New South Wales Supreme Court CITATION : Alpha Centauri Enterprises Pty Ltd v Mortgage House of Australia Pty Ltd [2009] NSWSC 333 HEARING DATE(S) : 27, 28, 29, 30 April 2009; 11, 12, 13, 14, 15 & 18 May 2009 JUDGMENT DATE : 12 June 2009 JUDGMENT OF : Hammerschlag J DECISION : Summons and Cross Claim dismissed. Plaintiffs to pay the defendants' costs of the proceedings, except for the costs of the cross claim. Cross claimants to pay the cross defendants' costs of the cross claim. CATCHWORDS : CONTRACTS – rectification – whether agreements between the plaintiffs and defendants should be rectified to include a higher commission rate and an entitlement to 'telephone diversion leads' – held that there was no intention on the part of the defendants to include such terms in the contracts - general contractual principles - discharge, breach and defences to action for breach – whether the defendants breached express and implied terms of agreements between them and the plaintiffs – whether the defendants' termination of the agreements was valid and effective – defendants cross-claimed that the first plaintiff had breached express terms of the agreement between the parties – held that the first plaintiff had breached a term of the agreement but that the defendants had not established that any loss flowed from that breach - construction and interpretation– held that the defendants' construction of terms of the agreements between them and the plaintiffs was to be preferred as it accorded with the words used, and gave the terms a 'reasonable and sensible' meaning - TRADE AND COMMERCE - Trade Practices Act 1974 (Cth) and related legislation – whether the defendants had engaged in deceptive or misleading conduct or conduct likely to mislead or deceive in breach of s 52, in relation to the contents of agreements between the plaintiffs and the defendants and whether the first plaintiffs had established that it had suffered any damage as a result of any such conduct - whether the defendants had engaged in unconscionable conduct in breach of s 51AC, through engaging in misleading and deceptive conduct and failing to comply with disclosure requirements under the Franchising Code of Conduct - enforcement and remedies – whether the first plaintiff had proved any damage flowing from any misleading or deceptive, or unconscionable conduct on the part of the defendants - DAMAGES - assessment where the parties fail to provide raw material to which reference can be made to assess loss - STATUTES - by-laws and regulations – construction – whether the agreements entered into by the defendants and the plaintiffs were 'franchise agreements' under cl 4(1) of the Franchising Code of Conduct – whether the first plaintiff had voluntarily abandoned a franchise business or relationship under cl 23(c) of the Franchising Code of Conduct. LEGISLATION CITED : Trade Practices Act 1974 (Cth) Corporations Act 2001 (Cth) CATEGORY : Principal judgment Muriti v Prendergast [2005] NSWSC 281 at [105] Briginshaw v Briginshaw (1938) 60 CLR 336 Helton v Allen (1940) 63 CLR 691 Rejfek v McElroy (1965) 112 CLR 517 Watson v Foxman (1995) 49 NSWLR 315 Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Pty Ltd (2000) 104 FCR 253 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 Kabwand Pty Ltd v National Australia Bank Ltd (1989) ATPR 40-950 Marks v GIO Australia Holdings Limited (1998) 196 CLR 494 Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 Placer (Granny Smith) Pty Limited v Thiess Contractors Pty Limited (2003) 77 ALJR 768 CASES CITED : Sellars v Adelaide Petroleum NL & Ors (1994) 179 CLR 332 The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 Malec v JC Hutton Pty Ltd (1990) 169 CLR 638 Troulis v Vamvoukakis (Unreported) NSW CA 27/2/1998 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 Burger King Corporation v Hungry Jack's Pty Ltd (2001) 69 NSWLR 558 Far Horizons Pty Ltd v McDonald's Australia Ltd [2000] VSC 310 Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 Apple Computer Australia Pty Ltd v Mekritzis & Ors (2003) 44 ACSR 518 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 Wenham v Ella (1972) 127 CLR 454 Smith v Smith [1991] FLC 78,753 TEXTS CITED : Meagher, Gummow and Lehane's Equity Doctrines & Remedies, 4th ed (2002), Butterworths LexisNexis Alpha Centauri Enterprises Pty Ltd ACN 052 158 255 (First Plaintiff) Robert Alan Duncan (Second Plaintiff) PARTIES : Mortgage House of Australia Pty Ltd ACN 081 508 054 (First Defendant) Direct Mortgage Solutions Pty Ltd ACN 089 173 482 (Second Defendant) Mortgage House Broker Services Pty Ltd (formerly Array Home Loans Pty Ltd) ACN 096 357 596 (Third Defendant) Mortgage House Realty Pty Ltd ACN 088 962 725 (Fourth Defendant) FILE NUMBER(S) : SC 50041/2005 COUNSEL : P.H. Greenwood SC (Plaintiffs) T.G.R. Parker SC with A.R. Zahra (Defendants) SOLICITORS : Mooney & Kennedy (Plaintiffs) Gokani & Associates Legal (Defendants) - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST HAMMERSCHLAG J 12 JUNE 2009 50041/05 ALPHA CENTAURI ENTERPRISES PTY LTD ACN 052 158 255 V MORTGAGE HOUSE OF AUSTRALIA PTY LTD ACN 081 508 054 JUDGMENT INTRODUCTION 1 HIS HONOUR: The defendants are members of a group of companies known as Mortgage House. They carry on business as mortgage managers and originators through a branch network on the eastern seaboard of Australia. 2 For a little over four years the first plaintiff ("Alpha Centauri"), pursuant to four successive written Business Partner Agreements with the defendants, operated a Mortgage House branch on the Gold Coast of Queensland. 3 By Fifth Further Amended Summons ("the Summons"), Alpha Centauri claims rectification of two of those agreements, damages for their breach, and damages which it says it suffered by conduct on the part of the defendants which it alleges was misleading or deceptive or likely to mislead or deceive in contravention of s 52, or unconscionable in contravention of s 51AC, of the Trade Practices Act 1974 (Cth) ("the Act"), together with ancillary relief. 4 The second plaintiff, Mr Robert Duncan, who controls the first plaintiff, claims no relief in his own right. 5 The first defendant Mortgage House of Australia Pty Ltd, cross claims against Alpha Centauri for damages for breach of the agreements and it sues Mr Duncan as guarantor for Alpha Centauri's obligations. APPROACH TO THE FACTS AND CONSIDERATION 6 Because the complaints and counter complaints made in this suit span close to four years and range across a number of different albeit related subjects, a single chronological narrative would not facilitate an easy understanding of the issues. 7 Accordingly, the approach I have adopted is to begin with a brief history of the agreements and the setting against which the parties entered into them, then to set out the facts pertinent to the various disputes and to end with a narrative of the events leading up to the termination of the parties' contractual relationship. 8 I will deal with each of Alpha Centauri's claims generally in the order in which relief with respect to each is claimed in the Summons. Certain claims were not pressed. Findings in relation to some of the claims will be pertinent to resolution of others. I will deal last with Mortgage House's cross claim. FACTUAL BACKGROUND The Players 9 Alpha Centauri was established in 1990 and initially engaged in importing and wholesaling fine jewellery. 10 In 1996, Mr Duncan established a company called Alpha Centauri Wines Pty Ltd ("Alpha Centauri Wines"). He was its Chief Executive Officer from 1996 onwards. 11 For some months until June 2001, through Alpha Centauri Wines, Mr Duncan worked for Wizard Home Loans (a non-bank mortgage lender) as a mobile lending manager. 12 Each of the defendants is a subsidiary of Global Mortgage Equity Corporation Pty Ltd ("Global") of which Mr Kenneth (Ken) James Sayer is the sole director and majority shareholder. Mr Ken Sayer's son, Mr Neil Sayer, also works for the group as a system analyst and administrator. Unless otherwise indicated, references to Mr Sayer are to Mr Ken Sayer. 13 The first defendant was at all material times a mortgage originator and mortgage manager, lending money at the retail level through branches it owned itself and branches privately owned by others with whom it had Business Partner Agreements. All branches used the Mortgage House name. It had arrangements with lenders (mostly banks) which enabled "badged" facilities to be offered to borrowers. 14 The second defendant ("DMS") was at all material times a mortgage originator and mortgage manager lending money through referrals from third parties such as brokers and introducers. The brokers "on sold" the "products" under the name Direct Mortgage Solutions to customers. 15 The third defendant ("Array") was previously known as Array Home Loans Pty Ltd. At all material times it was a mortgage broker seeking funding for brokers and Mortgage House branches for customers where the first defendant would not accept a loan application. 16 The fourth defendant ("MHR") was at all material times a real estate agent. 17 Paladin Wholesale Funding Pty Ltd formerly Pr1me Pty Ltd ("Prime") is a subsidiary of Global. At all material times it carried on business as a mortgage originator and provider of associated services. Prime entered into Origination Agreements with parties (originators) who undertook to assist Prime in originating mortgage loans. One of those originators was Mortgage Street Financial Services Pty Ltd. 18 The first defendant in its own right and the group of companies are both commonly referred to as Mortgage House. 19 For the most part it is not necessary to distinguish between the various defendant entities. I will use the expression Mortgage House to refer to the defendants collectively, unless it is necessary to distinguish between them. "MHA" is reference to the first defendant. 20 Forevision Pty Ltd ("Forevision") is a subsidiary of Global which at all material times provided management and workflow process services. 21 At all material times the Head Office of Mortgage House was at 9-11 Argyle Street, Parramatta ("Parramatta"). The 2001 agreement 22 In the middle of 2001 Mr Duncan, on the suggestion of a long time friend, Joan Bishop, called Mr Sayer with a view to becoming a Mortgage House branch on the Queensland Gold Coast, where Mortgage House at that time did not have a presence. 23 Mr Sayer referred Mr Duncan to Mortgage House's Business Development Manager, Mr Phil Lagana. On Mr Lagana's suggestion, Mr Duncan sent his CV to Mr Lagana. Mr Duncan also sent to Mr Lagana a business plan dated June 2001. 24 On 12 June 2001 Mr Duncan and his wife Mrs Heather Duncan, flew to Sydney and met with Messrs Sayer and Lagana. 25 At this meeting Mr Lagana told Mr Duncan of Mortgage House's Electronic Mortgage Management System ("EMMS"). Mr Duncan says a conversation to the following effect took place: ROBERT DUNCAN: Phil, as you well know the breakdown in processing of deals with Wizard was a core reason many Loan writers left that organization. They couldn't get straightforward deals over the line in time! So how can I be sure it won't happen like that here? PHIL LAGANA: Mortgage House has an in-house IT system called EMMS which tracks everything within the time lines needed to settle the deal. Only MHA Branches have access to this brilliant system so there's no need to worry. Your deals will settle and you will have an advantage over your competitors, who don't have EMMS! You will need broadband and we will give you access on a virtual private network 'vpn' which will be very secure for us all. ROBERT DUNCAN: Okay, so how does the 133 144 diversion actually work? I see clearly that is the key leads-generation mechanism, particularly in response to TV or other advertising campaigns. This is primarily what this business is based on, right? PHIL LAGANA: Yes, MHA advertises uses the 133 144 number on TV nationally, covering all areas wherever there are MHA Branches. So no matter where a call originates and is received on that number, we are able to divert it to your office. We have an arrangement with Telstra to ensure that the calls originating in your Territory are directed to your Office number which of course is how you get your leads to write business with us! 26 Mr Duncan says that in about July 2001 he had a conversation with Mr Lagana to the following effect: PHIL LAGANA: Robert, the way we operate is you collect an application fee of $600 from the client and bank it into your company bank account this will help with your immediate cash flow. ROBERT DUNCAN: I understand that. Tell me more? PHIL LAGANA: MHA will deduct $375 of the application fee from every loan that settles. It will show up on your invoice from us as a processing fee. ROBERT DUNCAN: Okay, the $375 that you take from the application is some sort of a fee payable to MHA? PHIL LAGANA: Yes. 27 Mr Lagana wrote to Mr Duncan on 23 July 2001 saying that Mortgage House proposed to provide Alpha Centauri with rental assistance and to contribute to advertising if it was satisfied with the proposed advertising. 28 On 1 August 2001 Alpha Centauri and Mortgage House entered into an interim joint venture agreement under which Alpha Centauri was appointed an agent of Mortgage House. 29 On 8 August 2001 Alpha Centauri (described as "the Business Partner") and the defendants (described as "the Companies") entered into a written Business Partner Agreement. Mr Duncan was a party to the agreement as a guarantor. I shall refer to this agreement as the "2001 agreement". 30 Mr Duncan had the 2001 agreement checked by a solicitor friend, Mr Rod Hyland. 31 Under the 2001 agreement Mortgage House engaged Alpha Centauri for an initial period of 12 months (to be extended automatically by one or more Option Periods of a year unless either party chose not to extend) to act as the representative in procuring prospective customers. Mortgage House granted to Alpha Centauri the exclusive right to operate "a premises" in "the Territory", which was defined to mean: "The geographical area covered by postcodes 4209, 4210, 4211, 4212, 4213, 4214, 4215, 4216, 4217, 4218, 4219, 4220, 4221, 4223, 4224, 4225, 4226, 4227, 4228, 4229, 4230 (inclusive) or such other areas as agreed in writing by the Companies and the Business Partner." 32 These postcodes pertain to areas on the Gold Coast of Queensland. They include the areas known as Tweed Heads and Burleigh Heads. 33 Clause 3.2 of the 2001 agreement was as follows: "Exclusivity (a) Subject to clause 3.2(c), the Companies grant to the Business Partner the exclusive right to operate a Premises in the Territory for the purposes of this Agreement. (b) The Business Partner agrees that it will not and that it will procure that any Related entity will not operate more than one Premises in the Territory without first obtaining the written consent of the Companies. (c) The Business Partner acknowledges that the Companies retain the rights to appoint a third party to operate a business in the Territory relating to the services offered by MHR." 34 Clause 5.1(e) of the 2001 agreement was as follows: "The Companies will, subject to availability from a telecommunications service provider of their choice, arrange for customer telephone calls that originate from the Territory to be diverted to the Business Partner's Premises." 35 Clause 5.1(f) of the 2001 agreement was as follows: "The Companies will only receive Applications in relation to the Territory from the Business Partner and will not accept applications directly from an employee, mobile lender or an introducer of the Business Partner if and when knowledge of that relationship is made known by notice in writing from the Business Partner to the Companies." 36 Clause 8.1(a) of the 2001 agreement was as follows: "Subject to clause 8.4, the Business Partner will be paid a Commission as set out in Item 2A of Schedule 1." 37 Clause 8.2(a) of the 2001 agreement was as follows: "The Business Partner will be paid an Ongoing Trailer as set out in Item 2B of Schedule 1." 38 Item 2A of Schedule 1 included the following: " Commission Mortgage Loans Mortgage Housing (sic) of Australia Pty Limited Equity Gold 0.60% of 70% of the approved loan amount or 0.60% of the value of the settled loan, which ever is the greater Elite Variable, Home Loan Plus and Easy Credit 0.60% of the value of the settled loan Carpe Diem no Commission Fixed Rate Loans 0.60% of the value of the settled loan Construction Loan 0.60% of the value of the settled loan Low Doc Loan 0.60% of the value of the settled loan Direct Mortgage Solutions Pty Limited All loans 0.60% for the first $1 million in accumulated loans 0.80% on that amount of accumulated loans exceeding $1 million" 39 Item 2B of Schedule 1 was in the following terms: "Ongoing Trailer Mortgage Loans Mortgage Housing (sic) of Australia Pty Limited Equity Gold and Elite Variable 0.25% of the outstanding balance of the loan Home Loan Plus and Easy Credit 0.10% of the outstanding balance of the loan Carpe Diem 0.25% of the outstanding balance of the loan, paid after 6 months Fixed Rate Loans no trailer Construction Loan 0.25% after fully drawn Low Doc Loan 0.25% of the outstanding balance of the loan (emphasis added) Direct Mortgage Solutions Pty Limited All loans 0.25% for the first $1 million in accumulated loans 0.25% on that amount of accumulated loans exceeding $1 million" 40 Item 4 of Schedule 1 was in the following terms: "Key Performance Indicators The following benchmarks are the minimum performance standards required of the Business Partner by the Companies: Conversion Rate per month Enquiry to lead – 60% Lead to Appointment – 60% Appointment to loan – 50% Application to approval – 80% Approval to settlement – 80% Complaints No more than 2 Customer complaints per month. Applications submitted per month 0-6 months - 10 7-12 months - 13 13-18 months - 18 over 18 months – 22" 41 The reference in Items 2A and 2B of Schedule 1 to "Low Doc Loan" is a reference to a low documentation (or low doc) loan. This type of facility is typically aimed at self employed applicants or small company borrowers where financial statements may not be available, or may not support the ability to service the proposed debt although the borrower is comfortable that he or she has adequate cash flow to service it. It entails provision of less information by the borrower and therefore less documentation. 42 "Home Loan Plus" refers to a mortgage facility described by Mr Sayer as Mortgage House's "signature dish" or "flagship". It was funded through a wholesale division of Macquarie Bank. It attracted a favourable "headline rate" – that is, the interest paid by the borrower. It had what he described as superior features such as telephone banking and associated electronic cards. 43 There was a low doc version of Home Loan Plus which attracted a higher rate of interest than the ordinary version. 44 With Mr Lagana's assistance, Mr Duncan selected 89 Scarborough Street, Southport, Queensland to be the premises for Alpha Centauri's new branch ("the Branch"). Alpha Centauri took a four year lease of the premises with a four year option. 45 From 6 August to 10 August 2001, Mr and Mrs Duncan attended a week long induction training course at Parramatta. 46 One of the subjects discussed at the course was EMMS and how to use it. 47 The Branch opened in about November 2001. 48 Mortgage House and Alpha Centauri each agreed to share 50% of the cost of an advertising campaign over a six month period. 49 Mr Greg Stevens commenced employment with Mortgage House in October 2001. Until April 2007 he was Relationship Manager, Branches. 50 Mr Stevens was promoted to the position of National Distribution Manager on 15 April 2002. 