SK Chop Pty Ltd v Man Cave Barber Shop Rouse Hill Pty Ltd [2021] NSWSC 410 | Case summary

SK Chop Pty Ltd v Man Cave Barber Shop Rouse Hill Pty Ltd [2021] NSWSC 410 | Case summary | Zoe

[4]

The exclusion of common law remedies

The parties to any such contract if they wish to do and they do so clearly can limit or even exclude common law remedies they might otherwise have had in the event either party was in breach (Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 ("Progressive Mailing House"), Waters Lane v Sweeney [2007] NSWCA 200 ("Waters Lane"), Concut Pty Ltd v Worrell (2000) 75 ALJR 312; [2000] HCA 64 ("Concut")).
The answer to the "sole question" in Progressive Mailing House, "whether his Honour was correct in awarding damages" (at 20), depended, in part, upon whether the ordinary principles of contract law, including that of termination for repudiation of fundamental breach, applied to leases. The High Court ultimately held that it did. That is relevant presently on the basis that the tenant had resisted the award of damages on the grounds that having terminated the lease by exercise of the contractual right of re-entry, the lessor's general law right to damages was limited to damages for breaches which had already occurred at the time of re-entry. Damages for the loss of bargain could not be recovered unless the lessor could establish repudiation or fundamental breach by the lessee (per Mason J at 30). The tenant's claim was that the right to terminate on those grounds had been excluded by the terms of the lease.
This was therefore a case that turned on the proper construction of the relevant lease agreement, particularly Part 10 of the memorandum of lease. The right of re-entry was expressed to be "without prejudice to any claim which the Lessor may have against the Lessee in respect of any breach of the covenants" of the lease (at 18).
In Progressive Mailing House, Mason J (as he then was) emphasised the defendant's argument that termination clauses must be carefully construed to assess whether common law rights arising from repudiation are excluded.
In that case (at 30), Mason J noted: …it is not easy to see why the mere presence of an express power to terminate should be regarded as excluding the exercise of such common law rights as may otherwise be appropriate. It is, of course, open to the parties by their contract to regulate the exercise of the common law right to determine for repudiation or fundamental breach. But in this case the parties have not attempted to do so.
Further, (at 31) Mason J found that in this situation: Termination in the exercise of a contractual power is not an affirmation of the contract which debars the innocent party from suing for damages for breach on the ground of repudiation or fundamental breach. This is because the termination, so far from insisting on performance by the party at fault, brings to an end his obligation to perform in specie.
Justice Mason held at 32 that the grant of the right of re-entry in Part 10 did not exclude other rights available to the lessor in respect of a breach or non-performance of obligations accruing after the date of re-entry and so preserved the general law right to damages for loss of bargain. The clause did, as distinctly from the current case, explicitly preserve common law rights.
This was notwithstanding the High Court's previous comments in ShevillI that a re-entry clause under consideration in that matter which was of broadly similar effect (see Progressive Mailing House at 21-22 and Shevill at 623-624) "may…[exclude] the rights that would ordinarily flow from an accepted repudiation of the contract" (at 629).
In Waters Lane (at [166]) (per Tobias JA with whom Giles JA and Santow JA were in agreement), a question arose as to whether, having given notice, the respondents had elected to affirm the heads of agreement with the appellants and thus abandoned its common law right to terminate that agreement for fundamental breach, being the breach by the applicant of its obligations under cl.4.1.
Three issues arose with respect to this matter. The first was whether the failure by the appellants to use "all reasonable endeavours" to satisfy the conditions subsequent by the sunset date as required by the contract amounted to a breach of a fundamental term allowing the respondents to terminate the agreement under the general law (at [167]). This was answered in the positive (at [170]).
The second question (at [167]) was whether having given a notice under cl.8(2)(a) with respect to the breach of cl.4.1 and 7.1, the respondents had elected between alternative and inconsistent rights (being the right to terminate conferred by the combination of cl.8.1(b) and 8.2(b), and the right to terminate for breach of fundamental term under the general law).
On the question of election (at [171]), Tobias JA quoted the general statement of the doctrine from Sargent v ASL Developments Pty Ltd (1974) 131 CLR 634 at 641-642 where Stephen J stated: …The doctrine only applies if the rights are inconsistent the one with the other and it is this concurrent existence of inconsistent rights which best explains the doctrine; because they are inconsistent neither one may be enjoyed without the extinction of the other and that extinction confers upon the elector the benefit of enjoying the other, a benefit denied to him so long as both remained in existence… … For the doctrine to operate there must be both an element of knowledge on the part of the elector and words or conduct sufficient to amount to the making of an election as between the two inconsistent rights which he possesses… The nature of the knowledge which an elector must possess is a matter upon which the authorities are somewhat at variance. An elector must at least know of the facts which give rise to those legal rights…The extent of knowledge of relevant facts necessary for the doctrine of election to apply has been described as 'full knowledge of the material facts'.
Stephen J went on to state at 646 that "the words or conduct ordinarily required to constitute an election must be unequivocal in the sense that it is consistent only with the exercise of one of the two sets of rights and inconsistent with the exercise of the other."
Tobias JA therefore found at [178] of Waters Lane that "for there to be an election between two inconsistent rights in the present context, one such right must be to affirm the contract or insist upon its continued performance according to its terms whereas the other right must be to terminate the contract." It therefore followed that "when the choice is between the termination of the contract according to its terms or termination at common law, each involves a right to terminate with the result that neither is inconsistent with the other and the doctrine of election has no part to play" (at [178]). Tobias JA (at [179]) highlighted the comment of Mason J in Progressive Mailing House at 31 where it was stated that: Termination in the exercise of a contractual power is not an affirmation of the contract which debars the innocent party from suing for damages for breach on the ground of repudiation or fundamental breach.
Tobias JA (at [181]) also found the statement of Deane J (with whom Dawson J agreed) in Progressive Mailing House (at 55-56) of particular relevance: …A party entitled to terminate a contract for repudiation or fundamental breach may rely upon both a specific contractual right to terminate the contract and the common law right to terminate unless, as a matter of construction, the former excludes the latter…More specifically, where a contractual right to terminate for past breach and the common law right to terminate for repudiation or fundamental breach exist concurrently, the reliance upon the contract involved in the exercise of the contractual right to terminate will not preclude the recovery of damages for the loss of the future benefit of the contract by reason of repudiation or fundamental breach unless the contract expressly or impliedly so provides…[Emphasis added].
Based on this reasoning, Tobias JA (at [187]) concluded that the giving of the notice of the respondents' intention to exercise their right under cl.8.1 to terminate the agreement for material breach did not constitute an unequivocal act affirming continuation of the agreement. It could not have done other than conveyed the intention to terminate, so the respondents had not elected to abandon their right to terminate at common law for fundamental breach.
The third issue (at [167]) was whether, if there was an election by the respondents which would otherwise have the legal effect of an abandonment of their right to terminate at common law for fundamental breach, nevertheless that right was preserved by the provisions of cl.17.8 of the contract. The answer to the second question negated the need to answer this question (at [188]).
In discerning intention in a contract to exclude common law rights, "regard should be had to the 'familiar principle of construction that clear words are needed to rebut the presumption that a contracting party does not intend to abandon any remedies for breach of the contract arising by operation of law'. Thus, an express provision for termination for breach in certain circumstances may be regarded as designed to augment rather than to restrict or remove the rights at common law which a party otherwise would have had on breach." (Concut per Gleeson CJ, Gaudron and Gummow JJ at [23]).
A further case which examined the question of whether a party could limit the method by which a contract is to be terminated was Amann Aviation v Commonwealth (1990) 22 FCR 527. The case is mostly referred to on the question of damages (for which it went to the High Court), however, on appeal to the Full Court, the question of the Commonwealth's breach notice was in issue. The contract in that case contained a "show cause" process which could apply to the breach of any term of the contract (as is the case here). The Commonwealth had ignored that step in the termination process and the question was whether it was entitled to do so. The Commonwealth, in response, sought to rely on its general law rights of termination in the absence of compliance with the contractual regime, as was the case here. Ultimately, this attempt failed with the Court finding that those rights were not available (except for what would be truly a case of anticipatory breach (at 533)), and, in any event, Amann's conduct did not amount to repudiation.
Each of the three judges, however, rejected the Commonwealth's argument as inconsistent with the detailed contractual regime. The only distinction between the three was the minority judgment of Davey J who said that there might have been remaining an entitlement to rely on pure anticipatory breach: referring, in effect, to conduct or actions which expressly evinced an intention to abandon the contract.
On the significance of the "show cause" process being included in the contract, Davies J held (at 532) that: This being the agreed procedure for cancellation on breach, the Commonwealth was not entitled, of its own motion, outside the agreed procedure, to specify that a term was of the essence and to rescind forthwith for breach of that which, counsel has submitted, was an essential term going to the root of the contract.
This sentiment was echoed by Shephard J (at 544): I am satisfied that clause 2.24 provided a comprehensive procedure for the termination of the contract, at least in the circumstances which applied here, and that, except in cases of true anticipatory breach, the provisions of the common law were intended by the parties not to apply. Accordingly, the purported termination of the contract by the Commonwealth was unlawful. I should also say, although I do not think it necessary to decide the question, that, if contrary to my opinion, the common law had applied concurrently with the provisions of clause 2.24, the breaches of the contract which were relied upon by the Commonwealth did not justify it in its view that the contractor had so conducted itself as to evince an intention no longer to be bound by the contract.
Justice Burchett (at 554) found that the comprehensive regime which formed part of the contract excluded even the right to terminate for repudiation. His Honour agreed with the trial judge's assessment of the commercial bargain which had been struck which ultimately gave the Secretary the power 'after the giving of appropriate notice, to cancel the contract for a breach which would not give rise to a right to terminate under the general law' (at 554). This was an amplification of the Commonwealth's powers which was essentially 'the quid quo pro…for the fetter placed by the clause on the power to rescind for repudiation or breach of condition' and therefore meant that 'the Commonwealth [could] not justify its purported termination of the contract by alleging that the appellant's attempt to perform it amounted to a repudiation or by alleging a breach of condition or breach going to the root of the contract' (at 554).

