Zhang & Liu Investment Pty Ltd v Nando's Australia Pty Ltd [2023] VSC 199

2 Zhang made a number of claims against Nando's in this proceeding, including relevantly four claims for:

• (1) the costs of refurbishment undertaken at the Restaurant on the basis of misleading representations allegedly made by Nando's between April 2014 and November 2015 (the refurbishment claim, alleged in [14]-[24] of the amended statement of claim dated 3 May 2022 (ASOC));

(2) the value of Zhang's assets at the Restaurant at the end of the franchise (the asset valuation claim, alleged in [30]-[44] of the ASOC);

(3) unconscionable conduct and unjust enrichment (the unjust enrichment claim alleged in [45]-[49] of the ASOC); and

(4) the loss of gross income caused by Nando's directing Zhang, as part of its promotions from 2013 to 2021, to offer products at a discounted price or at no price to customers (the marketing and promotion claim alleged in [50]-[58] of the ASOC).

3 The asset valuation claim raised cl 18 of the Franchise Agreement. In summary, cl 18 provides a mechanism, in the event of Nando's continuing to operate the Restaurant, for the sale of assets at the Restaurant specified in that clause at a price to be agreed or, failing agreement, for fair market value to be determined by an independent valuer appointed by Nando's. Clause 18 is expressed to apply '[u]pon termination of this Agreement'. The issue is whether cl 18 only applies on termination of the Franchise Agreement by either party or also applies on termination of that agreement by effluxion of time (the clause 18 question).

4 By summons dated 30 June 2022 (amended 15 August 2022 and 16 September 2022) Nando's sought summary judgment pursuant to s 62 of the Civil Procedure Act 2010 (Vic) (the CPA) and r 22.22 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (the Rules) in respect of the four claims identified above. The application was heard before Associate Justice Efthim on 7 October 2022. His Honour delivered reasons for judgment dated 31 October 2022 (the Reasons) concluding that:

(1) the asset valuation claim had no real prospect of success with the result that the unjust enrichment claim also had no real prospect of success; and

(2) leave should be granted to re-plead the refurbishment claim and the marketing and promotion claim.

5 As to the clause 18 question, his Honour concluded that cl 18.2 of the Franchise Agreement applied to termination by the parties or termination by lapse of time.

6 These findings are reflected in paragraph one of orders made 8 December 2022 (the Orders) which entered summary judgment on each of the asset valuation claim and the unjust enrichment claim.

7 By notice dated 12 December 2022, Zhang sought leave to appeal paragraph one of the Orders pursuant to r 77.06 of the Rules. The questions in relation to the asset valuation claim at the hearing of the appeal were narrowed such that the only ground of appeal for determination was whether the Associate Justice erred in his answer to the clause 18 question (in holding that cl 18 applied both to termination of the Franchise Agreement by the parties or by effluxion of time).

8 In response, Nando's issued a notice of contention contending that there are other reasons why the judgment of Efthim AsJ should be affirmed. In turn, Zhang submitted that it sought leave to re-plead the asset valuation claim and the unjust enrichment claim as claims in quantum meruit.

9 For the reasons that follow, while I am not satisfied that the Associate Justice erred in answering the clause 18 question, in my view, the Orders made by the Associate Justice (by entering summary judgment) may work an injustice by preventing Zhang from bringing any claim to recover the value of its assets now in the possession of Nando's. As a result, I consider it appropriate to hear and determine an application by Zhang to further amend its statement of claim.

10 Before addressing the facts, it is appropriate to say something about the nature of this appeal, which was not in dispute:

(1) rule 77.06 of the Rules provides for an appeal to a single judge of this Court from a decision of an Associate Justice of the Court;

(2) such an appeal is not a hearing de novo: rather, the appellant is ordinarily required to show error (a factual, legal or discretionary error) on the part of the Associate Justice;[1]

(3) rule 77.06.09(2) provides that the Court has the power to give any judgment and make any order which ought to have been given or made, or make any further or other order as the case may require.

11 There is a qualification to [10](2) above. While an appellant is ordinarily required to show error, an appeal may succeed in the absence of error where the impugned order works an injustice: Freeman v Rabinov [1981] VicRp 52; [1981] VR 539, 547-49; see also, Weber v Deakin University (2016) 51 VR 272, 280-81 [26]-[31].

12 The relevant principles in determining an application for summary judgment made under the CPA were set out in Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd to the effect that:

(1) the test for summary judgment under s 63 of the CPA is whether the respondent to the application has a 'real' as opposed to a 'fanciful' chance of success;

(2) that test is to be applied by reference to its own language and without comparison with the 'hopeless' or 'bound to fail' tests, noting that the test under s 63 of the CPA is, to some degree, more liberal than those tests;

(3) the power to dismiss claims summarily must be exercised with caution and not exercised unless it is clear that there is no real question to be tried.[2]

13 Further, the Court retains a discretion under s 64 of the CPA with the result that, even if the Court has doubts about the prospect of success of a claim in terms of s 63, the Court may exercise its discretion under s 64 to order a full trial of the claims.[3]

14 There is one further matter to address at this time. Zhang submitted that the issues raised in relation to the construction of cl 18 are sufficiently arguable such that the Court is unable to conclude that the claim has no real prospect of success, relying upon JBS Southern Aust Pty Ltd v Westcity Group Holdings Pty Ltd.[4] As Croft J noted in that case, caution ought be exercised in determining whether a summary judgment application should be granted: this is particularly so where the case involves 'the construction of complex documents'.[5]

15 It is important to note that this application involves the determination of a question of law i.e. the proper construction of one clause of the Franchise Agreement. While noting the caution to be exercised in summary judgment applications, the courts have referred to the desirability of resolving even complex legal questions after full legal argument in such applications.[6] I refer to my comments in John Beever (Aust) Pty Ltd v Paper Australia Pty Ltd.[7] As Latham CJ said in Dey v Victorian Railways Commissioners:[8]

If, as a result of argument, the court reaches a clear decision which could not be altered by any evidence which could be adduced at the trial, then it is proper in the interests of both parties to dismiss the action instead of allowing the parties to incur completely useless expense.