51 On 2 May 2002 Mr Stevens sent to Mortgage House branch operators (variously referred to as branches or principals) a Mortgage House lending manual which had been developed to assist in the proper assessment of a client's eligibility to borrow and to provide insight into the approval and settlement process. It contained a section about the "Low Doc Documentation Loan". 52 Mr Warren Stanley commenced employment with Mortgage House in June 2002 at Parramatta as General Manager for Array. The 2002 agreement 53 On 4 July 2002 Mr Stevens sent a facsimile to Mr Duncan (amongst other principals) offering a new Business Partner Agreement. The letter was in the following terms: "Dear Branch Principals On behalf of Ken Sayer, I am pleased to offer Branch Principals the invitation to enter into a new Business Partner Agreement with Mortgage House of Australia Pty Ltd and its associated companies listed in the agreement. One of the key changes to the Business Partner Agreement is the option for Business Partners to sell their business under the new section 19.3. We see the benefit of adding the selling option to the agreement that it will provide Branch Principals with even more incentive to grow the business and providing a future value on the business you build. Please read the new Business Partner Agreement carefully and obtain independent legal advice if required. Please find attached a copy of the new Business Partner Agreement." 54 A proposed draft Business Partner Agreement in facsimile form ("the July 2002 draft") was attached. 55 In addition to a new s 19.3, the July 2002 draft contained an amendment to the provision concerning diversion of customer telephone calls. It excluded from its ambit mobile telephone calls. This change was instigated by Mr Stevens because Mortgage House could not "deliver" on diversion of mobile phones seeing that it was not possible to monitor the place from where a mobile call emanated and therefore not possible to divert them on the basis that they emanated from a particular postcode area. 56 There were also changes to the Key Performance Indicators making them more onerous. 57 On 23 July 2002 Mr Stevens sent execution copies of the proposed new agreement to Mr Duncan. 58 On 1 August 2002 Alpha Centauri and the defendants signed a new Business Partner Agreement ("the 2002 agreement"). 59 The Schedules to the 2002 agreement with respect to commission rates did not relevantly change. 60 On 16 October 2002 Mr Stevens sent an email to Mortgage House branches concerning "New & Modified Commission Rates on Mortgage House Loan Products". There was an issue between the parties as to the form in which Mr Duncan received this email. As is notorious, the format of an email received is not necessarily the format in which it was sent. Mr Duncan says that he received it in the following form: "Good Afternoon Principals On behalf of Ken Sayer, I am pleased to inform business partners of the new and modified commission rates set out below on Mortgage House of Australia loan products. All other commission terms & conditions contained in your executed business partner agreement apply. Products Existing 1. Loan Increases – Upfront Commission Terms & Conditions * Funder : Macquarie loans only. * Only on settled increases & on products where an upfront commission is paid. * Effective for loan increase applications dated 1 November 2002 0.60% Zero 2. Monthly Business Lodged – Upfront Commission Volume incentives : 1. Monthly balances $10 million or above [on entire months balance] 0.65% 0.60% 2. Monthly balances $15 million or above [on entire months balance] 0.70% 0.60% Terms & Conditions * Until this type of payment can be automated, branches must invoice head office for these types of commission payment. * Only on settled loans and on products where an upfront commission is paid. Line of Credits are based on amount drawn down, not credit limit. * Effective for loans settled in the months of November 2002. 3. Carpe Diem – Trail Commission 0.12% 0.25% * On all outstanding loans effective 1 November 2002. 4. Construction Loans & Lo Doc Loans - Trail Commission * 0.25% * Based on the trails paid on the applicable loan product such as Home Loan Plus. * On all outstanding loans effective 1 November 2002." 61 The form in which Mr Stevens says it was sent was as follows: "Good Afternoon Principals On behalf of Ken Sayer, I am pleased to inform business partners of the new and modified commission rates set out below on Mortgage house of Australia loan products. All other commission terms & conditions contained in your executed business partner agreements apply. Products New Existing 1. Loan Increases – Upfront Commission Terms & Conditions · Funder: Macquarie loans only. 0.60% Zero · Only on settled increases & on products where an upfront commission is paid. · Effective for loan increase applications dated 1 November 2002 2. Monthly Business lodged – Upfront Commission Volume Incentives: 1. Monthly balances $ 10 million or above [on entire months balance] 2. Monthly balances $15 million or above [on entire months balance] 0.65% 0.60% Terms & Conditions 0.70% 0.70% · Until this type of payment can be automated, branches must invoice head office for these types of commission payment. · Only on settled loans and on products where an upfront commission is paid. Line of Credits are based on amount drawn down, not credit limit. · Effective for loans settled in the month of November 2002. 3. Carpe Diem – Trail Commission 0.12% 0.25% · On all outstanding loans effective 1 November 2002 4. Construction Loans & Lo Doc Loans – Trail Commission * Based on the trails paid on the applicable loan product such as Home Loan Plus. * 0.25% · On all outstanding loans effective 1 November 2002." 62 From Monday 3 February 2003 to Thursday 7 February 2003 at Parramatta, Mortgage House conducted what was described as a Sales Training Course. Mr Duncan was invited. 63 On 25 February 2003 Mr Sayer emailed Mortgage House branches stating that effective immediately, Branch Principals were required to submit all their advertising and marketing material and requests direct to Greg Stevens and Christina Sultana for written sign-off as accepted. 64 Interstar was one of the funders from which Mortgage House obtained loan funds for borrowers. On 29 February 2003 Mr Sayer informed Mortgage House branches in an email of improved commissions on Interstar funded loans. He wrote that "Effective from 1/2/2003 and forward Trailers on 'Easy Credit' Standard loans will be 0.25% Trailers on 'Easy Credit' Low doc loans will be 0.50%". 65 Another one week sales course commenced on 5 May 2003. The 2003 agreement 66 In July 2003 Mr Duncan proposed a business plan to Mortgage House involving the splitting of Alpha Centauri's Territory into quadrants and selling some of them off. 67 On 12 August 2003 Mr Duncan put a revised proposal for the sale of part of Alpha Centauri's Territory. 68 Mr Duncan says he had a conversation (presumably in August 2003) with Mr Stevens to the following effect: GREG STEVENS: You can't divide your territory the way you proposed. You would need to sell each territory as a separate entity and the purchaser of each territory would enter into a Business Partner Agreement with MHA which would be the same as yours, except you would loose (sic) some postcodes and they would gain those postcodes. ROBERT DUNCAN: Okay Greg, I'll resubmit the proposal. 69 On 18 August 2003 Mr Stevens informed Mr Duncan in an email that his proposal was unacceptable, making it clear that Mortgage House wanted one clean changeover subject to approval and quality of proposed purchasers. 70 On 24 August 2003 Mr Stevens sent an email to Mr Duncan stating the following: "Are you still interest (sic) in proceeding, if so I recommend the following: We agree to setting up a branch on the South as presented in your proposal, providing you agree to a reasonable sale price say $100,000 which excludes the purchasers branch set-up costs i.e. Mortgage House of Australia receive 33% of sale price eg $33,000 if $100,000. We then enter into a New Business Partner Agreement with Robert Duncan less territory sold-off and we enter into a business partner agreement with the purchaser of the south Area. Also the funds will be required at time of business partner agreements being executed. We will review the other purchasers when they are ready to commit and exchange funds. This way you can do one new territory at a time. Once you have sold-off all territories we will consider 50/50 TV advertising for all Gold Coast branches, on the proviso all Gold Coast branches agree to participate in the proposed TV advertising. Please advise." 71 Mr Duncan says that he had a conversation (presumably in August or September 2003 – he did not date the conversation) with Mr Stevens to the following effect: MR DUNCAN: Greg, I have an interested party wanting to purchase the Tweed South territory. He wants to know if the Business Partner Agreement will be exactly the same as the one I have. I don't want to give him a copy of my executed agreement. I would like to give him a photocopy of the unexecuted sample agreement you faxed to me on 4th July 2002. The one that is exactly the same as mine but does not have names and post codes on it. Is that okay? GREG STEVENS: Yes, Robert that's okay, you can give him that sample document. The Tweed Business Partner Agreement will be exactly the same as your current one. It will have his post codes added in and those post codes will drop off your Business Partner Agreement. There will be no other changes. ROBERT DUNCAN: Thanks Greg, let's move on! 72 Mr Stevens accepted that Mr Duncan may have told him that he did not wish to show the purchasers of the business his agreement but he denied that he told Mr Duncan he could show the July 2002 sample or that the Tweed Heads agreement would be the same. 73 During September 2003 Alpha Centauri entered into an agreement to sell that part of its business covering the Tweed Heads South area for $150,000 comprising goodwill of $100,000 and equipment of $50,000. 74 On 29 September 2003 Mr Stevens sent an email to Mr Duncan in the following terms: "Now you have an agreement, before we can proceed any further, we need the following executed & completed. 1. Letter signed under your company and confirming Business Partner Agreement and confirming the goodwill sale price of $100,000 to Carse Investments of Mortgage House Twwed (sic) Heads South, confirming agreement to pay to Mortgage House under your business partner agreement, section 19.3(f), "33% of the sale price of the business (excluding fixtures & fittings owned by the Business Partner) is transferred to the Company at the time of sale." 2. Revised Southport Business Partner Agreement, less the agreed Tweed Heads South territory postcodes. 3. New Business Partner Agreement from Carse Investments Pty Ltd + completed NSW Department of Fair Trading form as outlined in the Business Partner Agreement, and 4. Cheque payable to Mortgage House for $33,000." 75 On 20 October 2003 Mr Stevens sent to Mr Duncan copies of Business Partner Agreements to be entered into in respect of the now to be created two branches, being Southport and Tweed Heads South. Amongst others the letter stated, "Each business partner is recommended to read their Business Partner Agreement carefully and obtain independent legal advice if required". 76 Mr Duncan says that there was no discussion at any time about changes in the Business Partner Agreement other than the postcodes. His affidavit evidence was: "I was satisfied with the assurance that I had been given in a conversations (sic) with Greg Stevens, shortly before I signed the 2003 agreement, the substance of which follows: ROBERT DUNCAN: Good morning Greg, I received the new Business Partner Agreements in the mail. As per our previous communications can you assure me that the only changes in this Agreement with my Branch, relates to the elimination of post codes that were given to Peter Carse at South Tweed? GREG STEVENS: Yes. The only change is to remove the post codes that you sold to Peter Carse. ROBERT DUNCAN: Okay, then I'm satisfied with your assurance that there are no other changes." 77 Mr Duncan did not date this conversation with any precision. Mr Stevens denies that he said the words Mr Duncan attributes to him and denies that a conversation to this effect took place. He says that prior to sending Mr Duncan an unexecuted copy of the proposed 2003 agreement, he had numerous telephone conversations with Mr Duncan (on dates which he can no longer specifically recall) during which he said to Mr Duncan words to the following effect: "Mortgage House has changed the way it distributes leads. These changes will be reflected in your new Business Partner Agreement." 78 On 24 October 2003 Alpha Centauri and the defendants entered into a new Business Partner Agreement in respect of the territory covered by postcodes 4209 – 4220 inclusive and 4226 – 4230 inclusive ("the 2003 agreement"). 79 Alpha Centauri paid Mortgage House 33% of the sale price (excluding equipment) which it received on the sale of the Tweed Heads South area as contemplated in the email from Mr Stevens to Mr Duncan of 23 August 2003. 80 Mortgage House entered into a Business Partner Agreement with Carse Investments Pty Ltd covering the Tweed Heads South postcodes. 81 In addition to the change of postcodes, the 2003 agreement differed from the 2002 agreement in a number of respects, two of which are central to the present contest. 82 Firstly, what had been cl 5.1(e) in the 2002 agreement, which obliged the defendants to arrange for customer telephone calls (excluding mobile telephone calls) which originated from the Territory (as defined) to be diverted to Alpha Centauri's premises, was deleted. 83 Secondly, Item 2B of Schedule 1, providing for the rates of ongoing trailer commission, was varied by deleting the line: "Low Doc Loan 0.25% of the outstanding balance of the loan". The 2004 agreement 84 On 28 October 2003 Mr Duncan emailed Mr Sayer to say that he had a candidate to open a branch in Burleigh Heads. 85 On 28 November 2003 Alpha Centauri entered into a sale of business contract with C.G. Wright Consulting Pty Ltd, under which it sold its business with respect to the Burleigh Heads Territory, covered by postcodes 4211, 4213, 4219, 4220, 4226, 4227 and 4228, for $160,000 comprised of $100,000 for goodwill and $60,000 for furniture. 86 As with the 2003 agreement, Mortgage House agreed to the spin off of the Burleigh Heads Territory on condition that Alpha Centauri paid it one third of the goodwill paid by the purchaser. Alpha Centauri paid this amount. 87 On 22 December 2003 Mr Stevens sent Mr Duncan, under cover of a letter, Business Partner Agreements for Southport and Burleigh Heads. The letter contained the statement, "Each business partner is recommended to read their Business Partner Agreement carefully and obtain independent legal advice if required". 88 Mr Duncan says that he had a conversation (again not dated with any precision but presumably between 22 December 2003 and 19 February 2004) with Mr Stevens to the following effect: ROBERT DUNCAN: Greg, I received the new contracts and I will take Glenn's to him today. I can see you have taken the agreed postcodes from my territory and inserted them into Glenn's agreement to form his territory. I can see the remaining postcodes in my territory are correct. GREG STEVENS: Okay Robert, get the executed document back to me as soon as you can together with Glenn's cheque. 89 Mr Stevens did not deny this conversation. 90 On 19 February 2004 Alpha Centauri and the defendants entered into a new Business Partner Agreement in respect of the territory covered by postcodes 4209, 4210, 4212, 4214, 4215, 4216, 4217, 4218 and 4229 inclusive ("the 2004 agreement"). 91 Save for the change in territory, the 2004 agreement did not differ in any material respect from the 2003 agreement. 92 Mortgage House entered into a Business Partner Agreement with G.C. Wright Consulting Pty Ltd in respect of the Burleigh Heads postcodes. The telephone diversion problem 93 Under the terms of the 2001 agreement Alpha Centauri was entitled to have all telephone calls to the 133 144 number which emanated within the Territory (as then defined) diverted to its landline number. 94 There is evidence that on or about 17 October 2001 Mortgage House arranged for Telstra to divert calls to the 133 144 number originating in Alpha Centauri's territory to its branch number 07-5591-644. 95 An agreed TV, radio and print media campaign commenced in February 2002. 96 Mr Duncan expected that all calls which originated in Alpha Centauri's Territory would be diverted to the Branch number. 97 Mr Duncan's evidence was that this diversion was critical to business success. He says this was one of the primary reasons for joining Mortgage House because it enabled the Branch to tap into the Head Office lead-generation system, and more particularly because Alpha Centauri was a significant distance from Mortgage House Sydney metropolitan and regional advertising. In addition, Mortgage House was a completely new brand name in Queensland and Alpha Centauri was actually paying for advertising when other branches were not doing so. 98 In the first week of advertising the Branch did not receive a single telephone call. 99 Mr Duncan spoke to Mr Lagana. A conversation to the following effect took place: ROBERT DUNCAN: Phil, the advertising program has been in operation for a week now but we have not had a single phone call. Are you sure the phone numbers have been correctly diverted? PHIL LAGANA: Yes I am sure that the phones have been correctly diverted. It is impossible that you have not had a call after 1 week. I think it would be wise to contact Mark Duclos directly and ask him to review the situation. 100 Mr Duncan then had a conversation with Mr Duclos to the following effect: ROBERT DUNCAN: Mark our TV advertising has been on the air now for 1 week but we have not had a single phone call. Do you know if our phones have been correctly diverted? MARK DUCLOS: Robert, that is nearly impossible to have the adverts running and not have a call. I don't know if the phones have been diverted or not. Let's have a look at the programming of the TV slots. Maybe if we rearrange the prime time slots and in their place put in more daytime slots it may help? ROBERT DUNCAN: Okay Mark, let's try that. It can't be any worse! 101 On 7 March 2002 Mr Duncan wrote to Mr Lagana reiterating his complaint about the ineffectiveness of the television advertisements and saying amongst others that on checking with Telstra, some of the postcodes were missing, for example Surfers Paradise, so that calls would not have been diverted from 133 144. 102 Mr Lagana left Mortgage House shortly thereafter and Mr Stevens responded to Mr Duncan's letter saying amongst others, that they had sought clarification from Telstra who had reconfirmed that the system was set up correctly and that Mr Duncan should take it up with Telstra. 103 From about August 2002, Mr Duncan suspected that Alpha Centauri was not receiving calls made to the 133 144 number as the 2001 agreement required. He raised the difficulty with Mr Stevens in September 2002. 104 He says (although he does not say precisely when) that he asked staff and their families and some of his friends to call 133 144 to test whether the diversion was working and the result was that calls made within the Territory were being answered by the Mortgage House Sydney call centre. 105 He says he sent a further email to Mr Stevens (although he did not precisely identify it) and then calls started being received via the 133 144 number. 106 In an email dated 30 September 2002 Mrs Duncan referred to having become aware that direct diversion to the Branch had been stopped. 107 In December 2002 Mortgage House was proposing a TV advertising campaign. Alpha Centauri was paying for the advertising in its area and Mr Duncan sought permission to have the advertisement personalised to the Branch phone number. This was declined. 