[5]

The range of materials parties can rely on to exercise right to terminate if this power is not excluded from the contract

In Rivat Pty Ltd v B & N Elomar Engineering Pty Ltd [2007] NSWSC 638 ("Rivat") (at [57]), Hamilton J noted that there is not usually a requirement for a promisee to justify termination on the basis of any ground given at the time of election to terminate if a valid ground existed at that time. This doctrine was said to have originated in relation to actions arising from the dismissal by a master of a servant, as occurred in Shepherd v Felt and Textiles Co of Australia Ltd (1931) 45 CLR 359 ("Shepherd").
Shepherd was a case in which an employer had dismissed an employee for misconduct, citing reasons which ultimately were not established. Other reasons existed at the time of termination of employment which could have justified the same action by the employer (had it then been known), leading the High Court to hold that the employer was entitled to rely upon those other reasons for justifying the action which it took retrospectively. Importantly, the Court accepted that the employer could, in seeking to justify the actual steps it took, rely on valid but different reasons to those given at the time.
Justice Starke (at 373) noted that: The fact that the appellant's misconduct was unknown to the respondent at the time of the termination of the agreement is quite immaterial. If there was, in fact, any circumstances that existed at the time of the termination of the agreement which could have justified the respondent in so terminating it, then it may justify the termination by subsequent proof of those circumstances.
Further, Dixon J (at 377-378) stated that: It is true that the agreement between the appellant and respondents does not amount to a contract of service. But the rule is of general application in the discharge of contract by breach, and enables a party to any simple contract who fails or refuses further to observe its stipulations to rely upon a breach of conditions, committed before he so failed or so refused, by the opposite party to the contract as operating to absolve him from the contract as from the time of such breach of condition whether he was aware of it or not when he himself failed or refused to perform the stipulations of the contract. "It is a long established rule of law that a contracting party, who, after he has become entitled to refuse performance of his contractual obligations, gives a wrong reason for his refusal, does not thereby deprive himself of a justification which in fact existed, whether he was aware of it or not" (per Greer J., Taylor v. Oakes Roncoroni & Co…
This point was reiterated by Mason CJ in Foran v Wright (1989) 168 CLR 385 who stated (at 406) that: 1. It is a view that is consistent with the proposition that a party who refuses to perform a contract can justify his refusal, even if at the time of refusal he was unaware of those grounds: Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359, at pp 377-378…
This principle has been applied widely, both within the realm of employment law (see, e.g., Concut at [27]-[28] and [42]), and to contracts more generally, such as in Rawson v Hobbs (1961) 107 CLR 466 ("Rawson").
In Rawson, a termination was attempted under a contract. A letter by the Rawsons as purchasers was expressed as a formal annulment of a sale of land on the grounds that the Minister of Lands would not consent to the necessary instrument of transfer in order to fully perform the agreement. The letter claimed that the exercise of this power of annulment was made pursuant to cl.12 of the agreement but made without prejudice to any other rights the purchasers might have to apply for rescission of the agreement.
The purchasers argued that the Minister had, within the meaning of cl.12 of the contract, refused to consent to "the necessary instrument of transfer" therefore entitling them to annul the sale and recover what they had already paid to the vendors (at 480). While this notice was found to be ineffective (at 480), ultimately, Dixon CJ held that the vendors had, at the time it was sent, no intention to be bound by the contract (at 483). Therefore, the purchasers were prima facie, at the time the letter was sent, "entitled to treat themselves as discharged from the contract" (at 483).
The case of Carr v JA Berriman Pty Ltd (1953) 89 CLR 327 also continued this line of reasoning. In this case an owner had engaged a builder to undertake certain works to his property. The builder then purported to terminate the contract with a notice containing no caveat as to reliance on common law remedies or clarifying that termination was done without prejudice to these remedies. This notice was ineffective, because the clause it relied on could not in any circumstances have been triggered. The question in the matter was whether a right in the builder to rescind had arisen at the time the notice was sent (at 343). This question was answered by Fullagar J (Dixon CJ, Williams, Webb and Kitto JJ in agreement) in the positive. It was held that "a reasonable man could hardly draw any other inference than that the building owner does not intend to take the contract seriously, that he is prepared to carry out his part of the contract only if and when it suits him" (at 351). He had evinced an intention not to be bound by the contract, so that when the letter was sent it effected not a repudiation, but a lawful rescission of the contract by the builder (at 352).
As to the requirements of a notice of termination, Hamilton J in Rivat (at [22]) noted that "no great formality is required of a notice to rescind", but rather "what is required is that the notice indicate an unequivocal intention to bring the contract to an end".

[6]

The Plaintiffs' evidence

The only witness for the Plaintiffs was Mr Khorasani. He filed five affidavits, of 16 August, 25 August and 4 November 2020, 23 February and 26 February 2021.
In his affidavit of 16 August he stated that the Plaintiff has been conducting a hairdressing business since May 2017 from the relevant premises, [7].
The Defendant has never participated in the business, [10]. Previously there was a joint venture agreement, [9].
The joint venture was terminated in October 2018 at which time the Plaintiff paid the Defendant $160,000 to give effect to the termination. At the same time the parties entered into a licence agreement, [16]-[17].
The Plaintiff has at all times paid rent direct to the landlord GPT, [20].
The witness asserted the business has been profitable and successful generating gross revenue of about $600,000 yearly, [23] despite the impact of COVID, [24].
He then described the Defendant taking possession of the premises.
In his 25 August affidavit he answered the various complaints made in the alleged notice.
He denied any of the alleged breaches, [4(a)-(j)], including the alleged non- payment of monies. In particular as to the use of the EFT he asserted he cannot force customers to use the EFT. He claimed that he has one staff member on a student visa, Faisal Chughtai whose employment he understands is legal. He denied not paying staff correctly. He did concede that he owes the ATO $6000 in relation to the superannuation levy but that it was his intention to make the payment in time.
He stated that the reason he has been able to increase his revenue is because the salon is in a busy shopping centre, [5(a)].
He has direct contact with GPT and is direct contact with a number of people within the organisation, [6].
He agreed to use Lion Stirling as accountants as a result of recommendation of the Defendant, [7]-[9].
Since taking possession he has spent money on stock and fittings, [10]-[11].
He said on rent, that at no time did he receive any communication from GPT about rent, [13(e)].
He set out the discussion he had with Mr Maqbool about selling the shop, [14].
In his 3 November affidavit he stated that he had taken steps to ensure that the rent was fully paid, [7]. He also asserted that the non-payment of rent was as a result of Mr Maqbool suggesting that he would discuss a rent reduction with the landlord, [8].
In relation to superannuation he stated that he had retained Lion Stirling accountants to prepare financial statements and tax returns and as soon as the allegation of non-payment of superannuation arose he asked his new accountants to calculate what was owed, [10(f)]. He has arranged for the payment of half and intends to pay the balance as soon as possible, [10(g)].
As to workers compensation he made arrangements to pay the insurance when he discovered the issue, [12].
As to the EFTPOS he denied putting a "Cash Only" sign out at any time but his machine did have a malfunction on several occasions, [14].
He denied the other allegations about uniforms, consent to do works, the assault that took place being his fault, the failure to disclose wages, inappropriate award classification, inaccurate time sheets and pay slips and other inaccurate financial record keeping, [15]-[35].
In his affidavit of 23 February 2021, he dealt entirely with the discovery and location of documents.
In his affidavit of 26 February 2021, he dealt in much greater detail with his financial records. He confirmed his till did produce end of day reports, [3].
He believed that the cash transactions had dropped off since COVID, [5].
He denied he had not properly reported on turnover, [8].
He asserted that all employees were legally employed and that Mr Chughtai was an independent contractor and had his own ABN, [10].
He also explained the visa circumstances of other employees, [12]-[13].
The balance of the affidavit dealt with the additional chair, [15]-[22], expenses of the business, [23], the assault, [24] and the sale of products in the salon.
In cross examination, Mr Khorasani said he was not sure in 2019 that there was an award that applied to employees employed at the shop (T.26/5-15).
He was shown four reports at CB1/91 and asked whether they were daily reports but did not accept that the document was necessarily the reports for a particular day (T.27/25-26). Rather, he stated they could be for two or three days each.
He was taken to [24] of his affidavit of 16 August and suggested he had described the document as a daily record. He said he was not sure (T.29/5-10).
He said that at the end of each day he got an EFTPOS report and separately till reports which were not daily (T.31/15-30).
He was unsure about his records and what they showed. His accountant processed wage payments and sometimes he did it himself (T.36/15-30).
He used a system called Xero he thought from the very beginning to record his wage payments. He would count the number of hours and transfer the money from his CBA account (T.37/1-5).
He did not have any rosters (T.37/10-15).
He was referred to a document that suggested there was a roster but he asserted it was not true (T.39/15-40).
He asserted that his employee Mr Ramani handled the employees and did most of the calculations (T.41/20-30).
He asserted that his accountant Lion Stirling had access to all his financial materials and prepared all of his financial statements (T.42/35-45).
He has told his new accountant to make sure all the figures are correct (T.43/5-10).
He was taken to a document which he got from Xero, and it was suggested to him that the total apparently received is $575,000 (via electronic transactions), which is $40,000 greater than he declared to the ATO (T.47/20-50).
He thought about 5-10% of his takings were in cash (T.48/5-10).
He only sometimes communicated with GPT about sales figures (T.55/5-25). He said he gave them figures only when GPT asked (T.57/10-15).
He or his accountant was supplying the figures to GPT (T.60/1-5).
It was suggested to him that his reports to the ATO significantly underestimated his income. He denied such a proposition (T.63/1-5).
He asked his new accountant to investigate whether the information given to the ATO was correct. He told his accountant to make it correct (T.63/10-20).
He was shown some of his takings and it was suggested that the variations as exposed were because he intentionally shut down his EFTPOS machine, which he denied (T.64/30-45).
He accepted the EFTPOS machine went off because it was not working (T.65/10-20).
He could not recall whether the business did better in 2020 than it did in 2019 (T.73/10-15).
He agreed that during the financial year 2020 he paid himself a salary of $100,000 (T.79/15-20).

