Alborn & Ors v Stephens & Ors [2009] QSC 198

SUPREME COURT OF QUEENSLAND CITATION: Alborn & Ors v Stephens & Ors [2009] QSC 198 PARTIES: RICHARD MOLLISON ALBORN (first plaintiff) AND ALBORN FAMILY CORPORATION PTY LTD ACN 080 955 595 (second plaintiff) AND SHAYKAR PTY LTD ACN 076 868 552 (third plaintiff) AND RAY STEPHENS (first defendant) AND GLENYS MARGARET STEPHENS (second defendant) AND AS&L PTY LTD ACN 087 729 048 (third defendant) FILE NO/S: 7795/06 DIVISION: Trial Division PROCEEDING: Civil Trial ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 29 July 2009 DELIVERED AT: Brisbane HEARING DATE: 14, 15, 16, 17, 20 and 21 April 2009 JUDGE: Atkinson J ORDER: The claim by the first and second plaintiffs is dismissed; the third plaintiff is entitled to payment of the remainder, if any, of the consideration owing as at 10 October 2001 once the value of the third defendant’s payment of the third plaintiff’s liability under its bill of sale to AGC and the third plaintiff’s trade debts is deducted from the agreed price of $100,000 together with interest on any -- 1 of 22 -- 2 such amount. The counter-claim is consequentially dismissed. CATCHWORDS: CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – OTHER MATTERS – where first plaintiff and first and second defendants were family members and directors and shareholders of the third plaintiff company – where parties developed business plan for third plaintiff company to purchase certain subway franchises – where first and second defendant would operate the franchisees as franchisors – where shareholders contributed different amounts to the third plaintiff company in order to fund franchises and where profit would be shared equally – where franchises were not profitable – where parties came to an agreement in relation to the splitting of the operation of the franchised stores – where first and second defendants ceased to be directors of third plaintiff company but continued to be the franchisees of the stores – whether agreement between the parties was binding as between themselves or against third parties – whether defendants owed any contractual or equitable obligations to the plaintiffs as a result of the changes in operation, management and ownership of the franchised stores – whether the first and second defendants were liable to pay damages or equitable compensation – whether the third plaintiff was entitled to any relief at all. CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – OFFER AND ACCEPTANCE – CONTRACT IMPLIED FROM THE CONDUCT OF THE PARTIES – where parties did not enter into written contract expressing the arrangements for splitting the management, operation and ownership of franchise stores – whether a binding agreement was made Bramble Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 followed Jones v Dunkel (1959) 101 CLR 298 applied Masters v Cameron (1954) 91 CLR 353 applied COUNSEL: Morris AJ, QC, with Greenwood K A M for plaintiff Dunning P, SC, with Nevison L J for respondent SOLICITORS: Londy Lawyers for the plaintiffs Gateway Lawyers for the defendants Introduction [1] This litigation involved the falling out between the first plaintiff, Richard (“Rick”) Alborn, and the first and second defendants, Ray Stephens and Glenys Margaret Stephens, (nee Alborn). Mrs Stephens is Mr Alborn’s sister and married to Mr -- 2 of 22 -- 3 Stephens. The falling out occurred over the acquisition and operation of various franchised “Subway” stores. [2] Mr Alborn is a director of the second plaintiff Alborn Family Corporation Pty Ltd (“Alborn Family Corporation”). He was employed by Subway Development Queensland (“SDQ”) as a financial controller/director in 1996. Alborn Family Corporation was controlled by Mr Alborn, was the trustee of a trust for the benefit of Mr Alborn’s family (“the Alborn Family Trust”) and replaced Mr Alborn and Maree Alborn as trustee of the Alborn Family Trust by Deed of Appointment dated 27 January 1998. [3] Mr Alborn has been the sole director and secretary of the third plaintiff Shaykar Pty Ltd (“Shaykar”) since 1 October 1999. Shaykar was incorporated on 8 January 1997 when Mr Alborn, Mr Stephens and Karyn Anne McLintock were appointed as directors and Mr Stephens as secretary. The shareholders were the trustee from time to time of the Alborn Family Trust as trustee for Mr Alborn and his then wife Maree Alborn, which held 100 ordinary shares and 25 C class shares; the trustee from time to time of the Stephens Family Trust as trustee for Ray and Glenys Stephens, which held 100 ordinary shares and 51 C class shares; and Brendan Peter Alborn and Karyn Anne McLintock who held 100 ordinary shares and 24 C class shares. Mr Brendan Alborn is the nephew of Mr Alborn and Mrs Stephens and Ms McLintock was his partner. In 1996, Mr Brendan Alborn and Ms McLintock were living together and working in Shanghai. [4] The third defendant AS&L Pty Ltd (“AS&L”) is controlled by Mr Stephens. Mr Stephens is the sole director, secretary and shareholder of AS&L. Mr Stephens had been a teacher for many years in New Zealand before he moved to Australia in 1994 where he again took up a teaching post. Mrs Stephens was also an experienced teacher. When they arrived in Australia, Mr Stephens put together a business with appropriate licences and approvals to operate a child care centre. It was a joint venture between three parties, two of whom were the Alborn Family Trust and the Stephens Family Trust. The child care centre operated for almost 10 years. The purchase of the Morayfield and Clontarf franchises [5] In late 1996, Mr Alborn approached Mr and Mrs Stephens about their becoming Subway franchisees. They had lunch together at a suburban Subway store on a Friday in December 1996. Mr and Mrs Stephens decided that they were interested so Mr Alborn organised a meeting for them with Michael Thorpe, the development agent for SDQ. Mr Alborn told Mr and Mrs Stephens that Mr Brendan Alborn and his partner were also interested in investing in the venture. [6] The meeting between Mr Thorpe and Mr and Mrs Stephens took place on 2 January 1997. Mr Thorpe explained to Mr and Mrs Stephens that Subway franchisees must be natural persons. He was aware that there were to be other investors namely Mr Alborn’s and Mrs Stephens’ nephew. He informed the Stephens that there were two franchises coming up, one for a store at Clontarf and another at Morayfield. Mr Thorpe told them to prepare a business plan. Mr Thorpe rang Mr Stephens on 4 January and told them he was satisfied of their integrity and that they would be accepted as franchisees and to have their business plan completed. [7] A business plan was prepared during a meeting held at Mr Alborn’s house where those present were Mr and Mrs Alborn, Mr and Mrs Stephens and their son-in-law, -- 3 of 22 -- 4 Russell Stephens Peacock. The description of the business operation in the plan was: “Essentially the operation is to purchase franchises from Subway Development Queensland and to establish multi-store ownership within Redcliffe and Caboolture Shires. The business is a fast food outlet as developed by the Subway chain and as [sic] a proven success throughout the world. This will be developed and achieved in conjunction with Subway Development Queensland as sites become available in the selected shires.” [8] The business plan set out that a company (as yet unnamed) would initially purchase two franchises, Clontarf in mid March and Morayfield in mid April1 and continue to purchase franchises until it had 10 stores. The operational structure would consist of a general manager and assistant general manager who would be fully trained in the operation of all aspects of the Subway business. The general manager was to be Mr Stephens and the assistant general manager, Mrs Stephens. It was intended in the business plan that the company would send Mr and Mrs Stephens to Millford, Connecticut in February 1997 to undergo the required Subway training. The general manager was required to supply written and verbal reports to the Board of the company on a monthly basis and carry out instructions issued by the Board. [9] The finance for the company would