108 Between May and July 2003 a decision was taken within Mortgage House to change the then system of telephone diversion to branches. 109 Instead, all calls went to a newly appointed telephone call centre operated by Link Communications which would inform the branches of any lead via EMMS. Mr Stevens said that he had no involvement with Link Communications. His evidence was that he gave his opinion that the agreement of the branches was necessary for the change but that Mr Sayer was the owner and leader of the company, he made the decision and Mr Stevens carried it out. He says that variation was instructed by Mr Sayer and it was not his position to question it once made public. 110 The television advertising campaign ended on the weekend of 8 February 2003. Mr Duncan asked for assistance with the costs of the advertisements. His request was declined. 111 In May 2003 Mr Stevens, apparently on the instructions of Mr Sayer, commenced to consider a new leads referral system to be in place by 1 July 2003 under which, instead of telephone leads being diverted to branches, they would be provided by Mortgage House via an external call centre operated by Link Communications, using Mortgage House's software known as EMMS. 112 Mr Stevens recognised that this would not be in accordance with the terms of the Business Partner Agreements with the branches. He sought advice about a variation agreement from Mortgage House's in-house lawyer Noel Dona. Mr Dona advised that the variation required the agreement of the branches. 113 No variation agreement was proffered to any branch. Nevertheless, Mr Sayer instructed that the leads referral change was to occur. In an email to the branches dated 3 July 2003 he said: "ive (sic) been tied up with the Mac equity deal for the last couple of weeks we have changed a couple of things I will discuss with you personally in the very near future sorry, time just got away". 114 Mr Stevens' evidence was that he implemented this change because he was required by Mr Sayer to do it, even though he was aware it did not accord with the branch Business Partner Agreements. 115 He says he first found out about the decision via the email dated 3 July 2003. 116 He says that once the decision had been made he discussed with Mr Sayer that the Business Partner Agreements would have to change and that they were then changed. 117 He says that Mr Duncan complained to him about the decision and he responded by telling him that Mr Sayer had so required it. He says that he received numerous complaints from Mr Duncan about this system. 118 Sometime during the period between May and August 2003 Mortgage House retained PowerTel Ltd ("Powertel") (in place of Telstra) to be its telecommunications carrier. 119 The documentary evidence established that despite the implementation of the call centre, that at different times telephone calls were in fact diverted to the Southport branch. Mr Stevens' oral evidence was that he understood there to be an arrangement between Mr Duncan and Mr Sayer that was limited to diversion taking place only during advertising campaigns. 120 Internal Mortgage House documents in July 2003 show that during such campaigns, calls from the far north coast of New South Wales would be included in the calls to be diverted to the Southport branch with the Queensland calls being diverted anyway. 121 At around this time Mr Derek Angel, according to Mr Stevens, took over operational responsibility for telephone diversion. 122 On 1 August 2003 Mr Duncan emailed Mr Stevens saying that not many calls had been received from the current batch of television advertisements and asking him to check with Telstra. Mr Stevens passed the enquiry onto Lisa Helleur who worked in the marketing department of Mortgage House. 123 On 5 August 2003 Mr Duncan in an email to Mr Stevens questioned whether the diversion was working properly and asked him to check it. Mr Stevens referred this enquiry to Ms Helleur. 124 On 6 August 2003 Mr Duncan emailed Mr Sayer in the following terms: "On Greg's advice I tried your mobile, however you were most likely busy. I have been disappointed in the response to our last 2 TV campaigns as the response was extremely low. My lending manager in Tweed rang me to say that when he phoned the 133 number from his home land line it diverted to Sydney rather than to my office and subsequently his mobile when he is on call. I also noticed that an unusual number of leads coming via email with land lines within my territory. This also has never happened before. Upon further investigation I found that all leads that were usually coming to my office were not being redirected to Head Office. Ken, this is unworkable for me. As you know, I pay for all television ads ( in fact all ads ) up here and I guarantee our clients that they will speak to a Mortgage Consultant 24/7. I have found that the people taking these calls do not know the area up here (it is very large as you discovered) and I am sure I am loosing (sic) leads. Also the time frames blow out, as you know one is in the office at say 8.00pm to take the email or on Sundays etc. So the client is being disadvantaged. The system under which I was operating worked very well but now I feel that I am paying the bill and not getting the expected results. Can you help?" 125 On 7 August 2003 Mr Stevens emailed Mr Duncan as follows: "Spoke with Ken, he agrees with you and will arrange to fix". 126 On 11 August 2003 Lisa Helleur sent an email to Cyril Edwards who worked in the Mortgage House IT department asking him to take off the NSW postcodes off the Southport branch. 127 On 14 August 2003 Mr Angel sent an email to Mr Stevens asking for the postcodes for the Branch so he could organise for "the leads to go direct". 128 On the same day, Mr Stevens emailed Mr Angel those postcodes. 129 On 19 August 2003 Mr Angel sent an email to Powertel requesting that all leads be directed to the 133 144 number except for the Gold Coast postcodes relating to the Branch. Powertel responded on 20 August 2003 confirming that calls from the branches' postcodes would be routed to the branch answering point, at that time 07 55916444. 130 On 21 August 2003 Mr Duncan sent an email complaint to Mr Stevens and Mr Sayer asserting that during the last two advertising campaigns which went to air on the Gold Coast, the telephone numbers appearing on advertisements had been directed to the Sydney office without his knowledge. He recorded that he had received an apology for the mistake but it remained that he paid for advertising of which he did not receive the benefit. 131 On 21 August 2003 Mr Stevens responded saying amongst others: "Your reference to Mortgage House obtaining the benefit of your last 2 advertising campaigns and the branch missing out and invoicing us for the costing of advertising is reactionary. The owner of the business changed the distribution of leads on 1 July 2003, therefore you need to substantiate your claim, for presentation to Ken Sayer." 132 On 15 October 2003 Mr Duncan sent an email to Mr Stevens in the following terms: "I am still getting clients phoning 133 144 from land lines in my territory who are going directly to Sydney. I suspect that the phones again may be turned over or out of order. This is causing me a great deal of concern. Can I ask you to look into it as a matter or urgency?" 133 On 15 October 2003 Mr Stevens emailed Mr Angel and Mr Duncan in the following terms: "Can you please review as Ken allowed Southport to get all leads direct as they are paying for their TV ads. When their (sic) not advertising on TV, then leads go via Head Office. Up-to branch to advise us whey they are advertising on TV." 134 On 27 October 2003 Mr Duncan emailed Mr Stevens in the following terms: "The 133144 phone calls in our area are still going to Sydney. I have spent over $10,000 in the last 3 months on continual advertising on TV. As per our agreement can you please have a word to those people who control the phones and ask them to please ensure that we are getting our leads direct." 135 Mr Stevens referred the matter to Mr Angel. On 28 October 2003 Mr Duncan emailed Mr Sayer in the following terms: "I have an update for you. South Tweed is ready to open. I have a gentleman who has 25 years finance experience in mortgage lending coming in to proceed to the next stage to open a territory in Burleigh (No 2 on the map I supplied you), this will be on Thursday morn. In the mean time I am still having enormous problem (sic) to have the phones in my territory ring at our office when the client calls the 133144 number. Peter Carse from South Tweed is also experiencing this problem. We have been advertising steadily on TV up here over the last 3 months and I am sure that there is still leakage. Could I ask you to look into this for me?" 136 On 28 October 2003 Mr Sayer responded, "Will action immediately". 137 On 29 October 2003 Mr Duncan sent an email to Mr Angel in the following terms: "When Ken was up in June he game (sic) permission to receive all my 133144 leads direct to our office telephone numbers. There seems to be some problem with the diverting of these calls as clearly many are going to Sydney. Can you tell me of the problems that may be restricting us up here?" 138 On 29 October 2003 Mr Angel responded in the following terms: "Need the answering point for the leads to come through and also what hours this telephone will be manned." 139 On 29 October 2003 Mr Angel wrote to Mr Duncan in the following terms: "This is currently being looked at and will be fixed within the next week." 140 On 30 October 2003 Mr Duncan wrote to Mr Angel in the following terms: "The phones are still not switched to us. We have a brand new campaign starting on Sunday, can you guarantee that they will be switched over by then?" 141 On 30 October 2003 Mr Angel again wrote to Mr Duncan in the following terms: "As previously mentioned, to change the infrastructure of the telephone system takes around a week to do. We rely on external parties so are unable to speed the process up. We have someone working on this currently and will try and push through as fast as we can." 142 On 5 November 2003 Mr Duncan wrote to Mr Angel in the following terms: "The phones are still not transferred to our office number, it has been longer that (sic) a week as we requested this via Ken some weeks ago, can you advise me?" 143 On 5 November 2003 Mr Angel wrote to Mr Duncan in the following terms: "Don't disagree with you, we are applying as much pressure as we can. Unfortunately whilst I agree with the computer age we cannot get this moved any faster. We are also addressing the company handling our leads so thanks for the feedback. Once I have a definite time frame I will let you know immediately." 144 On 5 November 2003 Mr Duncan wrote to Mr Angel in the following terms: "All due respects Derek, IT is so advanced in 2003 I can't believe that it takes 1 week to change over some phone numbers, nevertheless today is Wed and by my calcs 7 days is a week which means since last Thurs today is 7 days. Please understand it is my money paying for these leads, if it was yours you would also be a little upset. My lending manager Geoffrey Slater has just received a phone text message with a lead…. from Melbourne?? He was never meant to get text messages direct in any case ! but from Melbourne ??? Raises questions in my mind re the company handling the leads." 145 On 5 November 2003 Mr Stevens wrote to Mr Duncan in the following terms: "Please advise them as we have advised you that Derek is arranging the leads to be transferred to the branch and that we are in the hands of third parties as Derek has advised. Advise them to be patient as it will be fixed very soon. Surely they are not overly lead dependant and they can do some business development while their (sic) waiting for some leads!" 146 On 11 November 2003 Mr Duncan wrote to Mr Angel in the following terms: "Can I have an update on the progress of switching my 133 144 leads to my office phone?" 147 On 11 November 2003 Mr Angel wrote to Mr Duncan in the following terms: "Can you try calling 133 144 and let me know the result. Needs to be from a line that the telco system will recognise as being a Gold Coast number." 148 On 11 November 2003 Mr Duncan wrote to Mr Angel in the following terms: "So far, numbers in the 07 5504 are of the Gold Coast are changed over thank you, however the numbers in the area 07 5513 down in the South Tweed territory are not ringing at his office." 149 On 8 June 2004 Mortgage House again changed the system of leads distribution on a trial basis. Instead of the branches receiving leads and following up potential clients, a telephone team in the Box Hill office of Mortgage House would do the follow up work. The team would forward to the branches appointments for clients made on their behalf. The system applied to mobile phone calls as well. 150 To implement this new system, on 7 or 8 June 2004, Mortgage House gave a written instruction to Powertel that all postcodes were to be routed to the Box Hill numbers and when the numbers were engaged or not answered in 10 seconds they were to be directed to Mortgage House's number in Parramatta. 151 On 10 June 2004 Mr Duncan complained that the new leads distribution mechanism was unworkable. 152 On 29 July 2004 Mr Duncan left for an overseas business trip leaving Mr Geoffrey Slater in charge of the Branch. 153 While Mr Duncan was away, on 10 September 2004 yet another different leads distribution mechanism was implemented. This involved the "purchasing" of leads. A branch would be required to "order" a specified number of leads for a month. An "outbound" telephone call centre (as opposed to the inbound one that took the telephone enquiries under the earlier system) would canvas for those leads and would invoice the branch for them. 154 Mr Duncan returned from overseas in early October and emailed Mr Sayer saying that he had learnt that many things had transpired while he was away and enquiring what the significant changes were that had been implemented in Queensland. 155 On 12 October 2004 Mr Duncan emailed Mr Sayer about a proposed meeting with him and a proposal Mr Duncan wished to put for Queensland involving him becoming the Mortgage House manager for Queensland. 156 On 18 October 2004 Mr Angel, on Mr Sayer's instructions, informed Mr Duncan that they did not have plans in the immediate future to expand in Queensland. 157 As will be referred to below, Mr Duncan and Mr Sayer met on 3 December 2004. This meeting is referred to further below. 158 It does not appear that the question of telephone leads was discussed at the meeting or raised by Mr Duncan after 4 October 2003 as a complaint. The Commission problem 159 After Mr Duncan returned from overseas in early October 2004, he noticed, he says, that the trail commission payment was approximately half of the expected amount. 160 The evidence showed significant fluctuations in trail commission from January 2003 through October 2004. The amount paid for August 2004 was about $11,000 and the amount for September 2004 was about $8,000. $6,465 was paid for October 2004 and then $2,490 for November 2004. 161 Mr Duncan says that an internal manual commissions audit revealed a multiplicity of anomalies including that trail commissions on loans that previously attracted a trail commission of 0.25% pa were now being paid at 0.12% pa, loans were missing upon which commissions should have been paid and there were cases of upfront commission either not being paid or incorrect amounts being paid. 162 On 19 October 2004 Mr Duncan emailed Mr Angel to ask who was responsible for preparing and balancing commissions, particularly trail commissions. Mr Angel gave him an email address to which to direct his enquiry. 163 On 20 October 2004 Mr Duncan sent an email to that address, saying as follows: "My understanding (for 3 years now) is that all lo doc loans carry a .25% trail. Please confirm." 164 By 21 October 2004 he had not received a response and asked Mr Angel for help. 165 On 21 October 2004 he emailed Mr Angel as follows: "I understand that the standard HLP is .12% trail in order to reduce the rate, but Lo Doc I understood to be .25% as there is a 1% loading. Could you please check this for me?" 166 On 3 November 2004 he received an email from Mr Angel (copied to Mr Sayer) as follows: "Not sure where the misunderstanding may have arisen however, regardless of whether the HLP is lo doc or full doc the commission structure is the same. That is, trailer is the same." HLP is reference to "Home Loan Plus". 167 At around this time, that is October 2004, Mr Duncan engaged a business agent to find a buyer to sell the Branch. 168 On 12 November 2004 Alpha Centauri entered into a sale of business agreement with a buyer called Service Corp Pty Ltd. 169 On 12 November 2004 Mr Duncan emailed Mr Sayer and Mr Angel as follows: "I tried to reach you on your mobile (3.30pm GC time). I need to inform you that I have, 5 minutes ago signed a contract to sell my branch, Southport. There are a number of issues to take care of to effect the change over. The contracted change over date is 8th December 2004. I would like you to have the name of the Business Brokers, Hallmark Business Sales, at Burleigh Heads, Office telephone number 07 55937344, in order to discuss the buyers bona fides. The principal of Hallmark Business Sales is Peter Gwynne. My investigations show an accomplished business owner who has current mortgage loan writers as part of this organization. Could you give me a call at your convenience in order to discuss the mechanics of this operation? Also I have discovered a number of discrepancies in our monthly commissions that need to be addressed prior to settlement. I would appreciate your urgent attention." 