[7]

The Defendant's Evidence

The only witness for the defendant was Mr Raza Maqbool (also known as Abbas), who filed two affidavits dated 24 August and 11 December 2020.
In his first affidavit he indicated he was the sole director of the Defendant [1].
He stated there were a number of Man Cave branded barbershops, [9].
He confirmed that Man Cave is the lessee of the relevant premises. The lessee is GPT Funds Management 2 Pty Ltd. Both he and his other company Kismet Australia are the two covenantors, [11].
He set out the history of the joint venture between the parties, [14]-[21]. In particular he described the payment of the $160,000 for the termination of the joint venture, [20].
He then set out the details of the licence agreement and rental payments under it, [22]-[25].
He referred to the termination of the licence agreement and the alleged breaches, [28]-[30].
His affidavit of 11 December is responsive to a number of affidavits of Mr Khorasani.
In this affidavit he described the concept behind the branding of the Man Cave business, [14]-[23].
He described the records kept by the relevant business, [26]-[34].
The balance of the affidavit dealt principally with his beliefs about his assertions about the various breaches, [40]-[50].
Paragraphs [55] to [59] dealt principally with his beliefs information about the employees and the ATO etc.
In cross examination he agreed that he had no reason in July or August 2020 to believe that Mr Khorasani or his company would cease paying the licence fee (T.112/20-22).
He agreed that the 9 July letter was the first time a formal written complaint was ever made to Mr Khorasani about compliance with the licence (T.114/35-40)s.
He agreed that he knew that as a result of the altercation at the shopping centre the police laid charges against the other person and not Mr Khorasani (T.116/5-15).
After the 9 July letter he knew that the allegations were denied and he went past the shop once or twice and sent "mystery shoppers" (T.118/20-25).
He denied he had no interest in having Mr Khorasani change the way he was doing business (T.118/40-45).
He agreed that in about 20 months there was only one incident when an unauthorised product was sold (T.121/5-15).
He accepted that there was no specific complaint about Mr Khorasani misusing the intellectual property of the Defendant but there was a complaint about conducting a business which was bad for the brand (T.124/10-40).
Further there was no compliant about a misuse of confidential information (T.125/25-30).
He agreed that he knew in March or April 2020 about Mr Khorasani part paying the rent but did nothing about complaining until the July letter (T.126/30-50).
He denied that having realised the breach notice was defective he tried to find any possible basis upon which he could justify termination (T.129/10-20).
He agreed that he was conducting the negotiations with GPT about Man Cave and the ladies salon about rent and COVID (T.130/35-50).
He accepted that at no time during March, April, May or June did he ever receive any notification GPT was seriously considering terminating the lease because the rent was not fully paid (T.132/30-45).
He agreed that he had never asked Mr Khorasani to produce evidence of payment of workers compensation, his tax returns, or financial statements (T.134/25-50).
He agreed that he procured or obtained the letter from Lion Stirling for the proceedings (T.135/40-50).
He agreed that Lion Stirling were still his accountants (T.136/25-30).
He also agreed that he was making allegations about the tax returns but he did not know if it was false information (T.137/10-15).
He accepted that the pleadings raised the question of false tax returns and he said he understood that Lion Stirling had prepared the tax returns (T.137/40-50).
He was not sure whether his lawyers had sought to obtain any information from Lion Stirling about what Mr Khorasani had provided to them (T.138/15-30).
It was put to him that had he on a number of issues really been concerned he would have complained in writing about them (T.140/25-50).

[9]

Construction - exclusion of the common law right to terminate

It was argued that cl.3(c), 6(b) and 6(c) should be understood as providing a mechanism that covers the field. The fact that by cl.3(c) even fundamental terms require notice to be given before termination was said to demonstrate an intention that termination may only be validly effected by proper notice save for instances of insolvency. Clause 6(b) provides the requirements of a valid notice which any notice under cl.3(c) or 6(c)(i)(6) must be given in.
The Plaintiffs therefore submitted that the presence of the termination regime in cl.3 and 6 made a comprehensive termination regime disallowing the Defendant from relying on any other rights, at least in respect of breaches the consequences of which are expressly provided for in that regime. This was said to reflect a clear indication of the parties' common intention that an integral part of the licence is the 14-day notice period. This period was argued to be the one qualification for an otherwise very generous termination regime in favour of the licensor. This was contrasted with the other side of the commercial balancing act in which the licensee receives the benefit of the notice period as an integral step in any process by which he might be dispossessed and thereby lose the value of $160,000 capital purchase and the rights given under the agreement.
Furthermore, the Plaintiffs rejected the Defendant's assertion of repudiation and general law rights to terminate on the basis of breach. It was stated that whilst a party to a contract may be entitled to justify a termination based on facts which were not known at the time of termination and not relied upon as justifying the breach (per Shepherd at 377-378), this is only permissible where the terms of the contract do not exclude common law rights as to termination (Wallace-Smith v Thiess Infraco (Swamston) Pty Ltd (2005) 218 ALR 1 at 15 (per French J) and at 63-64 (per Allsop J)). The Plaintiffs accepted that clear words are required before parties will be held to have foregone general law rights, but argued that the presence within the licence of a comprehensive termination regime (which applies the clause 6 regime to breaches of each and all of the terms of the agreement, as clause 3 does) is such a case.
The Plaintiffs submitted that the contractual regime in Amann had substantial similarity to that contained within the licence at hand. The Plaintiffs relied on the majority judgment as support for the claim that cl.3 and 6 of the licence agreement represent an exhaustive regime in respect of termination for a breach, at least where those breaches are caught by cl.3 of the licence, and therefore to the exclusion of some general right. The Plaintiffs further distinguished Davey J's minority judgment from the current scenario on the grounds that here, there is no allegation of anticipatory breach.
The Plaintiffs rejected the Defendant's use of Shepherd, arguing that in that case the Court did not hold that the employer would have been entitled to justify some other action (which it did not purport to take at the time) by reference to those other grounds or reasons. The Plaintiffs argued that is what the Defendants were attempting to do in this situation. The Defendant terminated the licence for breach, relying on the cl.6 regime, but currently seeks to justify that result, being termination, on an entirely different contractual right to do so, being general law rights.
The Shepherd principle has been held not to apply where the breach or breaches relied upon are capable of remedy (Heisler v Anglo-Dal Ltd [1954] 1 WLR 1273 at 1278). In Marshall v Council of the Shire of Snowy River (1994) 7 BPR 14,447, a case concerning the termination of a lease, the Court held that where it was open to a lessor to terminate for breach or by accepting repudiation or by re-entry then, if the lessor chooses the latter, it must comply with the notice provision of s.129 Conveyancing Act 1919 (NSW) ("Conveyancing Act") and a failure to do so will not be capable of being overlooked because the alternative right of termination could have been relied upon instead.
The Plaintiffs therefore submitted that the Shepherd principle will not avail the Defendant unless the Court accepts its primary construction argument that these different rights remained available. Further, even if that argument is accepted, the principle was said not to apply here where all of the grounds relied upon even now are, or were, capable of remedy.
In relation to repudiation, it was argued that none of the breaches relied upon by the Defendant constitute conduct which can be characterised as indicative of an intention to no longer be bound by the Licence.
The Plaintiffs submitted that there is nothing contentious about the proposition that to exclude common law rights clear words must be used. However, that the terms of cl.3 and 6, construed in their contractual context, evidence a clear common intention regarding the licensor's right to terminate where termination is based (as it was here) upon a breach of any term of the licence. The breadth of cl.3 ("any laws", "deemed" etc) and the references in cl.3, 6(b) and 6(c)(i)(6) to the need for notice demonstrate that it was the parties' intention that the very extensive power to terminate given to the licensor was tempered by the obligation to give advance notice.
The Plaintiffs distinguished this situation from that of Progressive Mailing House on the grounds that unlike in that Part 10 of the lease in that case, here, there was no reservation of other rights (and the general form "waiver" clause should not be construed so as to override or contradict the express and exhaustive terms of cl.3 and 6). In Part 10 of the lease in Progressive Mailing House, being the very clause where the contractual right of re-entry was granted, the express reservation of rights provision demonstrated the limited effect of the grant of that contractual right. The Plaintiffs submitted there was nothing in cl.3 or 6 which suggested that other termination rights, beyond those granted by those clauses, remains. It was put to me that to so hold would disturb the finely balanced equilibrium of rights expressly granted and preserved by the termination regime.
The Plaintiffs also noted that they did not contend that cl.3 and 6 exclude all other common law rights arising from breach including, for instance, the right to sue for damages for any breach of the cl.3 undertakings. However, it was argued the regime does limit the scope for relying on such breaches as a basis for termination including as a basis for terminating for repudiation of, or a fundamental breach of, the licence. In this case it was submitted that notice is required.
The Plaintiffs asserted that the primary components of the licence in terms of the commercial bargain and benefit were the promises about the use of intellectual property and confidential information.
By contrast, in relation to what could justify repudiation, the Plaintiffs asserted that one approach would be to analyse the bargain and see what the respective parties were contracting for. This would involve asking what clause, if it had been missing, would cause the parties not to contract at all.
The Plaintiffs answered this question by reference to the strict reference to ownership of intellectual property and its protection. The Plaintiffs highlighted this in contrast to any potential "general motherhood clauses" concerning compliance with laws and regulations. They used the primacy of the goodwill obligations to argue that, in the scenario that the doctrines of repudiation and goodwill survived the explicit termination regime, breaches of those clauses might give rise to those rights, rather than some finding of deficiency in terms of payslips or rosters.
The Plaintiffs relied on the principles in Shevill to argue that repudiation should not be lightly found and submitted that nothing in the context of this scenario reveals a lack of willingness, readiness or ability to perform the contract according to its terms.