be a capital base of $100 with the shareholders providing loans to Shaykar to provide 75 per cent of the required funding for the first two franchises and they would seek 25 per cent of funding by way of bank overdraft secured over the assets of the company. Appendix 1 set out the funding arrangements. It said that the cost to purchase and set up the first franchise, the Clontarf franchise, would be $170,000 and $130,000 for the second franchise at Morayfield. Therefore the total funding requirement was $300,000. The source of funds would be $230,000 in shareholder loans and a $70,000 overdraft from the bank. It said that the shareholders had agreed to loan the company the start up capital as interest only loans for a minimum of two years at which time the finances would be reviewed. The directors were prepared to allow a first mortgage over the assets of the company which would include shop fittings and equipment. It was said that personal guarantees were not available and would not be required considering the gearing of the company. [10] Mr and Mrs Stephens were to contribute $40,000; Mr Brendan Alborn and Ms McLintock, $40,000; and the Alborn Family Trust, $150,000. Each party initially put in $5,000 to pay for an accountant to set up the company and the franchise fee. The profit was to be shared equally between the three sets of shareholders. The arrangement between the shareholders was, as was pleaded, to set up a company which would act as an incorporated partnership or joint venture. There was no agreement as to how the initial investment would be repaid. The additional finance was to be provided by overdraft in the name of the company. [11] Mr Alborn and Mr Stephens then consulted the accountant, Peter Lewis, who had assisted them in setting up the business to operate the child care centre. Mr Lewis suggested that they take over a shelf company to operate the franchises as per the business plan. That company was Shaykar which was registered on 8 January 1997 and the business plan was amended to insert its name as the company. Shaykar then 1 In fact the Morayfield franchise was the first in time followed by the Clontarf franchise. -- 4 of 22 -- 5 paid all of the expenses of the franchises including the fee for the initial advice given by Mr Lewis and the cost of setting up the company. An overdraft was arranged by Shaykar with the National Australia Bank (“NAB”) secured on the assets of the company. [12] It was arranged that Mr Alborn would give the business plan to Mr Thorpe. Mr Thorpe gave a disclosure document to Mr Alborn to hand personally to Mr and Mrs Stephens with the suggestion that they take legal advice about it. They did so. [13] On 23 January 1997 a franchise agreement (#19486) was entered into between Subway Systems Australia Pty Ltd (“Subway Systems Australia”) and Mr and Mrs Stephens for a Subway sandwich shop in Queensland. This store was to be in Morayfield. A fee of $10,000 was paid by Shaykar upon the execution of the franchise agreement to Subway Systems Australia. In addition the franchisees agreed to pay Subway Systems Australia a weekly royalty equal to eight per cent of the gross sales of the sandwich shop. Clause 9 of the franchise agreement provided that the franchise was transferable only with the prior written approval of Subway Systems Australia and then only to a natural person or to a corporation owned and controlled by the franchisee and whose activities were confined exclusively to operating that sandwich shop. Subway Systems Australia was a licencee for the purpose of franchising Subway stores in Australia of Doctor’s Associates Inc (“DAI”) a company incorporated in Florida in the United States, which was the owner of the business “Subway”. DAI gave its consent to the franchise agreement on 23 January 1997. The executed copy was sent to Mr and Mrs Stephens from DAI by letter dated 3 February 1997. [14] Although Mr and Mrs Stephens were the franchisees, all of the finance to purchase the franchise came from Shaykar. It is clear from the business plan that the parties had agreed that Shaykar would own and operate the franchises. Mr and Mrs Stephens were the franchisees and sub-lessees because the franchisor required the franchisees and sub-lessees to be natural persons; but Shaykar was the beneficial owner of the franchise and its business. It was the entity that received the income and paid all of the expenses of the franchise business including the cost of purchasing the franchise. [15] Mr and Mrs Stephens then travelled to Connecticut where they underwent two weeks training to operate as franchisees. Only Mr Stephens passed the examination at the end of that training. They put money into Shaykar from the share they were to contribute to pay for the training. Shaykar then paid all of the expenses concerned with their training. [16] Mr and Mrs Stephens entered into a second franchise agreement (# 19547) on 20 February 1997 with Subway Systems Australia on similar terms except they paid a reduced franchise fee of $2,500 because they were already Subway franchisees. This store was to operate at Clontarf. As with the Morayfield franchise, this franchise was beneficially owned and operated by Shaykar. [17] Mr and Mrs Stephens received consultancy fees for their work with each franchise. Those consultancy fees were paid by Shaykar to a company owned and controlled by the Stephens, GRC Management Pty Ltd (“GRC”). [18] On 31 March 1997 Mr and Mrs Stephens received a letter from Subway Real Estate Corp in the United States (“Subway Real Estate”) enclosing two subleases for their -- 5 of 22 -- 6 new Subway store in the Morayfield Shopping Centre. Subway Real Estate required the execution of the subleases and their return along with a copy of the certificate of insurance naming Subway Systems Australia, Subway Realty Pty Ltd (“Subway Realty”) and Subway Real Estate as additional insureds. Although Mr and Mrs Stephens were the sublessees, the rental payments were made by Shaykar. [19] On 3 April 1997 Mr and Mrs Stephens wrote to Michael Thorpe attaching a receipt for the money wired to Florida and telling him that they had signed a sublease form. The letter is on Morayfield Subway letterhead and the footer says that they are “franchise owners acting on behalf of Shaykar Pty Ltd”. The money was sent by Shaykar. [20] On 22 April 1997 Mr and Mrs Stephens signed the sublease with Subway Realty for premises in the Morayfield Shopping Centre (“the Morayfield sublease”). The Morayfield sublease commenced on 14 April 1997. The Morayfield store opened on that day which was the opening day for the new Morayfield Shopping Centre. [21] Meanwhile Mr and Mrs Stephens occasionally kept Brendan Alborn and Ms McLintock, who had not been present for any of the negotiations, informed as to what was going on. On 2 April 1997 they sent a letter to Brendan Alborn and Ms McLintock on letterhead of Subway Morayfield, which they said Russell had designed on their computer, saying that they had written a report to keep them up to date with what “our company” has been doing over the last two months and inviting them to ring on the Shaykar number or Mr Stephens’ mobile. [22] The Morayfield store opened very strongly but after a month or so the figures were below that predicted in the business plan. The set up costs were also higher than expected. In June 1997 Mr and Mrs Stephens prepared an updated business plan for the Morayfield store. In the June 1997 business plan the footer at the front page said “Franchise owners acting on behalf of Shaykar Pty Ltd.” The business name was said to be “Shaykar Pty Ltd trading as Morayfield Subway.” [23] A business plan was also produced by Shaykar for the Clontarf Subway store in June 1997. The business name was said to be “Shaykar Pty Ltd trading as Clontarf Subway.” Attached to both business plans were the funding requirements for the stores. By then the overdraft requirement had risen to $120,000 and shareholders loans to $250,500. The total shareholder funds contributed were admitted, in the final submissions made by the defendants, to be $195,033 by the first and second plaintiff, $40,000 