"Force Majeure" was defined to mean "anything which is not reasonably within the control of the party affected (e.g. natural disaster, strike, transportation delays, delays caused by government)".
83 It was put that the clause is wide enough to meet the situation of delay complained of by the Plaintiffs, and indicates that the parties at the time of the agreement contemplated and provided for such a situation.
84 It was common ground that, as appears from schedule item 1, the date of the agreement was 11 January 2002 and the commencement date under schedule item 11(ii) was four months from the date of the agreement, namely 11 May 2002.
85 In Veremu Pty Ltd & Ors v Ezishop.net Ltd (in liq.) & Ors [NSWCA] 317 at para 3, Gyles JA summarised the relevant principles thus:
"It was common ground that frustration occurs when the law recognises that a contractual obligation has become incapable of being performed because the circumstances in which the performance is called for would render it a thing radically different from that which was undertaken by the contract: Davis Contractors Ltd v Fareham Urban District Council (1956) AC 696 at 729 per Lord Radcliffe; adopted in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337. In Davis Contractors Ltd v Fareham Urban District Council at 720-1 Lord Reid said that the task of the court is to determine on the true construction of the terms of the contract, read in the light of its nature and the relevant surrounding circumstances, whether the contract is wide enough to apply to the new situation. In Codelfa Construction Pty Ltd v State Rail Authority of New South Wales at 357 Mason J referred to frustration when the parties entered into the contract on the common assumption that some particular thing or state of affairs essential to its performance will continue to exist and that common assumption proves to be mistaken, and at 360 his Honour stated the critical issue as whether the situation which had come about was fundamentally different from that contemplated by the contract on its true construction in the light of the surrounding circumstances. The question should be determined by regard to all these statements".
86 Further, in Davis Contractors (pp 728-729) Lord Radcliffe said:
"So perhaps it would be simpler to say at the outset that frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do.
…
The court must act upon a general impression of what its rule requires. It is for that reason that special importance is necessarily attached to the occurrence of any unexpected event that, as it were, changes the face of things. But, even so, it is not hardship or inconvenience or material loss itself which calls the principle of frustration into play. There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for".
87 Thus the critical issue is whether the situation resulting from the unlikelihood of the premises being ready for trading on 11 May 2002 is fundamentally different from the situation contemplated by the contract on its true construction in the light of the surrounding circumstances (Codelfa Construction Pty Ltd at p 360).
88 In exercising the judgment the court is required to make as to whether, having regard to all the circumstances, the delay in construction of the mezzanine which prevented compliance by MBE with cl 5.1 and by Otrava with cl 10.2 on or before 11 May 2002 has brought about the frustration of the agreement, it is necessary to turn to it. As Lord Reid and Lord Radcliffe have pointed out, frustration depends upon the true construction of the agreement read in light of the relevant circumstances existing when the contract was made, and the events which have since occurred.
89 In my opinion, on its proper construction, cl 38 is wide enough to apply to the situation of delay complained of. A force majeure is defined as anything not reasonably within the control of the party affected. The examples included illustrate the contractual intention that the qualification of the relevant event is limited only to that which is not reasonably within the control of the party affected. It seems to be common ground that delay in mezzanine construction with consequential postponement of commencement of trading was something not reasonably within the control of the parties. Accordingly, it was open to Otrava to invoke cl 38 so as to be relieved of its obligation to commence business until completion of construction and fit out. It chose not to do so. In such circumstances the doctrine of frustration does not apply.
90 Furthermore, in my opinion, upon the proper construction of the agreement as a whole it cannot be said that performance of the obligation to deliver under cl 5.1, or to commence business under cl 10.2, on or before the commencement date was essential to performance of the agreement. I reject the Plaintiffs' submission that these were "time of the essence" conditions non-compliance with which would bring the agreement to an end or entitle an innocent party to rescind.
91 I find on the evidence that, by their conduct from March until Napier Keen's letter of 7 May 2002 the parties proceeded on the basis that the fit out, including delivery of mail boxes and equipment, would not happen until after construction of the mezzanine by Toga's builder. So proceeding, of course, was to act with regard to the terms of the lease and of the agreement. I also find that it was foreseeable by the parties that in these circumstances there was always a risk of delay in construction which would postpone the commencement date. Support for this finding includes AAK's evidence (T pp 44, 45) that as at early May 2002 he accepted that the time for MBE to deliver the mail boxes and to fit out did not arise until after the mezzanine had been installed. It may thus be inferred that it was accepted, at least by then, that the shop would not be ready for trading by the time specified and that the commencement date should necessarily be postponed until actual completion of the fit out. That this was the reality was acknowledged by counsel for Otrava when he stated (T p 311) that he could not submit the agreement was frustrated earlier than May 2002 and that there was a waiver or acquiescence for a period of time when the premises were not ready by February.
92 Nothing in the evidence suggests that delay in the work and postponement of trading pending completion was extraordinary, or rendered performance of the agreement impossible, or in any relevant way altered the situation of the parties, radically or otherwise or, in Lord Radcliffe's words, "changed the face of things". As His Lordship observed, it is not hardship or inconvenience or material loss itself which calls the principles of frustration into play.