[10]

The form and content of the 9 July Notice

Clause 6(b) requires any notice to specify the "exact nature" of the alleged breach. That precision, the Plaintiffs submitted, could not be satisfied by a general reference to a provision in the licence not to an unparticularised allegation capable of covering any number of facts or circumstances within a broad umbrella. The term "exact nature" is therefore more demanding a standard even than that imposed by the equivalent provision in s.192 Conveyancing Act which deals with notices of breach required in respect of leases. In that section, the notice is required to "specify the particular breach relied upon."
In pursuing this analogy, the Plaintiffs noted in the context of s.192 it will not be sufficient for a notice to simply recite a reference to the provision in the lease which, it is alleged has been breached (Gerraty v McGavin (1914) 18 CLR 152 at 160). The requirements of s.192 were described by Black J in Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd (Administrator Appointed) [2018] NSWSC 1895 at [29]: The object of a notice under s 129 of the Conveyancing Act is to bring to the lessee's attention matters which have not been complied with and to allow it the opportunity to remedy the breach: Ex Parte Dally-Watkins; Re Wilson (1955) 72 WN (NSW) 454 at 456; Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 at [308]-[309]; Casquash Pty Ltd v NSW Squash Ltd (No 2) [2012] NSWSC 522 at [52]. In Macquarie International Health Clinic Pty Ltd above at [309], Handley JA observed that such a notice should alert the lessee "to the particular breaches on which the lessor proposes to rely and what the lessor requires in order to bring about a position where termination would not occur". His Honour also observed (at [323]) that such a notice must: describe the particular acts or omissions constituting the alleged breach; and the notice must indicate the acts of the tenant which the landlord would consider sufficient for the lease to continue, and upon completion of which the landlord would abandon its claim to forfeit. The standard of particulars or degree of specificity depends upon the circumstances, including the nature of the covenant alleged to be breached, the tenant's actual or constructive knowledge, and whether the landlord claims reasonable compensation.
Therefore, it was submitted that the letter insufficiently described any potential breaches by merely restating express provisions in the licence. The same complaint was made about the second necessary aspect of the notice, being that it describe what is required to be done to remedy the breach.

[14]

Availability of a Jones v Dunkel inference and the Briginshaw standard

The Plaintiffs submitted, in response to the Court's directions during the hearing, that it was open to the Defendant to obtain evidence from Mr Alam concerning matters such as the tax returns, wage and superannuation payments. Mr Alam was the accountant who produced the financial statements and tax returns for the First Plaintiff in the period prior to termination of the agreement, and was also provided with information about the wages and trading results. Further, Mr Alam could not have refused to give evidence, and according to the Plaintiffs, he did not feel constrained by concern about obligations in confidentiality (T.135/32-T.136/15) and indeed remained the Defendant's accountant.
The Plaintiffs argued that the Defendant's failure to adduce evidence from Mr Alam meant that the Court did not have the benefit of evidence which would have been relevant and which it was open to the Defendant to bring. In this situation, it was put to me that I should be slow to fill any evidentiary gap by drawing inferences where Mr Alam could have been called to answer these questions. Further, it was said that this tells against a submission that the Court should draw inferences favourable to the Defendant as to the Plaintiff's business practices when the Defendant had the power to adduce evidence on this matter.
This was supported by case law provided by the Plaintiffs. In Ho v Powell (2001) 51 NSWLR 572, Hodgson JA (Beazley JA agreeing) at [15]-[16] said: In considering the second question, it is important to have regard to the abilities of parties, particularly parties bearing the onus of proof, to lead evidence on a particular matter, and the extent to which they have in fact done so…
In Coshott v Prentice (2014) 221 FCR 450 at 469, the Court held that: [81] Thus, where the evidence relied upon by a party bearing the onus of proof does not itself clearly discharge the onus, the failure by that party to call or give evidence that could cast light on a matter in dispute is relevant to determining whether the onus is being discharged: Hampton Court Ltd v Crooks (1957) 97 CLR 367 at 371 (Dixon CJ); Shalhoub v Buchanan [2004] NSWSC 99 at [71] (Campbell J). This principle is therefore wider than that in Jones v Dunkel (1959) 101 CLR 298. As Austin J in Australian Securities and Investments Commission v Rich (2009) 236 FLR 1 explained at [440], "[w]hereas Jones v Dunkel reinforces an inference drawn against the party who has not called evidence, to the effect that the evidence would not have assisted that party's case, Blatch v Archer leads either to the drawing of such an inference, or to some other assessment of the weight of evidence, unfavourable to the party against whom the principle is applied" (emphasis added). [82] In short, the Coshott parties bore the onus of proving the trust over Robert's interest but failed to call or give evidence explaining the documents and transactions on which they rely. Yet Robert, in particular, was in the best position to explain them. This cannot be ignored when weighing the limited evidence they relied upon to support their case with all the other evidence which tended to undermine it.
The Plaintiffs also submitted that it was for the Defendant to prove the serious allegations on which their cross claim depended, rather than it being for the Plaintiffs to disprove. This was owing to the seriousness of the allegations made regarding a breach of tax or employment law which must be proved to the level of the Briginshaw standard. In deciding whether that onus has been discharged, the evidence is to be weighed according to the proof which it was in the power of one party to produce and in the power of the other to contradict.
Furthermore, the Plaintiffs submitted that the allegations as to employment issues and false disclosures to the ATO require careful scrutiny as per the Briginshaw standard. Such serious claims are not to be established by "inexact proofs, indefinite testimony, or indirect inferences' (Briginshaw at 362).

