Pearson v Jamaica Blue Pty Ltd

Supreme Court of NSW|2019-11-04|Before: Wright J

Solicitors: Paladin Law (Plaintiff) Malcolm Murray & Associates (Defendant) File Number(s): 2019/205804 Decision under appeal Court or tribunal: Local Court of New South Wales Jurisdiction: Civil Date of Decision: 7 June 2019 Before: Van Zuylen LCM File Number(s): 2018/179077

Judgment

By an amended summons filed on 2 September 2019, the plaintiff, Alan Pearson, seeks: an extension of time in which to appeal from a judgment of the Local Court given on 7 June 2019; leave to appeal where required; orders that the appeal be allowed and there be judgment for Mr Pearson on the original claim; and, consequential costs orders.
The defendant, Jamaica Blue Pty Ltd (Jamaica Blue) opposes the application for leave and contends the appeal should be dismissed with costs.
At the hearing, Mr Kalyk of counsel, who appeared for Mr Pearson, clarified that the extension of time, sought in both the original summons and the amended summons, was a mistake and no extension of time in which to appeal or seek leave to appeal was required. Mr Birch of counsel, who appeared for Jamaica Blue accepted, correctly in my view, that the original summons was filed within time. Accordingly, nothing further is required in this regard.

Background

The proceedings in the Local Court arose out of the termination, in September 2017, of a franchise agreement between Jamaica Blue, as franchisor, A.R.P. (Aust) Pty Ltd (ARP), as franchisee, and Mr Pearson, as covenantor/guarantor, in relation to the Jamaica Blue coffee shop at Castle Towers Shopping Centre in Castle Hill and the subsequent, continued operation of the Jamaica Blue coffee shop until February 2018. Mr Pearson was involved in the proceedings as it was alleged that he guaranteed ARP's relevant obligations. ARP did not defend the proceedings in the Local Court and default judgment was entered against ARP, prior to the matter against Mr Pearson being heard.
For the purposes of the hearing in the Local Court, Jamaica Blue and Mr Pearson reached agreement as to certain facts, which were set out in a Statement of Agreed Facts and Issues, which was signed by the parties and was before the Local Court. At the Local Court hearing on 6 May 2019, a substantial amount of non-contentious documentation was admitted into evidence and Mr Pearson gave evidence and was cross-examined. On 7 June 2019, for the reasons given orally at that time, Van Zuylen LCM awarded judgment in favour of Jamaica Blue against Mr Pearson in the amount of $63,831.05, together with costs.
On 3 July 2019, Mr Pearson filed a summons commencing an appeal in this Court. An amended summons was subsequently filed.

The Appeal

The amended summons filed on 2 August 2019 appealed from the whole of Van Zuylen LCM's decision. The orders sought in the amended summons were relevantly as follows: "2. Leave to appeal from the whole of the decision below; 3. Appeal allowed; 4. Judgment for the Appellant; 5. An order that the Respondent pay the Appellant's costs of the proceedings below and of the appeal; and 6. Such further or other order as this honourable Court may deem fit."
Although the formal requirements of Pt 50 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) were not strictly complied with in some limited respects, Jamaica Blue took no issue in relation to those matters. I do not consider that the non-compliance has caused any unfairness or other prejudice. Accordingly, to the extent necessary, I dispense with any requirements of Pt 50 of the UCPR that have not been complied with in the present proceedings.

Grounds of appeal

The three grounds of appeal identified in the amended summons were: "1. The primary judge erred in failing to give adequate reasons for his decision. Particulars a. The primary [sic] failed to give adequate reasons as to the legal basis on which the second defendant was liable to the plaintiff. b. Further in the alternative, the primary judge failed to give adequate reasons as to the basis on which the second defendant was liable to the plaintiff in the sum of $63,831.05. 2. The primary judge erred in finding that the second defendant was liable to the plaintiff in contract. Particulars a. The primary judge erred in finding that "there was a second franchise agreement between the plaintiff, Jamaica Blue, and the first defendant and the second defendant" (T.50.36), that 'Where was a clear arrangement of contract between the parties to continue the franchise agreement for a short term on the same terms of the first franchise agreement" (T.51.23) and/or that "a guarantee existed which makes the second defendant liable for the outstanding monies owed to the plaintiff by the second defendant" (T.51.29). 3. Further and in the alternative to grounds 1 and 2, the primary judge erred in finding that the second defendant was liable to the plaintiff in the sum of $63,831.05. Particulars a. The primary judge had no basis for the sum of $63,831 05. b. Further and in the alternative, the primary judge calculated the amount payable based on a royalty fee of 6% Net Weekly Revenue (NWR) and an advertising fee of 3% NWR, contrary to the primary judge's own findings that the agreement was based on a royalty fee of 3% NWR and an advertising fee of 1.5% NWR(T.50.46)"
At this point, it should be noted that it was conceded by Jamaica Blue that the Magistrate erred in giving judgment in the sum of $63,831.05 against Mr Pearson.