170 On about 17 November 2004 Mr Duncan says he sent a letter to Mr Sayer at 9 – 15 Argyle St, Sydney 2000 (rather than Argyle St Parramatta – there is an Argyle St in Sydney itself) in the following terms: "Further to our telephone conversation of Friday 13th November in relation to the sale of my business and the anomalies with the commissions invoices. Whilst I appreciate your direction that your accounts department, are aware of some anomalies that have crept into the system, I will of course conduct my own internal audit of the commissions account and report back to you within 2 weeks. I am concerned at one aspect of the commission statements however, and would like to draw your attention to it, with the view to rectifying the mistake. I have noticed that there are a number of Lo (sic) Doc Home Loan Plus that are being paid a trail of .25% whilst a number of them are only being paid .12%. I have checked with all my "Business Partner Agreements" since the very first one through to the current one. The first one is signed and dated, see page 1 & pages 24-26, 8th August 2001. I would like to draw your attention to page 28 of the agreement. You will see under the heading of ITEM 2B – Ongoing Trailer, the last line refers to Low Doc Loan as being .25% of the outstanding balance of the loan. It does not mention, with the exception of Home Loan Plus. I also draw your attention to page 30, which states the Post codes that my agreement allows me to operate in. At this point there is no provision in this business partner agreement that allows for the "Business Partner" to sell the business. The 2nd "Business Partner Agreement" is signed and dated, again page 1 & pages 25-27, 1st August 2002. This is a longer "Business Partner Agreement" as it has been superseded and now has a page added. On this page is a clause that was added to allow us to sell the business. Again I draw you (sic) attention to pages 29 & 31. Pages 29 still refers to Lo (sic) Doc Loan as .25% trail and page 31 still refers to the same post codes as the original "Business Partner Agreement". Apart from the insertion of the "Sale of Business by the Business Partner" clause, nothing else has changed. On 24th October 2003 I received a new "Business Partner Agreement". This new agreement was a result of my dissection of my authorized territory into quadrants to be sold off as autonomous branches of Mortgage House of Australia. The only thing that was to have changed in this agreement was the post code list on page 31. This was a verbal guarantee by Greg Stevens. I draw your attention again to pages 1 & 25-27 and page 29. Also page 21. All these pages remain the same. Page 31 now reflects the sale of portion of my territory as 4 post codes are omitted as expected. Page 29, however, now has the line "Lo Doc Loan .25% trail", omitted. This was never mentioned and certainly never agreed to. The next contract dated 19th February which relates to the sale of my next territory looks exactly the same as the previous one with the exception of page 31 which shows a reduced number of post codes. Again on Page 29 the line "Lo Doc Loan .25% trail" was omitted. Upon closer scrutiny of our monthly statements, I saw that some of our Lo (sic) Doc loans had been reduced to .12% of the balance of the loan amount whilst others remained at .25%. I believe that this could well be an oversight as I was never informed either verbally or in writing that the "Business Partner Agreement" was to be altered in any way. I would, therefore, like to make the request that the statements be reviewed to reflect the .25% trail commission. I will of course do my own internal audit and present it to you within 2 weeks. This has become particularly important as it may affect the "Business Partner Agreement" that you present to the perspective (sic) purchaser of my business. I request that you address the principal of the matter of Lo (sic) Doc loans carrying a .25% trail as far as my "Business Partner Agreement" is concerned, as a matter of urgency. We can each take our time to conduct our own audit of the statements and then make the necessary adjustments. I look forward to your response." 171 During the hearing, the question of whether this letter was sent became the subject of heated contest. The defendants, it seemed to me, flirted with the possibility of putting that it was not created at the time. Mr Duncan's evidence was that he sent it by email and also posted it. 172 Clearly, if he posted it, he sent it to the wrong address. As to the emailed version, there was no document which proved receipt of the emailed version by Mr Sayer, but he did not deny its receipt, although it was clear that he had little recollection of it. 173 The email in the form originally discovered referred to an attached letter but showed no attachment. During the hearing a further version was produced by the plaintiffs referring to an attachment. 174 The defendants raised justified concerns about the plaintiffs' discovery. 175 There was however other material, not in contest, which satisfied me that the document was not a recent invention and, whether or not it was sent to Mr Sayer, that it was created by Mr Duncan around 17 November 2004. 176 I also accept that an email version was sent as an email attachment. The "poaching" problem 177 It is clear that Mortgage House accepted applications directly and arranged loans which had some connection to the Territory. Mortgage Street operated out of premises not far from the Branch. 178 There was evidence that a seminar was conducted on the Gold Coast by Mr Robert James, the principal of the Mortgage House Liverpool branch, but this was not taken any further. 179 On 4 July 2001 Alpha Centauri Wines entered into a written Commission and Software User Agreement with a finance and mortgage broker and facilitator called Australian Finance Group Pty Ltd ("AFG") under which Alpha Centauri Wines became an "introducer" to introduce to AFG mortgage finance applications for a term of five years. The agreement was signed on behalf of Alpha Centauri Wines by Jarrod Duncan, Mr Duncan's son, who was then a director. 180 Mr Geoffrey Slater is Mr Duncan's nephew. On 14 January 2002, after some negotiations Alpha Centauri entered into a Service Agreement with Nubia Holdings Proprietary Limited, Mr Slater's company, under which that company would sell the products and services of Alpha Centauri. The terms of the agreement were loosely based on provisions contained in the 2001 agreement. 181 Over the period November 2001 to April 2005 Alpha Centauri Wines arranged loans of something in the order of $13 M through AFG. Events leading to termination of the 2004 agreement 182 On 14 December 2004 Mr Sheales, then National Sales Manager, attended at the Branch. He met with Mr Duncan. There was a contest between them about precisely what was said. Either way, it was a tense meeting. 183 After the meeting Mr Sheales sent an email in the following terms: "I am sending this email to confirm our discussion at your office in Southport on Tuesday 14th December, regarding any on going relationship between yourself, Mortgage house and any associated companies. At that meeting it was apparent from your discussion that you were unhappy with the current contractual arrangements including you view on the variation in trail commission, the supposed under payment of commissions over an extended term and your reluctance to enter our lead purchasing program. It appears also that you have discussed the fact that you are unhappy with your current arrangement with some of the NSW branches as well as with Ken and today with me. Also you have the business for sale. Mortgage House feels it has always complied with your requests to grow your business including the division of areas so you could on sell them. The current arrangement is not working and we wish to grow our business in Queensland with people that wish to move in the same direction as the company. We have concerns at the volume of business being generated from your areas, considering the size of the area and the growth being delivered from real estate in your region, this is a major concern to us and something that is under review now. As discussed we are prepared to allow you to actively seek a buyer for the business until the end of January. Also during this time we intend to review the contract, its performance clauses and then assess what options we have and the process required for recouping the areas. I suggest as your process moves forward you stay in regular contract with me, reporting on all and any possible new business partners and what steps you are taking in promoting the sale. If you have any queries you can contract me on (03) 9896 2222." 184 On 23 December 2004 Mr Duncan's and Alpha Centauri's solicitors, Mooney & Kennedy, wrote a letter to Mortgage House in the following terms: "We are the solicitors for Robert Duncan and Alpha Centauri Enterprises Pty Ltd trading as Mortgage House Gold Coast-Southport (MH Southport). Our client has been put on notice that you will review your Business Partner Agreement with the view of resuming ownership of his business, Southport Branch, without any compensation by 31st Jan 2005. We are instructed that despite your withdrawal from the sponsorship of the Brisbane Broncos and the closure, earlier this year, of your Brisbane corporate office, which was opened for less than six months, you have now expressed that you wish to expand into Queensland in early 2005. Our client has invested 3 years as the pioneer for Mortgage House in Queensland, built the MHA name not previously known in Queensland and set a precedent by selling off two sections of his large Gold Coast territory as new MHA branches for $150,000 each which as resulted in financed benefits for you. Our client was approached by Mr Greg Stevens, National Sales Manager, prior to his departure, to accept the position of Queensland State Sales Manager. This would indicate to us a level of confidence and satisfaction with our clients' ability. We understand there is currently a dispute between you and MH Southport, in relation to the reduction in trail income on the Mortgage House product known as Home Loan Plus Lo-Doc, which is likely to involve a significant sum of money. We believe any action by our client in this respect is likely to be successful. We understand that you have instructed our client to pass over information on parties interested in purchasing his business known as MH Southport, prior to him signing a Contract of Sale. This we believe may not be in our clients' best interests. We would like to invite you to address each of these issues, with a view of making a reasonable commercial offer to our client enabling him to vacate the MH Southport Branch premises by 31st Jan 2005, a timeframe that you have indicated. We await your response." 185 Mr Duncan's proposed purchaser did not proceed apparently because of discrepancies associated with trail commission. 186 On 16 April 2005 Mr Sheales wrote to Mr Duncan in the following terms: "We refer to the above and note that the level of business being generated from your office is in breach of the Key Performance Indicators pursuant to the Business Partners Agreement ("BPA") dated 19 February 2004. Consequently, we ask you show just cause as to why we should not immediately terminate the BPA pursuant to clause 15.2(h) therein. We require your written response on or before 5.00pm 22 April 2005. We await your reply." 187 Mr Duncan responded on 19 April 2005 in the following terms: "We are in receipt of your fax dated 16/4/2005. It is not possible to show just cause unless we are notified of which Key Performance Indicators it is alleged we have breached, and the period when we are alleged to have breached them. When we receive this information we will respond, but will need the six days, as allowed in your letter, to prepare our response. The six days will need to run from the date of receipt of your notification to us of what breach is alleged to have occurred." 188 On 19 April 2005 Alpha Centauri's solicitors wrote the following letter to Array (the evidence did not reveal why this communication was not sent to Mortgage House): "The underpayment and non payment of commissions has become a matter of dispute between your company and our client. The ability of our client to comply with the requirements of the Business Partnership Agreement is dependant on its receipt of the commissions as they become due. The income of this company is almost entirely from Commissions, particularly Trailing Commissions. This income is used to pay the expenses incurred in operating the business in a way that complies with the Business Partnership Agreement. There are now substantial amounts of commission in arrears. This is in clear and serious breach by the Mortgage House companies of the Business Partnership Agreement. This fax is to put you on notice that unless you agree to pay the back commissions now due immediately, and agree to continue paying commissions as they become due, our client will not be able to continue operating in compliance with the Business Partnership, and will have no alternative but to close its branch. Please confirm your agreement by 12 noon Friday 22 April 2005. In the absence of your agreement and receipt of the commissions owed we will be forced to accept that you have by your actions repudiated the Business Partnership Agreement. Our client reserves the right to rescind the Agreement and sue for damages." 189 On 22 April 2005 Alpha Centauri's solicitors wrote to Mortgage House's then solicitors Clayton Utz in the following terms: "We refer to our letter of 19 Apr 2005 addressed to your clients and faxed to them on that date. Your client has not replied to the letter, and has given our client no indication that it will pay the commissions due. In the circumstances your clients' continuing breach of the terms of the Business Partner Agreement has prevented our client from obtaining the funds necessary to continue operating its branch successfully. Our client accepts that your clients' actions are a repudiation of the Business Partner Agreement, and hereby rescinds the Agreement, and will sue for damages." 190 On 28 April 2005 Clayton Utz wrote to Mooney & Kennedy denying that Mortgage House was in breach of the 2004 agreement and asserting that Mortgage House's purported rescission was wrongful and ineffective and itself amounted to a repudiation of the agreement. The letter ended with the following: "With respect to your client's own repudiation of the Agreement, our clients elect to affirm the Agreement and reserve their rights to sue your client for damages for its wrongful repudiation. The Agreement thus remains on foot." 191 On 28 April 2008 Mr Sheales wrote as follows to Mr Duncan: "We refer to the email and fax sent by your solicitors, Mooney & Kennedy, to our solicitors, Clayton Utz on 22 April 2005. We were surprised and disappointed that, despite your request for a response to your solicitors' 19 April 2005 facsimile, you were not prepared to allow us sufficient time to give you such a response. Clearly you were uninterested in anything we had to say. We note that in Mooney & Kennedy's fax of 22 April 2005 you have purported to rescind the Business Partner Agreement dated 19 February 2004 ( "the Agreement" ). Our solicitors, Clayton Utz, have now written to Mooney & Kennedy in relation to this purported rescission. As Clayton Utz has explained, we do not accept that we have breached the terms of the Agreement, as you allege, or at all. Without making any admission, or undermining the generality of our denial that we are in breach of the Agreement in any way, even if you are correct in your assertion that there are outstanding commissions owed to you, which we do not concede, we do not accept that any failure to pay such outstanding commissions constitutes a repudiation of the Agreement by us. As a result, your purported rescission of the Agreement is wrongful and ineffective, so that the Agreement remains on foot. As Clayton Utz have further explained, your purported rescission of the Agreement is itself a wrongful repudiation of the Agreement. We do not accept that repudiation, and elect to affirm the Agreement. We do however note that you have consistently failed to reach Key Performance Indicators ( "KPIs" ) under the Agreement. Item 4 of Schedule 1 to the Agreement sets out the KPIs which include an average number of applications that you are required to submit per month, as follows: " Applications submitted per month, monthly average 0-3 months - 10 4-6 months - 20 7-12 months - 30 over 13 months – 40" You have consistently failed to reach this KPI since March 2004 to date. We attach a copy of a table detailing the number of applications submitted by you for this period. Pursuant to clause 15.2(h), the Agreement confers on us a right of immediate termination, in our sole discretion, if at any time you have failed to reach the KPIs. Pursuant to clause 15.2(h) of the Agreement, in exercise of our sole discretion, we hereby give you notice that we are terminating the Agreement effective immediately. We note the consequences of our termination as set out in clause 15.4 of the Agreement, and in particular, the effect of clause 15.4(c), which provides that on termination of the Agreement 'all Commission accrued but not yet paid to [you] prior to termination of the Agreement will be forfeited'." 192 Mr Sheales tried, unsuccessfully, to fax the letter to the Branch on 29 April 2005. He rang the Branch at around lunchtime and was told they were "moving out". He ordered that Alpha Centauri's access to EMMS be stopped. 193 On 2 May 2005 Mr Angel directed that no commissions were to be paid to Alpha Centauri until further notice. RELEVANT CLAUSES IN THE AGREEMENTS 194 The following provisions appear in the 2001, 2002, 2003 and 2004 agreements. 195 Clause 1.1 contains the following definitions: "Application" means any application form, including any relevant Business Documents, signed by a Customer requesting the provision of any Services by one of the Companies. "Customer" means a person procured by the Business Partner, its servants, agents, contractors and related entities and accepted by a Company as a customer of a Company with respect to the Business of that Company. "Initial Period" means 12 months from the date of this Agreement. "Services" means any or all, as the case may be, of the mortgage, realty or financial services provided to or attempted to be provided to Customers procured by the Business Partner pursuant to this Agreement. 196 Clause 2.2 is as follows: "The Initial Period will be extended automatically by one or more Option Periods unless either the Business Partner terminates this Agreement in accordance with clause 15 or the Companies object to an extension by notice in writing to the Business Partner prior to the expiry of an Option Period." 197 Clause 3.2 (which for convenience is repeated) is as follows: (a) subject to clause 3.2(c), the Companies grant to the Business Partner the exclusive right to operate a Premises in the Territory for the purposes of this Agreement. (b) the Business Partner agrees that it will not and that it will procure that any Related Entity will not operate more than one Premises in the Territory without first obtaining the written consent of the Companies. (c) the Business Partner acknowledges that the Companies retain the rights to appoint a third party to operate a business in the Territory relating to the services offered by MHR. 198 Clause 4.1(b) is as follows: "The Business Partner must…not seek funds directly from any Funder of the Companies". 199 Clause 4.1(c)(iv) is as follows: "The Business Partner must: (c) disclose to and draw to the prospective Customer's attention the nature, and the material terms and conditions, of the Application and Business Documents for the supply of any Services through and by the Companies to the Customers as advised by the appropriate Company to the Business Partner from time to time, including, but not limited to: … (iv) that all payments and charges (other than any Application fee) are to be paid by the Customer to the relevant Company, and not the Business Partner". 200 Clause 4.1(h) is as follows: "The Business Partner must…comply with all reasonable requests, directions, policies and procedures of the Companies or their nominee as notified by one or more of the Companies from time to time". 201 Clause 4.1(m) is as follows: "The Business Partner must…reach the Key Performance Indicators". 202 Clause 4.2 (h), (i), (l), (n) are as follows: "In the discharge of its duties under this Agreement the Business Partner must: (h) not participate or assist in any Churning activities or encourage or aid any third party to participate in any Churning activities for the benefit of the Business Partner or any Related Body Corporate or any other person; (i) not itself, nor permit any Related entity or employees of the Business Partners to, promote or sell the products and services of any third party which is the same or similar to the Services and which any Company, in its reasonable opinion, deems to be a competitor, without the express written approval of the relevant Company; (l) use brochures, publications, support materials and advertising copy as supplied or distributed by the Companies; (n) use only stationery, forms, corporate brochures and business cards supplied by the Companies (which, after the complimentary initial pack, must be ordered by and will be supplied at the cost of the Business Partner)". 203 Clause 5.1(d) is as follows: "The Companies will be responsible for the ongoing management of Services, including but not limited to collecting all moneys payable by Customers for the Services (other than the Application Fee)." 