by the Stephens and $40,000 by Brendan Alborn and Ms McLintock. [24] The sublease between Subway Realty and Mr and Mrs Stephens for the Clontarf store was entered into with a commencement date of 1 April 1997, but the Clontarf store did not open until July. Prior to its opening Mr Alborn arranged a meeting at his house for Mr Stephens with Ted Stewart on behalf of the franchisor of Baskin- Robbins with a view to having a franchised store from Subway and Baskin-Robbins operate together as “combo stores” at Clontarf. The owner of Baskin-Robbins was Allied Brands International. Agreement was reached and a similar arrangement was made by Mr and Mrs Stephens with the franchisor and with Shaykar as had been made with regard to the Subway franchise. In other words Shaykar was the beneficial owner and operator of the Baskin-Robbins franchise. Mr and Mrs Stephens undertook training on the Gold Coast to act as franchisees for Baskin- -- 6 of 22 -- 7 Robbins. Fit out costs were about ten per cent higher than they had expected. This store traded well, but turnover was about ten per cent below what had been anticipated. [25] In summary, the business and legal relationships at this time were: (1) Mr and Mrs Stephens were franchisees from Subway Systems Australia and DAI of the Morayfield Subway store and Clontarf Subway store. They thus had a contractual relationship with those companies under the franchise agreements giving rise to rights and responsibilities. (2) Mr and Mrs Stephens were franchisees from Allied Brands International of the Baskin-Robbins store at Clontarf which was a combination store with the Clontarf Subway store. Mr and Mrs Stephens therefore had a contractual relationship with that company giving rise to rights and responsibilities. (3) Mr and Mrs Stephens were sub-lessees from companies associated with Subway and Allied Brands International of the sub-leases of the stores at Clontarf and Morayfield. (4) Shaykar was the beneficial owner of the franchised businesses conducted at Morayfield and Clontarf. There was a contractual relationship between Shaykar negotiated on its behalf by Mr Alborn and Mr and Mrs Stephens to this effect. Shaykar was liable pursuant to that agreement to pay Mr and Mrs Stephens’ liabilities under the franchise agreements and the sub-leases and the Stephens had a contractual duty to pay all income from the stores to Shaykar to generate income on behalf of Shaykar.2 (5) Mr and Mrs Stephens charged, and Shaykar paid, consultancy fees for them to manage the franchised stores for it. (6) (1) The Alborn Family Trust lent $195,053 to Shaykar for the purposes of the franchised businesses; (2) The Stephens Family lent Shaykar $40,000 for that purpose; and (3) Brendan Alborn and Karyn McLintock lent Shaykar $40,000 for that purpose. No agreement had been reached for how and when that money was to be repaid except that it was an interest only loan for a minimum of two years. (7) Each of the three sets of investors were shareholders in Shaykar and entitled to a one-third share of the profits made by Shaykar. 2 The scope of the Stephens’ fiduciary duty to Shaykar was defined by the obligations that they assumed in their contract with it and the fact that they were the legal owners of property of which Shaykar was the beneficial owner. It is however, as the defendants submitted, unnecessary to consider the nature and extent of any fiduciary duties owed by Mr and Mrs Stephens to Shaykar because of the subsequent changes to the contractual relationship between them dealt with later in this judgment which discharged any fiduciary duties owned by the Stephens to Shaykar. -- 7 of 22 -- 8 (8) It was understood between the shareholders that Mr Alborn on the one hand and Mr and Mrs Stephens on the other would use companies owned and controlled by them as vehicles for their respective liabilities and rights. Alborn purchases other Subway franchises [26] In December 1997 at Mr Alborn’s suggestion, his son, Rob Alborn, took over bookkeeping for the businesses. At the end of 1997 Mr Alborn and Mrs and Mrs Stephens discussed refinancing the external debt as the debt level had increased. [27] Mr Alborn met with the Stephens at their house in late 1997 and said he wanted to buy three Subway stores on the Gold Coast and asked Mr and Mrs Stephens to be the franchisees of those stores. He could not be the franchisee because he had not done the training. He said he would do the training within two or three months. These were existing stores and the franchisee was regarded as a bit of a trouble maker so Mr Stephens rang Mr Thorpe who confirmed that this was an opportunity to get the present franchisee out of the system. Those stores were at Broadbeach, Mermaid Beach and Burleigh Waters. [28] A franchise agreement with Subway Systems Australia with Richard Alborn and Mr and Mrs Stephens as franchisees was entered into with regard to the Mermaid Beach store on 23 October 1997 (#19330). There was no franchise fee due as it was a transfer of an existing store. Similar franchises were entered into for each of the Subway stores on the Gold Coast. [29] Neither Mr nor Mrs Stephens had any involvement in the operation of the Gold Coast stores and nor did they contribute any money towards their operation. The financial arrangement was that Mr Alborn told the Stephens that he had set up another company, not Shaykar, to manage those stores but because their names were on the franchise he gave them 10 per cent of the shares in the company. Mr Alborn took up a franchise of a number of other stores in the Brisbane South and Gold Coast regions. Apart from training staff for the Wynnum and Cleveland stores Mr and Mrs Stephens had no involvement in them and did not receive any money from them. The financial position of Shaykar [30] On 12 March 1998, a bill of sale was granted by Shaykar to Westpac Banking Corporation (“Westpac”) as agent for Australian Guarantee Corporation (“AGC”) over the store fittings and equipment for the franchised stores at Morayfield and Clontarf. This charge was registered with ASIC on 15 May 1998 and replaced the overdraft with the NAB. Mr Stephens gave evidence that he understood because of this that Shaykar owned the equipment in the stores, but not the businesses. However, this bill of sale is further evidence of Shaykar’s ownership not just of the fittings and equipment of the business but of the business itself. [31] On 23 June 1998 DAI sent a letter to Mr and Mrs Stephens terminating the franchise agreement (#19486) dated 23 January 1997 with regard to the Morayfield store because of a failure to comply with clauses 2 and 5(i): namely a failure to provide the royalty payment and a failure to provide monies for the advertising fund. The royalties said to be owing were $6,857.48 and Mr and Mrs Stephens -- 8 of 22 -- 9 were advised that they could cure the default by paying the monies prior to the tenth day after their receipt of the notice. [32] Mr Stephens said in evidence that he was unaware, prior to the receipt of that letter, that there were unpaid royalties to Subway. Mr Stephens contacted Mr Rob Alborn who confirmed that royalties had not been paid. Mr Stephens contacted the Queensland office of Subway Systems Australia to organise a repayment plan. Mr Richard Alborn told Mr Stephens that he was holding back on payments to build up some cash flow. Mr Stephens said he started receiving calls from other suppliers who had bills that were overdue and he was told by Rob Alborn that they would be paid when cash flow allowed. Mr Stephens said during the second half of 1998 once those issues arose he asked for profit and loss and monthly reports which he had been promised from Rob Alborn but did not receive them on a regular basis. [33] Although the profits from Shaykar were to be shared in the proportion of one-third to each of the investors, by October 1998 there had been no profit to share. [34] On 8 January 1999 a meeting of Shaykar was held at the Beenleigh Subway. Those present were Mr and Mrs Stephens, Richard Alborn and Brendan Alborn. Brendan Alborn said he and Ms McLintock would like to withdraw their loan from