The effect of the concession

The concession that the judgment against Mr Pearson for $63,831.05 was erroneous amounts in substance to an acknowledgement that grounds 1(b) and 3(a) have been made out. The questions then arise whether the appeal should be upheld on that basis and, if so, what orders should be made disposing of the appeal.
There is no general right of appeal from judgments of the Local Court sitting in its General Division. An appeal lies as of right from such a judgment to the Supreme Court on a question of law, and by leave on a ground that involves a question of mixed law and fact: ss 39(1) and 40(1) of the Local Court Act 2007 (NSW). There is no appeal on a question of fact.
From orders 2 and 3 of the orders sought in the amended summons it appears that Mr Pearson intended both to seek leave to appeal in relation to questions of mixed fact and law and to appeal in respect of questions of law.
Ground 1(b) involved the question of whether the Magistrate gave adequate reasons for his decision that Mr Pearson's liability to Jamaica Blue was for $63,831.05. Ground 3(a) can be seen as involving the question whether there was any evidence to support the finding that Mr Pearson's liability should be so quantified or whether the facts found supported that inference.
Section 39(1) of the Local Court Act 2007 (NSW) provides: "A party to proceedings before the Court sitting in its General Division who is dissatisfied with a judgment or order of the Court may appeal to the Supreme Court, but only on a question of law."
Consequently, Mr Pearson will be entitled to appeal as of right to the extent that grounds 1(b) and 3(a) raise questions of law.

Does ground 1(b) raise a question of law?

The principles in relation to the giving of reasons are well established. Judicial decision makers generally have a duty to give reasons for their decisions, especially final decisions disposing of a matter: Public Service Board of New South Wales v Osmond (1986) 159 CLR 656 at 667 (Gibbs CJ); [1986] HCA 7; Wainohu v New South Wales (2011) 243 CLR 181; [2011] HCA 24 at [54]-[56] (French CJ and Kiefel J). The content and detail of the reasons required from a judicial decision maker do, however, vary depending on the circumstances: DL v The Queen (2018) 92 ALJR 636; [2018] HCA 26 (DL v The Queen) at [32] (Kiefel CJ, Keane and Edelman JJ); Resource Pacific Pty Ltd v Wilkinson [2013] NSWCA 33 (Resource Pacific) at [48]-[58] (Basten JA).
In a matter such as the present from which there is, or may by leave be, an appeal to this Court, the absence of adequate reasons for judgment constitutes an error of law: Soulemeizis v Dudley (Holdings) Pty Limited (1987) 10 NSWLR 247 at 259, 269, 278; Li v Attorney General for New South Wales [2019] NSWCA 95 at [75] and [146]-[151]. On this basis, the question raised in ground 1(b) whether the Magistrate's reasons for concluding that the amount Mr Pearson's liability to Jamaica Blue was $63,831.05 were adequate is a question of law.
Thus, Mr Pearson is entitled to appeal as of right in respect of ground 1(b).

Does ground 3(a) raise a question of law?

In relation to whether ground 3(a) raises a question of law, the applicable principles include the following: 1. whether there is any evidence to support a particular factual finding is a question of law: Australian Gas Light Company v The Valuer-General (1940) 40 SR (NSW) 126 (Australian Gas Light) at 137-138; Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 (Bond) at 355 (Mason CJ); [1990] HCA 33; 2. whether a particular inference can be drawn from facts found is also a question of law: Australian Gas Light at 137-138; Bond at 355.
Accordingly, whichever way ground 3(a) is understood, it can be seen as raising a question of law and Mr Pearson is entitled to appeal as of right in respect of this ground.

Consequence of the concession

As noted above, the concession that the learned Magistrate erred in finding that the amount of Mr Pearson's liability was $63,831.05 effectively means that grounds 1(b) and 3(a) have been made out. Since Mr Pearson was entitled to appeal as of right on those grounds, the appeal should be allowed. It also follows that the judgment of the Local Court cannot stand.
In light of these matters, the question then arises as to how these appeal proceedings should be ultimately determined. In this case, that question is governed by s 41(1) of the Local Court Act which provides: "(1) The Supreme Court may determine an appeal made under section 39 (1) or 40: (a) by varying the terms of the judgment or order, or (b) by setting aside the judgment or order, or (c) by setting aside the judgment or order and remitting the matter to the Local Court for determination in accordance with the Supreme Court's directions, or (d) by dismissing the appeal."
The potentially relevant orders include: 1. under s 41(1)(a), varying the terms of the judgment to specify the correct amount. This, however, would only be appropriate if grounds 1(a) and 2 should be rejected and the correct amount could be determined, as contended in ground 3(b) or otherwise, based on the facts fully found by the Local Court or otherwise agreed by the parties; 2. under s 41(1)(b), setting aside the judgment and giving judgment for Mr Pearson. But this would only be appropriate if ground 1(a) should be rejected and ground (2) should be upheld; or 3. in any other case, setting aside the judgment and remitting the matter to the Local Court for determination in accordance with the Court's directions, under s 41(1)(c).
An order under s 41(1)(c) will be necessary in the situation where Mr Pearson is or may be found liable but the facts as found or agreed are not sufficient to allow this Court to determine the existence or the extent of his liability. This follows from the fact that this Court is not able to make its own factual findings in an appeal such as the present: Rose v Tunstall [2018] NSWCA 241 at [26]-[32], World Avenue Pty Ltd v Tsunashima [2013] NSWSC 502 at [29] and Lesley-Swan v Owners SP 32735 [2013] NSWSC 1635 at [71].
The fact that it was common ground before this Court that Mr Pearson, as guarantor in respect of the franchise agreement which was terminated in September 2017, was liable to Jamaica Blue for the sum of $8,241.67 does not assist in determining which course is appropriate because it does not deal with the issues of whether Mr Pearson was liable in respect of ARP's obligations after the termination of the first franchise agreement on 15 September 2017 or the amount of any such liability. It appears that Jamaica Blue contends that the amount of that liability is $53,423.36 [1] and Mr Pearson contends that, if he is liable, it is substantially less than that sum.
For these reasons, in order to reach a conclusion on how the appeal should be determined in the light of the concession of error, it is necessary to consider the remaining grounds of appeal, albeit as briefly as possible. The remaining grounds 1(a), 2 and 3(b) relate to the following issues: 1. grounds 1(a) and 2: whether Mr Pearson should have been found liable as a guarantor in respect of ARP's liability, if any, to Jamaica Blue under an agreement whereby ARP continued to conduct the business of Jamaica Blue Coffee Shop at Castle Towers between 16 September 2017 and 28 February 2018; and 2. ground 3(b): if so, whether the amount of Mr Pearson's liability to Jamaica Blue was $53,423.36 or some lesser amount.
It can be noted that if ground 1(a) is made out, it is difficult, if not impossible, to determine ground 2.
Proper consideration of the remaining grounds of appeal and how the appeal should be determined requires an understanding of what was not in dispute before the learned Magistrate and what factual findings were made by his Honour.