[15]

The Defendant's Submissions

The Defendant submitted, by way of its cross-claim, that as at 9 July 2020, the First Plaintiff was in breach of multiple terms of the licence. In oral submissions, the Defendant clarified some items were not pressed (see T.191-195). Those that were pressed were: 1. Cross-claim 5(c): That the First Plaintiff failed to pay superannuation to its staff members (cl.3(c)(viii) and 3(c)(xv)). 2. Cross-claim 5(d): That the First Plaintiff failed to obtain and retain workers compensation insurance for its staff members (cl.3(c)(viii) and 3(c)(xv)). 3. Cross-claim 5(g): That the First Plaintiff failed to obtain consent from the Defendant in respect of works which the First Plaintiff caused to be carried out at the Rouse Hill Man Cave store (cl.3(b)(iii)). 4. Cross-claim 5(h): That the First and Second Plaintiffs engaged in conduct at the store detrimental to the interests of and with prejudice to the Defendant and the store, and to the goodwill in the intellectual property and the store (cl.3(c)(i) and 3(c)(vii)) (noting that this was "lightly pressed", T193-18). 5. Cross-claim 5(i): That the First Plaintiff failed to disclose in the Payroll Employee Summaries submitted to the Australian Taxation Office all persons to whom payment of wages and salary were made (cl.3(c)(viii) and 3(c)(xv)). Specifically, the First Plaintiff is alleged not to have disclosed Faisal Chughtai and two other workers named Daniel and Tarek; 6. Cross-claim 5(j): That the First Plaintiff did not appropriately classify its staff according to the roles and tasks they perform in the business in accordance with the Hair and Beauty Award 2010 (Cth) ("Hair and Beauty Award") (cl.3(c)(viii) and 3(c)(xv)). Specifically, the First Plaintiff was said to have classified all workers as assistant hairdressers when they were performing duties of a qualified barber; 7. Cross-claim 5(k): That the First Plaintiff did not keep true and accurate employment records in that, inter alia, the weekly time sheets and pay slips were not accurate (cl.3(c)(viii) and 3(c)(xv)); 8. Cross-claim 5(l): That the First Plaintiff lodged BAS returns with the ATO which did not accurately record the true financial performance of the relevant quarter to which the BAS applied, specifically by incorrectly recording the correct GST to be withheld (cl.3(c)(viii) and 3(c)(xv)); and 9. Cross-claim 5(n): That the First Plaintiff failed to maintain true and accurate financial records.
In oral submissions, an additional non-pleaded allegation was identified. This was that the First Plaintiff was also in breach by reason of a failure to provide accurate information to GPT (T.194/46). The Defendant sought leave to pursue this matter, relying on its initial identification in Mr Maqbool's affidavit evidence filed 11 December 2020 (T.195/13-18).
However, the Defendant indicated in final submissions the following items from its cross-claim were not pressed (T.191-195). 1. Cross-claim 5(a): That the First Plaintiff failed to pay the weekly rental advised by the Defendant to the First Plaintiff (cl.7(a) and 3(c)(xv), see T.191/5). 2. Cross-claim 5(b): That the First Plaintiff permitted staff members who are not Australian residents and who do not hold working visas to work in the Rouse Hill Man Cave store (cl.3(c)(viii) and 3(c)(xv). Specifically, that during 2019 and 2020, the First Plaintiff permitted Mr Faisal Chughtai to work as a barber in the Rouse Hill Man Cave store. At T.191/24, the Defendant clarified that this was not pressed as it related to Mr Chughtai. 3. Cross-claim 5(e): That the First Plaintiff failed to exclusively use the preferred Point of Sale system advised by the First Plaintiff at the Rouse Hill Man Cave store and failed to ensure the EFTPOS machine remained operational at all times. Specifically, the First and Second Plaintiffs informed customers of the Rouse Hill Man Cave store that only cash was accepted on the premises despite there being a functioning EFTPOS machine, including by causing a "cash only" sign to be placed at the front of the store on multiple occasions (cl.3(c)(xiii), see T.192/33). 4. Cross-claim 5(f): That the First Plaintiff failed to ensure that all management and staff at the Rouse Hill Man Cave store dressed in the uniforms nominated by the Defendant (cl.3(c)(xiv), see T.192/33). 5. Cross-claim 5(m): That the First Plaintiff recorded depreciation in its Accounting and Depreciation Schedule of Fixture and Fittings in its Financial Statements of $121,001 when that amount was not spent on fixtures and fittings by the First Plaintiff (T.194/33).

[17]

Validity of the Breach Notice

The Defendant submitted that it complied with the obligation under cl.6(b) of the licence which requires specification of "the exact nature of the breach…and…what is required by the defaulting party to remedy the breach." It submits that it identified the nature of the breach as being failure to comply with relevant employment law, as outlined above. It further submitted that the notice identified the necessary remedial action as being to "[e]nsure that all Staff are employed within the State and Federal Laws, Rules and Regulations" (CB389).
The First Plaintiff responded to the allegation by way of letter dated 14 July 2020 (CB126), but did not seek further particulars and instead denied the allegation. The Defendant reiterated its claim that the First Plaintiff had engaged in gross contraventions of the legislative framework applicable to the employment of staff since the commencement of the business in October 2018, and that the flagrant nature and extent of those breaches (which were either known or must reasonably have been known to the First Plaintiff) must necessarily be imputed to the "reasonable recipient" in assessing the validity of the breach notice and in context mean the notice was sufficiently particularised. This is because the breach complained of is not a technical breach of a specific employment provision, but rather general non-compliance with large parts of the regulatory framework.
It was submitted that those contraventions continued until the termination notice issued on 11 August 2020 (CB119). The Defendant argued that it is clear in context that the termination notice, which had the subject line "Mancave Rouse Hill Notice of Breach of Essential Term" and made reference to the Plaintiff's 14 July 2020 letter, relied upon the earlier breach notice. The termination notice specifically notes that breach of the employment law continued (CB119), attaching a letter from the First Plaintiff's accountant at the time, Lion Sterling, that noted that to their knowledge "some employees were not compensated according to the Hair & Beauty awards [sic] of 2010" (CB544). The termination notice then reiterated that a consequence of failure to remedy breaches identified in the breach notice entitled the Defendant to termination and concluded that "we hereby formally provide your client with notice as to Termination of the licence agreement, the effect of such termination shall become in effect immediately."
There are several principles generally relevant in assessment of the validity of a contractual notice. Firstly, a notice need not be drawn with the formality of a pleading and need not specify every material fact relied upon as constituting the breach, but must capture the essence of the dispute or difference (Aura Enterprises Pty Ltd v Frontline Retail Pty Ltd [2006] NSWSC 902 ("Aura Enterprises") per Brereton J at [34], citing State of New South Wales v Austeel Pty Ltd [2003] NSWCA 392).
Secondly, assessment of the validity of the notice should be performed objectively, utilising a "reasonable recipient test" in the sense of approaching the task from the perspective of a reasonable recipient who has knowledge of the terms of the contract and taking into account the surrounding circumstances" (established in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] UKHL 19; [1997] AC 749 and applied in Australasian Performing Right Assn Ltd v Metro on George Pty Ltd (2004) 210 ALR 244; Etlis v New Age Constructions (NSW) Pty Ltd [2005] NSWCA 165; Aura Enterprises at [40]).
Thirdly, in approaching the notice, the Court should adopt a "commercially sensible construction" in which "[w]ords are therefore interpreted in the way in which a reasonable commercial person would construe them" (MLW Technology Pty Ltd v May [2005] VSCA 29 at [81]). The licence is a commercial contract and should be "given a businesslike interpretation" (Movie Network Channels Pty Ltd v Optus Vision Pty Ltd [2010] NSWCA 111 at [71] quoting McMann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at [22] per Gleeson CJ).

[18]

