use intellectual property will ordinarily be construed as preventing the licensor not only from granting other licences but also from using the property itself: Guyot v. Thomson (1894) 3 Ch. 388 at 397 per Lindley, L.J.; Ex parte British Nylon Spinners Ltd. [1963] HCA 28; (1963) 109 C.L.R. 336; Young v. Odeon Music House (1976) 10 A.L.R. 153 at 161-2; Cornish, Intellectual Property, 3rd ed., para.7-23; Cornish, World Intellectual Property Guidebook, para.7-023; Lahore, Patents, Trade Marks and Related Rights, paras.22,075 and 22,080; McKeough & Stewart, Intellectual Property in Australia, 2nd ed., para.22.18. There is every reason for construing cl.1.1 of the present agreement in the usual way. Montedeen concedes that the effect of the franchise agreement is that it may not licence another franchisee in respect of a location within Bamco Villa's territory. It also accepts that the effect of the agreement is that it may not itself establish a branch within that territory. In our opinion this is the effect of the agreement on the proper construction of cl.1.1. We have no doubt that the restriction prohibits the establishment within the territory of what would ordinarily be described as a branch. We also consider that it prohibits the advertising of a telephone number in a way which links that number to the territory by showing it to be a number in respect of a suburb within the territory. This point will be found to be of importance when we come to deal with Bamco Villa's claims in relation to what might be called the Touma affair. We shall return to this question of the effect of cl.1.1 after briefly summarising the claims made in the litigation.

[92]

In addition to submitting that the adverse findings of the motivation behind the allocation of the two southern cells were not clear, Mr O'Callaghan submitted that they were not supported by the evidence. But in our view those findings are impregnable. The case is one in which the credibility of witnesses was highly important and there is no reason for supposing that the judge has misused the advantage which he gained by seeing and hearing the witnesses. There was a considerable conflict of evidence between Salvo and Tony Vernuccio. It is clear that the judge did not accept Salvo as a reliable witness on some important questions, notably on the question whether he had told Tony Vernuccio at an early stage that Montedeen might itself open a branch in St. Kilda. The judge did not in express terms resolve the conflict of evidence between those two witnesses on what had been said - or not said - by Salvo about the allocation of cells. It may well be that his Honour preferred the evidence of Vernuccio and found that Salvo had told him that each cell would be allocated to the franchisee in whose territory it, or the greater part of it, was situated and that Salvo had said nothing to him about making allocations of cells in a fair and reasonable way, in the interests of all concerned, and with a view to providing each branch with a natural telephone catchment area. If the judge preferred Vernuccio's evidence on these points, he would almost certainly have rejected Salvo's evidence of the considerations that had motivated him. The judge was also to have regard to considerations which bore on the probabilities, and the passage in his reasons which immediately precedes the first finding on the question of motivation shows that he did so. On the question of motivation it was material to consider Salvo's view - as put to Horace Vernuccio in cross-examination - that if the two southern cells were allocated to Bamco Villa the St. Kilda branch of Montedeen would be put out of business. It was also material to consider the considerable quantity of evidence bearing on the number of prospective customers in the two southern cells compared with areas lying to the north.

[114]

Furthermore, Montedeen's contention that such allocation did not have a detrimental effect on Bamco Villa, flies in the face of his Honour's finding to the contrary. In an effort to overcome that finding, Mr. O'Callaghan pointed to Tony Vernuccio's evidence as to customer preference from the areas in question for the St. Kilda branch. The substance of this submission, however, was considered by his Honour in his damages judgment and was rejected. At the hearing which dealt with the assessment of damages, it was put on behalf of Montedeen that even if the allocation amounted to a breach, it caused no loss to Bamco Villa because of Vernuccio's evidence that nearly all customers from the relevant areas preferred to do business with the St. Kilda branch. But on the evidence that was led on this issue, his Honour found that Bamco Villa did lose business which it otherwise would have derived as a result of the allocation of the cells to the St. Kilda branch. In our view, his Honour was entitled to make such a finding, having regard to the evidence before him. It must be borne in mind that until the cell allocation in question, Bamco Villa had the opportunity to gain some custom from the relevant areas. It was not suggested on behalf of Montedeen that after the St. Kilda branch was established all custom from the two cells went to that branch. His Honour was satisfied on the evidence before him that Bamco Villa did enjoy some patronage from those areas before the cell allocation. Once the allocation was made, however, the franchisee lost that custom and the opportunity to retain it and perhaps build on it. In those circumstances, it is not surprising that his Honour concluded that Bamco Villa lost business by reason of the allocation of the two cells in question to the St. Kilda branch. Moreover, that the allocation in question caused Bamco Villa a material detriment, was implicitly recognised by Montedeen, which purported to compensate it for such loss by allocating to it other cells such as East Kew and North Balwyn. But as his Honour found, these cells generated relatively little telephone business when compared with the St. Kilda Road/Windsor and Malvern cells.

[162]

The "Peter" of Peterron Pty. Ltd. was Peter Castledene. In the letter to Wunsch of 26 July 1996, asking for contracts to be prepared, Touma said, "I would also be obliged for an introduction to the Franchisee, Peter Castledene, as well as acting as my agent until possession date." This is puzzling in two respects. In the first place, the letter from Touma is dated about five weeks before Wunsch's fax. That fax says that the branch has "recently" opened, but operation of the branch would be impossible without the provision of vehicles by Montedeen. In the second place, leaving aside the doubt about whether it is Montedeen or Castledene who is to act as Touma's agent, the notion of someone's acting as agent for the purchaser until the possession date seems strange. Perhaps the expression can be explained as a layman's choice of a word to describe the vendor as carrying on the business for the vendor's benefit but so as to preserve it for the purchaser between contract of sale and settlement. But we must say that the provisions of the contract and lease and even the words used in communications between Wunsch and Touma, taken in conjunction with other circumstances, raise very serious questions about the genuineness of the transactions of sale and lease. (It was not at the trial suggested on behalf of Bamco Villa that documents like the letter from Touma to Wunsch of 26 July 1996 and the contract of sale were manufactured documents, produced after the event. The allegation was that they were contemporaneous documents but that they did not relate to contemplated or actual genuine transactions.) As regards the words used in communications, the letter of 26 July 1996 from Touma to Wunsch is open to the comment that the author gives the impression of setting out to create evidence. "Due to the time constraints and practical reasons I require you to act on my behalf" does not have a natural ring, nor, it may perhaps be said, does "Please document the sales documents on the terms we agreed". The letter expresses a preference for the name "Real Cheap Car Rentals" over similar names. But Touma's evidence was that the only name of value to him was the Crown name.

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Judgment (228 paragraphs)

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