The relevant facts and the Magistrate's conclusions

As has been noted above, Jamaica Blue and Mr Pearson conducted the proceedings in the Local Court on the basis that certain factual matters were agreed between them. The Magistrate also made findings of fact in his reasons for judgment. In setting out the relevant facts in the paragraphs that follow, I have drawn upon the Magistrate's reasons for judgment, taking into account the Statement of Agreed Facts and Issues signed by the parties and the documents referred to in the reasons. It appears that his Honour's explicit findings of facts may well have been more circumscribed than might otherwise have been the case because of the parties' agreement as to certain underlying factual matters.

The first franchise agreement

Mr Pearson was associated with the Jamaica Blue franchise since at least 2004. By a franchise agreement dated 8 March 2013, between Jamaica Blue, ARP and Mr Pearson (a director of ARP), ARP was granted the right to operate the franchise business, being a coffee shop at Castle Towers Shopping Centre, in premises which Jamaica Blue leased from QIC Ltd (QIC). The franchise agreement included terms that ARP would pay administration, advertising and franchise fees and Mr Pearson, a party to the agreement and referred to as the "covenantor", guaranteed ARP's performance and observance of the franchise agreement, including payment of the administration, advertising and franchise fees. Despite its date, the franchise agreement was stated to be for a term commencing on 28 April 2010 and expiring on 27 April 2020, subject to a renewal and extension of the associated lease for sufficient duration.
This franchise agreement was terminated on 15 September 2017. This was said to be because ARP and Mr Pearson "believed that continuing the lease was no longer commercially viable".
As noted above, it was common ground, at the hearing before this Court, that Mr Pearson owed $8,241.67 to Jamaica Blue as a result of his guarantee in relation to what was outstanding when that franchise agreement was terminated.

