Burger Edge Franchising Pty Ltd v Jupiter Ventures Pty Ltd [2019] QMC 4

MAGISTRATES COURTS OF QUEENSLAND CITATION: Burger Edge Franchising Pty Ltd v Jupiter Ventures Pty Ltd [2019] QMC 4 PARTIES: Burger Edge Franchising Pty Ltd CAN 137 409 548 (Plaintiff) v Jupiter Ventures Pty Ltd CAN 160 685 012 (First Defendant) And Campbell Arthur Samuel Swinton (Second Defendant) And John Phillip Thompson (Third Defendant) FILE NO/S: M51405/17 DIVISION: Magistrates Courts PROCEEDING: Civil ORIGINATING COURT: Brisbane DELIVERED ON: 2 May 2019 DELIVERED AT: Brisbane HEARING DATE: 13 February 2019 MAGISTRATE: A.C. Thacker ORDER: CATCHWORDS: SOLICITORS: Celtic Legal for the Plaintiff instructing Mr Hogg of Counsel Defendants – self-represented -- 1 of 7 -- 2 Introduction [1] This case relates to the sale and franchise grant of the business Burger Edge Queens Plaza (“the business”). The business was owned and operated by the plaintiff at Queens Plaza, Brisbane City and was sold and franchise granted to the defendants during mid-2013. [2] The plaintiff claims from the first defendant the sum of $94,000 as a debt owed for the balance purchase price of the business. The plaintiff alternatively claims this balance purchase price from the second and third defendants by relying on the combined effect of the Business Sale Contract and Franchise Agreement entered between the parties and guaranteed by the Guarantee and Indemnity annexed at Annexure 2 of the Franchise Agreement. [3] Trial of the claim was conducted by the Court on 13 February 2019. The plaintiff was represented by counsel instructed by solicitors. Mr Swinton and Mr Thompson representing their company the first defendant and also acting on their own behalf attended the hearing but hardly engaged in the hearing procedure. They had initially been represented by solicitors when their defence documents had been filed. [4] As a preliminary matter the plaintiff was able to show that the first defendant has been properly re- registered as a company and is therefore properly sued as the first defendant. I made an Order to make that clear. [5] Each of the parties have filed the usual documents in preparation for the hearing. The first defendant admits by its defence (at paragraph 2) that the plaintiff and the first defendant entered into the business sale contract. [6] The first defendant admits by its defence pleading at paragraph 11 that the $94,000 has not been paid to the plaintiff. However, asserts (without more) that the sum is not a debt owing under the Business Sale Contract and denies that the first defendant remains in breach of the Business Sale Contract as that contract “has been terminated”. There is nothing more to explain that defence position. [7] The defendants plead in defence at paragraph 15 (b) that the plaintiff “took possession of the business after the first defendant did not pay $94,000 and has not properly calculated its loss”. However, there is no evidence from the defendants of the quantum or what was the content of any loss occasioned to the defendants by the alleged action of the plaintiff taking possession of the business. I am not sure whether or not this defence allegation is actually only intended to relate to the plaintiff trying to assist the defendants re-sell the business when the business was failing. Rules of the Court. [8] The plaintiff has the burden of proving its claim. The standard of proof required in the civil jurisdiction of this court is proof on the balance of probabilities. That is to -- 2 of 7 -- 3 say, something is proved on the balance of probabilities if it is more likely than not to have occurred. Plaintiffs’ standing to bring the claim [9] Clause 42 of the Franchise Agreement is headed JURISDICTION and provides: The parties hereby submit exclusively to the jurisdiction of the courts and tribunals of the State in which the principal place of business of the Franchisor is located… [10] The Franchise Agreement states the address of the franchisor as “c/- McLean Delmo, Level 3, 302 Burwood Road, Hawthorn in the State of Victoria.” [11] The plaintiff gave evidence that he resides in Altona in Victoria, operates his franchise business from Victoria and only occasionally visits Queensland for the purpose of his business. [12] However, as submitted by plaintiff’s counsel, the defendants filed their notice of intention to defend and defence without objecting to the jurisdiction. In those circumstances Rule 144(7) Uniform Civil Procedure Rules enables the claim to be heard in Queensland. The plaintiffs claim for debt recovery [13] The plaintiff’s claims made in this case stand or fall on interpretation of the Business Sale Contract and the Franchise Agreement with Annexure 2 signed by the parties. These documents are not straight forward reading, for example, in the Business Sale Contract the business recorded as being sold is “Burgers Edge franchise” which cannot be correct as franchise are not the subject of sale. Also, date of signing is not clear. However, these matters do not nullify the documents. [14] While there is no guarantee made directly to the Business Sale Contract, the Franchise Agreement provides per clause 35 that a Guarantee and Indemnity must be executed and at Annexure 2 this is done. [15] Added to that, I read in particular clause 2.1 of the Guarantee and Indemnity with its reference to “Agreements” and “Guaranteed Money”. These terms are defined at clause 1.1.1. The definitions have the effect of tying in the Business Sale Contract to the Franchise Agreement. I also read the extensive reach of clause 1.1.6 of the Franchise Agreement which states