the company as soon as possible. The two year minimum period of the loan had expired. He was told that Shaykar was not in a position to repay any loan funds at that time. The management accounts for the year ended June 1998 showed losses of $90,000. The draft of the management accounts for the six months to December 1998 showed losses of $4,000. It was said that the consultants’ fees together with the rental costs were making the stores unprofitable. It was decided to sell the Clontarf store. It was put in the hands of a broker to sell but failed to sell. Mr Stephens mentioned at the meeting the prospect of taking on another Subway franchise at Kallangur which had been offered to him. The financial position of the Gold Coast and Brisbane South franchises [35] It appears that the Subway stores on the Gold Coast and the Brisbane South region managed by Mr Alborn did not prosper financially. On 11 February 1999, with the concurrence of Mr and Mrs Stephens, Mr Alborn wrote to SDQ on the letterhead of Subway South-East Holdings Pty Ltd referring to a discussion he had had with Mr Thorpe about the restructure of their franchise agreements. He said that they wanted the removal of Mr and Mrs Stephens from three franchises in the Brisbane South area: #20156,3 #200056,4 and #20232.5 He also said he wished to withdraw his name from five franchises in the Gold Coast region: #17446,6 #14601,7 #19330,8 #192689 and #19484.10 He also requested Mrs Stephens be removed from all franchises including Morayfield and Clontarf. [36] On 12 March 1999, Mr and Mrs Stephens and Mr Alborn wrote to DAI asking for the names of Mr and Mrs Stephens to be removed from seven franchises: 3 He may have meant #20146, Wynnum. 4 Cleveland. 5 Beenleigh. 6 Burleigh Waters. 7 Broadbeach. 8 Mermaid Beach. 9 Nerang. 10 Robina. -- 9 of 22 -- 10 Broadbeach (#14601), Burleigh Waters (#17446), Mermaid Beach (#19330) and Robina (#19484) in the Gold Coast region; and Cleveland (#20056), Wynnum (#20146) and Beenleigh (#20232) in the Brisbane South area. They also requested Mrs Stephens be removed from Morayfield (#19486) and Clontarf (#19547). Mr Stephens could not recall receiving any response to that letter. [37] In the meantime, Mr Stephens formed a company, AS&L, the second defendant, to manage the Kallangur store and negotiated with a view to his becoming the franchisee. On 30 April 1999, Ms Lee from DAI said in answer to a request from Mr Stephens that he could proceed with the new franchise but strongly advised that he not proceed until the situation with Mr Alborn’s stores was straightened out. [38] However on 25 May 1999, Ms Lee told Mr Stephens that his request for another franchise was to be denied until the Clontarf store (#19547) submitted breakfast Weekly Inventory Reports (“WISR”) for March and April. [39] On 16 August 1999, Shaykar wrote to Subway System Australia asking for compensation in the amount of $43,000 for the Morayfield (#19486) and $17,500 for the Clontarf (#19547) stores. Agreement to split ownership of Morayfield and Clontarf stores [40] Mr Stephens gave evidence that he was granted the Kallangur franchise in June or July 1999 and it commenced operating in mid September 1999. Mrs Stephens gave evidence that the Kallangur store opened on 16 September 1999. [41] Mr Stephens gave evidence that a few nights after they opened the Kallangur store (he said in mid August, but must have meant in mid September), Mr Alborn came to see him and Mrs Stephens at the Kallangur store. Mr Alborn said that he was in deep trouble with creditors and wished to extricate Mr and Mrs Stephens from Shaykar to protect them. He suggested that Mr Stephens resign as a director and that he would get Ms McLintock also to resign as a director. Mr Alborn suggested that they split the stores so that Mr Alborn took over operating the Clontarf store and Mr Stephens continued to operate the Morayfield store. Mr Stephens agreed. They agreed that the new arrangement would commence on 30 September 1999. Mr Stephens said the discussion was only about splitting operation of the business; ownership of the businesses would still be governed by the franchise agreements. At this point Mr and Mrs Stephens were still the franchisees and sub-lessees with regard to both stores and Shaykar was still the beneficial owner. [42] Mr Alborn did not give evidence at all so the court did not have the advantage of hearing his version. The findings of fact are based on documentary evidence particularly contemporaneous documents and the oral evidence of Mr and Mrs Stephens to the extent to which that oral evidence was reliable. As their evidence of oral communication between Mr Alborn and Mr and Mrs Stephens was uncontradicted by any oral testimony from Mr Alborn it was much more likely to be accepted 11 unless contradicted by contemporaneous written documents. [43] The most reliable contemporaneous record of what occurred in September 1999 is found in a series of emails sent by Mr Alborn to Ms McLintock and/or Brendan Alborn. These emails are reproduced with the spelling and grammatical mistakes 11 Jones v Dunkel (1959) 101 CLR 298 at 308. -- 10 of 22 -- 11 found in them. On 14 September Mr Alborn sent an email to Ms McLintock saying that he and Mr and Mrs Stephens “have come up with a solution to our problem with Shaykar.” He said he would like to talk to her and Brendan Alborn by telephone to explain. On 16 September, Mr Alborn emailed Ms McLintock and Brendan Alborn as follows: “Thanks for listening to ‘The idea’ to clean up our common problem. I may not have really explained with clarity the reasons and the results etc. etc. It is a little difficult to bring people up to speed on such a very complex and involved situation such as the ‘Subway Saga’ Like where it went wrong, why, what, we got sucked into and all of that sort of stuff. We all made the decisions with the information we had at the time. We are all interwoven into something that needs to be finalized and cleaned up. Bottom line is probably that Ray feels confident he can make a go of it with the system (It is a good business system it just had some corrupt people involved when we got involved) The store that is causing “us all” a problem is Clontarf. What I said I will be in a position to do is to fight dirty to take it to the Head animal etc. etc. What I also neglected to say is that is the worst case scenario. I will make a few changes and will try to reduce costs and continue to run the store and to make money if at all possible. I will not have the overheads of Ray, Glen and Russell This will free up a little extra because I can replace their wages with cheaper staff etc. I will then be in a position to put the outstanding debtors on a repayment plan to enable the thing to continue to trade. I will at the same time continue to try and sell at a price that will give us our money back. I will also be ‘playing dirty’ against the a/Landlord and b/Subway and baskins and Robbins for the ‘False and misleading information that lead us into this situation. It is hard to explain things as to reasons etc on short phone calls. Please dont hesitate to question. It might not be a happy solution for all of us but at least it starts the clean up of the interwoven mesh.” [44] On 18 September Mr Alborn again emailed Brendan Alborn and Ms McLintock setting out his plan: “I had a meeting with one of the suppliers yesterday that is owed $37K and is the main supplier and who has already put a demand on Shaykar for payment. He is very nervious (with good reason) because of what has happened with the Subway store to date. I explained to him the outline of the proposal. He wasn’t to happy but is thinking about his position. He is owed a lot of money from my stores as well which he will not realize. I have him thinking about supporting me to attack Subway by assisting with lawyers costs. I believe that is the only way he will get his money so we will wait and see what he decides. -- 11 of 22 -- 12 Have you any more thoughts about the situation? I will be talking it over with Ray today. I will get him to resign as a director and yourself as well Karyn. Then I am the only