16 Further, I consider it appropriate to exercise the Court's powers to grant summary judgment in cases where the Court has reached a clear view (i.e. a sufficiently high degree of satisfaction) as to the question of law, such as proper construction of a clause, where it is not suggested that view could be altered by any evidence adduced at trial.

17 This is in a context where summary judgment applications are now determined pursuant to Part 4.4 (ss 60-65) of the CPA. It is of primary importance, in my view, to bear in mind the overarching purpose of the CPA (and the Rules) in relation to civil proceedings, namely, to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute.[9] In such a case, where the legal issue for determination is in respect of undisputed facts (with no other possible relevant facts) and has been fully argued, determination on a summary judgment application gives effect to that purpose.

18 Zhang purchased the franchise business on 23 August 2011 from a third party for $2,400,000 and entered into a franchise agreement with Nando's on 28 July 2011. This franchise agreement was renewed once, resulting in the Franchise Agreement dated 6 January 2016, for a period of five years commencing 7 May 2016.

19 Clause 18 of the Franchise Agreement relevantly provides:

18.1 Upon termination of this Agreement and provided that the parties have not entered into a new franchise agreement in respect of the Franchised Business or this Agreement is not extended, then Nando's may without prejudice to any of its rights hereunder either:

18.1.1 Close the Franchised Business; or

18.1.2 Subject to the terms hereinafter set out, continue to operate the Franchised Business for its own account.

18.2 If Nando's exercises its rights to continue the Franchised Business as aforementioned, Nando's shall acquire from the Franchisee who shall be obliged to sell to Nando's all the fixtures, fittings, furnishings and equipment contained in the Franchised Business for a purchase price as agreed between the parties and failing agreement the market value shall be determined by an independent valuer appointed by Nando's and specialising in such valuations. The valuation shall be final and binding on the parties.

...

(1) it did not intend to extend the Term of the Franchise Agreement or grant a new franchise agreement; and

(2) pursuant to cl 18.1 of the Franchise Agreement, (and subject to Nando's reviewing the fixtures, fittings, furnishings and equipment at the Restaurant (the relevant assets)) it intended to continue operating the Restaurant on its own account.

21 Consequently, the Franchise Agreement expired on 6 May 2021.

22 By letter dated 24 November 2020, Nando's confirmed that it intended to continue operating the Restaurant pursuant to cl 18.1 of the Franchise Agreement and offered to purchase, pursuant to cl 18.2, the relevant assets for '$50,000.00 + GST purchase price + stock'. The 24 November letter provided that, in the absence of agreement or counter-offer, Nando's would appoint an independent valuer to value the relevant assets pursuant to cl 18.2.

23 Zhang replied by email dated 25 November 2020, rejecting Nando's proposal and suggesting the joint appointment of an independent valuer to provide a binding valuation of 'ALL the assets of the business'. No reference was made to cl 18.2 of the Franchise Agreement. It was not made clear whether this referred to the same or different assets to the relevant assets. However, it appears that Zhang may have been seeking to include the costs of capital improvements which may not fall within cl 18.2.

24 By letter dated 30 November 2020, Nando's proposed three independent valuers to determine a final and binding valuation of the relevant assets pursuant to cl 18.2. This is notwithstanding that Nando's had the unilateral right to appoint the valuer under cl 18.2. That letter stated that Zhang was required to confirm which valuer it would like Nando's to appoint by 7 December 2020. Zhang did not reply.

25 By letter dated 17 December 2020, Nando's advised that, because no response was received, it had appointed Asset Valuations Group to undertake a final and binding independent valuation pursuant to cl 18.2. By report dated 20 January 2021, Mr Paul Khoury of Asset Valuations Group valued the relevant assets at $134,610 (the Nando's valuation).

26 Nando's took possession of the Restaurant on 7 May 2021, following expiry of the Franchise Agreement on 6 May 2021.

27 Zhang subsequently brought this proceeding against Nando's and made several claims, including the four set out above. As to the asset valuation claim, Zhang alleged that:

(1) Nando's had no entitlements under cl 18 of the Franchise Agreement which applied to termination and not expiry of the Franchise Agreement (such as in this case);

(2) the correspondence described at paragraphs [22] to [25] above formed a binding agreement for Nando's to purchase 'Zhang's & Liu's assets on the [Restaurant] at a price to be determined by an independent valuer' (alleged Zhang asset agreement claim);

(3) Nando's took possession of the Restaurant and 'capital improvements, fixtures, fittings and equipment', upon the expiry of the Franchise Agreement;

(4) the Nando's valuation attributed no value to the capital improvements already made to the Restaurant when Zhang purchased it or the works carried out by Zhang at the request of Nando's between 2014 and 2015;

(5) on the basis of the Nando's valuation, Zhang contended that the value of the assets taken over by Nando's (including capital improvements) was in the sum of $372,035 (the Zhang valuation); and

(6) Nando's had 'appropriated' the assets but had not paid the sum of $372,035.

I note that Zhang did not allege that any part of cl 18 applied to the alleged Zhang asset agreement claim.

28 As to the unjust enrichment claim, Zhang further alleged that:

(1) by taking possession of the Restaurant and offering only $134,610 as reimbursement Nando's is seeking to benefit from its own wrongdoing;

(2) it is unconscionable conduct in breach of s 21 of the Australian Consumer Law for Nando's to use the assets without compensating Zhang for the development and fit out comprised in the purchase price of $2,400,00 and the refurbishment works carried out between 2014 and 2015 at a total cost of $394,626.90;

(3) for Nando's to obtain the benefit of the fit out and refurbishment works without payment to Zhang constituted unjust enrichment within the meaning of David Securities Pty Ltd v Commonwealth Bank of Australia.[10]

29 As noted above, by its amended summons, Nando's sought summary judgment in respect of the asset valuation claim and the unjust enrichment claim.

30 As to the asset valuation claim, in written submission dated 15 August 2022, Nando's contended that:

(1) Zhang's claim that the Zhang valuation ought be preferred is contrary to cl 18 which provided that a valuation prepared in accordance with that clause (i.e. the Nando's valuation) is 'final and binding on the parties';

(2) alternatively, the Nando's valuation was 'within the terms of the alternative agreement alleged' by Zhang;

(3) no attack was made on the independence of Mr Khoury in the ASOC, nor is there any basis for such an attack; and

(4) Zhang had no contractual entitlement to obtain its own valuation or seek payment of the amount of $372,035.