Termination pursuant to the common law

In the alternative to the above, the Defendant submitted that it was entitled to terminate the licence under its rights at common law as at 12 August 2020, either by reason of the First Plaintiff's conduct in engaging in a sufficiently serious breach of an intermediate term of the licence (being subcl.3(c)(viii) and 3(c)(xv) (CB149-150), or its repudiatory conduct in demonstrating that the First Plaintiff only intended to perform the licence in a manner substantially inconsistent with its obligations. These allegations are found at paragraphs 9 and 10 of the cross-claim and reflect the same conduct particularised in paragraph 5 of that claim (see T.195/38).
These rights can be classed into three categories: non-compliance by the First Plaintiff with respect to its obligations to its staff; non-compliance by the First Plaintiff with respect to its reporting obligations to the ATO; and non-compliance by the First Plaintiff with respect to its obligations as a sublessee under the lease taken out by the Defendant.
The Defendant highlighted in its oral submissions firstly that there was no expressed identification in the licence that common law remedies are removed or excluded and, in the absence of clear words rebutting the presumption they were retained, this cannot be disregarded.
Secondly, it was put to me that there was some indication in the licence itself that common law remedies are retained (cl.14). The Defendant argued this was a general clause that was not confined on its application. It refers to a party's failure or delay to exercise a power or right to operate as a waiver of that power. A right is defined very broadly in the licence to include a legal, equitable, contractual, statutory or other right. This, the Defendant submitted, would include common law rights.
In making this argument, the Defendant strongly rejected the Plaintiffs' assertion that a construction of the licence that the parties retained their common law rights would result in "some different, undefined regime more generous to the licensor and more onerous on the licensee" (T.209). It was instead submitted that the benefits and disadvantages of that regime would fall equally on both parties.
The Defendant stressed that repudiation is a qualitatively different doctrine to termination for fundamental breach, and that the Plaintiffs did not identify any specific language in the licence on which they relied to ground their contention that it was also intended to be excluded. Rather, the Defendant argued that this was a situation where the facts allow a party to terminate at common law by reason of fundamental breach and also for repudiatory conduct. It was submitted that this does not alter whether on a proper construction of the licence, it excludes both forms of common law termination.
The Defendant relied on Amann as support for the proposition that repudiation and breach of a fundamental term are often of a fundamentally different character. In this context therefore one could breach a fundamental term and here the fundamental term is defined as almost every condition under the licence. Repudiation, on the other hand, was said to be by its nature much more extensive, significant and severe.
The necessary implication to find that certain rights are excluded from a contract are different with respect to the exclusion of the common law right to breach for fundamental right and for repudiation. In Amann, Burchett J found (at 553) that the implication as to the exclusion of repudiation arose inter alia from the use of the words "fails to carry out the Contract". In that case, Shepherd J (at 544) found that the language of the contract did not exclude "pure anticipatory breach", and Davies J appeared to consider that the language did not exclude rescission for either anticipatory repudiation or repudiation by conduct, but did exclude a common law right of termination for fundamental breach (at 532-533).
The Defendant therefore argued alternatively that the conduct of the First Plaintiff, taken as a whole, amounts to a repudiation, because in effect, it shows that the First Plaintiff was unwilling to engage in its principal obligation under the licence, which is to preserve and protect the goodwill of the Defendant.
The Defendant argued that the purpose of the licence was to grant to the First Plaintiff a non-exclusive licence to use the Defendant's intellectual property (the "Mancave" branding) (cl.2(a) and 3(a)), subject to the protection of the Defendant's goodwill and reputation attaching to that branding (cl.3(b), 3(c) and 5(a)).
It was submitted that the First Plaintiff's conduct in mistreating its employees and / or underreporting its income to the ATO carried with it significant reputation risk for the Defendant, rendering that conduct a breach of cl.3(c)(viii) of the Licence. The Defendant argued that the terms of the licence contemplated conduct such as that being sufficient (failing remediation) to warrant termination.
The Defendant further submitted that the First Plaintiff's failure to correctly report trading turnover to the lessor, GPT, failure to pay the rental due under the lease, and making of alterations to the shop premises without prior approval caused both reputational and financial risk to the Defendant in its roles as a business partner of GPT and its position as guarantor under the lease. That conduct it is alleged constituted a breach of cl.3(c)(xv).
It was submitted that these matters taken either individually or cumulatively comprise sufficiently serious breaches of intermediate terms, or alternatively demonstrate an intention by the First Plaintiff to only conduct its affairs in a manner substantially non-compliant with its obligations under cl.3(c)(viii) and 3(c)(xv), obligations which affected the reputation of the Defendant, going to the root of the contract.
Therefore, it was put to me by the Defendants that the question ultimately turns on a construction of the licence and whether, read as a whole, it ousted the parties' common law rights. To do so would require identification of such intention in the licence which would have to arise by implication in the absence of express words to that effect.
The Defendant submitted that ultimately the construction arrived at by the Court in Progressive Mailing House was directly consistent with the construction urged by the Defendant in this case. That is, that the licence allows (subject to adherence to the termination mechanism in cl.6(b)) for termination of the licence even for what might be objectively minor breaches of its terms. However, that mechanism does not on its proper construction preclude the parties from relying on their common law rights, which nonetheless must be construed in accordance with the contractual obligations identifiable in the licence, and are activated dependent on the severity of the breach in question.

[19]

The alleged breaches: Non-compliance with employment obligations

The Defendant submitted that the First Plaintiff failed to comply with a wide variety of obligations, but that the Defendant is not required to demonstrate the non-compliance was intentional. Rather, the non-compliance was said to have risen to the level of a sufficiently serious breach of an intermediate term of the licence (cl.3(c)(viii)), or amounts to an intention on the part of the First Plaintiff to only conduct its affairs in a manner substantially non-compliant with its obligations under the licence to act in a lawful manner and preserve the Defendant's goodwill and reputation, by reason of the sustained and widespread nature of those breaches.
The Defendant argued that the only document in evidence recording payments of superannuation to identifiable employees only related to five employees (CB601) - Mr Khorasani, Ms Rahmani, Mr Close, Mr Weeden and Mr Prakash. This was notwithstanding that "all records relating to any superannuation paid by the first plaintiff in the Period" were discoverable and all of the Plaintiffs' documents had been tendered. There were 25 other individuals identified as employees over that time, however, no records have been discovered or tendered showing any payments of superannuation to 12 such persons identified by the First Plaintiff's records as "employees". The Defendant noted it was also likely that superannuation contributions were owed to contractors.
The Defendant submitted that an inference arose that superannuation payments had not been made to a number of employees based on the lack of documents showing payments, Mr Khoresani's evidence that he was awaiting invoices from his accountant in order to make payments (T.94/26-30, T.95/1-18), the evidence of late payments to some (but not all) employees (CB601) and the legislative requirement to provide superannuation guarantee statements where superannuation payments were delayed (Superannuation Guarantee (Administration) Act 1922 (Cth) s.33).
The Defendant also argued that the First Plaintiff was required to comply with the terms of any applicable Modern Award and that failure to do so where an award "applies" is a punishable offence under the Fair Work Act 2009 (Cth) s.539. It was stated that the Hair and Beauty Award "applies" to the First Plaintiff and its employees (ss.47(1), 48(1) Fair Work Act, cl.3, 4 Hair and Beauty Award), however, was not complied with.

[20]

The alleged breaches: Disclosures to the ATO

The Defendant pointed to "missing" payments in the wages sheet to demonstrate that the sheet discovered was in itself incomplete. On Mr Khorasani's affidavit evidence, Ms Rahmani was paid $60,000 for the FYE June 2020, while he was paid $120,000 (Defendant's written submissions at [33]). The wages sheet only shows approximately $20,000 to Ms Rahmani and $1500 to Mr Khorasani over the year, no payments to Mr Close or Mr Chemoun after 12 February 2020, and no payments at all to Mr Weeden. Mr Khorasani's oral evidence is that they each worked in the business up until the end of the financial year (T.74/T81, T.90-T.92, T.95-T.98). It was therefore submitted that the Defendant's written submissions at [33] set out approximately what the First Plaintiff's correct wage bill for the FYE June 2020 must have been, which was significantly higher than that disclosed to the ATO, raising questions as to why a legitimate business deduction was not claimed.
To support its claim as to ATO underreporting and to assess the true income of the business, the Defendant reiterated that it relied upon the only documents in evidence identifying the First Plaintiff's daily takings - the daily till reports at CB91-94, which were put into evidence by the Plaintiff at a time when no allegation of underreporting had been made, and Mr Khorasani's voluntary estimate at that time of the business' daily takings ($4000 a day over July-August 2020). It was submitted that a substantial divergence between those takings and the ATO reporting (whether taken to be in the order of approximately $535,000 or $650,000) remained, with an income based on either Mr Khorasani's estimate or the daily reports amounting to a figure conservatively calculated at a minimum of $1.2 million per year. The Defendant highlighted that the business no longer possessed any other daily reports for the period (all of which were sought in discovery, T.4/19) and on Mr Khorasani's evidence never had any system to track daily sales.
The Defendant argued that even taking into account Mr Khorasani's estimate of $4000 a day (noting that this figure is lower than the average of the daily reports proffered by him), that would require the electronic takings to average out per day at around $3500 daily (if cash comprised 10% of takings). It was put to the Court that accepting that figure to be an estimate, one would expect to see a roughly equal portion of days in the SMARTPay report with totals higher and lower than $3500 a day.
It was submitted that in reality only 12 days over the period 1 July 2019 to 13 August 2020 (when the business' locks were changed) have electronic transactions greater than $3500 (CB786, CB785, CB784, CB783, CB781, CB774, CB773). That is 12 out of 415 days. Of those 12, the majority (8 days) are in the period July 2020 to August 2020 (after the First Plaintiff was put on notice of the allegation of the deliberate disabling of the EFTPOS to increase cash takings). Over the period, the vast majority of days had takings not just less than $3500 but less than $2500 per day.

[23]

Credit of Mr Khorasani

The Defendant highlighted several issues with Mr Khorasani's evidence. On day two of the hearing, Mr Khorasani could not recollect answers to questions on 40 separate occasions. Further, his oral evidence contained a number of significant inconsistencies or implausibilities which the Defendant argued was reason for it to be given little weight. These included, but were not limited to: 1. That the First Plaintiff's wage payments depended on an "honour" system with individual employees responsible for identifying their hours worked (T.36/49-T.37/29, T.40/10-21); 2. His apparent uncertainty as to whether the reference to a "fixed roster for a 3 week cycle" contained in those employee statements was false, notwithstanding his acceptance that the business had no roster system (T.37/13-29, T.39/20-47); 3. His inconsistent evidence as to whether the First Plaintiff had a high turnover of staff in the financial year ending June 2020 - his affidavit evidence being that it was a low turnover (CB509) versus his oral evidence that it was high (T.76/50); and 4. His apparent lack of understanding of the superannuation system in Australia despite having worked here for seven years, including as an employee. This was said to be even less plausible given that he initially gave evidence that he had operated under the belief that it was paid at the end of each financial year, but amended that on being asked if the First Plaintiff had paid superannuation for the year ending June 2019 (T.94/26).
The Defendant submitted that the terms of the licence did not disclose an intention to abandon remedies for breach of contract arising by operation of the law. It was argued that the effect of cl.16 and its reference to "the exercise of a power or right" not being waived by a failure or delay to use that right suggests that common law rights were maintained (CB154), as the licence defines "right" broadly to include "a legal, equitable, contractual, statutory or other right, power, authority, benefit, privilege, remedy, discretion or cause of action" (CB156).
Further, the Defendant submitted that the obligations of the licence were effectively one way and to exclude common law rights would in effect remove the Plaintiff's ability to terminate.
Additionally, the Defendant argued that the language used in the licence was facultative ("may terminate" at cl.6(b) and "may by notice in writing" at cl.6(c)). It was said that read in context, those provisions provide a generous mechanism that the Defendant could use to protect its intellectual property, with its breadth mitigated by the need for notice and an opportunity to remedy. In that context the termination regime was said to be supplementary to rights the parties would otherwise have.
Finally, it was submitted that the Plaintiff's construction could not possibly be right because, even assuming that cl.6(b) is confined to a prescriptive code governing breaches that only fall within its ambit, the construction would suggest that any breach of law, no matter how serious, and whether capable of remediation or not, would require a 14 day notice and the opportunity to remedy prior to termination. Criminal conduct must allow for immediate termination.