little black duck that is exposed under Aust Corporation law. I will need to either sell or keep the store trading for at least 6 months to ensure you guys are clear. Look the whole situation is that complicated with this Subway thing please believe me I will inform you how it is travelling and what I am doing to try and recover our money. But it is best that Ray and Glen are isolated as well.” [45] On 20 September 1999, Mr Alborn emailed Ms McLintock as follows: “I will keep you informed as to what is happening and when, how & why. As regards the Resignation I need you to just write a letter to me Stating you resign as a Director of Shaykar effective from the date of the letter. The legal implications are very simple. You as a Director are liable for the conduct of the company whilst you remain a director BUT when you resign you remain liable until the company has continued trading for 6 months. The possibility of them (Being suppliers or Australian securities commission) wanting to track you down for misconduct or illegal trading is not really a possibility but I am just closing all doors. I regard to any further liabilities and if anymore than the initial investment is at risk. Then the answer is NO. You haven’t signed any personal guarantees and when you resign as a director and the 6 months passes then you are not liable for anything at all. Again a reason to close the door. The initial reason for you being a director was to ensure that you received the up to date information (HA, Ha. That worked didn’t it) I am not going to defend Ray & Glen but they are also taking the correct share of the debt and they will have to work hard to clear it. I am disentangling everyone but myself. As I have explained to them we were all caught in a big load of bullshit job done by M. Thorpe and J. Brice the 2 people that sucked me into Subway. Ray and Glen (Ray more so) feel they can make it work with what experience and the system cleaned up. I have divorced myself from that decision and whish them luck and love. All I want to do is to get us all clear. Karyn my Sweet I do understand the significance of the $20k to you and I will also be working to get it out as you well know BUT believe me I will receive payment from Subway by way of compensation for the false and misleading information and it will contain the losses you and I have suffered.” [46] On 22 September, Mr Alborn sent another email to Ms McLintock and Brendan Alborn saying with regard to 21 September 1999: “Explained the reason for need of resignation to Karyn. Karyn has accepted the reason and is processing that for me. Ray Stephens and Rick attended a meeting with Accountant (Ray Frazer) to look at the best possible way of extricating Morayfield and Ray & Glen from the situation to allow me to do what I have to do. -- 12 of 22 -- 13 The conclusion is that because of the financial climate at this stage will NOT allow us to approach AGC (Shaykars financier) to split the loan. Therefore Ray will NOT be able to extricate himself from the personal guarantees he has in place for Shaykar. Accepting that situation is fine because bottom line that is what it is. We went through a lot of “What if “ scenarios that I will NOT try to recreate unless you feel the need to know. It was decided for me to Tackle Subway and Baskins to have Rays name removed from the franchises. (I had arranged a meeting with Subway later that day.) Ray is to resign as a director and also supply the last 12 months Sales figures on Morayfield to Ray Frazer. This will enable him to put a value on the Morayfield store that we have ‘Sold’ it to them for. This prevents any comeback by suppliers that they have had a ‘preference’ payment IF I decided to sink Shaykar in 6 months. It was agreed also that R&G pay the Morayfield share of the AGC Loan and the agreed suppliers debts surrounding Morayfield. There could be stamp duty costs and Ray F is checking with a lawyer about that and the best way to go about this. I meet with Subway Australia after that and requested for Ray’s name to be removed from the Franchise document. The representative agreed to look at how he could do that. That is about Shaykar lot at the moment. I will be discussing more with Ray S today to clarify a few things as regards the timing etc.” [47] Mr Stephens and Ms McLintock did resign as directors of Shaykar on 30 September 1999. ASIC was notified of this change on 13 October 1999. [48] In early October 1999, Mr Alborn and Mr and Mrs Stephens met at the Stephens’ house to talk about arrangements for the Morayfield store. Mr Stephens said he and Mrs Stephens would be responsible for the debt to AGC for the lease of the equipment in that store. Mr and Mrs Stephens said they would take over responsibility for all of the debts of the Morayfield store and they would forego the $40,000 contribution they had made to Shaykar. Mr Alborn said the value of the equipment at Morayfield was $100,000. Mr Alborn said he would contact Brendan Alborn and let him know. [49] Mrs Stephens said the arrangements were as follows: “Because we sat out back of our house and we discussed the details and Rick put a price on the stores. He thought at that time they were worth about a hundred thousand and we discussed he would take over the management of one store and we would take over the management of the other and he said, if we relinquished our $40,000 loan into Shaykar and paid off the debts of the store and we had chosen Morayfield, essentially that store would be ours and ---- All right? -- ----- we would still try to sell the Clontarf store and they would take that over.” [50] She said she was concerned because she thought Brendan Alborn and Ms McLintock had not been consulted and were not aware of what had been agreed. -- 13 of 22 -- 14 [51] Mr Stephens recorded in his business diary the following notes of that meeting which he said took place on 9 October 1999. He said the notes were written within an hour of the meeting and were an accurate record of what was agreed. In evidence he agreed with the proposition that when he made the diary entry he was conscious that there could be no agreement unless and until Brendan Alborn and Karyn McLintock agreed to what was discussed. He also agreed that he had never heard anything to suggest they had agreed. However it can be seen from Mr Alborn’s emails that he had kept them informed. Mr Alborn was acting on behalf of Shaykar and Brendan Alborn and Ms McLintock in his negotiations with Mr and Mrs Stephens. The diary records: “Had a meeting with Rick tonight over prices for Morayfield & Clontarf Stores. (Value of equipment) After a discussion we agreed on $100,000 per store. Rick concerned with AGC repayment. - Agreed to continue Morayfield’s AGC repayment to Shaykar - Take on Morayfields debt - Relinquish $40,000 of our shareholders loan to Shaykar - All felt that it was fair arrangement. Rick to tell Brendan.” [52] Mr Stephens said in evidence that a payment would be made into Shaykar’s account every month from the income of the Morayfield store, as had always been the case, to pay AGC for the lease of the equipment so far as it related to the Morayfield store. He said the Clontarf store’s contribution “would continue as normal”. [53] The meeting concluded with the common understanding that they would see the company’s accountant, Mr Frazer, to work out the details and document the agreement. That meeting took place. They were however never able to agree on the details. The solicitors, Nicol Robinson Halletts, were retained by Shaykar in 1999 to document the agreement but the parties were not able to do so. [54] On 28 October 1999, Peter Townley a solicitor with Nicol Robinson Halletts wrote to Mr Alborn seeking his instructions on various matters. Mr Alborn’s responses give an insight into his views at the time. Those queries and Mr Alborn’s responses (italicised) are as follows: “Please supply the following additional information so that I can progress the sale of the Morayfield Subway store. 