31 As to the unjust enrichment claim, Nando's submitted that:

(1) the claim is premised on the allegation that the payment of $134,610 for the relevant assets (being the amount of the Nando's valuation) is unjust or unconscionable;

(2) thus, if the asset valuation claim fails, it follows that the unjust enrichment claim must fail.

(1) was not obtained pursuant to the terms of the Franchise Agreement, primarily because cl 18 did not apply to termination by effluxion of time;

(2) was not obtained with the agreement of Zhang; and

(3) was not independent as the valuer was selected by Nando's without Zhang's consent.

33 However, Zhang's written submissions contended that if clause 18 applied '[t]hat leaves the question of how "market value" is to be arrived at'. Zhang submitted that, given Nando's acquired the assets with the intention of continuing to operate the Restaurant, it was necessary to consider whether the relevant market valuation was the value of the assets themselves or of the assets as part of an ongoing concern. Zhang submitted that this was a mixed question of fact or law which should not be determined on a summary judgment application.

34 As to the unjust enrichment claim, Zhang submitted that its claim was 'an alternative to, and in part dependent on' the findings in the asset valuation claim.

35 In Nando's reply submissions, Nando's submitted that, if cl 18 does apply, the only claim in the ASOC is the alleged Zhang asset agreement claim and that:

(1) there is no allegation in the ASOC to the effect that Nando's agreed to purchase the assets at the Restaurant on a 'going concern' basis and that this does not even form part of the alleged Zhang asset agreement claim;

(2) in any event, Zhang did not explain how a valuation of these assets as part of a going concern would lead to a different result given that Nando's valuation valued the assets 'in situ' as opposed to the realisable value of the goods at auction;

(3) there was no was pleaded allegation to the effect that the Nando's valuation was not independent.

36 In oral argument before the Associate Justice, counsel for Nando's submitted that Zhang had conceded that, if the asset valuation claim failed, then the unjust enrichment claim also must fail. In addition, counsel relied upon Mann v Paterson Constructions Pty Ltd[11] (Mann v Paterson) to the effect that a claim for unjust enrichment only arose in the event that there was no applicable genuine agreement (in relation to the subject matter of the claim) or where such an agreement is frustrated, avoided or enforceable.

37 In oral argument before the Associate Justice, counsel for Zhang conceded that if Zhang failed on the clause 18 question 'the whole argument falls down'.

38 In the Reasons, Efthim AsJ set out the relevant law relating to summary judgment applications under the CPA and the Rules.[12] There is no suggestion that Efthim AsJ applied the wrong principles in reaching his decision.

39 As to the asset valuation claim, in summary, Efthim AsJ found that cl 18 of the Franchise Agreement was applicable and therefore the asset valuation claim had no 'reasonable' prospects of success.[13] In respect of the asset valuation claim, the Reasons provide as follows:

[20] Paragraph 43 of the amended statement of claim pleads that the defendant agreed to purchase the plaintiff's assets on the premises at a price to be determined by an independent valuer. Particulars are given that the agreement was in writing and set out in the emails identified in paragraphs 31 to 35 of the amended statement of claim.

[21] The defendant submits that on any fair reading of the emails, even on the plaintiff's case, the agreement was for an independent valuation to occur in accordance with cl 18.2 of the 2016 Agreement. I accept that submission. It is clear from the letters referred to in paragraphs 31-35 of the amended statement of claim that the valuation was required to take place pursuant to cl 18.2, which is what has occurred. Clause 18.2 of the 2016 Agreement governs the steps to be taken by the defendant if it continued to operate the franchise business.

[22] The plaintiff submits that cl 18 of the 2016 Agreement does not apply to the acquisition of the assets because the agreement expired, whereas cl 18.2 is expressed to apply when the agreement is terminated. That submission does not assist the plaintiff because, on the plaintiff's own pleaded case, cl 18.2 is the clause upon which the assets were required to be valued.

[23] I do not accept that cl 18 can be argued as inapplicable because the 2016 Agreement did not terminate but rather expired. I note that cl 18.1 uses the words 'upon termination of this agreement and provided that the parties have not entered into a new franchise agreement in respect of the franchise business or this agreement is not extended...'. I accept that those words would not be needed if cl 18.2 was dealing only with termination by notice of termination for cause. An agreement being extended is a consequence of expiry rather than termination.

40 I note in passing that in the course of argument before me counsel for Zhang submitted that the Associate Justice made errors in paragraphs 21 and 22 of the Reasons. I am conscious this was not the subject of a ground of appeal before me. However, in light of the allegations in the ASOC and the submissions before the Associate Justice, I am unsure how the Associate Justice reached the conclusion that:

(1) 'on any fair reading of the emails [in [31]-[35] of the ASOC], even on the plaintiff's case, the agreement was for an independent valuation to occur in accordance with cl 18.2 of the 2016 Agreement';[14] and

(2) 'on the plaintiff's own pleaded case, cl 18.2 is the clause upon which the assets were required to be valued'.[15]

41 It appears that the Associate Justice may have considered that the alleged Zhang asset agreement claim was based at least in part on cl 18.2 of the Franchise Agreement. As I stated in oral argument, I am unsure if this view is correct. It is certainly not consistent with the allegations in the ASOC (set out above and which were the subject of the summary judgment application) or with the correspondence referred to in support of those allegations set out at [22]-[25]. I will comment on this further below.

42 However, for the purpose of the clause 18 question, the relevant paragraphs of the Reasons are [22], which summarises Zhang's argument, and [23] which expresses the reasoning and conclusion of the Associate Justice to grant summary judgment. At [25] of the Reasons the Associate Justice concluded that, as the asset valuation claim 'has been struck out as it has no prospects of success, [the unjust enrichment claim] will also be struck out'. However, the Orders entered summary judgment on the unjust enrichment claim and the asset valuation claim.

43 Zhang's notice of appeal filed 12 December 2022 outlines a number of grounds of appeal. It raised four issues:

(1) the Associate Justice erred in finding that on Zhang's claim, cl 18.2 is the clause upon which the assets were required to be valued;

(2) the Associate Justice erred in concluding that cl 18 applied to termination by effluxion of time ( i.e. the clause 18 question);

(4) the Associate Justice erred in striking out the unjust enrichment claim.