204 Clause 5.1(e) in the 2003 and 2004 agreements is as follows: "The Companies will only receive Applications in relation to the Territory from the Business Partner and will not accept applications directly from an employee, mobile lender or an introducer of the Business Partner if and when knowledge of that relationship is made known by notice in writing from the Business Partner to the Companies." 205 Clause 6.2(d) is as follows: "On obtaining suitable premises, the Business Partner must…not use the Premises for any purpose other than the operation of the Business in accordance with this Agreement". 206 Clause 7.1 is as follows: "Advertising (a) Subject to clause 7.1(c), the Business Partner is responsible for all Media Promotions in relation to its Premises and all business conducted by the Business Partner within the Territory. (b) The Companies will be responsible for Media Promotions in relation to the Business of the Companies. (c) The Companies can give any directions and any regulations at their sole discretion to regulate the Media Promotions of the Business Partner and the Business Partner agrees to comply with those directions and regulations as soon as reasonably practicable." 207 Clause 8.3 is as follows: "Variations to Commission and Ongoing Trailer (a) Subject to clauses 8.3(b) and 8.3(c), the Companies may, at their discretion, vary the Commission or the Ongoing Trailer, or the procedure for payment, on 30 days prior written notice to the Business Partner. (b) Subject to clause 8.3(c), the Companies may only reduce the Commission or Ongoing Trailer if the commission or Monthly Service Commission paid by a Funder to the Companies is reduced or the Funder increases its fees or charges. (c) Where the Business Partner has failed to meet the Key Performance Indicators at any time, the Companies will provide written notice that if the Business Partner does not meet the Key Performance Indicators within 6 months of the notice, the Companies may vary the Commission or the Ongoing Trailer without further notice." 208 Clause 8.4(c) is as follows: "The Companies may, in their absolute discretion, refuse to pay Ongoing Trailer to a Business Partner where the Business Partner is in breach of a provision of this Agreement. The Companies will, at their sole discretion, continue to pay Ongoing Trailer to a Business Partner once any such breach has been remedied to the reasonable satisfaction of the Companies." 209 Clause 8.7 is as follows: "At the sole discretion of the Companies, the Companies may continue to pay Ongoing Trailers to the Business Partner at amounts equivalent to 60% of the Ongoing Trailers set out in clause 8.2 for 24 months following termination of this Agreement." 210 Clauses 15.2(a) and (h) are as follows: "The Companies may, at their sole discretion, terminate this Agreement by giving written notice effective immediately if at any time the Business Partner: (a) is in breach of any of the terms of this Agreement; (h) has failed to reach its Key Performance Indicators." (There is no (h) in the 2001 agreement). 211 Clause 15.4(c) is as follows: "Upon termination of this Agreement and subject to the Companies exercising their discretion to the contrary, all Commission accrued but not yet paid to the Business Partner prior to termination of the Agreement will be forfeited. The Companies reserve the rights, in their absolute discretion, to pay Commission on matters settled after termination of this Agreement." 212 Item 2B of Schedule 1 in the 2003 and 2004 agreements are as follows: "Ongoing Trailer Mortgage Loans Mortgage House of Australia Pty Ltd Equity Gold and Elite Variable 0.25% of the outstanding balance of the loan Easy Credit 0.10% of the outstanding balance of the loan Home Loan Plus 0.12% of the outstanding balance of the loan Bullet All-in-One 0.25% of the outstanding balance of the loan Fixed Rate Loans No trailer paid, with the exception of Equity Gold, Home Loan Plus & Bullet All-in-One, where these products above trailers will be paid on the outstanding balance of the loan. Direct Mortgage Solutions Pty Limited All loans 0.25% for the first $1 million in accumulated loans 0.25% on that amount of accumulated loans exceeding $1 million" 213 Item 4 is as follows: "Key Performance Indicators The following benchmarks are the minimum performance standards required of the Business partner by the Companies: Conversion Rate per month Enquiry to lead – 60% Lead to Appointment – 60% Appointment to loan – 50% Application to approval – 80% Approval to settlement – 80% Complaints No more than 2 Customer complaints per month. Applications submitted per month, monthly average 0-3 months - 10 4-6 months - 20 7-12 months - 30 over 13 months – 40" RELEVANT LEGISLATION Trade Practices Act 214 Section 51AC(2) which is in Part IVA provides as follows: A person must not, in trade or commerce, in connection with: (a) the supply or possible supply of goods or services to a corporation (other than a listed public company); or (b) the acquisition or possible acquisition of goods or services from a corporation (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable. 215 Section 51AC(3)(g) provides as follows: Without in any way limiting the matters to which the court may have regard for the purpose of determining whether a corporation or a person ( the supplier ) has contravened subsection (1) or (2) in connection with the supply or possible supply of goods or services to a person or a corporation ( the business consumer ), the court may have regard to: (g) the requirements of any applicable industry code. 216 Section 51AD provides as follows: A corporation must not, in trade or commerce, contravene an applicable industry code. 217 Section 51AE provides as follows: The regulations may: (a) prescribe an industry code, or specified provisions of an industry code, for the purposes of this Part; and (b) declare the industry code to be a mandatory industry code or a voluntary industry code; and (c) for a voluntary industry code, specify the method by which a corporation agrees to be bound by the code and the method by which it ceases to be so bound (by reference to provisions of the code or otherwise). 218 Section 52(1) which is in Part V provides as follows: A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. 219 Section 82(1) provides relevantly as follows: … a person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IVA, V or section 51AC may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention. 220 Section 87(1) provides relevantly as follows: … where, in a proceeding instituted under this Part, the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in (whether before or after the commencement of this subsection) in contravention of a provision of Part IVA or V, the Court may make such order or orders as it thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (2) of this section) if the Court considers that the order or orders concerned will compensate the first-mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage. 221 Section 87(2)(b) provides as follows: The orders referred to in subsection (1) and (1A) are: (b) an order varying such a contract or arrangement in such manner as is specified in the order and, if the Court thinks fit, declaring the contract or arrangement to have had effect as so varied on and after such date before the date on which the order is made as is so specified; The Franchising Code of Conduct 222 With effect from 1 July 1998 there came into force under section 51AE of the Act, a code to regulate the conduct of participants in franchising towards other participants in franchising ("the Code"). 223 Clause 4(1) of the Code provides as follows: A franchise agreement is an agreement: (a) that takes the form, in whole or part, of any of the following: (i) a written agreement; (ii) an oral agreement (iii) an implied agreement; and (b) in which a person ( the franchisor ) grants to another person ( the franchisee ) the right to carry on the business of offering, supplying or distributing goods or services in Australia under a system or marketing plan substantially determined, controlled or suggested by the franchisor or an associate of the franchisor; and (c) under which the operation of the business will be substantially or materially associated with a trade mark, advertising or a commercial symbol; (i) owned, used or licensed by the franchisor or an associate of the franchisor; or (ii) specified by the franchisor or an associate or the franchisor; and (d) under which, before starting business or continuing the business, the franchisee must pay or agree to pay to the franchisor or an associate of the franchisor an amount including, for example: (i) an initial capital investment fee; or (ii) a payment for goods or services; or (iii) a fee based on a percentage of gross or net income whether or not called a royalty or franchise service fee; or (iv) a training fee or training school fee; but excluding: (v) payment for goods and services at or below their usual wholesale price; or (vi) repayment by the franchisee of a loan from the franchisor; or (vii) payment of the usual wholesale price for goods taken on consignment; or (viii) payment of market value for purchase or lease of real property, fixtures, equipment or supplies needed to start business or to continue business under the franchise agreement. 224 Clause 6(1) of the Code provides as follows: A franchisor must, before entering into a franchise agreement, and within 4 months after the end of each financial year after entering into a franchise agreement, create a document (a disclosure document ) for the franchise in accordance with this Division. 225 Division 2.2 of the Code provides that the franchisor must give a disclosure document to the franchisee proposing to enter into, renew or extend a franchise agreement. 226 The form of the disclosure document required is contained in Annexures 1 and 2 to the Code. Disclosure in the form of Annexure 1 is required if the business has an expected annual turnover of $50,000 or more. 227 I have assumed that the Branch was such a business. 228 Paragraph 15.1 of Annexure 1 requires franchisors to disclose its obligations by providing in the disclosure document: References to the relevant conditions of the attached franchise agreement that deal with obligations of the franchisor, including: (a) any obligation to provide training: (i) before the franchised business starts; and (ii) during operation of the franchised business; and (b) any obligation that continues after the franchised business ceases to operate. 229 Clause 21 of the Code provides as follows: (1) This clause applies if: (a) a franchisee breaches a franchise agreement; and (b) the franchisor proposes to terminate the franchise agreement; and (c) clause 23 does not apply. (2) The franchisor must: (a) give to the franchisee reasonable notice that the franchisor proposes to terminate the franchise agreement because of the breach; and (b) tell the franchisee what the franchisor requires to be done to remedy the breach; and (c) allow the franchisee a reasonable time to remedy the breach. (3) For paragraph (2)(c), the franchisor does not have to allow more than 30 days. (4) If the breach is remedied in accordance with paragraphs (2)(b) and (c), the franchisor cannot terminate the franchise agreement because of that breach. (5) Part 4 (resolving disputes) applies in relation to a dispute arising from termination under this clause. 230 Clause 23 of the Code provides as follows: A franchisor does not have to comply with clause 21 or 22 if the franchisee: (a) no longer holds a licence that the franchisee must hold to carry on the franchised business; or (b) becomes bankrupt, insolvent under administration or an externally-administered body corporate; or (c) voluntarily abandons the franchised business or the franchise relationship; or (d) is convicted of a serious offence; or (e) operates the franchised business in a way that endangers public health or safety; or (f) is fraudulent in connection with operation of the franchised business; or (g) agrees to termination of the franchise agreement. THE CLAIMS AND CROSS-CLAIM 231 From this point, references to "the agreements" will, unless the context otherwise indicates, be references collectively to the 2003 agreement and 2004 agreement. 232 Alpha Centauri pleaded, but did not persist in, claims that Mortgage House had understated commissions payable under the agreements and that Mortgage House had breached an agreement to pay certain advertising costs. The Low Doc Loan trailer commission claim 233 Alpha Centauri claims that the agreements should be rectified to restore and reflect an entitlement to a trailer commission of 0.25% of the outstanding balance on Low Doc Loans which would entitle it to a commission at that rate on the low doc version of Home Loan Plus loans written during the currency of the agreements, instead of 0.12% as they presently provide. It says that it was the common intention of the parties that the agreements would contain provisions reflecting that entitlement. 234 Alpha Centauri claims that Mortgage House engaged in conduct that was misleading or deceptive or likely to mislead or deceive in that Mr Duncan was misled by Mr Stevens in their conversations to believe that the terms of the agreements would relevantly be the same as the 4 July 2002 draft. It claims that Mortgage House failed to disclose the changes, which in the circumstances, was misleading and deceptive. 235 Alpha Centauri claims that Mortgage House engaged in unconscionable conduct within the meaning of s 51AC of the Act. It puts that the agreements were franchise agreements within the meaning of that term in cl 4(1) of the Code, and that in failing to disclose the rate change Mortgage House failed to meet the requirements of the Code. It points to the fact that the requirements of an applicable industry code is a matter to which the Court may have regard under s 51AC(3)(g) of the Act. As I understood it, it says that the unconscionable conduct consists of the misleading and deceptive conduct of which it complains together with the failure to meet the requirements of the Code. 236 It claims that in reliance on what Mr Stevens told Mr Duncan, and as a result of the claimed unconscionable conduct, Mr Duncan committed Alpha Centauri to the agreements oblivious to the change with respect to "Low Doc Loans". It says that had Mr Duncan been aware of the change, he would have raised it with Mortgage House, in which event either Mortgage House would have agreed to include a provision for the continuation of the relevant commission or Alpha Centauri would not have sold parts of the Territory as it did, but would have retained its rights under the 2002 agreement. 237 Alpha Centauri claims either in debt or as damages the shortfall between the two commission rates (that is 0.25% and 0.12%) on the business which it did during the life of the agreements on the basis that but for the change it would have earned commission at the higher rate. 238 In the alternative, Mortgage House seeks an order under s 87 of the Act that the agreements be varied to give Alpha Centauri the higher rate. 239 On the evidence the maximum amount of this claim is $14,697.27. 240 For its part, Mortgage House disputes that there was a common intention that the agreements would reflect (or continue to reflect) the asserted commission entitlement. 241 It denies any misrepresentation or non-disclosure. It disputes that Mr Stevens made the claimed representations. 242 It denies that Alpha Centauri suffered any damage by the conduct complained of in any event because, it says, Mortgage House would not have agreed to maintain the higher commission rate, and because Alpha Centauri received the benefit of the sale of parts of its Territory which it would otherwise have not received. 243 Mortgage House denies that the agreements were franchise agreements, denies any breach of the Code and denies any unconscionable conduct on its part. The telephone diversion claim 244 Alpha Centauri claims that the agreements should be rectified to restore and reflect the entitlement to telephone diversion which was contained in cl 5.1(e) of the 2002 agreement and deleted from the agreements, again on the basis that it was the common intention of the parties that the agreements would contain provisions reflecting that entitlement. 245 As with the Low Doc Loan trailer commission claim, Alpha Centauri claims that Mortgage House engaged in unconscionable conduct within the meaning of s 51AC of the Act. It puts that in failing to disclose the telephone diversion change, Mortgage House failed to meet the requirements of the Code. 246 Alpha Centauri puts that had the change been disclosed, it would have prompted Mr Duncan to have raised it with Mortgage House which would have agreed to include a provision for the continuation of the telephone diversion. 247 Alpha Centauri claims either in debt or as damages the loss which it says it suffered as a consequence of not having had the benefit of a contractual entitlement to telephone diversion. It claims as ancillary relief an order that the agreements be varied to reflect such an entitlement. 248 For its part, as with the Low Doc Loan trailer commission claim, Mortgage House denies that there was any common intention that Alpha Centauri would have any continued entitlement to telephone diversion or that there was any misleading or deceptive conduct, non-compliance with the Code, or any non-disclosure or unconscionable conduct. 249 In addition, Mortgage House disputes that Alpha Centauri has established any loss as a consequence of the conduct complained of. Claim for breach by Mortgage House having accepted applications in relation to the Territory 250 Alpha Centauri claims that Mortgage House breached cl 5.1(f) of the 2001 and 2002 agreements, and cl 5.1(e) of the agreements by accepting applications which were in "relation to the Territory". 251 It claims as damages an amount which it says reflects the commissions which Mortgage House earned on that business. 252 In respect of upfront commissions the amount claimed does not exceed $76,028.18. 253 No figure was suggested in respect of trailing commissions earned by Mortgage House. 254 Mortgage House disputes that upon the proper construction of the agreements it committed any breach. It puts further that Alpha Centauri has not proved any damage as a consequence of the conduct complained of. The Prime claim 255 Prime entered into agreements with parties described as originators which operated in the Territory. Prime and those originators, one of which was Mortgage Street which operated from a premises near the branch, had the benefit of EMMS or parts of it. 256 Alpha Centauri claims that by Prime entering into agreements with originators operating in the Territory who had the benefit of EMMS, Mortgage House breached cl 3.2(a) of the 2001 and 2002 agreements and the corresponding provisions of the agreements, as well as the following terms which Alpha Centauri contends are to be implied into all of the agreements: a that Mortgage House and their related entities would not establish or cause or assist to be established in the Territory any other business providing mortgage origination and other related financial services; b that Mortgage House and their related entities would not assist any business in the Territory providing mortgage origination and other related financial services to increase its business within the Territory and/or to compete against Alpha Centauri; c an obligation upon the parties of good faith, fair dealing and reasonableness in the performance of the agreements; d that Mortgage House and their related entities would co-operate in the doing of acts which are necessary to enable Alpha Centauri to have the benefit of the contract; and e that Mortgage House and their related entities would not hinder or prevent the fulfilment of the purposes of the express promises made in the agreements. 