93 Although delay might prevent use of the shop for the purpose of the agreement until completion of construction work and fit out with resultant inconvenience and loss of trading it is not enough to attract the doctrine of frustration. Accordingly, when all the circumstances are considered, the fact that the mezzanine and fit out would not take place until some weeks after 11 May 2002 did not bring about the frustration of the agreement.
94 Furthermore, I find that the agreement was brought to an end not by the alleged frustrating event but by Napier Keen giving the letters of 7, 9, and 10 May 2002 which led to its termination. These letters, and Otrava's letter to Exponential of 8 May 2002 (para 36) support the conclusion that the underlying explanation for proceeding with the claim is to be found in AAK's personal frustration and impatience at the delay rather than as a result of consideration of the relevant legal principles. The case on frustration must be rejected.
Third count
95 Otrava claims a declaration that it lawfully terminated the agreement pursuant to cl 4.2 thereof. Put another way, it claims that by the letters from Napier Keen of 7, 9 and 10 May 2002 Otrava did not repudiate the agreement.
96 Otrava's claim is to meet MBE's contention as evidenced in the letters from Robert James of 10 and 27 May 2002 that the effect of the letters of 7, 9 and 10 May 2002 was to repudiate the agreement, acceptance of which repudiation entitled MBE to terminate it. In other words, Otrava contends that Robert James wrongly took Napier Keen's letters to be repudiatory of the agreement.
97 In support of its claim Otrava submits that because the shop could not be, or was not, fitted out before the commencement date it follows that suitable premises had not been found on or before that date within the meaning of cl 4.2. It was put that under this clause either party was entitled to terminate the agreement by giving notice to the other, in which case the agreement would be at an end.
98 Relevantly, cl 4.2 provides:
"4.2 Premises
If Premises have not been secured before this Agreement is signed, MBE and the Franchisee must use their best endeavours to find suitable Premises from which the Franchisee may conduct the Franchised Business on or before the Commencement Date. If MBE and the Franchisee are unable to find suitable Premises on or before the Commencement Date, then either party may terminate this Agreement by giving notice to the other, in which case:
4.2.1. this Agreement will be at an end; and
4.2.2. subject to the Franchisee complying with its obligations under Section 26 which MBE reasonably requires, MBE will refund to the Franchisee all money paid to MBE on account of the Franchise Fee, less an amount equal to $6,000.00 plus an amount to cover MBE's reasonable legal costs in relation to the termination of this Agreement under this Clause".
99 The submission was that the letter of 7 May 2002, and also the letters of 9 and 10 May 2002, should be construed as such a notice.
100 In my opinion the claim is without substance and must be rejected for reasons which may be briefly stated.
101 Firstly, as a matter of construction of cl 4.2 in context with the remainder of the clause, it is clear that it was not intended that it was necessary that the premises be fitted out for the conduct of the business in order to meet the description "suitable". It is plain from cl 4.5 that once suitable premises had been found development by way of construction, remodelling, and fit out would then take place.
102 The evidence in this case proves beyond argument, and I find, that the premises, being the shop which was leased by Otrava from Toga on 4 February 2002, were suitable premises within the meaning of cl 4.2, and hence there was no entitlement to terminate. Indeed, Otrava's submissions to the contrary are in the teeth of its letter to Toga of 8 May 2002 in which its proposal is predicated on acceptance that the shop was suitable for the purpose.
103 Secondly, it is inconceivable that any of the letters of 7, 9, 10 May 2002 from Napier Keen could be rationally understood, either separately or together, as a notice of termination under and for the purposes of cl 4.2. The letters state in blunt and unequivocal terms Otrava's intention to terminate the agreement because the shop would not be ready for occupation by 11 May 2002. Having regard to the circumstances in which they were written Robert James' conclusion that the letters stated Otrava's intention to abandon and be no longer bound by the agreement was entirely reasonable and, in my opinion, correct and I so find. MBE was entitled to accept Otrava's repudiation and thereupon terminate the agreement. This it did by Robert James' letter to Otrava of 10 May 2002. Furthermore, in the circumstances MBE was entitled to regard these letters as evidence of Otrava's abandonment of the business or relationship which entitled it to terminate the agreement under cl 25.3.3 by the letter of 10 May 2002.
Fourth count
104 Otrava claims a declaration that it terminated the agreement by reason of breaches by MBE of cl 4.5.2 and cl 5.1 thereof. It alleges that in breach of cl 4.5.2 MBE failed to fit out the shop, and in breach of cl 5.1 it failed to deliver mail boxes and equipment required for the commencement of trading. It claims by Napier Keen's letters of 7, 9 and 10 May 2002 it lawfully terminated the agreement and is entitled to damages.
105 Clause 4.5.2 provides:
"MBE to Develop Premises
The Franchisee appoints MBE as its agent to construct or re-model the Premises according to MBE's Standards including engaging and directing the builder".