44 However, following a directions hearing on 7 February 2023, these were limited to the clause 18 question, namely, whether Efthim AsJ erred in holding that cl 18 was applicable in circumstances where the Franchise Agreement had expired.

45 Nando's filed a notice of contention, submitting that the summary judgment should be affirmed on the following alternative or additional grounds:

(1) the alleged Zhang asset agreement claim had no real prospect of success; and

(2) the unjust enrichment claim had no real prospect of success given the principle articulated in Mann v Paterson[16] and that Zhang had conceded before the Associate Justice that the unjust enrichment claim would follow the outcome of the asset valuation claim.

46 In summary, Zhang contends that the phrase '[u]pon termination of this Agreement' in cl 18.1 means 'upon the Franchise Agreement being terminated by one of the parties' and does not encompass the Franchise Agreement terminating by expiry of the Franchise Agreement's Term.

47 Zhang relied on the following principles of contractual interpretation:

(1) the words of a contract are to be given their natural and ordinary meaning;

(2) all words are presumed to have a purpose and not to be a mere surplusage;

(3) where different words are used, they should be ascribed different meanings;

(4) words conjoined by 'or' refer to different concepts or matters, or have different applications; and

(5) words which may bear more than one meaning are construed contra proferentem.

48 Zhang noted that, while 'expire' and 'terminate' are not defined in the Franchise Agreement, they (or their derivatives) are used in contradistinction, for example, in cl 33.2, which provides:

33.2 Should this agreement terminate or expire for any reason and Nando's permit the Franchisee to continue conducting the Franchised Business after the date of termination then without prejudice to any rights or remedies Nando's may have:

33.2.1 The Franchisee may continue to operate the Franchised Business under licence on a monthly basis;

...

49 Zhang submitted that, while the words 'expire' and 'terminate' overlap in their meaning, they are not synonymous, namely, a contract may expire by either lapse of time or the happening of a supervening event, whereas a contract may terminate by either a lapse of time or as a result of the actions of the parties.

50 In oral argument, counsel for Zhang highlighted that cl 18 occurs immediately after cl 16 (headed 'TERMINATION' and which provides only for termination by one of the parties) and cl 17 (headed 'EFFECTS OF TERMINATION'). He submitted that this context suggested that termination in cl 18 should be read as limited only to termination by one of the parties. I questioned the commercial sense in having cll 17 and 18 only apply to termination by one of the parties and not termination by expiry, given that the substance of those clauses could apply to both. Counsel replied, in substance, that the parties had chosen to refer to expiry in other parts of the Franchise Agreement but had not done so in cl 18 with the result that the Court could discern their objective intention not to refer to expiry by effluxion of time in that clause.

51 Counsel for Zhang also referred to cll 6 and 7 of the Franchise Agreement which address how a Franchisee is to deal with Nando's intellectual property rights and confidential information both during the Term of the Franchise Agreement and 'at any time thereafter': see cll 6.9, 6.11, 7.1 and 7.4.

52 I note in passing that Zhang relied in its written submissions upon the use of the words 'expire' and 'terminate' in the Competition and Consumer (Industry Codes-Franchising) Regulation 2014 (Cth) (the Code). However, that argument was not pressed in oral argument.

53 Finally, as set out above, Zhang submitted that the construction of cl 18 was not so clear that there were no real prospects of success for Zhang's construction in light of the words used, relying upon JBS Southern.

54 Nando's submitted that the phrase '[u]pon termination' in cl 18.1 merely refers to the Franchise Agreement coming to an end and is not concerned with the means by which it came to an end.

55 As to the applicable principles, Nando's submitted that:

(1) it is necessary to ask what a reasonable businessperson would have understood the terms to mean, having regard to the language used, surrounding circumstances known to the parties and the commercial purposes or objects secured by the contract;[17]

(2) the context in (1) includes the entire text of the contract as well as any contract, document or statutory provision referred to in the contract;[18]

(3) the terms of a contract must be given a businesslike interpretation on the basis that the parties intended to produce a result that made commercial sense given the evident commercial object;[19]

(4) commercial instruments should be construed fairly and broadly without being too astute or subtle in finding defects,[20] and should be interpreted in a practical and realistic way; and

(5) the contra proferentem rule is to be applied as a last resort and not applied to resolve 'any ambiguity'.[21]

56 Nando's submitted that the proper inquiry focussed on the actual words of cl 18, namely, 'termination' and not the differences between the words 'terminate' and 'expire'.

57 In this regard, Nando's submitted that Efthim AsJ was correct to find that the phrase '[u]pon termination of this Agreement and provided that the parties have not entered into a new franchise agreement in respect of the Franchised Business or this Agreement is not extended' in cl 18.1 (the proviso) is at odds with Zhang's contention that 'termination' in cl 18.1 excludes expiry by the effluxion of time. In oral submissions, counsel contended that the clauses in the proviso do not sit comfortably with a construction that this clause only addresses termination by an act of the parties. This is in circumstances where:

(1) the provision for termination with or without notice depends upon an act of Nando's alone i.e. to terminate for breach or other relevant event in cl 16; and

(2) it would be commercially unlikely that after a termination by Nando's under cl 16 Nando's would wish to extend the Franchise Agreement or offer a new Franchise Agreement to the former Franchisee.

58 Further, counsel submitted that cl 18 provides a mechanism for what happens to assets when the Franchise Agreement comes to an end. Counsel submitted that was what the Associate Justice was referring to at [23] of the Reasons when he said:

I accept that those words would not be needed if cl 18.2 was dealing only with termination by notice of termination for cause. An agreement being extended is a consequence of expiry rather than termination.

59 As to the commercial purpose of cl 18.2, counsel referred to, and adopted, the comments of the Associate Justice in [21] of the Reasons that '[c]lause 18.2 ... governs the steps to be taken by the defendant if it continued to operate the franchise business'.