as follows: 1.1.6 “Guaranteed Money” means all amounts which now or in the future for any reason whatsoever: (a) are payable, are owing but not currently payable, are contingently owing, or remain unpaid by the Franchisee to the Franchisor or any Associate of the Franchisor; and (b) may reasonably be foreseen to become owing by the Franchisee to the Franchisor or are payable by the Franchisee as a result of anything done or omitted by the Franchisee with the express or implied consent or -- 3 of 7 -- 4 at the express or implied request of the Franchisor or in connexion with the Agreements. [16] I find there are various clauses in the Franchise Agreement, these quoted above in particular, that make it clear the parties intended the Business Sale Contract and the Franchise Agreement together with its Appendix 2 in combination to represent their intentions, duties and obligations with respect to the defendants’ purchase and operation of the business. [17] I have considered the written submission of the plaintiff’s counsel and agree with his characterisation of the three main issues in contest as: a) Whether the first defendant is liable to pay the plaintiff the $94,000 pursuant to the Business Sale Contract despite the contract has been terminated; b) Whether the $94,000 is a debt or damages, and if the sum is damages whether the plaintiff has adequately mitigated its loss; c) Whether Mr Swinton and Mr Thompson are liable as guarantors for the failure of the first defendant to pay the plaintiff the $94,000. [18] I find there is no dispute between the parties that – a) the plaintiff had been the owner operator of the business; b) in June 2013 the Business Sale Contract was signed between the parties setting the purchase price at $95,000 and $1,000 was paid leaving $94,000 which the defendants admit has not been paid; c) also in June 2013 the Franchise Agreement together with Appendix 2 Deed of Guarantee and Indemnity was signed between the parties; d) also, in June 2013 the defendants commenced operating the business and continued for some time, including the obligation to pay rent on the business premises at Queens Plaza; e) the Business Sale Contract at clause 1(c) of the special conditions was utilised to extend the time for payment of the $94,000 for a further 12 months after 13 December 2013; f) The Franchise Agreement required the defendants to observe the terms of the lease of the premises from which the business operated as if they were the lessee: see clause 8.3.5(b); g) the defendants struggled with the business, in particular with frequent money problems. After rent fell into arrears and was not paid, the lessor locked the premises and the business could not operate. The law of contracts Termination of contract rules [19] When a party to a contract breaches it in a way that renders the contract impossible of further performance then the contract is automatically terminated. This occurred here when the defendants did not pay rent and the lessor locked the business premises, and the business could no longer operate. Therefore the contract was then automatically terminated. [20] The termination of the Business Sale Contract has an effect on the defendants’ obligation to pay the plaintiff the outstanding $94,000. The question is what is the effect taking into account – as the plaintiff correctly claims - the contract is not -- 4 of 7 -- 5 rescinded from the beginning and the payment of $94,000 was a right the plaintiff had unconditionally acquired from the moment the Business Sale Contract was signed and / or the $1000.00 part payment was made? Mitigation of loss rules [21] Contract law had traditionally held1 that where there has been a breach so serious as to terminate the contract, the innocent party may nevertheless hold the defaulting parties to their promise – here, to pay the $94,000 promised. However, that law has been ameliorated in Australia of more recent times by rules related to mitigation of loss. [22] The rule of mitigation requires an injured party to take steps to minimise its loss and to avoid taking unreasonable steps that increase its loss. An injured party cannot recover damages for any loss (whether caused by a breach of contract or breach of duty) which could have been avoided by taking reasonable steps. The injured party is said to have a "duty to mitigate". However, this is not a duty enforceable by anyone, rather it is a recognition that if the injured party fails to do so recovery of damages will be affected by that failure. [23] Plaintiff’s counsel does not, in my view correctly state the law that the termination of the Business Sale Contract has no effect on the first defendant’s obligation to pay the plaintiff the $94,000. The modern law is that a plaintiff making a claim for breach of contract does require the claimant to mitigate their loss. Where a breach of contract has occurred, the injured party is required to take all reasonable steps to mitigate the loss consequent on the breach. Any loss which could have been avoided but failed to be, due to a lack of action, cannot be recovered following Australian case law that has developed the rule of mitigation to replace the strict traditional view. 2 [24] The plaintiff does not owe a duty to the defendants to mitigate their loss. Rather, the plaintiff must not act unreasonably. Whether the plaintiff has acted reasonably or not to mitigate their loss is a question of fact. [25] I cannot consider whether or not it was reasonable to expect the plaintiff should have resumed operation of the business at a point where it was clearly failing because there is no evidence the defendants or any of them attempted to support such a course in preference to continuing on until the lessor locked them out. The hearing [26] At the hearing Mr Issam Soubjaki, director of the plaintiff, gave sworn evidence and through him the documents evidencing the whole business relationship between the parties were tendered. 