The subsequent arrangements

The Magistrate found that after termination of the first franchise agreement: "There was some agreement involving the lessor, QIC, Jamaica Blue, [ARP and Mr Pearson] for the business to continue operating until February 2018 …".
The issue for determination was framed by the Magistrate as: "what were the terms of any agreement operating from 15 September 2017 to February 2017 [sic 2018] and was there a guarantee operating and in force between those dates for [Mr Pearson] to pay the outstanding fees owed by [ARP]".
On 1 September 2017 (referred to as 28 August 2017 in his Honour's reasons perhaps because of the date of the attached letter), Jamaica Blue sent an email confirming the termination of the franchise agreement on 15 September 2017. Attached to the email was, among other things, a letter dated 28 August 2017 to Mr and Mrs Pearson which contained an offer to them to continue to operate the Jamaica Blue coffee shop until 28 February 2018 "on negotiating a lease with QIC, the lessor". Among other things, they would be required "to pay 3% royalties and 1.5% advertising fees for a short term franchise agreement from 16 September 2017 to 28 February 2018". It can be noted here that it was not in dispute that these rates were half the rates payable in respect of royalties and advertising fees under the first franchise agreement.
On 11 September 2017, Mr Pearson sent an email advising of his intention to enter into a causal lease agreement with QIC and "to clear all debts owing to Jamaica Blue during the term of the new agreement".
On 13 September 2017, Jamaica Blue sent a letter addressed to Mr Pearson, "Sole Director and Shareholder A.R.P. (Aust) Pty Limited". Enclosed with that letter were various documents including an unsigned new, short term franchise agreement. That form of agreement was not, however, signed and returned by Mr Pearson or ARP.
It was not in dispute that: 1. ARP entered into a tenancy agreement with QIC for the premises occupied by the Jamaica Blue Castle Towers coffee shop for a term commencing 15 September 2017 and ending 28 February 2018; 2. ARP operated the business known as Jamaica Blue Castle Towers from 15 September 2017 to 28 February 2018 and in doing so used the Jamaica Blue name; the Jamaica Blue logo; the Jamaica Blue franchise system; logged daily sales on the Jamaica Blue point of sale system; and responded to customer complaints that were made to Jamaica Blue and then communicated to ARP; 3. Mr Pearson was a director of ARP during this period.
After 16 September 2017, Jamaica Blue Castle Towers continued to operate without the proposed new, short term franchise agreement being signed. There was negotiation and disputation over the precise terms of the documentation for the short term franchise agreement over the following months.
On 17 October 2017, Michael Bran, Senior Legal Counsel with Jamaica Blue's parent company, Foodco Group Pty Ltd, emailed Mr Davidson, Mr Pearson's solicitor, saying: "We note from your email that your client intends to proceed with the short term franchise. However, given the amount of time that has passed since the documents were issued to your client we wish to finalise the matter without further delay."
On 2 November 2017, Mr Davidson emailed Mr Brand and said in his email that he confirmed that he now held "short term franchise documents executed by [his] client". These documents were signed by ARP and Mr Pearson but contained amendments that had not been agreed to by Jamaica Blue. It was not in dispute that these documents were never subsequently signed by Jamaica Blue.
The learned Magistrate also found that: 1. there was no evidence that Mr Pearson sought to extricate himself from the business or any short term franchise agreement; 2. ARP and Mr Pearson continued to operate the Jamaica Blue Castle Towers business until 28 February 2018; 3. the amendments made by Mr Pearson in the documents signed by him, and referred to in Mr Davidson's 2 November 2017 email, did not "go towards excluding or exempting [him] from being a covenantor to any liabilities of [ARP] under the short term franchise agreement"; 4. the proposed second franchise agreement reduced the net weekly revenue, earlier referred to as the royalty rate, to 3% from the previous 6% (in the first franchise agreement) and the advertising fee to 1.5% from the previous 3%; and 5. Mr Pearson had guaranteed the obligations of the franchisee from 2004 until the termination of the first franchise agreement on 15 September 2017.
The oral reasons included the following: "Even though there was no signed, guaranteed document all the correspondence appears to show that while there was a second franchise agreement [Mr Pearson] at some stage advised that there was no need for a second franchise agreement."
While this finding is not entirely clear on its face, given the issue that the Magistrate was addressing, the other findings made and what was not in dispute, I am satisfied that his Honour intended to find, and found, that the correspondence as a whole effectively involved Mr Pearson advising that, for his part, there was no need for a signed short term franchise agreement in order for ARP and him to be contractually bound to the terms under which they continued to operate the Jamaica Blue Castle Towers business from 16 September 2017 to 28 February 2018.
Those contractual terms, as found by Van Zuylen LCM, relevantly included, among other things: 1. Jamaica Blue, ARP and Mr Pearson would continue the franchise agreement for a short term on the same terms as the first franchise agreement, "albeit with substantially reduced fees" (this was a reference to the net weekly revenue, earlier referred to as the royalty rate, being 3% instead of the previous 6% and the advertising fee being 1.5% instead of the previous 3%); and 2. a guarantee by Mr Pearson of monies owed to Jamaica Blue by ARP (the reference to the second defendant at p 51 line 31 of the transcript of proceedings in the Local Court is an obvious error and should refer to the first defendant, ARP, to make sense).
The Magistrate then went on to award judgment in favour of Jamaica Blue in the sum of $63,831.05 against ARP and Mr Pearson, despite the fact that his Honour had accepted: 1. at the beginning of his reasons for judgment, [2] that the amount claimed was $61,665.03; and 2. at the commencement of the Local Court hearing, [3] that default judgment had already been entered against ARP.
Furthermore, there were no findings of fact in relation to how the sum of $63,831.05 was calculated. In particular, there were no findings in relation to the amounts due and unpaid in respect of: 1. the net weekly revenue, or royalty, fee or the advertising fee, whether on the lower rates, as found by his Honour to be applicable after 15 September 2017, or at the higher rates applicable under the first franchise agreement; or 2. any other fees, charges or amounts payable under the first franchise agreement or the subsequent short term franchise agreement, as found by his Honour.

Ground 1(a)

Ground 1(a) raises the question of whether the Magistrate gave adequate reasons for his decision in relation to the legal basis on which Mr Pearson was liable to Jamaica Blue. For the reasons given above in relation to ground 1(b), ground 1(a) also raises a question of law and Mr Pearson is entitled to appeal as of right in respect of this ground.

Submissions

Mr Pearson submitted, first, that Jamaica Blue's case in relation to the agreement that applied after 15 September 2017 was that ARP was liable to Jamaica Blue under "the Second Franchise Agreement" which was said, in the statement of claim, to be written and formed on 16 September 2017. It was further contended that Jamaica Blue was held to this pleading in closing submissions but the Magistrate did not "assess this pleaded contention" and did not, although there were no findings that there was such a written agreement formed on 16 September 2017, provide any reasons for how this was not fatal to Jamaica Blue's case, as Mr Pearson contended it should have been.
Secondly, Mr Pearson submitted that the Magistrate found there was "a second franchise agreement" without precisely explaining what that agreement was or what legal reasoning or evidence was relied upon. Mr Pearson pointed to a number of matters said to be ambiguities and inconsistencies in the reasons including: that it was suggested that Mr Pearson did not seek to extricate himself from "the short term franchise agreement" but it is also stated that that "agreement" was still the subject of negotiations; that the offer and acceptance founding the finding of a contract were not identified; and that the finding "the defendant at some stage advised that there was no need for a second franchise agreement" suggested there was not a "second franchise agreement" but an agreement to continue the first franchise agreement.
Thirdly, Mr Pearson submitted that the learned Magistrate jumped to the bare conclusion that "on the balance of probabilities a guarantee existed which makes the second defendant liable for the outstanding monies owed to the plaintiff by the second defendant" without providing any reasoning as to how that conclusion was reached.
Jamaica Blue submitted that the Magistrate's reasoning was sufficiently clear and that he found that there was a further short term franchise agreement entered into, based on the parties' conduct, as identified in the reasons for judgment. In addition, it was said that Mr Pearson's executing the proposed franchise documents, which contained a guarantee and not seeking to extricate himself from the arrangements as well as the fact that the amendments he made to the proposed documents did not go towards excluding or exempting him from being a covenantor/guarantor, supported the Magistrate's finding that there was a relevant guarantee by Mr Pearson.
As to the pleading issue, Jamaica Blue relied upon what the High Court said in Water Board v Moustakas (1988) 180 CLR 491 at 497; [1988] HCA 12 as to the proper approach to whether a point was taken at trial and submitted that it was apparent from the way the parties conducted the hearing at first instance that Jamaica Blue was not limiting itself to a written agreement entered into on 16 September 2017. This was said to be so since: Jamaica Blue's evidence traversed matters relevant to formation of a contract after 16 September 2017; its submissions made it clear that the case was being put on the basis of an agreement with assent manifested by conduct in the period from 16 September 2017 to 28 February 2018 and was not limited to a written document on 16 September 2017; Jamaica Blue relied expressly on Dare v Pulham (1982) 148 CLR 658; [1982] HCA 70; Mr Pearson's submissions in the Local Court engaged substantively with Jamaica Blue's submissions in these regards; and no unfairness or prejudice, if Jamaica Blue was allowed to depart from the pleadings, was raised at the time, or now identified by, Mr Pearson.