60 Further, counsel referred to other clauses of the Franchise Agreement which refer only to 'termination' but where it was clear that the objective commercial purpose or intent was for those clauses to apply to termination by a party or termination by effluxion of time, namely:

(1) clause 15.2, which provides that '[t]ermination of this Agreement shall not effect [sic] the Franchisee's obligation to make payment under this Agreement for periods prior to termination';

(2) clause 17.1, which provides that '[t]ermination of this Agreement shall not release or extinguish any debt, obligation or liability of the Franchisee to Nando's which may have accrued or arisen' prior to termination; and

All obligations and agreements of the Franchisee which by their terms or by reasonable implication are to be performed in whole or part after the termination of this Agreement shall survive such termination and shall not merge.

61 Counsel submitted that it could not seriously be contended that these obligations only applied to termination by an act of a party and not by expiry.

62 Nando's also submitted that cl 33.2 supports this contention because the noun 'termination' used in clause is used to refer to the fact that the Franchise Agreement has come to an end and not the means by which it came to an end (which could be indicated by the use of the verbs 'terminate' or 'expire' as in cl 33.2).

63 Under the notice of contention, Nando's contended that:

(1) the dismissal of the asset valuation claim should be affirmed because the alleged Zhang asset claim has no real prospect of success: in short because there was no agreement recorded in the correspondence described at paragraphs [22]-[25] above; and

(2) the dismissal of the unjust enrichment claim should be affirmed because a claim for unjust enrichment can only be made where there is no applicable genuine agreement or where such an agreement is frustrated, avoided or enforceable, relying upon Mann v Paterson.[22]

64 In response, Zhang submitted that the argument to the effect that the alleged Zhang asset agreement claim had no real prospect of success was not raised before Efthim AsJ and was now raised for the first time. In my view, this is not correct given that the further amended summons of Nando's sought summary judgment in respect of the entire asset valuation claim between [30] to [44] of the ASOC, which included the alleged Zhang asset agreement claim. Further, this issue was raised more clearly in the written submissions before the Associate Justice.

65 Further, Zhang submitted that it is open to conclude from the correspondence (forming the basis of the alleged Zhang asset agreement claim) that Zhang had agreed to Nando's proposal to acquire 'all fixtures, fittings, furnishings and equipment contained in the Restaurant' but that there was disagreement only about the method of determining the value of the assets. As I indicated at the directions hearing and as set out below, I am unable to accept that submission and I consider that such a claim has no real prospect of success.

66 Zhang submitted that the Court should not accede to the notice of contention but should grant Zhang a right to re-plead the claim 'for the value of the assets taken over by Nando's and the overlapping claim for unjust enrichment' which it conceded could be more properly articulated as claims in quantum meruit.

67 As to the second ground of contention, in the course of oral argument, counsel for Nando's submitted that it was not open to Zhang to abandon the breach of contract claim and make a claim in quantum meruit because there was an agreement which governs the treatment of the relevant assets should Nando's continue to operate the Restaurant upon termination of the Franchise Agreement, namely, cl 18.

68 Finally, counsel for Nando's submitted that the Court should be reluctant to exercise its discretion to grant leave to re-plead given that there was no application to amend before the Associate Justice, because these issues (i.e. the issues of how the relevant assets are to be valued either by reference to cl 18 or the alleged Zhang asset agreement claim) have been ventilated for some time and the plaintiff has yet to formulate its amendments.

69 I wish to commence my consideration of the issues in this appeal by noting that the clause 18 question is the kind of question which may be determined on a summary judgment application should the Court have a clear view on, or have a sufficient degree of satisfaction of, the proper construction of cl 18, such that any other construction has no real prospect of success. In summary, this is because:

(1) the clause 18 question is not based upon the construction of complex documents or a complex document but one clause in the Franchise Agreement which is not of any real complexity;

(2) the clause 18 question is based upon undisputed facts (i.e. the meaning of the Franchise Agreement in its context and purpose) and there was no suggestion that any other facts would alter the view now formed; and

(3) I have heard full argument on the proper construction of cl 18 and have concluded there is nothing further that could be usefully advanced at trial in relation to it.

70 As set out above, the principal issue in this appeal is whether the Associate Justice erred in law in answering the clause 18 question by finding that cl 18 applies to termination either by act of the parties or effluxion of time. To answer that question it is necessary to consider the principles of contractual construction and their application to cl 18 of the Franchise Agreement.

71 As to the principles of contractual construction, I refer to my comments at [64] and [65] of PharmX Pty Ltd v Fred IT Group Pty Ltd (No 3).[23] For the most part, I agree with (1) to (4) of Nando's submissions described at [55] above.

72 There was some disagreement as to nature of the contra proferentem rule and the presumption against surplusage. As to the first, in my view the more correct expression of the principle is that the contra proferentem rule only applies when, having applied all other aides to construction, the ambiguity remains.[24] As Kirby J stated in McCann v Switzerland Insurance Australia Ltd:[25]

Courts now generally regard the contra proferentem rule (as it is called) as one of last resort because it is widely accepted that it is preferable that judges should struggle with the words actually used as applied to the unique circumstances of the case and reach their own conclusions by reference to the logic of the matter, rather than by using mechanical formulae.

73 As to the second, in my view, the authorities make clear that the presumption against surplusage is not a strong presumption in light of commercial drafting techniques in standard form commercial documents. Indeed, the courts recognise that it might be appropriate to interpret words in a way which makes them redundant particularly where the alternative construction is inconsistent with the commercial purpose of the contract or where it appears that words may have been included out of an abundance of caution.[26]

74 As a result, I will interpret the word 'termination' in cl 18.1 in light of its context and having regard to a businesslike interpretation on the basis that these commercial parties intended to produce a result that made commercial sense having regard to the objective commercial purpose or object of the Franchise Agreement.

75 In summary, I have determined that on its proper construction, cl 18.1 applies to 'termination' either as a result of the actions of the parties or by lapse (i.e. effluxion) of time.