1 The plaintiff correctly submits on White & Carter (Councils) Ltd v McGregor [1962] AC 413 in this regard. 2 See for example Orica Australia Pty Ltd v Limit (No 2) Ltd [2011] VSC 65, it was held that an insured is obliged to do what is reasonable to mitigate its insured loss. Whilst this case is considered an insurance claim, it would be expected that the same principle would apply in other cases; see also Pialba Commercial Gardens Pty Ltd v Braxco Pty Ltd & Ors [2011] QCA 148. -- 5 of 7 -- 6 [27] His evidence included evidence of text messages commencing about December 2016 (exhibit 7) and emails exhibits 7 – 17) Mr Soubjaki sent to Mr Swinton and / or Thompson, especially during the period 2015 – 2017. The 18 June 2016 (Exhibit 7) text message reveals rent is behind. The communications also reveal efforts Mr Soubjaki made to obtain financial information from Mr Thompson and Mr Swinton but they could not or would not provide it to him at the time when interest in purchase of the business was shown by potential buyers. [28] Of the documents tendered to the court through Mr Soubjaki, the most important are the Business Sale Contract (exhibit 2) and the Franchise Agreement (exhibit 3) signed by each of the parties including Mr Swinton and Mr Thompson on behalf of their company the first defendant. [29] When Mr Soubjaki gave his evidence, he was not cross-examined in any meaningful way by either Mr Swinton or Mr Thompson who struggled to say anything at all to the court. In particular, the defendants did not challenge Mr Soubjaki on his evidence that he tried to assist them by making attempts to re-sell the business. Findings [30] I am satisfied that the evidence given by Mr Soubjaki shows, as follows: a) the Business Sale Contract contains a Guarantee and Indemnity clause and clause 35.1 refers to schedule G which notes “N/A” which means the Business Sale Contract without more is not guaranteed. b) However, there is more to the parties’ business relationship as they are bound by the combination of the documents comprising the Business Sale Contract, the Franchise Agreement and its annexure 2 the Deed of Guarantee and Indemnity (“the documents”) for the reasons I’ve set out above. c) the defendants struggled operating the business almost from the start. That is why the parties used the special condition in the Business Sale Contract allowing 12 month extension of time for payment of the $94,000. d) Mr Soubjaki tried to assist the defendants re-sell the business but was thwarted in these efforts when no adequate financial information was forthcoming from the defendants. No re-sale of the business eventuated. [31] I have read the defendants’ written submissions produced to the court after the trial finished. However, where these written submissions refer to facts not put to Mr Soubjaki while he was in the witness box I cannot take them into consideration now because that would be a breach of the rules of evidence. [32] In any event the court cannot consider assertions like the assertion that the defendants were coerced to do “something we did not want to do” and were “pushed” into entering the business 3 without the defendants each also showing reasons why or how they were such incapacitated or vulnerable people they could not be expected to manage their business affairs. There is no such evidence including no indication of such evidence in their written defence pleadings. 3 Asserted at paragraph 2 of the defendants’ written submission. -- 6 of 7 -- 7 [33] I also understand from the defendants’ written submission that “we paid a $45,000 franchise fee, an application fee ($3500) and a training fee ($4,500).” That may be so but there is no evidence that the parties intended these monies were to form any part of the purchase price of the business or be subtracted from the business purchase price of $95,000. Accordingly, I must disregard this assertion. Conclusion [34] From the facts not in dispute together with the findings I have made above, the conclusion I must reach is that:- a) The first defendant is liable to pay to the plaintiff the $94,000 pursuant to the Business Sale Contract despite the contract has been terminated; b) The $94,000 payment is subject to the rules about mitigation of loss; c) The plaintiff, by Mr Soubjaki’s attempts to assist the defendants re-sell the business, did adequately try to mitigate its loss; d) The second and third defendants are liable as guarantors pursuant to clause 35 of the Franchise Agreement and Guarantee and Indemnity that was signed by them. [35] I am satisfied using the civil jurisdiction test that the plaintiff has made out its claim against the defendants. [36] I am also satisfied, for the reasons I have set out above, that the defendants have not made out any defence to the claim. Costs [37] Further, I accept the reasons set out in the two affidavits of Clare B. King sworn 13 February 2019 and 13 February 2019 for costs to be awarded on the indemnity basis. ORDERS [38] I ORDER as follows: 1. For the plaintiff, against the defendants; and 2. Costs of the plaintiff to be paid by the defendants fixed in the sum of $37,940.30 plus interest pursuant to the Civil Proceedings Act unless objection is filed and served on or before Tuesday 14 May 2019 at 5.00pm. -- 7 of 7 --