Consideration

The principles in relation to the giving of reasons in judicial proceedings such as the present have been referred to earlier in these reasons. The content and detail required in reasons for judgment vary according to the nature of the jurisdiction which the court is exercising and the particular matter the subject of the decision: DL v The Queen at [32].
Further, when considering the adequacy of reasons in a case such as the present, it is important to bear in mind the comment of Basten JA in Resource Pacific, at [48]: "When an appellate court is invited to find that a trial judge provided inadequate reasons, it is important to understand the nature of the function being invoked. It is not the function of an appellate court to set standards as to the optimal, or even desirable, level of detail required to be revealed in reasons for judgment. Rather it is to determine whether the reasons provided have reached a minimum acceptable level to constitute a proper exercise of judicial power. Transparency in decision-making is an important value, but it is not cost free, and may involve separate parameters of quantity and quality."
Dealing first with the contention that the Magistrate did not address the question of whether there was a written franchise agreement formed on 16 September 2017, as pleaded, and did not give any reasons explaining why the absence of any evidence of such an agreement was not fatal to Jamaica Blue's case, I am of the view that there is a simple explanation for this. The explanation is that this was not the way in which the case was conducted before the Local Court and, as a result, the Magistrate did not perceive, nor was there, any need to deal with such an allegation in his reasons.
Jamaica Blue, at the Local Court hearing, did not contend that there was a written agreement, including a guarantee by Mr Pearson, made on 16 September 2017, as pleaded. The actual basis upon which the case before the Local Court was argued is indicated by the following: 1. paragraphs 6 to 11 of the Statement of Agreed Facts and Issues, which contained matters principally, if not exclusively, relevant if the case was not confined to a written "second franchise agreement" made on 16 September 2017 as pleaded; 2. the evidence concerning the operation of the Jamaica Blue Castle Towers coffee shop between 16 September 2017 and 28 February 2018, which was admitted without any objection on the basis of that it was irrelevant because the evidence went beyond the pleaded case concerning a written "second franchise agreement"; 3. all of the documentary evidence, admitted without relevant objection, of communications between the parties between 16 September 2017 and 28 February 2018 concerning: 1. the basis upon which ARP and Mr Pearson continued to operate the Jamaica Blue Castle Towers coffee shop during that period; and 2. negotiation of a written further short term franchise agreement for the period from 16 September 2017 to 28 February 2018; 1. the cross examination of Mr Pearson which was not objected to and covered matters relevant if the case was not confined to such a written "second franchise agreement" as pleaded including: the conduct of the business between September 2017 and February 2018; the repayments made by Mr Pearson during that period; and what Mr Pearson described as "the reason we extended the franchise" (at T26.11-21); 2. the submissions made on Jamaica Blue's behalf at T29.46 - T30.15, T34.6-24, T36.20-25, T37.3-6, T37.49 - T38.7 and T39.27-32 which were plainly inconsistent with a case limited to a written agreement made on 16 September 2017 and which effectively put the case on the basis that all the conduct of the parties from September 2017 to February 2018, viewed objectively, established that a contract or contracts existed between the parties and provided the basis for inferring the terms of the contract or contracts; 3. Mr Pearson's solicitor's submissions at T40.38-41 which indicated that he understood that Jamaica Blue was submitting that there was a contractual arrangement arising out of, or accepted by, conduct; 4. The learned Magistrate's putting to Mr Pearson's solicitor, at T43.50-44.29, the substance of the basis upon which the matter was eventually decided and the solicitor's response, which did not involve submitting that such an approach was not open because it went beyond the pleaded case; and 5. Jamaica Blue's solicitor raising (at T44.31-38) Dare v Pulham and arguing that the case had been run and evidence led on a different basis from that pleaded and Mr Pearson's solicitor not making any subsequent submissions on that point but making submissions with respect to acceptance by conduct (at T47.10-18).
From that material, it is apparent that the parties did not treat the pleading in relation to the alleged contract under which ARP continued to operate the Jamaica Blue Castle Towers coffee shop or the contract under which Mr Pearson guaranteed ARP's obligations as defining the issues at the hearing. The case was fought on the basis that Jamaica Blue's case included that the relevant agreement and guarantee were made or accepted by conduct.
In all these circumstances, there was no need for the Magistrate to address, in his reasons for judgment, the question of whether there was a written agreement formed on 16 September 2017. Nor was there any need to explain why the absence of any evidence of such an agreement was not fatal to Jamaica Blue's case. The Magistrate was not required to address a case that was not put. The appeal based on this aspect of ground 1(a) should be rejected.
As to the Magistrate's reasons for his conclusions that there was a further, short term franchise agreement for the period from 16 September 2017 to 28 February 2018 between ARP, Jamaica Blue and Mr Pearson which included Mr Pearson agreeing to guarantee ARP's obligations, in my view the reasons did meet the minimum acceptable level in the circumstances.