1. Are you keeping Shaykar and transferring the business to Ray and Glen, or are they keeping Shaykar and transferring the business to you? I think the former would be more likely to work. You are unlike to get approval from Subway to transfer anything; Yes I am keeping Shaykar and Transferring the Morayfield business to Ray and Glen. I am not going to seek approval from Subway just isolate Ray & Glen from the business of Clontarf Except for Ray being the ‘nominee Franchise holder’. 2. Assuming that you are going to keep Shaykar, will there be a transfer of underlying shares in that company, so as to give you full ownership and control? Should we put the shares in -- 14 of 22 -- 15 the name of Alborn Family Corporation Pty Ltd? (I assume that we should). Yes. I will take control. Yes transfer to AFC. We have other Shareholders who have approved this>Brendan Alborn and Karyn McLintock (She has resigned as a director as well.< 3. Will Ray and Glen organise the transfer of the franchise and the issue of a new sub-lease from Subway, or should you or I be involved in that? My feeling is that if you or I stick our nose in, we are likely simply to complicate matters. You and I are not welcome names in Subway for some unknown reason!!! But we will leave it as is and attempt to sell the business and have Ray as Shaykers ‘Nominee’ Subway will object if or when we push that point and I know we haven’t approval in writing Peter BUT it was written in the approved business plan as forwarded to MT.!!! I don’t think If a fight comes DAI will ever want me in court! 4. What will be the residual value of Shaykar after the business is transferred? The best approach would probably be to transfer the business and then transfer the shares, which would reduce the value of the shares and so the stamp duty payable on that transfer. Question to hard check with Ray F But I agree with the transfer of the Morayfield Business and that leaves me with a Loss making Store business value Low and Share values Nominal 5. Should the Contract be subject to finance or any other conditions (aside from Subway approval)? No approval for finance. They have a $40,000 loan to the Company and they are taking it for that and debt!! 6. Are Ray and Glen assuming any liability for any unpaid debts of the business (eg supplies)? Yes. Suppliers of approximately $25,000. And AGC proportion of $60,000??? 7. What should be the settlement date? !st October? Check with Ray F 8. Have you authorised Ray Frazer to provide me with all the information I need (including copies of documents and so forth)? Yes -- 15 of 22 -- 16 9. Are there any charges, debts or liabilities which will need to be discharged so as to transfer a clean title to Ray and Glen? Is it OK if I do a company search to confirm this? AGC have a charge and we have enquired and they will NOT release Ray yet. 10. Are that any other little details that you can think of that we need to tidy up at the same time? This really is the best I can do to relieve Ray of as much responsibility as possible as he has resigned as a director. 11. Am I correct in assuming that you will be the sole director/secretary of Shaykar? Yes.” [55] So the question arises as to whether or not there was an agreement at all and if so, who were the parties to that agreement and what was agreed? Because of the family relationship and the initial mutual trust between the parties these matters were not the subject of the sort of formality one might expect between arms length parties in commercial relationships. [56] As Heydon JA (as his Honour then was) observed in Bramble Holdings Ltd v Bathurst City Council: 12 “While the process by which many contracts are arrived at is reducible to an analysis turning on the making of an offer, the rejection of the offer by a counter-offer and so on until the last counter-offer is accepted, that analysis is neither sufficient to explain all cases. Offer and acceptance does not work well in various circumstances… despite what Lord Greene MR observed of the practice: ‘Parties become bound by contract when, and in the manner in which, they intend and contemplate becoming bound. That is a question of the facts in each case…’(Eccles v Bryant and Pollock [1948] Ch 93 at 104).” [57] Whatever agreement was reached was never documented. That does not mean there was no agreement. This was not a situation like the third class of contract in Masters v Cameron (1954) 91 CLR 353 at 360 where the intention of the parties was not to make a concluded bargain at all, unless and until they executed a formal contract. [58] The parties made a concluded bargain between themselves. There was objectively a mutual intention to change their legal relationship, the agreement was sufficiently certain to be enforceable and there was consideration for the agreement. They intended to document that agreement between themselves. The agreement between the parties did not depend on that documentation and was binding without documentation. It was therefore akin to the first class of case identified in Masters v Cameron. 12 (2001) 53 NSWLR 153 at [71] -- 16 of 22 -- 17 [59] The parties also agreed to endeavour to change their legal relationships with third parties to reflect their changed legal relationship inter partes. No change could happen to any agreement with third parties, the franchisors, sub-lessors and financiers, without documentation. That did not happen because they were unable to change the legal liabilities of Mr and Mrs Stephens or of Shaykar to third parties. [60] What was agreed between Mr Alborn and Mr and Mrs Stephens was: (1) That Mr Stephens would resign as a director of Shaykar; (2) That Mr Alborn would take over the day to day responsibility for the management of the Clontarf store on behalf of Shaykar; (3) That Mr and Mrs Stephens, or their company, would take over the day to day management of the Morayfield store; (4) That Mr and Mrs Stephens’ company would become the beneficial owner of the Morayfield store in place of Shaykar in exchange for foregoing any right to the $40,000 Mr and Mrs Stephens had invested to Shaykar and taking on the responsibility of meeting Shaykar’s debt to AGC in respect of the equipment in the Morayfield store and other debts owing by Shaykar in respect of the Morayfield store. [61] This was the consideration for the transfer of the beneficial ownership of the Morayfield franchise from Shaykar to AS&L. Neither Mr nor Mrs Stephens thereafter had any control over Shaykar. [62] They also agreed they would endeavour to extricate Mr and Mrs Stephens from Shaykar’s liabilities for which they were personally responsible. This was not able to happen for a number of reasons. Mr and Mrs Stephens continued to be the franchisees of both the Clontarf and Morayfield stores and the sub-lessees. They were not able to be released from these personal obligations. Although Shaykar no longer managed both stores, the liability of Shaykar to AGC was unable to be split. So the outcome of the agreement was that the day to day responsibility for the operation of the two stores was split, Mr Stephens was no longer a director of Shaykar, but the legal liabilities of Mr and Mrs Stephens under the franchise agreements and the sub-leases remained the same and the legal liability of Shaykar to AGC remained the same. Shaykar remained the beneficial owner of the franchise business operated at Clontarf by Mr Alborn and AS&L became the beneficial owner of the franchise business operated at Morayfield by Mr and Mrs Stephens. Mr and Mrs Stephens no longer had any contractual or fiduciary duty to pay the income from the operation of the business of Morayfield to Shaykar and they no longer operated the business at Clontarf. [63] From that time, the parties acted in accordance with the agreement that had been made. Mr and Mrs Stephens continued to operate the Morayfield store and the Clontarf store was run by a management team put in by Mr Alborn. At Mr Alborn’s request, Mr Stephens called in once a week to liaise with the managers and report back to Mr Alborn. A communication from Mr Alborn to Mr Stephens on 2 November 1999 makes reference to the manager at Morayfield, “Leanne”, asking if she had been taken off Shaykar’s books. Mr Stephens said that her wages were by then being paid