257 Alpha Centauri claims that it suffered damage as a consequence of these breaches. 258 Mortgage House disputes that its conduct constituted a breach of cl 3.2(a) of the agreements. 259 It disputes that the implied terms contended for are to be implied. 260 It disputes that Alpha Centauri has established any loss as a result of the conduct complained of in any event. Claim for repudiation of and damages for loss of the 2004 agreement 261 Alpha Centauri claims that as at 22 April 2005 Mortgage House was in breach of the 2004 agreement and had repudiated it by: a failing to pay trailing commissions in respect of Low Doc Loans (i.e. the shortfall between 0.25% and 0.12%); b failing to provide Alpha Centauri with direct telephone diversion; c accepting applications in relation to the Territory; and d assisting Mortgage Street (presumably via Prime) in breach of the implied terms pleaded. 262 It claims that by its solicitor's letter of that date it validly terminated the 2004 agreement and is entitled to loss of bargain damages. 263 In the alternative it claims that if its termination was ineffective, so was Mortgage House's purported termination by its letter dated 28 April 2005 because: a the 2004 agreement was a franchise agreement within the meaning of cl 4.1 of the Code and Mortgage House was not entitled to terminate it without first having given notice as required by cl 21(1) of the Code; and b the conduct of Mortgage House had caused or materially contributed to Alpha Centauri being unable to reach the Key Performance Indicators by failing to provide telephone diversion, by receiving applications in relation to the Territory other than from Alpha Centauri and by assisting other entities to establish their businesses in the Territory in competition with Alpha Centauri. 264 It claims that Mortgage House's conduct in purporting to terminate was itself a repudiation which Alpha Centauri accepted, thereby bringing the 2004 agreement to an end. 265 Alpha Centauri claims damages which it says it suffered as a consequence of losing the bargain consisting of the 2004 agreement, which it says is the value of the business which it had and lost. 266 Mortgage House disputes that as at 22 April 2005 it had breached or repudiated the 2004 agreement. 267 It says that it validly affirmed the 2004 agreement and then immediately validly terminated it on the grounds of Alpha Centauri's failure to meet the Key Performance Indicators. It also says it was entitled to terminate on the basis of Alpha Centauri's breach of the provisions of the 2004 agreement which form the basis of its cross claim referred to below. 268 It disputes that the 2004 agreement was a franchise agreement and that the Code applies. Accordingly it disputes that it was obliged to give notice as required by cl 21(2) of the Code. 269 It says that if the Code did apply it was not obliged to comply with cl 21 of the Code because Alpha Centauri voluntarily abandoned the franchised business or the franchise relationship as contemplated by cl 23(c) of the Code. 270 Finally it says that Alpha Centauri has failed to establish any damages in any event. Mortgage House's cross claim 271 Mortgage House claims that Alpha Centauri Wines breached clauses 4.2(h), 4.2(i) and 6.2(d) of all of the agreements in relation to the activities of Alpha Centauri Wines. It says that Alpha Centauri permitted Mr Duncan, Mrs Duncan, Mr Slater and Alpha Centauri Wines and others to promote and sell finance products and services of competitors of Mortgage House in breach of the agreements. 272 It claims as damages the loss of profit on commissions which it says Alpha Centauri Wines earned during the life of the agreements on business channelled to AFG. Up to 3 October 2005 it quantified the maximum amount in respect of upfront commissions as $19,812, and $21,920 in respect of trailing commission. It quantified its trailing commission claim up to January 2009 as an extra $30,740.77. 273 For its part Alpha Centauri says that loan applications which came to it were only channelled via Alpha Centauri Wines to AFG if they could not first be accommodated with Mortgage House or Array. THE COURSE OF THE PROCEEDINGS 274 Before proceeding to consider the various claims and the cross claim it is appropriate (for reasons which will become clear later) to say something about the course of these proceedings. 275 The final hearing took place over 10 hearing days being 27 April 2009 to 30 April 2009, 11 May 2009 to 15 May 2009 and 18 May 2009. There was a week's break between 1 May 2009 and 11 May 2009. 276 The proceedings were initiated by Summons sued out of this Court on 22 March 2005. The Summons was first amended on 27 May 2005. The Fourth Further Amended Summons was filed during the course of the hearing and I permitted the filing of the Fifth Further Amended Summons on the last day of the hearing. 277 The proceedings had originally been set down for hearing on 10 April 2007 on an estimate of nine days. That hearing in fact commenced before me on 11 April 2007. 278 On 12 April 2007 Alpha Centauri first moved that the Court determine liability separately from quantum. That application was unsuccessful. It then moved to vacate the hearing on the basis that it was not in a position to proceed because expert evidence reports of a Mr Adams intended to be relied upon by it were defective. 279 The application to vacate was strongly contested, but I acceded to it to allow Alpha Centauri to put its case in order. 280 On 10 September 2008 I granted Alpha Centauri leave to amend the pleadings and directed them to pay to Mortgage House an amount on account of the costs thrown away as a result of the earlier vacation of the hearing. So as not to stultify its claim I declined to order Alpha Centauri to provide further security provided that Mr Duncan by deed or other form of instrument reasonably required by Mortgage House acknowledged liability jointly and severally with Alpha Centauri for any orders as to costs. 281 On 9 December 2008 I heard further applications in respect to costs brought by both parties. I stood the proceedings over to 18 December 2008 before the then Commercial List Judge, Bergin J, (now CJ in Eq). On that day Her Honour listed the proceedings for hearing before me to commence on 27 April 2009. 282 The matter was before Her Honour for directions on 20 February 2009 and stood over to 24 February 2009 to deal with a problem that had arisen with respect to discovery. On 24 February 2009 Her Honour made certain orders granting Alpha Centauri leave to issue certain subpoenas. On 17 April 2009 the matter came before me for directions and by consent, I made certain orders with respect to subpoenas that had been issued. 283 In accordance with the usual order as to hearing I received from both sides, shortly before 27 April 2009 brief outlines of submissions. Alpha Centauri's outline stated that the plaintiffs' principal witnesses were to be Mr Duncan, Mr Missen (accountant) and Mr Gwynne (valuer). 284 Mr Missen's proposed evidence consisted of a three volume "Independent Accounting Expert's Loss Report" dated 28 June 2007 quantifying the financial loss that Alpha Centauri "has incurred under the Business Partner Agreements entered into" with Mortgage House. 285 Mortgage House's evidence with respect to quantum consisted of a number of affidavits deposed to by Mr Neil Sayer. 286 On the sixth hearing day, counsel for Alpha Centauri informed the Court that there were a vast number of issues that had been raised by Mr Sayer which needed to be addressed and that had not been able to be addressed "in the time", and that material provided by Prime relating to commissions earned in the Territory was incomplete. There was also a complaint that Alpha Centauri had been ambushed because it had only been recently told of alleged defects in the Missen report. This founded a submission on behalf of Alpha Centauri that there should be an enquiry as to damages after I had determined liability. This course was opposed by Mortgage House, which pointed to the fact that the 2007 hearing had been aborted to enable Alpha Centauri to put its case in order. I did not accede to the submission. 287 However, I did require the solicitors acting for Prime to attend Court to enable Alpha Centauri to further its compliant of incomplete production. However, in the end result Alpha Centauri did not take it further and accepted that there was no justifiable complaint with respect to Prime's conduct. 288 From time to time during the early days of hearing there was discussion between counsel and the court about the order of witnesses and the question as to when Mr Missen would be called was discussed. 289 On the sixth day of hearing counsel for Mortgage House informed the Court that no indication had been received from Alpha Centauri as to why Mr Missen had not been able to take on board criticisms of his report which had been conveyed to Alpha Centauri, or indeed whether he had been asked to do so. 290 Later on the sixth day of hearing the Court was informed that Mr Missen had been located in Tahiti on his honeymoon and endeavours were being made to arrange telephone contact with him. 291 In the end result Alpha Centauri did not produce him and his reports were rejected given that Mortgage House wanted, and was entitled, to cross-examine him. No application to adjourn the proceedings was made. 292 On the eighth day of hearing Alpha Centauri foreshadowed an application for an accounting at a later date in an endeavour to overcome its inability to rely on the Missen report. But that application was ultimately not pressed. 293 The course that was ultimately taken by Alpha Centauri was to tender primary documentation to establish certain aspects of its damages claim, in particular commissions said to have been earned by Mortgage House from loans which were made "in relation to the Territory". However it had to accept Mortgage House's evidence on the value of the Low Doc Loan trailer commission claim, and ultimately offered no evidence of loss on the Prime claim. It also abandoned its pleaded claim for understatement of commission. Mortgage House had pleaded that it was entitled under cl 15.4(c) of the 2004 agreement to withhold payment of commissions. Alpha Centauri responded by saying that that provision was an unenforceable penalty provision. It is not necessary for me to determine that question. CONSIDERATION The Low Doc Loan trailer commission claim 294 To obtain rectification, Alpha Centauri must establish that at the time of the agreements the parties had a common intention that when they were executed they would include the relevant term, which by mutual mistake, was omitted; see for example Muriti v Prendergast [2005] NSWSC 281 at [105] and the authorities collected there by White J. 295 It has been said that to obtain rectification clear and strong evidence is required and that a court is very chary of acting on the evidence of a single witness; see Meagher, Gummow and Lehane's Equity Doctrines & Remedies, 4th ed (2002), Butterworths LexisNexis at para 26-050. 296 The guiding mind of Alpha Centauri was Mr Duncan. 297 Mr Duncan's evidence was that Mr Stevens had by their conversations (not precisely dated but apparently in or about August 2003, October 2003 and January 2004) led him to believe that the agreements would (save for the postcode changes) be the same as the July 2002 draft. 298 In his 17 November 2004 letter to Mr Sayer, Mr Duncan said that the only thing that was to have changed was the postcode list "and that this was a verbal guarantee by Greg Stevens". 299 There was, however, nothing to suggest that at that time Mr Duncan actually had to mind the Low Doc Loan commission rate or any other specific provision except for the postcodes. 300 I am nevertheless prepared to accept that after the asserted conversations with Mr Stevens (whatever may have been said), Mr Duncan honestly believed that the agreements would be on the terms he says, and that for his part he intended the agreements to contain the disputed provisions. 301 However, to obtain rectification Alpha Centauri must establish a corresponding intention on the part of Mortgage House. The relevant guiding minds of Mortgage House were those of Mr Stevens (who prepared the documentation) and Mr Sayer (who had the ultimate say). 302 To establish the asserted state of mind of Mortgage House, Alpha Centauri placed significant reliance on the conversations with Mr Stevens, and on the fact that after the 2003 agreement had been entered into, Mortgage House continued for some time to pay commission at the old rate on Home Loan Plus low doc loans. 303 It was put, in effect, both to Mr Stevens and Mr Sayer that it was their intention that the agreements would contain the disputed provisions. 304 Mr Stevens denied that he gave Mr Duncan any assurances that the only changes to the agreements would be the postcodes. Mr Stevens' evidence was that in July or early August 2003 after Mr Duncan had proposed dividing his Territory, he said to Mr Duncan that the purchaser of each territory would enter into a Business Partner Agreement with Mortgage House which would be the same as the current Mortgage House Business Partner Agreement that was provided to new business partners and that the agreements would include emailed updates. 305 Mr Stevens says that there was a conversation in about late July or early August 2003 during which Mr Duncan told him he had an interested party for the Tweed Heads South territory and that he told Mr Duncan that the new Business Partner Agreements would be the same as the current Business Partner Agreement being offered to new branches and would include the changes regarding the diversion of leads they had discussed previously. He says he also said the new agreements would reflect the change in postcodes. During cross examination he accepted that Mr Duncan may have told him he did not want to show the prospective purchaser his agreement. He maintained however that he told Mr Duncan that the purchaser's agreement would be the then current agreement. 306 During cross examination there was a sustained attack on Mr Duncan's credit by Mortgage House. There was a similar attack on the credit of Mr Stevens and Mr Sayer by Alpha Centauri. 307 Amongst others, points were made about differences between their oral evidence about conversations and how those conversations were expressed in affidavits. 308 On behalf of Alpha Centauri, strong reliance was placed on the fact that Mr Duncan asserted the verbal assurance from Mr Stevens in his 17 November 2004 letter, and on the fact that in July 2004 Mr Duncan did not have a copy of the then current Business Partner Agreement. 309 On behalf of Mortgage House strong reliance was placed on the 16 October 2002 email which was said to have placed Mr Duncan on notice that Home Loan Plus trailing commission would be paid at the rate payable in respect of that product which was 0.12%. Mr Duncan was also attacked with respect to his evidence concerning passing leads on to Alpha Centauri Wines and the fact that he originally denied passing on any leads but subsequently changed his position that he only referred loans where Array had refused accommodation. It was also put that he dishonestly tried to have an agreement backdated. It was put that he is a dishonest person. 310 Where a party seeks to rely upon spoken words as a foundation for a cause of action the conversation must be proved to the reasonable satisfaction of the Court. This means that the Court must feel an actual persuasion of its occurrence or its existence. In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof. Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved. The seriousness of an allegation made, inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question of whether the issue has been proved to the reasonable satisfaction of the Court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony, or indirect inferences: see Briginshaw v Briginshaw (1938) 60 CLR 336 at 362; Helton v Allen (1940) 63 CLR 691 at 712; Rejfek v McElroy (1965) 112 CLR 517 at 521; Watson v Foxman (1995) 49 NSWLR 315 at 319. 311 In my view the respective attacks on credit (save with respect to Mr Slater which I deal with below) failed. None of the witnesses gave evidence which was satisfactory in every respect. That is not surprising given the passage of time and the numerous events of the differing significance cross examined on. Further both Mr Duncan and Mr Sayer were giving evidence in their own interest. 312 I consider that each of Mr Duncan, Mr Stevens and Mr Sayer gave honest evidence as to their recollections of events. 313 Whilst I am prepared to accept as honestly given Mr Duncan's evidence that he derived an understanding from his conversations with Mr Stevens that the agreements to be entered into in 2003 and 2004 were to be the same as the July 2002 draft, I am not satisfied that the conversations before the 2003 agreement in which Mr Duncan says Mr Stevens made statements or gave assurances to that effect, occurred in the terms asserted. 314 The conversation which Mr Duncan says took place with Mr Stevens (presumably between late January and execution of the 2004 agreement about removal of the agreed postcodes from his Territory and their insertion into the purchaser's agreement), contained no such assurance. 315 I prefer Mr Stevens' evidence with respect to the disputed conversations as being more in accord with the contemporaneous behaviour of the parties, the objective material and the inherent probabilities. Moreover he has no interest in the outcome. The attack on his credit was unsuccessful. 316 The 16 October 2002 email, in the form received by Mr Duncan is at best ambiguous and at worst garbled. But the email in the form in which it was sent, although itself not a model of clarity, shows that the "New" rate on Construction Loans and Low Doc Loans would be based on the trails of the applicable loan product which in the case of Home Loan Plus was 0.12%. The terms of the email are inimical to the suggestion that Mr Stevens intended the 2003 agreement to reflect the commission rate of low doc Home Loan Plus loans at 0.25%. 317 Also there was evidence that there had in 2002 been changes to the Business Partner Agreement utilised by Mortgage House. This makes it less likely than not that Mr Stevens would in 2003 have told Mr Duncan that his new agreement and that of the proposed purchaser would be exactly the same as the July 2002 draft of his 2002 agreement. Correspondingly, I consider it more likely that he would have told Mr Duncan that both his and the purchaser's agreement would be the same as the then current agreement with the relevant postcode changes. 318 Far from being satisfied that as at 16 October 2002 or at the time of the agreements Mr Stevens' state of mind was that 0.25% was the trail commission on the low doc version of Home Loan Plus, I consider that his state of mind was that Home Loan Plus would attract 0.12% in all its forms. 319 Although the assertion in the 17 November 2004 letter is a factor which favours Mr Duncan's version, by that time Mr Stevens had resigned and Mr Duncan does not have the benefit of a presumption which would arise from a non-response had Mr Stevens been the recipient. 320 Mortgage House continued for some time to pay commissions at the old rate after the change. However, the evidence established that commission statements and calculations were computer generated and were dependant upon information being fed to Mortgage House's computer system. There was nothing to suggest that the continuation had any relationship with any state of mind on the part of any relevant person as to the contractual position at any point in time. 321 By the same token, Alpha Centauri did not for some time notice the alleged underpayment. 