In the present case, the amount involved was not large, there were few, if any, relevant factual matters in serious dispute, the hearing was not lengthy, significant agreed factual matters were recorded in the Statement of Agreed Facts and Issues, the submissions dealt with the question of whether there was a franchise agreement and a guarantee entered into by conduct succinctly, referring to authorities concerning the formation of contracts by conduct, and the reasons for judgment were oral. These circumstances mean that elaborate and detailed reasons for judgment were not necessary to meet the required minimum standard.
Further, this was a case where the contractual arrangements were found to have been entered into based upon the conduct of the parties. The Magistrate's relevant conclusions were: "There was a clear arrangement of contract between the parties to continue the franchise agreement for a short term on the same terms of the first franchise agreement, albeit with substantially reduced fees and repayment for monies outstanding on the first franchise agreement. The Court is satisfied from the conduct of the parties and the correspondence between the parties around the time of the termination of the first franchise agreement, the negotiations over a short term franchise agreement, that on the balance of probabilities a guarantee existed which makes [Mr Pearson] liable for the outstanding monies owed to [Jamaica Blue] by [ARP]".
The Magistrate, at this point in his reasons, referred to and relied upon as the basis for his conclusions: the "conduct of the parties"; "the correspondence between the parties around the time of the termination of the first franchise agreement" and "the negotiations over a short term franchise agreement". These had all been referred to earlier in his reasons. In my view, all of the relevant matters supporting his conclusion were adequately identified.
That this is so is demonstrated by the statement of the relevant facts set out above, which is drawn from the Magistrate's reasons for judgment, taking into account the Statement of Agreed Facts and Issues signed by the parties and the documents referred to in the reasons. Thus, the relevant facts upon which the Magistrate relied were adequately identified.
In addition, the Magistrate referred to and explained his understanding of some of the applicable legal principles to be derived from the authorities to which he was referred. In particular, his Honour referred to the relevant principles in Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61, explained his understanding of Jamaica Blue's case and applied the principles to the facts as they were found. The learned Magistrate also referred to and distinguished Boss Constructions (NSW) Pty Ltd v Rohrig (NSW) Pty Ltd [2019] NSWSC 374. Although his Honour did not refer to all the applicable principles, his reasons and conclusion are consistent with the law as explained in Heydon on Contract [4] at [2.110] as follows: "It may also be hard to apply offer and acceptance analysis when the actual negotiations took place years before any dispute broke out between the parties and the parties have behaved as though there was a contract. It may be impossible to identify any precise offer or any precise acceptance or any precise time or place of acceptance. Yet the court can draw a circumstantial inference from the behaviour of the parties that a reasonable person in the position of the offeree at some point would have understood that the offeror had expressed willingness to contract on specified terms with the intention that those terms would become binding on the acceptance by the offeree, and that thereafter the offeree did something which a reasonable person in the position of the offeror would have seen to be a final and unqualified expression of assent to the terms offered. It is necessary to avoid the fallacy of inferring from conduct which is not inconsistent with the contract the conclusion that conduct actually took place because of the contract. Thus, '[c]are must … be taken not to infer anterior promises from conduct which represents no more than an adjustment of the parties' relationship in the light of changing circumstances'. '[C]ontracts are not to be lightly implied'. The court 'must … in most cases, be able to answer the question … "what was the mechanism for offer and acceptance?"' Where this inferential reasoning is employed, the law is relying more than it usually does in the offer and acceptance field on the actual intentions of the parties. Usually what the parties actually think and what the respective reasonable persons in the position of the parties would think coincide. It is only in exceptional circumstances that the triumph of the objective theory means that the parties are held to a contract which one, or the other, or both, did not intend or believe to have been made. Where the existence of a contract is inferred from the conduct of the parties, the court is assessing what would flow from the perceptions of reasonable persons in the respective positions of the offeree and the offeror. But that assessment is confirmed by the behaviour of the parties. Consider a party who engages in contractual negotiation, later finds it convenient as a matter of self-interest to deny that a contract was made, and behaves in various ways suggestive of performance of that apparent contract before it was convenient to make that denial. That party is in effect, by behaving in those ways, making repeated admissions against interest by conduct that there was a contract. The parties 'actions and conduct before the inception of a controversy [are] of much greater weight than what they said or did after a dispute arose'. …" (footnotes including the authorities for the propositions set out have been omitted).
The Magistrate's findings as to the relevant conduct, correspondence and negotiations together with his references to the applicable principles explain the basis for his conclusions as to the existence and terms of the agreement or agreements between Jamaica Blue, ARP and Mr Pearson. To my mind, they are sufficient to reach the minimum standard required of reasons for judgment, given the circumstances of this case.
Accordingly, this further aspect of ground 1(a) has not been made out.

Conclusion on ground 1(a)

For all of these reasons, the appeal based on ground (1)(a) should be rejected.