by his company, AS&L, rather than by Shaykar. AS&L also took over all of the Morayfield store’s debts after 1 October 1999. -- 17 of 22 -- 18 [64] On 20 October 1999, Mr Stephens sent a letter by facsimile transmission on letterhead of AS&L trading as Subway Morayfield informing Mr Frazer of the AGC payout figure and amount of unpaid bills outstanding from suppliers. A note on the file by Mr Frazer on 16 February 2000 refers to the amount of royalties and holiday pay owing on 1 October 1999 when the Morayfield Subway was taken over by the R&G Trust. In order to pay the debts, Mr and Mrs Stephens stopped paying themselves consultancy fees, went back supply teaching and made arrangements with their creditors who were all eventually paid. [65] On 10 February 2000, Mr and Mrs Stephens received a notice from Subway Systems Australia terminating the Clontarf franchise, #19547, for failure to pay royalties and advertising in the sum of $8,423.88. Mr Stephens said that in accordance with his duty as franchisee, he contacted the collections office to propose a repayment plan. The repayment plan was dated 21 February 2000 and signed by Mr Stephens. In the document he acknowledged: “I, RAY STEPHENS HEREBY AGREE TO THE ABOVE TERMS OF PAYMENT. I ACKNOWLEDGE THAT AS OF THIS DATE I HAVE NO CLAIMS AGAINST SUBWAY SYSTEMS AUSTRALIA PTY LTD AND MY DEVELOPMENT AGENT AND IN CONSIDERATION OF SUBWAY SYSTEMS AUSTRALIA PTY LTD ALLOWING THIS PAYMENT PLAN I RELEASE SUBWAY SYSTEMS AUSTRALIA PTY LTD AND ITS EMPLOYEES AND AGENTS FROM ANY CLAIM I HAVE OR MAY HAVE AGAINST THEM AS OF THIS DATE.” [66] He intended that Shaykar would make the payments in the repayment plan. He had no authority to make such a commitment on behalf of Shaykar. However as Mr and Mrs Stephens were still the franchisees of the Clontarf store, the communication from the franchisor was with them personally. [67] When Mr Stephens informed Mr Alborn of what he had done, Mr Alborn was astonished and said that he had suspended paying royalties to Subway because of his claim against Subway and that Shaykar did not have the capacity to meet the repayment programme agreed to and pay its other debts. [68] On 7 March 2000, a document was published for the sale of the Subway/Baskin- Robbins store at Clontarf. Mr Stephens said he prepared it in consultation with Mr Alborn. It says that the reason for the sale was that two of the directors of Shaykar, owner of Subway/Baskin-Robbins Clontarf, wished to take their investment out of the company so a decision was made to sell the store. [69] Mr Stephens said that this was designed to give effect to the meeting at Beenleigh in January 1999 to sell the Clontarf store to repay Brendan Alborn and Karyn McLintock the money they had put into Shaykar. [70] It said, inter alia, that the personal involvement of the franchisees in the operation of the business was around two hours a week in administration only. This was quite at odds with other figures provided by Mr Stephens for other purposes including those provided to Mr Vincent, the joint expert engaged by the parties for the purposes of this trial. His explanation was that it must have been a typographical error. However an earlier version of that document printed on 12 April 1999 says “the present Franchisees [sic] personal involvement in the operation of the business -- 18 of 22 -- 19 is currently around 25 hours per week, shift and administration work.” A later version printed on 5 March 2000 has changed that to show, “the present Franchisees [sic] personal involvement in the operation of the business is currently around 2 hours per week in administration work only.” The change was not a typographical error but rather explicable by the fact that the 1999 version showed that the store was managed on a day to day basis by one person. The 2000 version said that the store was managed on a day to day basis by two managers. In 1999, Mr and Mrs Stephens had an active involvement which had ceased after 9 October 1999 in accordance with the arrangements made then. [71] It appears that Mr Stephens had dealings with Mr Frazer the accountant and Mr Mottram, a solicitor, with regard to the new arrangements for the Morayfield franchise. By this time Mr Frazer had joined the accounting firm of MSI Taylor. On 29 March 2000, Mr Frazer made a file note on the file for the client AS&L, as trustee for the R&G Morayfield Trust, to the following effect: “Spoke to Ray Re Morayfield Transfer and my conversation with Leigh [Mottram] – no contract would be binding – better off leaving as new manager – continue as franchisee – if the worst happened AS&L & Ray are logical buyers from AGC & an [sic] fair price has been paid by AS&L re take over of debts & relinquished debts etc.” [72] Mr Stephens said in evidence that the reference to the contract not being binding was a reference to the takeover of the Morayfield store generally but the content and context of the note show that it referred to the fact that it was not possible to transfer the liability of Shaykar to AGC to a liability of AS&L to AGC. However that does not mean that AS&L could not agree with Shaykar to meet that debt. It had so agreed. That contract was binding inter partes but did not of course bind AGC. Mr Stephens knew by then that attempts to document the agreement inter partes and with third parties had failed. He said in cross-examination that he at that time believed that further negotiations would see him reaching an agreement but agreed that he “did not believe for one moment that [he was] already in the position of having an agreement in place.” That concession was not consistent with the facts as they were. Mr Stephens was not a particularly articulate witness and I have concluded that his concession was in error if it was meant to suggest that there was no agreement inter partes. The concession was correctly made if it was meant to refer to an agreement with third parties. This “belief” cannot change the facts or the legal arrangements that were then in place. The Clontarf Subway/Baskin-Robbins store [73] On 28 April 2000, Mr Stephens received notice from Allied Brands International that the Baskin-Robbins franchise at Clontarf would be terminated on 31 May 2000 unless all outstanding royalties and advertising funds were paid by 21 May 2000. Mr Stephens contacted Mr Alborn who said he would take care of negotiations for a repayment plan. On 3 May 2000, Mr Stephens informed Allied Brands International that he had been the franchisee on behalf of Shaykar, that he had not been a director or shareholder of Shaykar since September 1999 and they should contact Mr Alborn. [74] In mid July 2000, Mr Alborn told Mr Stephens in a telephone conversation that he would have to close the Clontarf store as it was uneconomic to run. Mr Stephens told Mr Alborn that he thought it would be viable if it were run properly. Towards -- 19 of 22 -- 20 the end of that month, they had another telephone conversation where Mr Alborn reiterated his intention to close the Clontarf store. Mr Stephens said that if that was the case he would have to reopen it, because as franchisee he was legally and financially exposed. [75] On 31 July 2000 Mr Alborn drafted letters to Subway and Baskin-Robbins for Mr Stephens to send. That letter was sent to Ms Lee of DAI and also to Subway Systems Australia. It said that Mr Alborn, as director of Shaykar, had said that his company could no longer operate the Clontarf store and asked if he could hand over the keys to Subway Systems on about 14 August for Subway to take it over. He said they would like to negotiate a fair price for the equipment that was under lease with AGC. [76] Not long before 14 August 2000, Mr Alborn and Mr Stephens had another telephone conversation where Mr Alborn asked Mr Stephens not to reopen the Clontarf store once Mr Alborn left as Mr Alborn was attempting to crystallise his losses for all of his Subway stores to assist in his case against Subway. The Clontarf store closed on 13 August 2000. [77] Mr Stephens then reopened the Clontarf store. As franchisee and sub-lease, he had continuing legal liabilities to the franchisor and