322 Mr Sayer's evidence was to the effect that Home Loan Plus "in both its derivatives" (normal and low doc) attracted a trailing commission of 0.12%, and that "Low Doc Loan" as used in the schedule to the 2001 and 2002 agreement was a different product and that it was obvious to him that it did not attract 0.25%, although on a most favourable interpretation of the 2001 and 2002 agreements it could be thought that it did. Mr Sayer was heavily attacked, in particular with respect to a statement in his affidavit of 26 April 2009 that he "now" understands that the plaintiffs were suggesting that the legal effect of those agreements was that Alpha Centauri was entitled to the higher commission on the low doc version of Home Loan Plus, whereas, it was put, he must at all material times have understood that (that is, that that had been Alpha Centauri's contention all along). 323 The attack on Mr Sayer's credit was unsuccessful. His evidence (including his affidavit evidence) like Mr Duncan's was not without imperfection. This litigation may well have been at the forefront of Mr Duncan's mind for some years. Clearly it plays a far less role in that of Mr Sayer. The inclusion of the word "now" in the affidavit barely has significance in the context of the proceedings. Although Mortgage House accepted for the purposes of the proceedings that the construction which is to be given to the 2001 and 2002 agreements is that Alpha Centauri was entitled on the low doc version of Home Loan Plus to the higher commission, one can readily see that it is susceptible to a reasonable argument along the lines of what Mr Sayer says was his understanding. 324 Mr Sayer is undoubtedly an extremely self confident, and hardened businessman, and perhaps even arrogant. When asked whether EMMS was superior he said, "My baby's always a superior product. Just ask me." 325 But I do not consider that he gave other than truthful evidence before me. 326 This includes his evidence that when Mr Duncan asserted under payment of commission on Low Doc Loans he told him "No, you are being paid the correct amount", as well as his evidence that when he became aware that the systems were programmed to pay 0.25% on Low Doc Loans he took steps to have them changed. 327 It follows that I am not satisfied that there was any intention on the part of Mortgage House to include in the agreements the term for which Alpha Centauri contends. The claim for rectification in this regard fails. 328 I have already said that I am not satisfied that the conversations which are necessary for the claim of misleading and deceptive conduct based on representations to succeed, occurred. 329 In addition Alpha Centauri pleaded that it had a reasonable expectation of being told of the change and that Mortgage House's failure to disclose it was misleading and deceptive. 330 Both the proposed 2003 agreement and 2004 agreement were accompanied by a letter inviting Alpha Centauri to read them carefully and if appropriate take legal advice. I do not consider that anything Mortgage House did or did not do with respect to entering into the agreements was misleading. 331 With respect to unconscionable conduct, I have already found that Mortgage House did not engage in any misleading or deceptive conduct. 332 I consider below whether the Code applied to the 2004 agreement and for the reasons given do not consider that it did. For the same reasons I do not consider that the Code applied to the 2003 agreement either. However, on the assumption that it did, in the Summons Alpha Centauri identified as particulars of the breach of the Code by Mortgage House clauses 10 and 11 of the Code (presumably Annexure 1). But it did not identify either in the Summons or in submissions with any precision (or indeed at all) what requirement of the Code (presumably within Annexure 1 to the Code) was relevant to the present context or as to how any particular requirement had not been met. All that was put was that there should have been disclosure of the change (or changes). 333 I do not consider that Annexure 1 to the Code required Mortgage House to disclose the particular change to the particular provisions. All that was required to be given were references to the relevant conditions of the agreement. 334 As it was, the letters under cover of which the agreements were sent invited a careful reading of the agreements and legal advice if appropriate. 335 Alpha Centauri referred to Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Pty Ltd (2000) 104 FCR 253 in which Sundberg J considered that an accumulation of incidents by the defendant franchisor disclosed an overwhelming case of unreasonable, unfair, bullying and thuggish behaviour in relation to each franchisee that amounted to unconscionable conduct for the purposes of s 51 AC(1). That is not this case. 336 I do not consider that Alpha Centauri has established that Mortgage House acted unconscionably in any way. 337 The claims for misleading and deceptive conduct and unconscionable conduct fail for additional reasons. 338 In order to recover damages the plaintiffs must prove that loss or damage was suffered "by" the conduct complained of. The word "by" used in s 82 of the Act expresses the notion of causation which is to be approached in a practical or commonsense manner: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514. 339 The measure of damages is the difference between the position Alpha Centauri is now in and the position it would have been in had the conduct complained of not occurred: Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1. 340 In the present case Alpha Centauri bears the onus on the balance of probabilities of showing that but for the conduct complained of it would have had the benefit of a contractual entitlement to trailer commission at the higher rate: Kabwand Pty Ltd v National Australia Bank Ltd (1989) ATPR 40-950; Marks v GIO Australia Holdings Limited (1998) 196 CLR 494 at 514. 341 The substance of the misleading conduct complained of is that Mr Stevens in effect gave assurances that the agreements would be the same as an earlier version. Had that conduct not occurred Alpha Centauri would have had no such assurance. 342 I am not satisfied that Alpha Centauri would not have entered into the agreements as they stood in any event, that is with no provision for commission at the higher rate on Low Doc Loans. 343 Moreover, even if the difference with respect to Low Doc Loans had been disclosed to and noticed by Mr Duncan and raised with Mr Stevens, and via him with Mr Sayer, I am not satisfied that Mr Sayer would have agreed that Alpha Centauri's agreement would reflect a trailer commission rate different from all the other branches in relation to the low doc version of Home Loan Plus. 344 Even if attention had been expressly drawn to the change I do not consider that it is more likely than not that Mortgage House would have contracted at the higher rate. 345 It is clear that Mr Duncan was keen to sell off parts of the Territory. I am not satisfied that if after negotiations Mortgage House was not prepared to retain the higher rate, Mr Duncan would not have sold. 346 As things turned out, he sold both the Tweed Heads South area and Burleigh Heads area and received, after paying the amount demanded by Mortgage House, goodwill of $66,000. It has not been established that the benefits he received in selling are worth less than the benefits of having kept the 2002 agreement on foot. Indeed, the shortfall on trailing commission established in these proceedings is less than $15,000. 347 Alpha Centauri has failed to show that it suffered any loss or damage by the conduct complained of in any event. The telephone diversion claim 348 As with the Low Doc Loan commission claim, Alpha Centauri must establish that at the time of the agreements the parties intended to include a provision in the terms of cl 5.1(e) of the 2002 agreement. 349 This claim places equal reliance on the disputed conversations with Mr Stevens. As I have already said, I am not satisfied that those conversations took place in the terms in which Alpha Centauri asserts. 350 In addition I am not satisfied that Mr Sayer would have been prepared to agree to an unconditional and open-ended obligation to provide telephone diversion to Alpha Centauri even had the issue been discussed. He was undoubtedly positively disposed to giving telephone diversion from time to time to Alpha Centauri but what Mr Duncan wanted was out of accord with the system in operation for other branches. 351 In support of its contention that the parties both intended to have such a provision, Alpha Centauri placed heavy reliance on the fact that at some later point in time Mr Sayer agreed with Mr Duncan that the Branch could keep its telephone diversion. At times, after the 2003 agreement, it is clear that Mr Duncan complained about not receiving calls and it seems to me that Mr Sayer did agree that the diversion could continue to the Branch although Mr Sayer's recollection was that this was in the context of advertising campaigns. It is also clear that at no time after the 2003 agreement (and even when he wrote the 17 November 2004 letter) did Mr Duncan ever assert that he never needed Mr Sayer's agreement because Alpha Centauri had a right to telephone diversion anyway. 352 More importantly, in May 2003 Mr Stevens was aware that a new leads referral system was to be put in place and Mr Sayer instructed that it occur. Mr Stevens' evidence was that "Once the decision is out there, I discussed with him that the agreement is going to have to change, then we changed the agreement". Mr Stevens would have been conscious from May 2003 onwards and especially as at July 2003 that the new leads system was inconsistent with the maintenance of telephone diversion, particularly with regard to new branches. This is an additional reason why it is unlikely, in my view, that he would have told Mr Duncan that the purchasers' agreements were to be the same as the July 2002 faxed draft. 353 I am not satisfied that Mr Stevens had it in mind at the time of the agreements that they would continue to have a provision giving Alpha Centauri telephone diversion. 354 So far as Mr Sayer is concerned, the fact that he was at some later point amenable to giving the Branch telephone diversion by no means establishes that he intended the agreements to contain an unconditional obligation to give them. What Alpha Centauri wanted was out of line with Mortgage House's general system for dealing with leads. Although Alpha Centauri's position was different in that it paid for its own advertising from time to time, I doubt whether Mr Sayer would have committed Mortgage House to such a provision. Alpha Centauri elicited evidence through Mr Stanley who worked for Array as General Manager, that on occasion Mr Sayer would say "when I am having trouble with some of the branches I simply switch their phones off and divert their calls direct to Head Office". This might indicate a cavalier attitude on his part to the interests of the branches but it also makes it unlikely that he would have given the commitment Alpha Centauri says he would. 355 Alpha Centauri has not met the requirements for rectification and its claim for that relief fails in relation to the telephone diversion provision. 356 Alpha Centauri did not make any claim for damages arising from the breach of any oral agreement to maintain telephone diversion. 357 On the footing that it achieved rectification, Alpha Centauri put that it suffered damages by Mortgage House failing to give it telephone diversion represented by the loss of the opportunity to generate business from telephone calls which it otherwise would have received. 358 However, even if it were entitled to rectification or there had been a binding oral agreement for telephone diversion, I am not satisfied that it has established any loss from any failure on the part of Mortgage House to procure diversion to the Branch. 359 A plaintiff claiming to have suffered loss by reason of a defendant's breach of contract bears the onus of proving the extent of that loss or damage: Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286; Placer (Granny Smith) Pty Limited v Thiess Contractors Pty Limited (2003) 77 ALJR 768. 360 The assessment of damages for a loss which depends on future chances or possibility of benefit may be fraught with difficulty and attended by uncertainty, but the mere fact that damages cannot be assessed without difficulty and uncertainty does not relieve a Court from the responsibility of attempting to assess them as best it can. Where there has been an actual loss of some sort the common law does not permit difficulties in estimating the loss in monetary terms to defeat an award of damages. A lost commercial advantage or opportunity is a compensable loss even where there is a less than 50 per cent likelihood that the commercial advantage will be realised. Damages for breach of contract are to be assessed by reference to the probabilities or possibilities of what would have happened: Sellars v Adelaide Petroleum NL & Ors (1994) 179 CLR 332 at 349; The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 125. 361 Where future or hypothetical events must be taken account of in assessing damages and proof of them is necessarily unattainable, the Court assesses the degree of probability that an event would have occurred, or might occur, and adjusts its award of damages to reflect that degree of probability: Malec v JC Hutton Pty Ltd (1990) 169 CLR 638 at 643; Sellars v Adelaide Petroleum NL & Ors at 350. 362 In some cases it is necessary or desirable to distinguish between where a plaintiff cannot adduce precise evidence of what has been lost and a case where, although apparently able to do so, the plaintiff has not adduced such evidence: Placer (Granny Smith) Pty Limited at [38]. 363 Apart from submitting that the Court should simply do the best it can, Alpha Centauri made no attempt to quantify its loss and put no submission as to how the Court should go about doing so. 364 The evidence was inconclusive as to when telephone diversion was operating and when it was not, and if it was not operating what the reason was. What was clear was that diversion was arranged on or about 17 October 2001 and was finally terminated on 7 or 8 June 2004. There was no evidence (documentary or otherwise) from any telephony provider between the two dates to establish with any precision when diversion was working and when it was not. Nor was the Court taken to any material which would make some comparison of performance between times when it was operating and when it was not. 365 The evidence established that instead of telephone diversion, the EMMS system was used to convey information about leads electronically. Mr Duncan was unhappy about this particularly because Alpha Centauri was paying for Queensland advertising. But there is no evidence which persuades me that this system was any less advantageous than telephone diversion would have been. 366 In Troulis v Vamvoukakis (Unreported) NSW CA 27/2/1998, at p 28 Gleeson CJ (with whom Mason P and Stein JA agreed): "The principles governing the approach which a court should take when there has been a failure of proof by a party carrying the onus of establishing the extent of damage suffered as a result of breach of contract or tort were discussed in JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237. Examples of cases, similar to the present, where courts have declined to substitute guesswork for evidence, and have refused to award damages where no basis for a rational assessment has been laid in the evidence, include Ted Brown Quarries Pty Ltd v General Quarries (Gilston) Pty Ltd (1977) 16 ALR 23 and Newark Engineering (NZ) Ltd v Jenkin [1980] 1 NZLR 504. As Deane J observed in The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 118-119, the limitations of the curial process, or the nature of the subject matter in question, often mean that the task of assessing damages involves a pragmatic exercise of a kind traditionally left to the good sense of a jury. Where, however, what is involved is the valuation of the goodwill of a business, and the plaintiff fails to adduce either reliable evidence of the trading results of the business, or evidence as to how one goes about valuing such a business, then there is an absence of the raw material to which good sense may be applied. Justice does not dictate that, in such a case, a figure should be plucked out of the air." 367 Even assuming breach and disadvantage, there is an absence of raw material to which good sense may be applied to yield a figure for damages, even doing the best I can. Justice does not dictate that a figure be plucked out of the air. 368 This claim accordingly fails. Claim for breach by accepting applications 369 Alpha Centauri put that Mortgage House breached cl 5.1(f) of the 2001 and 2002 agreements, and cl 5.1(e) of the agreements, all of which are in the following terms: "The Companies will only receive Applications in relation to the Territory from the Business Partner and will not accept applications directly from an employee, mobile lender or an introducer of the Business Partner if and when knowledge of that relationship is made known by notice in writing from the Business Partner to the Companies." 370 Alpha Centauri submitted that on the proper construction of the provision Mortgage House was prevented from transacting any business in relation to the Territory other than through Alpha Centauri. 371 It tendered three folders of documents (marked as Exhibits R and Y respectively) in an endeavour initially to establish that Mortgage House facilitated mortgages with borrowers "in relation to the Territory" and earned upfront commissions of $103,474.32 as a consequence. No documents were tendered in relation to any trailing commissions. 372 The Court was not taken to a single document in the tender either with respect to the entry into of any particular transaction or with respect to any commissions allegedly earned in respect of it. 373 On the final day of hearing it was accepted that a significant number of the documents tendered did not assist Alpha Centauri. A Schedule (prepared by Mr Missen) was tendered and admitted (not as evidence of the truth of the document) but in aid of identifying the documents which were said to establish the underlying transactions wrongfully entered into in respect of which the upfront commissions earned amounted to $76,028.18. 374 Mortgage House put that even if it accepted applications in respect of these loans, that was not a breach of the provisions relied on. 375 It submitted that: a its obligation was to receive only (and limited not to taking other than) "Applications" in relation to the Territory; b Application is defined in cl 1.1 of all the agreements to mean an application form signed by a "Customer" requesting the provision of any "Services" by Mortgage House; c "Services" is defined in cl 1.1 to mean services provided to or attempted to be provided to Customers of Alpha Centauri. 376 It submitted that the purpose of the clause was to ensure that Mortgage House did not receive Applications from "an employee, mobile lender or an introducer of Alpha Centauri" in respect of customers procured by Alpha Centauri. In other words, once Alpha Centauri had procured a Customer, an Application from that Customer could be received by Mortgage House only from Alpha Centauri. 377 It was put that the sensible business purpose behind the clause was to prevent Mortgage House, for example, from receiving an Application from a former employee of Alpha Centauri who attempts to personally submit a loan on behalf of a Customer and to prevent Mortgage House from receiving a new Application from a Customer of Alpha Centauri in relation to the Territory. 