Ground 2 - error in finding Mr Pearson liable to Jamaica Blue

Mr Pearson's ground 2 was that Van Zuylen LCM erred in finding that Mr Pearson was liable to Jamaica Blue in contract.
Whether or not ground 1(a) should be upheld and the Magistrate's reasons found to be inadequate, ground 2 in effect raises for consideration whether on the findings, such as they were, his Honour nonetheless erred in finding Mr Pearson was contractually liable as a guarantor of ARP's liabilities to Jamaica Blue arising after 15 September 2017.
The question whether or not such a contract between Mr Pearson and Jamaica Blue has come into existence is a question of mixed law and fact: Loudoun-Shand v Jadasi Investments Pty Ltd [2007] NSWCA 316 at [42] (Tobias JA, Hodgson and Basten JJA agreeing).
In these circumstances, s 40 of the Local Court Act relevantly provides: "(1) A party to proceedings before the Court sitting in its General Division who is dissatisfied with a judgment or order of the Court on a ground that involves a question of mixed law and fact may appeal to the Supreme Court but only by leave of the Supreme Court."
As a result of s 40(1), Mr Pearson requires leave to appeal in respect of ground 2 to the extent that it raises a question of mixed law and fact.
Generally, if leave to appeal is required, it is granted where there is an issue of principle, a question of general importance, or an injustice which is reasonably clear, in the sense of going beyond what is merely arguable: Lee v New South Wales Crime Commission [2012] NSWCA 262 at [12]; (2012) 224 A Crim R 94; Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 at [46].
In the specific context of appeals under s 40(1) of the Local Court Act, Beech-Jones J observed in Café Du Liban Pty Ltd v Bespoke Garage Pty Ltd [2017] NSWSC 779 at [4]: "[t]he considerations affecting a decision to grant leave to appeal under s 40(1) include whether any reason has been shown to doubt the correctness of the impugned part of the Local Court decision and the desirability of avoiding the parties incurring further costs and expense in litigating the matter if it is remitted to the Local Court. ..."
In the present case, it does not appear that ground 2 raises an issue of principle or a question of general importance. For this reason, Mr Pearson relied upon there being "serious injustice suffered by [Mr Pearson] and the errors being beyond 'merely arguable'" as the basis for leave.
In his written submissions, however, Mr Pearson contended that questions of law were also raised in relation to ground 2. [5] To this extent, Mr Pearson may appeal as of right, under s 39(1).

Submissions

In relation to ground 2 Mr Pearson, in substance, submitted that the Magistrate erred on three bases: 1. in law in failing to find that there was no agreement between ARP and Jamaica Blue, as pleaded, and consequently also erred in failing to find that, after 15 September 2017, there was nothing that Mr Pearson guaranteed; 2. in law in failing to find that there was no guarantee capable of founding the liability of Mr Pearson because Mr Pearson's offer to provide a guarantee "under this Agreement" (that is, the unsigned proposed second franchise agreement), even if it was accepted by conduct, did not include an offer of a guarantee in relation to the agreement between ARP and Jamaica Blue as found by the Magistrate; 3. in law, or by an error of mixed fact and law, in concluding that Mr Pearson was liable to Jamaica Blue under a contract, given the findings made by the Magistrate.
Jamaica Blue submitted that the pleading point should be rejected for the reasons already given above. It was also said that Mr Pearson's guarantee of ARP's liabilities after 15 September 2017 could be inferred from conduct and did not involve construing the offer of a guarantee found in the written documentation signed by ARP and Mr Pearson but not signed by Jamaica Blue. In this regard, Jamaica Blue relied upon Civic Video Pty Ltd v Yogies Pty Ltd [2011] NSWSC 1107 at [44].

Consideration

The first basis relied upon by Mr Pearson, namely that the agreement found by the Magistrate was not the agreement pleaded in the statement of claim, has already been touched upon when dealing with ground 1(a). For the reasons given above, I am satisfied that the case, as it was conducted in the Local Court by the parties, was not limited to a written agreement and guarantee dated 16 September 2017. Accordingly, it was not an error to find that ARP's liability arose under a contract that was not a written agreement dated 16 September 2017.
The second basis relied upon by Mr Pearson proceeds, in my view, upon a false premise. The Magistrate did not hold that the guarantee was strictly in the terms of the form of the franchise agreement signed by Mr Pearson and referred to in Mr Davidson's email of 2 November 2017 to Mr Brand, mentioned in the summary of factual findings set out above. Consequently, the proper construction of the words "under this Agreement", appearing in that signed form of agreement in relation to the guarantee is not relevant. Nor is any error on the part of Van Zuylen LCM demonstrated in this regard.
The third basis relied upon by Mr Pearson seeks, in effect, to challenge the principles applied by the Magistrate and his conclusions on the application of those principles to the facts as found. In my view, his Honour's conclusions were in accordance with the principles summarised in the passage from Heydon on Contract quoted above. The Magistrate held that Mr Pearson's conduct and communications amounted, in effect, to "making repeated admissions against interest by conduct that there was a contract" and that the contract included a guarantee by him of ARP's obligations arising under that or the related contract under which ARP continued to carry on the business of the Jamaica Blue Castle Towers coffee shop as before. I do not accept that the circumstances in Civic Video Pty Ltd v Yogies Pty Ltd are entirely on all fours with what occurred in the present case. Nonetheless, that decision does not detract from the principles expressly and implicitly relied upon in the present case. In my view, there was no error of law in this regard.
That there was an agreement between Jamaica Blue, ARP and Mr Pearson under which the Jamaica Blue Castle Towers coffee shop continued in business for five and a half months after the first franchise agreement was terminated, even though there was no formal, written agreement, was effectively acknowledged in par 74 of Mr Pearson's written outline of submissions of 14 October 2019 where it was said: "While the parties had agreed in principle to a short-term franchise agreement, the form of that agreement was in the process of ongoing negotiations."
The Magistrate in substance concluded that both parties' conduct in giving effect to this agreement in principle, without a formal, written agreement being finalised, established that the agreement in principle was intended, viewed objectively, to be binding on the parties. Further, Mr Pearson's expressed willingness to give a further guarantee, his participation in carrying on the business after 15 September 2017 on the same basis as previously and the absence of any evidence that he sought to extricate himself from giving a guarantee as he had done previously provide adequate support for the conclusion that the agreement in principle included a guarantee by Mr Pearson of ARP's liabilities to Jamaica Blue.
In these circumstances, I am not satisfied that Mr Pearson has demonstrated that the Magistrate made any error of law, as contended under ground 2.
Further, the factual findings of the Magistrate were not challenged in these proceedings. The conclusions reached when the relevant principles were applied to the facts as the Magistrate found them, which have been summarised above, were clearly open. To the extent that ground 2 involves a question of mixed law and fact, there was no "serious injustice" to Mr Pearson which was beyond what was merely arguable and which was such as would warrant a grant of leave to appeal.
For these reasons, to the extent that ground 2 involved a question of law, I would dismiss the appeal and, to the extent that it involved a question of mixed fact and law, I would not grant leave to appeal.