76 It is important to note that, as conceded by counsel for Zhang, the ordinary meaning of the word 'termination' includes the action of bringing to an end a contract (i.e. by a party) or the fact of the contract coming to an end. This is consistent with the Oxford English Dictionary which defines 'termination' to mean 'the action of terminating or of being terminated', 'the action of putting an end to something or of bringing something to a close' or 'cessation, close, conclusion, end'.[27] Further, the Macquarie Dictionary defines 'termination' to mean 'the act of terminating', 'the fact of being terminated', or 'an end or extremity; close or conclusion'.[28]

77 It is also important to have regard to the nature of the Franchise Agreement. The term of each the Franchise Agreement was five years (Term) and its purpose, (consistent with to cl 2.1) was to:

(1) set out the terms and conditions on which the Franchisee was to be granted the right to operate a Nando's restaurant;

(2) set out the requirements for the Franchisee's operation of the Franchised Business and membership of the network of Nando's Restaurants in Australia;

(3) enable Nando's to exercise control over the Franchisee's use of the Nando's System and intellectual property; and

(4) describe the structure of the business relationship between Nando's and the Franchisee over the Term, and where applicable, at the 'expiration of the Term or termination of the Agreement'.

(1) clauses 3 to 8, 11, 12 and 15, relate to the obligations imposed on Zhang including in respect of fees, the provision of regular reports, the premises from which the Nando's Restaurant were to be conducted, confidential information, marketing and promotion activities, and payments and GST;

(2) clauses 13 and 19 relate to the Franchisee's obligations to Nando's, including in relation to products, supplies, procedures, payments and minimum revenue requirements;

(3) clause 16 relates to termination by Nando's both with and without notice;

(4) clause 17 relates to the effects of termination and the continuing obligations on the Franchisee and cl 18 relates to what is to occur should Nando's desire to operate the Restaurant after 'termination';

(5) clauses 20 to 32 deals with miscellaneous matters; and

(6) clause 33 provides for both an option for the Franchisee to take up a further Term 'commencing on and from the expiration of the Term' (cl 33.1) and for Nando's to permit the Franchisee to have a monthly licence should the Franchise Agreement 'terminate or expire for any reason' (cl 33.2).

79 As is evident, the words 'expire' and 'terminate' (or their derivatives) are used in the Franchise Agreement. However, I note that in only cll 2.1.4, 31.1 and 33.2 are 'expire' and 'terminate' (or their derivatives) used in the same clause. However, in cl 5.4 they are used not in the context of the Franchise Agreement but in the context of should Zhang's right to occupy the Restaurant 'expire or terminate' during the Term of the Franchise Agreement.

80 I acknowledge that the words 'terminate' and 'expire' (or their derivatives) are on occasions used elsewhere in the Franchise Agreement (including on occasion with qualifiers such as 'for any reason'): see, for example, cl 17.3 described at [89] below. This leads to a degree of uncertainty or ambiguity as to the meaning of the word 'termination' in cl 18 on the basis that the omission to include a reference to 'expiry or on expiration' might suggest that cl 18 does not apply upon the end of the Franchise Agreement by effluxion of time. Nevertheless, it is necessary to construe 'termination' in its context in order to ascertain the proper interpretation of cl 18 as one clause in the whole Franchise Agreement.

81 Turning to cl 18 itself, I have set out the words of cl 18 above. In summary:

(1) clause 18.1 provides that '[u]pon termination of this Agreement and provided that the parties have not entered into a new franchise agreement in respect of the Franchised Business or this Agreement is not extended', then Nando's may, among other things, close the Franchised Business or, subject to the terms of cl 18, continue to operate this business for its own account.

(2) clause 18.2 then provides how certain assets (i.e. the relevant assets) of the Franchisee remaining in the Restaurant are to be valued and paid for if Nando's exercises its right to continue the Franchised Business.

82 First, I refer again to the ordinary meaning of the word 'termination' which includes the fact of the contract coming to an end for whatever reason, including the effluxion of time.

83 Second, the clauses in the proviso do not sit comfortably with a construction that this clause only addresses termination by act of the parties under the Franchise Agreement. This is in circumstances where:

(1) the provisions for termination with or without notice depend upon an act of Nando's alone i.e. to terminate for breach or other relevant event in cl 16; and

(2) it would be commercially unlikely that after a termination by Nando's under cl 16 that Nando's would wish to extend the Franchise Agreement or offer a new franchise agreement to the former Franchisee.

84 Thus, I consider that the words in the proviso used in cl 18 are a strong indicator of an objective intention that that the mechanism in cl 18 will apply to termination of the Franchise Agreement by effluxion of time or by an act of the parties.

85 Third and relatedly, I have formed the view that the commercial purpose of cl 18 (and cl 17 and other clauses of the Franchise Agreement (such as cl 15.2)) is to address the consequences of 'termination' of the Franchise Agreement whether by effluxion of time or by act of the parties.

86 As noted above, in oral argument I asked counsel for Zhang what would be the commercial sense in not construing 'termination' in cl 18 or 17 to apply to termination by effluxion of time, given the subject matter of those clauses. In substance, counsel's answer referred me to the word 'termination' being used in cl 18 while other clauses specifically referred to 'expire' or its derivatives, such as cl 33.2. In my view that response, while relevant, is not determinative of the issue given the nature of the rights and obligations imposed by those clauses.

87 In this regard, I am conscious that cll 17 and 18 follow on from cl 16 ('TERMINATION') which provides:

(1) for 'Termination with Notice Period' in cl 16.1 (for specified, non-serious breaches of the Franchise Agreement); and

(2) for 'Termination without Notice Period' in cl 16.2 (for specified conduct, including if the Franchisee is convicted of a serious offence or becomes bankrupt or insolvent).

88 Under each of cll 16.1 and 16.2, the Franchise Agreement provides that Nando's 'may terminate this Agreement' after giving written notice.

89 Clause 17 is headed EFFECTS OF TERMINATION and addresses the consequences of '[t]ermination of this Agreement' on rights and obligations of the Franchisee. For example:

(1) clause 17.1 provides that the '[t]ermination of this Agreement shall not release or extinguish any debt, obligation or liability' which the Franchisee has to Nando's;

(2) clause 17.2 provides that 'all obligations and agreements of the Franchisee which by their terms or by reasonable implication are to be performed in whole or part after the termination of this Agreement shall survive termination and shall not merge';

(3) clause 17.3 provides that '[u]pon termination of this Agreement for any reason whatsoever' the Franchisee shall, relevantly, discontinue its use of intellectual property, return Nando's manuals and discontinue the use of the word 'Nando's'.

90 Clause 18 (as set out above), headed 'NANDO'S ENTITLEMENT', deals with the effect of termination on the rights of Nando's.