[24]

Availability of a Jones v Dunkel inference

In relation to any potential evidence from Mr Alam, the Defendant submitted that a Jones v Dunkel inference in these circumstances requires as a precondition a positive factual allegation made by the plaintiffs, which the Defendant is in a position to rebut by way of calling evidence. Only then can any failure on the part of the Defendant to call that evidence allow the drawing of an inference that the evidence, if called, would not assist the Defendant.
The Defendant submitted that, assuming it establishes the figures reported to the ATO are incorrect, two factual scenarios are open to the Court: either Mr Khorasani sent or caused to be sent to Mr Alam the incorrect figures, which were then passed onto the ATO; or Mr Khorasani equipped Mr Alam with the necessary information and Mr Alam provided incorrect figures to the ATO.
The Defendant stated that in the first scenario, calling Mr Alam would not advance the Defendant's case and no inference can arise while in the second scenario, the Plaintiffs are required to put forward some positive contention that the correct information was in fact supplied to Mr Alam. The Plaintiffs did not lead such evidence. Mr Khorasani's affidavit was that he "relied" on Lion Stirling (CB596 at [10]). The Defendant submitted that such a generalised statement is meaningless without particularisation in an admissible fashion as to what the responsibilities of Lion Stirling were, and in what manner the plaintiffs actually replied upon them.
It was submitted that Mr Khorasani's oral evidence was similarly broad, made up of bland repetitions that he was reliant on his accountant and did not understand or recollect numerous financial aspects of the business. It was put to me that the plaintiffs had not led a positive case for the Defendant to rebut. Secondly, the Defendant submitted that the plaintiffs' failure to adduce evidence in chief on a matter within its knowledge makes available an adverse inference against the plaintiffs by reason of that failure (Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 per Handley JA at 419).

[25]