Ground 3(b) - error in calculation of extent of liability

Ground 3(b) effectively involved the contention that in awarding judgment in the sum of $63,831.05 the learned magistrate made an error by calculating the royalty fee and the advertising fee payable by ARP for the period from 16 September 2017 to 28 February 2018 by reference to the higher rates applicable under the first franchise agreement rather than the lower rates as found by the Magistrate when he stated: "There was a clear arrangement of contract between the parties to continue the franchise agreement for a short term on the same terms of the first franchise agreement, albeit with substantially reduced fees and repayment for monies outstanding on the first franchise agreement." (emphasis added)
The difficulty with this ground of appeal is that there are no findings of fact upon which the conclusion as to the amount owed by Mr Pearson was said to be based. In addition, as contended under ground 1(b), which should be upheld, the Magistrate failed to give adequate reasons as to the basis on which Mr Pearson was liable to Jamaica Blue in the sum of $63,831.05, which is conceded to be erroneous.
In these circumstances, it is not possible to determine whether the Magistrate made the error contended under ground 3(b), even though it is accepted that the sum of $63,831.05 was wrong and the appeal on grounds 1(b) and 3(a) should be upheld.
Accordingly, the appeal based on ground 3(b) should be rejected.
It also follows from the absence of any findings of fact in relation to the calculation of the sum due to Jamaica Blue from ARP for the period from 16 September 2017 to 28 February 2018, which was guaranteed by Mr Pearson, that this Court cannot determine what the amount of the judgment should have been.

Determination of appeal

Because of the concession that the amount of the judgment awarded in the Local Court was erroneous, the appeal should be upheld on grounds 1(b) and 3(a). The appeal based on grounds 1(a), 2 and 3(b) should be rejected for the reasons given above. It follows that Mr Pearson is liable to Jamaica Blue for: 1. $8,241.67, the amount already agreed between the parties as owed by ARP for the period prior to 15 September 2017 and guaranteed by Mr Pearson; and 2. the amount owed by ARP to Jamaica Blue in respect of the period from 16 September 2017 to 28 February 2018 and guaranteed by Mr Pearson.
The problem is that the correct amount for the latter period cannot be calculated or determined based on the facts as found by the Local Court and this Court cannot make any findings of fact in that regard, for the reasons explained above.
In these circumstances and on the bases set out in [24], the appropriate disposition of this appeal would be to set aside the judgment and remit the matter to the Local Court for determination in accordance with the Court's directions, under s 41(1)(c).
This would, however, involve the considerable expense, delay and inefficiency of a further hearing in the Local Court in relation to, at least, some of the issues. This could be avoided if the parties could agree the correct amount owed by ARP for the period from 16 September 2017 to 28 February 2018 calculated using the net weekly revenue, or royalty, rate of 3% instead of the previous 6% and the advertising fee being calculated at the rate of 1.5% instead of the previous 3%.
In these circumstances, it appears to me to be preferable to give to the parties a copy of these reasons for judgment before making final orders and to allow them the opportunity to reach agreement as to the amount of the judgment in Jamaica Blue's favour which would otherwise follow from the conclusions set out above. If agreement can be reached as to proper quantification of the judgment, the Court could then make orders finally disposing of the matter without the need to remit the proceedings to the Local Court for further hearing. To facilitate this, after making orders indicating which grounds of appeal should be upheld and which dismissed, the matter should be stood over for a short period to allow the parties the time to consider these reasons and attempt to reach agreement as to the amount of the appropriate judgment.
In addition, it can be noted that the parties sought the opportunity to make submissions as to costs in the light of the Court's determination. If the matter were stood over for a short period as envisaged in the preceding paragraph, the parties could also make submissions as to costs during that period.
For these reasons, the orders of the Court are: 1. The appeal is upheld on grounds 1(b) and 3(a). 2. Otherwise, the appeal is dismissed and leave to appeal is refused. 3. The matter is stood over to a date to be fixed for the making of orders as to the further determination of the appeal and as to costs.

Endnotes

Jamaica Blue's written submissions dated 24 October 2019 par 88.
Local Court transcript T48.27.
Local Court transcript T1.32 - 50.
J D Heydon, Heydon on Contract (2019, Thomson Reuters (Professional) Australia Limited, Sydney)
See, for example, pars 83 and 84 of the Plaintiff's outline of submissions of 14 October 2019. 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: 06 December 2019

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