sub-lessor. He organised some key staff to come in early on 14 August 2000, do a stock take and count all the money that was in the store. In other words he recorded everything that belonged to Shaykar and then physically cleaned the store up, brought back all the staff, rang suppliers and told them what was happening. He said Mr Alborn was unhappy but knew what was going to happen. There was certainly no agreement between them at that time that Mr Stephens should take over the Clontarf store. In fact Mr Alborn was absolutely opposed to that and expressed that opposition to Mr Stephens. [78] At this point Mr Alborn and Mr Stephens had conflicting objectives. Mr Alborn wished to crystallise his losses. Mr Stephens had continuing personal liabilities as franchisee and sub-lessee if the stores were simply closed. Mr Alborn acting on behalf of Shaykar simply abandoned the Clontarf store. By its actions Shaykar showed it did not intend to honour its original agreement to pay for the liabilities of Mr and Mrs Stephens under the franchise or the sublease of the Clontarf store. [79] On 29 August 2000 Mr Alborn sent a facsimile to Mr Stephens with regard to Shaykar and Clontarf as it was two weeks since Mr Stephens had taken over the Clontarf store. He asked a number of questions about the financial arrangements. On 30 August 2000 Mr Stephens replied to Mr Alborn by email with a copy to a Walter Janus. He informed him about the stock take, the cash on hand, the arrangement to pay debts and rent. After Mr Stephens took over the operation of the Clontarf franchise, Mr Alborn had no further involvement in the operation of that store. From 14 August the staff were employed by AS&L. AS&L took over all of the liabilities. Mr Stephens did not make any cash payment to Shaykar for the value of the plant and equipment in the store or repay the costs of the fitout. [80] On 10 October 2001, Mr Stephens’ diary records: “Had a meeting with Rick [Mr Alborn] last night over prices for Morayfield and Clontarf stores. After discussion we all agreed on $100,000 price for each store, even though to us we own Morayfield -- 20 of 22 -- 21 anyway since we split of stores on 1/10/99. All of us stated it was a fair price and we would sort out the details after mediation.” [81] This diary note records an agreement reached between Mr Alborn and Mr Stephens as to how the beneficial ownership of Shaykar of the franchised stores was to be paid out to give effect to the severing of the contractual arrangements between the parties to this litigation. It is evidence that they agreed that Mr and Mrs Stephens (or a company of their behalf) would purchase the beneficial entitlement to the Clontarf store for $100,000. The agreement was made on 10 October 2001 and records an agreement that would operate from the time of the takeover of the Clontarf store by AS&L after it was abandoned by Shaykar. [82] Shaykar’s ABN, GST registration and PAYG withholding registration were cancelled from 1 October 2001. Mr and Mrs Stephens (or their company AS&L) had already effectively given $100,000 consideration for the Morayfield store made up of forgiveness of their $40,000 loan to Shaykar and taking on Skaykar’s liabilities to AGC and its other trade debts. In the case of the Clontarf store, Mr and Mrs Stephens did not pay $100,000 but they did take on Shaykar’s debt to AGC and its other trade debts. [83] Thereafter, the parties used outside advisers to try to sort out the legal effect of the events that had occurred. Unfortunately the effect was to confuse rather than elucidate. Whether because of inadequate instructions by the clients or incorrect advice by the advisers both took positions that were not in accordance with the facts. Mr Stephens insisted there had never been an agreement by which Shaykar was the beneficial owner of the franchises. Mr Alborn insisted that Shaykar remained the beneficial owner of the franchises. Both were wrong. [84] While it was true that Shaykar was originally the beneficial owner, the legal arrangements between the parties had altered so that Shaykar was no longer the beneficial owner of the stores. [85] The parties held to their positions and this litigation was commenced with a claim by the plaintiffs and defence and counterclaim by the defendants. [86] Not without some difficulty, the court has been able to ascertain what happened and the legal effect of those events as set out in these reasons. The agreement with regard to the Clontarf franchise [87] The legal effect of what transpired was that by 10 October 2001: 1. Mr and Mrs Stephens remained as franchisees and sub-lessees of the Subway store at Morayfield and the Subway/Baskin-Robbins store at Clontarf; 2. AS&L had been the beneficial owner of the Subway franchise at Morayfield from 9 October 1999; 3. AS&L was the beneficial owner of the Subway/Baskin-Robbins franchise at Clontarf from 14 August 2000; 4. The consideration for the transfer of the beneficial interest in the Morayfield store from Shaykar to AS&L was agreed at $100,000; 5. Mr and Mrs Stephens had no claim to repayment of the loan of $40,000 to Shaykar which they relinquished in part payment for the transfer of the beneficial interest in the Morayfield store; -- 21 of 22 -- 22 6. Mr and Mrs Stephens (or their nominee company) took on responsibility for repaying the part of the loan from AGC to Shaykar in relation to the bill of sale over the equipment in the Morayfield store and Shaykar’s other trade debts to complete payment for the transfer of the beneficial ownership of the interest in the Morayfield store from Shaykar to AS&L; 7. The consideration for the transfer of the beneficial interest in the Clontarf store from Shaykar to Mr and Mrs Stephens’ company, AS&L, was agreed at $100,000; 8. Mr and Mrs Stephens (or their nominee company) took on responsibility for repaying the rest of the loan from AGC to Shaykar (in relation to the bill of sale over the equipment in the Clontarf store) and Shaykar’s trade debts in relation to the Clontarf store in part payment for the transfer of the beneficial ownership of the interest in the Clontarf store from Shaykar to AS&L; 9. The remainder of the consideration, if any, for the transfer of the beneficial interest in the Clontarf store from Shaykar to AS&L remained unpaid; 10. Shaykar had no interest in any Subway store operated by Mr and Mrs Stephens, or any company nominated by them at Kallangur or Bribie Island. 13 Relief to be granted [88] It follows that the third plaintiff, Shaykar is not entitled to any of the relief sought in paragraphs 1-4 of the relief but only payment of the remainder, if any, of the consideration owing as at 10 October 2001 once the value of AS&L’s payment of Shaykar’s liability under its bill of sale to AGC and Shaykar’s trade debts is deducted from the agreed price of $100,000 together with interest on any such amount. Because of the result in these proceedings, it is not necessary to further consider the counter-claim. [89] The parties retained a joint expert, Paul Vincent, pursuant to r429G of the Uniform Civil Procedure Rules 1999, to value the parties’ interests in the Morayfield Subway, the Clontarf Subway, the Clontarf Baskin-Robbins, the Bribie Subway and the Kallangur Subway. Mr Vincent is an experienced forensic accountant. He was asked to value the franchise businesses at Morayfield, Clontarf and Bribie Island on the basis contended for by the plaintiffs, and denied by the defendants, that Shaykar was the equitable owner of those franchise businesses. That assumption was, as can be seen from these reasons, incorrect. [90] Mr Vincent agreed to do an accounting based on the facts as found by the court. If necessary, the matter will be referred to him for an accounting on that basis. I invite further submissions from the parties as to the manner of assessment of the remaining consideration, if any, to be paid by AS&L to Shaykar for the transfer of the beneficial interest in the Clontarf store to AS&L. I also invite submissions as to costs. 13 This franchise agreement was entered into between Mr Stephens and Subway Systems Australia on 2 May 2007. -- 22 of 22 --