Consideration

When on 9 October 2018 the Plaintiff and the Defendant entered a licence agreement it was in the contextually contractual successor to a joint venture agreement. However, neither the terms of the latter nor the circumstances of its termination was it suggested were relevant to these proceedings. The first and important issue in these proceedings however concerns the construction of the licence agreement.
By recital C of the licence agreement, the Licensor (the Defendant in the proceedings) is to remain the "owner" of the business named "Mancave Barbershop" and "Mancave Barbershop Rouse Hill".
By recital E, the licence was to be a non-exclusive use of the intellectual property in the business name.
The grant of the licence was pursuant to clause 2 of the agreement and permitted the Plaintiffs to operate the business using the intellectual property. The Plaintiffs were required to make an upfront payment of $160,000 for termination of the joint venture prior to entering the licence agreement (CB157, Maqbool affidavit 24 August 2020, [20], Khorasani affidavit 16 August 2020, [16]), along with weekly licence fee of $400 which amount excluded any rental payment for the and general operating expenses of the business together with all marketing and promotional payments. I also note that the premises from which the barber shop was to be conducted is the subject of a lease between the Defendant and GPT Funds Management dated 15 May 2012. The licence expires on 14 May 2022 and the lease on the same day.
Thereafter the agreement in large measure sets out the various contractual promises of the licensee in clause 3. They are extensive in scope. Many relate to the acknowledgment by the Plaintiffs of the ownership and value of the Defendant's intellectual property and goodwill (cl.3(a) and (b)).
Clause 3(c) sets out a series of undertakings proffered by the Plaintiffs, fifteen in number. They are all couched in the most general terms but importantly the agreement states that "Failure to comply with these clauses shall be deemed a fundamental breach of this agreement entitling the Licensor to terminate this agreement unless rectified within 14 days of notice in writing to do so."
Clause 6 deals with termination. Clause 6(c) provides that either party may terminate the agreement by giving a notice in writing alleging such breach or breaches and which the defaulting party has failed to remedy with 14 days of the service of the notice. However, the notice must not only specify the "exact nature of the breach committed" but also more to the point what is required to remedy the breach.
This clause clearly requires a party intent on serving such a notice alleging such a breach to provide exact or precise details of the breach or breaches relied upon, and again with the same precision notify what is required to remedy the situation. The importance of the need for precision within the notice leading to potential termination is made obvious because of what might be described as the amplified definition of what are to be regarded as fundamental terms. The deeming provision is included to amplify those matters which might otherwise qualify as fundamental breaches.
The matters in cl.3(c) are expressed generally and in my view do no more than identify the subject matter of the potential breach or breaches rather than the precise breach itself. The notice therefore has in my view to descend to sufficient specificity so as to permit the licensee to understand what is alleged to be the "exact" breach and again in my view to be precise about what is required for its remedy so as to avoid termination if remedied in 14 days.
It is to be noted that the licensee has paid a substantial capital sum of $160,000 together with the licence fee and rental and other outgoings, although the rental bond was shared between the licensor and licensee (cl.22).
In addition the clause provides that the licensee is to be solely responsible for any loss suffered by the licensor as a result of "any" breach of the provisions of the agreement (cl.4) and is obliged fully to indemnify the licensor for any "damage or expense" the licensor may suffer as a result of a breach of the licence or for that matter any claim by any person against the licensor arising out of the exploitation of the intellectual property or the operation of the business.
I have already referred to cl.6(b) which gives either party a right to terminate. A point made in argument was that there was no real promise made by the licensor and therefore the licensee would in reality be the only one in breach. I do not I must confess fully understand the point being made. The whole purpose of the contract is for the licensor to make the intellectual property available to the licensee as promised (cl.2). In addition the licensor is responsible for the advertising and marketing programme (cl.9). The full extent of the licensor's obligations (express and or implied) was not explored in the course of argument but they clearly exist so it is not accurate to describe cl.3(b) as only referable to the licensee.
Clause 6(c) does on the other hand provide that the licensor can terminate the contract without notice upon the happening of certain events which mainly go if not exclusively to the financial wellbeing of the licensee. However, cl.6(c) does give the licensor the right to terminate for any "any default" upon the licensor giving the licensee 14 days prior "Notice" to remedy any such default. The term default is not defined but in my view although not strictly relevant here must be a default of a sort to which cl.6 is directed.
There is no issue here but that the Defendant relies upon a notice pursuant to cl.6(b).
The first way the Defendant purports to support its case on termination is that it gave notice under cl.6 (b) on 9 July 2020 (CB.2/145-146) which permitted it to terminate on 11 August 2020 (CB.1/119-120). I should in fairness note that this aspect of the case was not put with any great enthusiasm.
In addition, the 9 July letter is a rather odd one. Somewhat timidly it commences by stating that the licensee's "behaviour and management within the premises may be seen a breach of an essential term of your licence agreement". The letter then purports to identify the breaches by a series of generalised assertions and then requires the licensee to rectify what is a breach of a "fundamental term" of the agreement. The letter then purports to require the licensee to "perform" a number of actions again stated in the most general terms.
The letter never, in outlining the alleged breaches or the action required to be taken, in my view provides the "exact" nature of any the breaches by reference to any detail at all. That is (and only by way of example) no dates, details of events or the persons said to have been involved in such breaches. There is a reference to an "incident" that the licensor was investigating and which would amount to an "immediate breach" if true and correct. But again no details of any date(s) or persons are provided.
Unsurprisingly the Plaintiffs' solicitors wrote back on 14 July disputing the various assertions and requesting that any evidence to substantiate the defendant's allegations be provided (CB.1/126-127).
The letter of 11 August purporting to reply to the letter of 14 July repeats in slightly less general terms the allegations initially made and asserts that because the Plaintiff has failed to rectify the "notified breaches" and "formally" provided the Plaintiff the licence agreement was terminated "immediately".
In my view that termination notice was ineffective in law because the original notice did not comply with the requirements of cl.6(b)(1) and or (2). In other words, it failed to provide in the first instance on 9 July any details at all let alone any "exact" details of the alleged breaches. The generalised terms used in the 9 July letter gave no precise indication of the breaches and therefore exactly what was required to rectify those breaches within the 14 day period. In my view, it was incapable of being complied with at all. The purported termination therefore on 11 August was likewise of no effect.
But the next and important question is whether that is the end of the matter. The Plaintiffs say that question should be answered in the affirmative. The Defendant says that question should be answered in the negative. The correct answer depends upon whether the remedies for breach are entirely governed by the licence agreement or whether the defendant can rely upon its general law remedy provided it can demonstrate on the facts evidence of a breach of a term such as to permit the Defendant to terminate.
In the event the notice is defective, the Defendant asserts it had right to terminate under the general law. The Defendant puts its argument two ways. It says either the Plaintiff has breached a term or terms sufficient to enable the termination of the contract or the Plaintiff has by its conduct repudiated the contract such that the Defendant can accept the repudiation and terminate.
First it is accepted that whether the defendant can rely upon its general law remedies is a question of construction for there is no doubt, as I have said, a party may in theory rely upon both the termination provisions in a contract and it's general law right to do so in the appropriate circumstances.
The licence does not, as it could have, expressly exclude the licensor from relying on its common law rights. That does not of course address whether otherwise by its terms that is the appropriate construction.
The term of the agreement was for four years. There is no option as it were to extend the term of the licence. But there was a significant capital sum paid under the contract plus ongoing payments referred to above.
What is a very important provision in my view and which I consider points quite affirmatively to the common law rights of termination for fundamental breach or repudiation being excluded are the concluding words to cl.3. That makes clear that any non-compliance with any one of the nominated fifteen undertakings "shall be deemed a breach of a fundamental term of this agreement". Accepting that there is a presumption that absent clear words a party is not to be taken as having abandoned any of its remedies for breach of contract, cl.3(c) does identify all manner of conduct by way of undertakings a breach of any one of which would be sufficient to found termination. Obviously such a clause needs carefully to be scrutinised to detect whether the intention is to augment as opposed to restrict, remove or codify rights to terminate at common law. As a rule express words would be needed but usage can suffice (Modern Engineering (Bristol) Ltd v Gilbert-Ash (Northern) Ltd [1974] AC 689 per Lord Diplock (at 718)). In the absence of clear and express words in my view if the effect of the clause is to manifest such an intention as a matter of construction then so be it.
Here the type and variety of conduct to be "deemed" a fundamental breach is so extensive and pervasive as to leave in my view no discernible species of conduct which would not give rise to a right on the part of the licensor to terminate. That being so it is difficult to imagine what if any remedy there might be available as a matter of reality at common law in that regard. Properly construed I am of the opinion that objectively viewed cl.3 was intended, exhaustively to state the circumstances that could lead to a termination for fundamental breach or repudiation and as such exclude any recourse on the part of the licensor to its common law rights to termination. In addition to permit the licensor to terminate without the giving of the 14 notice to rectify would deprive the licensee of the ability to remedy any breach and lead to the consequence that the $160,000 would in effect be forfeited in its entirety.
On the above reasoning as the 9 July notice failed to comply with the requirements of cl.6 (b) the Defendant did not have a right as asserted by its 11 August letter entitled to terminate the licence. It also follows from the above that by reason of a proper construction of cl.3 and 6 that the Defendant was unable as it later purported to do, namely to rely on its general law remedies to terminate the licence without notice.
For the reasons which follow even if I am wrong about the construction of the contract and the Defendant can rely upon the general law in my view none of the breaches as a matter of fact (in so far as they are now pressed) have been made out that is either because there is insufficient evidence to sustain them or by reason of the serious nature of the allegation the breach is not to the requisite standard made out.
Although not entirely clear in some instances at least the Defendant asserts that the Plaintiff deliberately conducted itself in a particular way. For example, as to the ATO it was put directly to Mr Khorasani that he intentionally understated his income (T.63/1-5). It was also put directly to Mr Khorasani that he deliberately shut down his EFTPOS machine (T.64/31-43). The Defendant did submit it was not required to demonstrate the Plaintiff's non-compliance was intentional because the non-compliance was sufficiently serious to warrant rescission. But that is not how the Defendant conducted the proceedings, at least in relation to these allegations.
I should also deal with a point that arose in argument, namely whether the Defendant could rely upon repudiation by the Plaintiff as opposed to the Plaintiff being in fundamental breach enabling the defendant to terminate. Whilst that may be a correct analysis nothing turns on the matter here because the Defendant does not rely or point to any different conduct on the part of the Plaintiff that would lead to any different result.
That said in so far as allegations are sought to be made of the sort referred to above the Defendant carries a heavy onus. The whole thrust of the Defendant's case was that Mr Khorasani had deliberately conducted the business in each of the relevant ways asserted so as to act dishonestly towards the ATO and more to the point towards the employees. Further he failed to pay rent, was engaged in some assault and undertook unlawful building works. In my view in this case the onus which I consider the defendant bore has not been discharged (s.140 Evidence Act 1995 (NSW), Briginshaw).
The Defendant denied he did anything at all deliberately in terms of the various breaches. He accepted that on occasions he either was unaware of matters (the existence of the relevant award and or the visa requirements of employees as examples), but in any event rectified them as soon as he was made aware.
Mr Khorasani was not in my view an entirely satisfactory witness. Although English did not appear to be his first language he did not require an interpreter. Some of his answers could be construed as non-responsive even at times evasive. However not without some hesitation I accept his denials in the relevant sense.
He said, and I accept, that he used the accountants Lion Stirling as suggested by Mr Maqbool of the Defendant. He also asserted that at all times he did two things. First he supplied materials to his accountant for the purposes of preparing his tax and BAS returns. He also says he relied on Mr Alam from Lion Stirling to prepare and advise him on all financial matters including superannuation and tax in particular. It is clear Mr Khorasani had a falling out with Lion Stirling and he no longer uses them.
What is also clear is that Lion Stirling still provide accounting services to the Defendant (T.136/25-30).
Mr Alam was not called by the Defendant. Nor does it seem materials were sought to be procured from Lion Stirling which could, had they existed, shown what was supplied or not to Mr Alam which in turn could arguably have provided a basis for asserting (if it be true) what information Mr Khorasani held back. Mr Maqbool accepted that his own accountants had prepared the Plaintiffs' tax returns and he never asked Mr Khorasani to provide him with any documents at all. Further the letter tendered in the proceedings from Lion Stirling and which was critical of the Plaintiff was procured by Mr Maqbool expressly for the proceedings (CB.2/525). In the absence of the author being called I would place no weight on it.
In particular in so far as it is suggested any conduct (failure to pay the appropriate tax, or the turning off of the EFTPOS, deliberately understating his income, failure to pay under an award, failure to maintain works compensation insurance, failure to pay the correct superannuation etc), I am not satisfied the Defendant has to the requisite standard discharged its onus, given the gravity of the allegations. On the evidence I do not on balance consider those allegations made out. Although it appears that the cross-claim relating to the employment of staff without adequate visas was not pressed (see T.191/24), in any event I am not satisfied of the substance of this claim. There was no attempt to call Mr Chughtai to give evidence in relation to this matter. Similarly, while the claim relating to the failure to use EFTPOS was seemingly not pressed (see T.192/33), I was also not satisfied that any deliberate steps had been taken to turn the machine off.
So far as taxation (including BAS), superannuation, workers compensation and keeping proper and accurate financial records Mr Khorasani says in my view with some justification that he relied upon his accountant, Mr Alam to advise him and he gave him all and or by inference access to his financial records. I am not satisfied that did not occur, especially as Mr Alam was not called to say otherwise. It was not in my view unreasonable for Mr Khorasani to have relied upon his accountant for guidance and advice on such matters and I accept Mr Khorasani did just that.
As to superannuation it is not in any event factually correct to assert that no superannuation was paid or allocated. I accept the Plaintiffs' submission on this point. No complaint has it seems been made by anyone to anyone else about this item. Indeed there was evidence of some $20,000 of superannuation that had been paid (CB.2/525-526, T.202/15-43).
As to the inappropriateness of the clarification under the relevant Hair and Beauty Award. Whilst it may not have been applied strictly I do not consider the evidence really supports a clear case of Mr Khorasani doing anything deliberately. If there was some oversight the Defendant has not to my satisfaction proved how the workers should have been classified given their duties. No employee has been called to explain his or her duties or to complain of some underpayment.
As to the issues concerning rent, changes to the premises and the assault which took place at the premises. There is no evidence that the landlord has ever been concerned about any matter concerning the Plaintiff and no-one from GPT the landlord came to give evidence. It is also clear that COVID certainly complicated the matter last year and it should not be forgotten that the Defendant is the lessee under the lease and at no time did it receive any indication from GPT that it was considering terminating the lease.
At no time did GPT appear to complain about work done to the premises by adding an extra chair, nor the assault which took place. Indeed in relation to the assault the police charged a third party.
As to the particular breaches alleged I either do not find they are made out or I do not consider they provided the Defendant where they were a sufficient basis to purport to rescind.
So far as the brand of the Defendant and damage to its intellectual property, apart from self-serving material from the Defendant, there is no objective support for such an assertion.
In regard to the litany of complaints put in support of the right to terminate I am not satisfied, as I have set out above, that they are made out or are in so far as they are of sufficient seriousness to warrant termination.
I would invite parties to bring in short minutes to reflect these reasons.

SK Chop Pty Ltd v Man Cave Barber Shop Rouse Hill Pty Ltd

At a glance

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Judgment (26 paragraphs)

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Legislation Cited (5)

Cases Cited (39)