91 In this regard and significantly, I consider that the commercial purpose and object behind cll 17 and 18, which refer to the 'termination of this Agreement', are to ensure what is to happen in the event that the Franchise Agreement comes to an end, either by Nando's ending the agreement or by lapse of time. This is in light of the nature of the rights and obligations imposed by those clauses.

92 In reaching this finding I am conscious that counsel for Zhang referred to cll 6 and 7 of the Franchise Agreement. Relevantly:

(1) clause 6.9 provides that the Franchisee shall not 'during or subsequent to the Term' use Nando's intellectual property without the prior written consent of Nando's; and

(2) clause 7.1.2 provides, in substance, that the Franchisee, 'during the Term and at any time thereafter' shall not reproduce, use or permit the disclosure of Nando's confidential information.

93 While these clauses are relevant to the commercial purpose and object behind, and construction of, cll 17 and 18, they are not determinative of those issues. In this regard I note that the provisions of cll 17 and 18 are far more specific than the general obligations in cll 6 and 7 to the extent they apply after the Term of the Franchise Agreement. For example, the obligations in cl 15.2, 17 and 18 are specific in nature and in the case of many obligations under cl 17.3 apply 'immediately' upon termination. Further, I note that cll 17 and 18 create many obligations additional to those relating to intellectual property or confidential information.

94 Returning to cl 18, in my view, the purpose and object behind cl 18 is to ensure a mechanism at the conclusion of the Franchise Agreement:

(1) for Nando's to be given the option, subject to the proviso, to determine whether to continue to operate the Franchised Business on its own account i.e. to continue to exploit the benefit of the franchise that was then operating after the incumbent Franchisee has ceased fulfilling that position; and

(2) for Nando's to acquire all fixtures, fittings, furnishings and equipment in the Franchised Business at an agreed price or at the market value determined by an independent valuer to enable them to operate the Franchised Business.

95 Further, I have concluded that a meaning of 'termination' in the manner suggested by Zhang is both uncommercial and would lead to uncommercial results. By way of example, if cl 18 only applied upon termination by Nando's, it would mean that:

(1) Nando's does not have any option to continue to operate the Franchised Business upon termination by effluxion of time; or

(2) even if it did, there would be no mechanism for Nando's to acquire from the Franchisee all fixtures, fittings, furnishings and equipment contained in the Franchised Business.

96 So too, I consider that, if the word 'termination' had the narrow meaning as submitted by Zhang under cl 17.1, or cl 15.2 , it would appear that there would be no express obligations upon the Franchisee to pay debts outstanding under the Franchise Agreement if it comes to an end by lapse of time. In forming this view, I note that analogous reasoning was adopted in respect of similar clauses by Einstein J in Battery World Pty Ltd v Heavenly Bound Pty Ltd.[29]

97 Once again, I wish to record that I am conscious that elsewhere in the Franchise Agreement reference is made to 'terminate' or 'expire' (or their derivatives) and both 'terminate' or 'expire' are used together in cll 2.1.4, 31.1 and cl 33.2. In my view, while the use of this different terminology in other clauses of the Franchise Agreement is relevant to the questions of construction of cl 18, it is not determinative of them.

98 For the reasons set out above, I have formed the clear view that cl 18 on its proper construction applies to termination by effluxion of time and that there could be no suggestion that view could be altered by any evidence adduced at trial.

99 As a consequence, I do not accept the submission of Zhang that the issues it has raised in relation to cl 18 make this an inappropriate case for summary judgment. I refer to my comments above at [69].

100 Further, and for completeness, there are two things I wish to address.

101 First, I consider that Zhang has no real prospect of success in establishing the alleged Zhang asset agreement claim. This is because it is clear that the correspondence relied upon does not give rise to a legally binding agreement. The correspondence between Zhang and Nando's described above at [22] to [25] reveals that:

(1) on 25 November 2020, Zhang rejected Nando's offer to purchase the relevant assets (pursuant to cl 18.2) and instead proposed an independent valuation of 'ALL' assets at the Restaurant;

(2) In response, Nando's letter of 30 November 2020 proposed three independent valuers to determine a final and binding valuation of the relevant assets pursuant to cl 18.2 (notwithstanding that Nando's had the unilateral right to appoint the valuer). That letter stated that Zhang was required to confirm which valuer it would like Nando's to appoint by 7 December 2020;

(3) Zhang failed to respond to the letter of 30 November 2020 by 7 December 2020 (or at all) and Nando's then appointed a valuer unilaterally.

102 It is clear that no binding agreement was formed in this correspondence. This is for a variety of reasons. At the very least, Zhang failed to respond to Nando's letter of 30 November 2020 which called for Zhang's confirmation of Nando's proposal for Zhang to choose one of three valuers. It is therefore evident that the parties reached no concluded bargain of the kind alleged by Zhang in the alleged Zhang asset agreement claim.

103 Second, I am conscious that, in response to Nando's notice of contention, Zhang accepted that 'the claim for the value of the assets taken over by Nando's and the overlapping claim for unjust enrichment could more properly be articulated as claims in quantum meruit' and sought leave to re-plead them. However, given my finding that cl 18 is applicable, no claim for quantum meruit can be maintained.

104 This is because, in any claim for quantum meruit, it is essential to consider how the claim fits with the parties' contractual arrangements: any quantum meruit claim must not be inconsistent with the allocation of risk established by contract: Lumbers v W Cook Builders Pty Ltd (in liq).[30]

105 These views are consistent with the plurality in Mann v Paterson relied upon by Nando's.[31] In this case, cl 18.1.2 of the Franchise Agreement gives Nando's the right to continue to operate a Franchised Business subject only to the balance of cl 18. Clause 18.2 provides that Nando's must reimburse a Franchisee only for the relevant assets, it does not provide for any further reimbursement. To allow a claim for quantum meruit in respect of the relevant assets or any other assets allegedly appropriated by Nando's would impermissibly alter the existing contractual regime and allocation of risk and as such no claim for quantum meruit can be maintained. I note that counsel for Zhang did not argue to the contrary, although contended that it sought leave to re-plead its claim in quantum meruit.

106 In the ordinary course, for the reasons set out above, I would have dismissed Zhang's appeal. However, there are two reasons why I have not done so.

107 First, as noted above, I consider that there is an apparent error in the conclusion of the Associate Justice that the alleged Zhang asset agreement claim was in some way based upon cl 18.2 of the Franchise Agreement. I am conscious that, in light of my findings in respect of the clause 18 question, and the clear views I have formed that the correspondence referred to at [22] to [25] is not capable of forming an enforceable agreement, that the asset valuation claim has no real prospect of success. Despite this, I consider that the error of the Associate Justice enlivens my discretion under r 77.06.9(2) of the Rules to make any order which ought to have been made and any further order as the case requires.

108 Second, and in any event, I am concerned that the Orders made by the Associate Judge may work an injustice in that Zhang could be prevented from bringing any claim for the recovery of sums payable under the Nando's valuation pursuant to cl 18.2, or to challenge the Nando's valuation in accordance with the recognised grounds of challenges to expert valuations. In substance, this is because it seems likely that, if the 'summary judgment' part of the Orders is maintained, Zhang may be prevented from bringing another claim either in a separate proceeding or by leave in this proceeding. As noted in section 2 above, the Court has the power in the case of injustice to vary the orders which are the subject of appeal in the absence of error.

109 As a result, I caused an email to be sent to the legal practitioners for the parties on 28 March 2023, advising:

(1) my preliminary views on the clause 18 question and any claim based on quantum meruit (which are now my concluded views in the Reasons);

(2) the apparent error of the Associate Justice and the injustice if the summary judgment portion of the Orders was to remain because Zhang may be prevented from bringing a claim in respect of recovery of sums payable under the Nando's valuation pursuant to cl 18.2 or to challenge the Nando's valuation;

(3) that one option I was considering was to order a timetable for the hearing and determination by me of an application by Zhang to further amend its statement of claim;

(4) that Nando's would have the opportunity to raise any issues relevant to whether such leave should be granted; and

(5) I was of the preliminary view that a further short hearing might be required.

110 Nando's did object to not the Court delivering these reasons and Zhang having the opportunity to make an application to further amend its statement of claim. However, no timetable for the application was agreed. Zhang sought a further hearing and/or leave to file further submissions on the proper construction of cl 18 and, in particular, its commercial purpose. In my view, Zhang has had every opportunity to raise issues about the proper construction of cl 18, including its commercial purpose, before the Associate Justice and before me. As a result, I declined to receive any further submissions.

111 In all these circumstances, subject to the consideration of the parties, I do not intend to make any in relation to the appeal at this time, other than:

(1) by a date to be agreed, Zhang file and serve its application to further amend its statement of claim (together with any affidavits in support thereof) to bring a claim for the recovery of sums payable under the Nando's valuation pursuant to cl 18.2, to challenge the Nando's valuation or any other claim not inconsistent with these Reasons;

(2) by a date to be agreed, Nando's file and serve affidavits in opposition;

(3) by a date to be agreed, Zhang file any material in reply and its submissions not exceeding five pages;

(4) by a date to be agreed, Nando's file its submissions not exceeding five pages;

(5) the application be heard on a date to be fixed before me; and

112 In the event Zhang is unsuccessful in its further amendment application, it is my current intention to dismiss the appeal.

113 The parties are requested to confer in respect of a timetable for the orders foreshadowed in [111].

[1] Oswal v Carson [2013] VSC 355, [11]; Equity-One Mortgage Fund Ltd v Mijalce Stoyanov [2014] VSC 70, [26]-[28].

[2] [2013] VSCA 158; (2013) 42 VR 27, 40 [35] (Warren CJ and Nettle JA).

[3] See also, Manderson M & F Consulting (A Firm) v Incitec Pivot Ltd [2011] VSCA 444; (2011) 35 VR 98, 107 [32].

[4] [2011] VSC 476, [66] ('JBS Southern').

[6] See, eg, Dey v Victorian Railways Commissioners (1949) 78 CLR 62, 84-5 (Latham CJ); General Steel Industries Inc v Commissioner for Railways [1964] HCA 69; (1964) 112 CLR 125, 130 (Barwick CJ). See also the approaches adopted in Theseus Exploration NL v Foyster [1972] HCA 41; (1972) 126 CLR 507, 514 (Barwick CJ), 515 (Gibbs J), 523 (Stephen J) concerning a summary judgment application on questions of law.

[7] [2019] VSC 126, [55]-[59].

[8] (1948) 78 CLR 62, 85.

[10] [1992] HCA 48; (1992) 175 CLR 353.

[11] [2019] HCA 32; (2019) 267 CLR 560, 578-79 [14]-[18] (Kiefel CJ, Bell and Keane JJ) ('Mann v Paterson').

[16] Mann v Paterson (n 11) 578-79 [14]-[18].

[17] Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640, 656-57 [35].

[18] Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104, 116.

[19] Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603, [19].

[20] Goldus Pty Ltd v Australian Mining Pty Ltd (Receivers and Managers Appointed) [2023] FCAFC 27, [87].

[21] LCA Marrickville Pty Ltd v Swiss Re International SE [2022] FCAFC 17, [83]-[102].

[22] Mann v Patterson (n 11) 578 [14].

[23] [2019] VSC 748.

[24] GL Nederland (Asia) Pty Ltd v Expertise Events Pty Ltd [1999] NSWCA 62, [27] (Giles JA).

[25] [2000] HCA 65; (2003) 203 CLR 579, 602 [74].

[26] Big River Timbers Pty Ltd v Stewart [1999] NSWCA 34; (1999) 9 BPR 16,605, 16,608 (Mason P); A F C Holdings Pty Ltd v Shiprock Holdings Pty Ltd [2010] NSWSC 985; (2010) 15 BPR 28,199, 28,200 [13] (Ball J).

[27] Oxford English Dictionary (online at 13 April 2023) 'termination'.

[28] Macquarie Dictionary (online at 13 April 2023) 'termination'.

[29] [2009] NSWSC 1309, [32]-[33]; [37].

[30] [2008] HCA 27; (2008) 232 CLR 635, 663 [79] (Gummow, Hayne, Crennan and Kiefel JJ).

[31] Mann v Patterson (n 11) 578-79 [14]-[17].