378 In support of its construction, Mortgage House pointed to examples of what it suggested would be the absurd operation of Alpha Centauri's construction. One was that a person living in Sydney and having a relationship with a Mortgage House branch in Sydney who is purchasing a holiday property in Southport would be required to deal only with the Southport branch of Mortgage House in respect of the loan. Another was a customer of the Southport branch moved to Adelaide and wished to purchase a property in Adelaide. It was put that on Alpha Centauri's construction, the Branch could not deal with the customer because the customer and/or the property were outside the Branch's Territory and the Adelaide branch could not deal with the customer because he/she was an existing customer of the Branch. 379 I prefer Mortgage House's construction. It better accords with the words used. Mortgage House's obligation is to receive only Applications as defined and not applications at large. The agreements do not provide that Mortgage House will not do business in relation to the Territory other than through Alpha Centauri. 380 Alpha Centauri obtains the benefit of the exclusive right to operate "a Premises in the Territory", and thereby to obtain Customers. When it does so, (a Customer being a person procured by it) and the Customer makes an Application, the benefit that flows from having obtained that Customer accrues to it and it alone, and Mortgage House cannot then deprive it of that benefit by obtaining that business via a different route. 381 On Mortgage House's construction it would be alerted, on receipt of an Application, that no other application directly from that party or on its behalf could be accepted. On Alpha Centauri's construction, Mortgage House would have to divine that an application is in relation to the Territory (a very wide ambit) without the benefit of knowing that it had come via Alpha Centauri. 382 Mortgage House's construction is the more reasonable and sensible one, as the examples provided by Mortgage House illustrate. 383 Moreover, I do not consider that Alpha Centauri has proved any damage as a result of the conduct alleged to have been in breach. 384 There was no evidence about the circumstances of any of the applications allegedly wrongly accepted. No borrowers were called. In the circumstances I am unable to find that Alpha Centauri would have been the beneficiary of any of that business. 385 This claim accordingly fails. The Prime claim 386 Prime entered into agreements with parties described as originators, one of which was Mortgage Street which operated in Alpha Centauri's Territory. These appointments were to assist Prime in originating mortgage loans on behalf of third parties. Mortgage Street had the benefit, through its relationship with Prime, of the use of the EMMS system. 387 So far as breach of cl 3.2(a) is concerned there is no direct conduct of Mortgage House itself which is in breach of this provision. It has not granted to anyone but Alpha Centauri any right to operate "a Premises in the Territory". 388 Additionally, there is no evidence which enables a finding that Mortgage House controls Prime. Both are controlled by Global, which in turn is controlled by Mr Sayer. 389 Accordingly the claim for breach of cl 3.2(a) is unsustainable. 390 So far as the pleaded implied terms are concerned, the Summons was amended during the hearing to insert the reference to related entities, no doubt because Mortgage House itself did not assist Prime or the originators. 391 The tests for the implication of terms are settled. In BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-3 the tests were articulated by the Privy Council as follows: …for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract. 392 Four of the five alleged implied terms refer to "related entities" of Mortgage House. 393 No submissions were made on behalf of Alpha Centauri as to the scope of the term "related entities". However, each of the agreements contains a definition of that term for the purposes of the agreements which gives to it the same meaning as is to be found in s 9 of the Corporations Act 2001 (Cth). That section provides that: "related entity" , in relation to a body corporate, means any of the following: (a) a promoter of the body (b) a relative of such a promoter; (c) a relative of a spouse of such a promoter; (d) a director or member of the body or of a related body corporate; (e) a relative of such a director or member; (f) a relative of a spouse of such a director or member; (g) a body corporate that is related to the first-mentioned body; (h) a beneficiary under a trust of which the first mentioned body is or has at any time been a trustee; (i) a relative of such a beneficiary; (j) a relative of a spouse of such a beneficiary; (k) a body corporate one of whose directors is also a director of the first-mentioned body; (l) a trustee of a trust under which a person is a beneficiary, where the person is a related entity of the first-mentioned body because of any other application or applications of this definition. 394 In my view a term which comprehends this definition of "related entity" fails to satisfy at least three of the tests for an implied term. Its width makes it neither reasonable nor equitable, it is not necessary to give business efficacy to the agreements and it is not obvious. 395 Given that Alpha Centauri did not formulate any other definition I am not satisfied that the test of clear expression is satisfied either. 396 In addition it does not seem to me that any term embracing the conduct of a related entity (whatever definition is used) is necessary to give business efficacy to the agreements. 397 It may be accepted for present purposes that there is an implied obligation on each party to do all that is necessary on its part to enable the other party to have the benefit of the contract; see Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607. 398 However, the complaint is not that Mortgage House did or refrained from doing anything. The conduct complained of is that of Prime and its conduct is said to be a breach by Mortgage House. 399 So far as the pleaded obligation of good faith, fair dealing and reasonableness is concerned it may be accepted that such a term is to be implied. 400 Such a term has been implied into a franchise agreement: Burger King Corporation v Hungry Jack's Pty Ltd (2001) 69 NSWLR 558; Far Horizons Pty Ltd v McDonald's Australia Ltd [2000] VSC 310. In Far Horizons Pty Ltd v McDonald's Australia Ltd Byrne J said at [120]: "As I indicated to counsel in argument, I do not see myself at liberty to depart from the considerable body of authority in this country which has followed the decision of the New South Wales Court of Appeal in Renard Constructions (ME) Pty Ltd v Minister for Public Works . I proceed therefore on the basis that there is to be implied in a franchise agreement a term of good faith and fair dealing which obliges each party to exercise the powers conferred upon it by the agreement in good faith and reasonably, and not capriciously or for some extraneous purpose." 401 But the term relates to the exercise by a party of a power conferred on it by the agreement, and no such power on the part of Mortgage House is in play in relation to the activities of Prime. It also does not relate in the present context to the performance or non performance by Mortgage House of the agreements. 402 The claim for breach of implied terms is accordingly unsustainable. 403 In addition I am not satisfied that Alpha Centauri has proved any damage as a consequence of the alleged breach. 404 There was no attempt made in submissions to quantify business that was allegedly lost via the Prime arrangement or the value of the opportunity that Alpha Centauri may have had to do that business. 405 Mr Sayer's evidence, which I accept, was as follows: "Q. And the financial products that were offered to Mortgage Street to sell were related back to the same Macquarie facility that you had negotiated with them? A. No. No, we - the mortgage products that they sold were designed by them for them. And Mortgage Street in particular has a very long standing with property developers in Queensland, and I'm fairly certain that the principal of Mortgage Street is a property developer in his own right. And he knew all - not all. He knew several property developers in the south-east Queensland area. And I'm going to use a descriptive: it was a captive audience. Mortgage Street's staff would occupy the property developer's display sites. The Mortgage Street staff would befriend the property developers and their staff. So it's like a closed loop, a controlled environment. And we would have never ever seen those applications, and that customer would never ever have walked into Mortgage Street. Q. How can you say that, Mr Sayer, that a customer who walks into the Mortgage Street shop premises in Southport would never have walked into the Mortgage House branch shop front? A. Okay, I'll rephrase it: very unlikely. Not never in an absolute statement, never, very unlikely." 406 I am not satisfied that any realistic opportunity was lost to Alpha Centauri as a consequence of the Prime arrangement. 407 This claim accordingly fails. Repudiation and loss of bargain damages 408 On 22 April 2005 Alpha Centauri by its solicitor's letter of that date, purported to terminate the 2004 agreement on the grounds that Mortgage House had repudiated it by refusing to pay commissions due. 409 The parties were not at issue that if there were other breaches or a repudiation that Alpha Centauri was at liberty to rely on them even though it did not do so in the letter (although it was not suggested that it was unaware of them): Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359. 410 However, as appears above I have found that none of the additional breaches relied upon to justify termination have been made out by Alpha Centauri. 411 It follows that Alpha Centauri has not established that on 22 April 2005 it was entitled to terminate. 412 There was no issue that on 29 April 2005 when Mortgage House purported to terminate, Alpha Centauri was in breach of the 2004 agreement by failing to meet the Key Performance Indicators. 413 Alpha Centauri put that Mortgage House was not entitled to terminate for two separate reasons: firstly, because Mortgage House had (by its breaches with respect to telephone call diversion, receiving applications which it should not have, and in relation to Prime), caused or materially contributed to Alpha Centauri's breach and secondly, because it was obliged to give notice under cl 21 of the Code before it could terminate. 414 So far as the first reason is concerned I have already found that the breaches relied upon have not been made out. Also, as appears below, I have found that Alpha Centauri was in breach of cl 6.2(d) of the 2004 agreement. That breach was not, nor was it said to have been, brought about by Mortgage House. Under cl 15.2(a), Mortgage House was entitled to terminate for that breach as well. 415 So far as the requirement to give notice under the Code is concerned, there was no issue that the 2004 agreement satisfied cls 4(1)(a) and (c) of the Code in that it is a written agreement and that the business was to be substantially or materially associated with advertising or with a commercial symbol owned by Mortgage House. 416 The parties were at issue as to whether cls 4(1)(b) and (d) were satisfied. 417 Alpha Centauri pleaded with respect to the 2004 agreement that: a it was a written agreement in which Mortgage House granted to Alpha Centauri the right to carry on the business of offering, supplying or distributing services in Australia under a system or marketing plan substantially determined, controlled or suggested by Mortgage House or an associate and under which the operation of the business was substantially or materially associated with a trade mark, advertising or a commercial symbol owned, used or licensed by Mortgage House or its associates; and b it was a written agreement under which, before starting business or continuing the business, Alpha Centauri had to pay or agree to pay to Mortgage House or its associates amounts identified as: i. $25,000 in respect of advertising; ii. $66,600 in respect of the sale of the territories; iii. $375 for each loan application; iv. payments for stationery supplied by Mortgage House which Alpha Centauri was obliged to use and pay for; and v. fees received by Mortgage House as a result of the work performed by Alpha Centauri. 418 Mortgage House submitted that the 2004 agreement did not satisfy either cl 4(1)(b) or (d) of the Code. 419 As to cl 4(1)(b), it was put that the evidence did not disclose that Mortgage House substantially controlled the system or marketing plan under which Alpha Centauri operated. I reject this submission. Alpha Centauri was obliged to act in accordance with the reasonable instructions of Mortgage House and to comply with its policies, ensure applications were made in the manner specified by Mortgage House, carry on the business as Mortgage House's representative under the name Mortgage House, and use only its stationery, forms and corporate brochures. It was required to have its advertising vetted and to process applications using the EMMS system on pain of not being paid commissions. 420 So far as cl 4(1)(d) is concerned, as was pointed out by Mortgage House, the particulars relied upon are narrow and specific. 421 Each is particularised as an amount which Alpha Centauri had to pay under the 2004 agreement. 422 No submissions were directed to advertising payments or to any obligation to make them. 423 No provision of the 2004 agreement was identified as having given rise to any such obligation. There was an agreement reached before entry into of the 2001 agreement that Mortgage House would offer up to 50% of the costs involved in a foreshadowed advertising campaign but there was no obligation upon Alpha Centauri to make any payment let alone a payment to Mortgage House or any of its associates for advertising. 424 No submissions were directed to fees received by Mortgage House as a result of work performed by Alpha Centauri. 425 The goodwill payments which Mortgage House extracted from Alpha Centauri when it spun off parts of the Territory in 2003 and 2004, were not payments contemplated by cl 4(1)(d) of the Code. They were required as a condition to Mortgage House's assent to the spin off by way of entry into of agreements with the purchasers and the 2003 and 2004 agreements. The amounts were not payable under the 2003 and 2004 agreements. 426 So far as loan application fees were concerned, the evidence established that for each application the customer paid an application fee of $600 of which $375 was on paid by Alpha Centauri to Mortgage House with respect to each application. Mr Duncan's affidavit evidence was that in July 2001 he had a conversation with Mr Lagana to the following effect: MR LAGANA: Robert, the way we operate is you collect an application fee of $600 from the client and bank it into your company bank account this will help with your immediate cash flow. MR DUNCAN: I understand that. Tell me more? MR LAGANA: MHA will deduct $375 of the application fee from every loan that settles. It will show up on your invoice from us as a processing fee. MR DUNCAN: Okay, the $375 that you take from the application is some sort of a fee payable to MHA? MR LAGANA: Yes. 427 In an email to Mr and Mrs Duncan on 5 September 2002, Mr Stevens provided an analysis of application fee costs which showed the breakdown of the costs associated with application fees and which indicated that the $600 application fee was less than the total costs associated with the fee. 428 Mortgage House put that the application fee was excluded under cl 4(1)(d)(v) of the Code as being a payment for goods and services at or below their usual wholesale price. 429 It put that the $375 paid in respect of loan applications was simply a component of the agreed $600 application fee and that the fee itself was less than the usual wholesale cost of the work required to be carried out in respect of each application and that this was evidenced by the breakdown provided by Mr Stevens in his 5 September 2002 email, in respect of which he was not cross examined. 430 It put that the underlying costs identified by Mr Stevens would be likely to increase and not decrease over time. 431 It put that on Mr Duncan's own evidence, application fees were ultimately paid by the customer, that it was an industry wide standard to charge such fees and that they were to cover the cost of matters like valuations, searches and legal fees. 432 Whether there is a franchise under the Code must arise from the terms of the agreement. The elements of the definition of franchise agreement in cl 4.1 are cumulative; Apple Computer Australia Pty Ltd v Mekritzis & Ors (2003) 44 ACSR 518 at 577. 433 Apart from the facts that no provision of the 2004 agreement was identified as one under which Alpha Centauri "must pay or agree to pay" (as required by cl 4(1) of the Code) application fees and that they were paid by the client with Mortgage House taking a cut, in my view the onus of showing that the Code applies to the 2004 agreement rests on Alpha Centauri. This includes the onus of showing the amount to be paid for goods and services is not at or below their usual wholesale price. 434 Alpha Centauri has failed to discharge that onus with respect to application fees. The only evidence before the Court is that those fees were less than their actual cost. 435 With respect to stationery, Alpha Centauri relied on two invoices to establish that Alpha Centauri had to pay or agree to pay for goods and services as well as a conversation which Mr Duncan says he had with Mr Lagana in about July 2001 about how application fees were collected and dealt with. 436 The first invoice, for the amount of $1,185 including GST, was issued by Printforce Australia (presumably a printer) on 23 July 2002 for brochures and was addressed to Mortgage House with delivery to be to "Mortgage House Gold Coast" (presumably Alpha Centauri). 437 The second invoice, for the amount $1,402.50 including GST, was issued by Forevision Technology Group on 6 September 2002 to, and for delivery to be to, Mortgage House of Australia Gold Coast (presumably Alpha Centauri) also for brochures with the same description. 438 Alpha Centauri put that these two invoices reflected the supply of goods by Mortgage House to Alpha Centauri at a mark up, that is not at below the usual wholesale price and were accordingly a payment within cl 4(1)(d) of the Code. 439 I do not accept Alpha Centauri's submission because: a the invoices do not reflect any payment to Mortgage House; b payment of the invoices could not have been made under the 2004 agreement which was entered into some two years later; c no provision of the 2004 agreement which obliged Alpha Centauri to pay the amounts before or continuing the business was identified; and d there was no evidence as to the usual wholesale cost of the stationery concerned. 440 In the circumstances Alpha Centauri has failed to establish that the 2004 agreement was a franchise agreement under the Code. 441 It follows that Mortgage House was not obliged to give Alpha Centauri notice under cl 21 of the Code. 442 It follows further that Mortgage House's termination of the 2004 agreement for Alpha Centauri's breach was valid and effectual. 443 Mortgage House put that it gave notice under cl 21 in any event and put that Mr Sheales' email of 16 December 2004 was that notice. I reject the submission. The email concerned did not give notice that Mortgage House proposed to terminate because of breach, nor did it tell Alpha Centauri what it required to be done to remedy the breach. 444 Even if (contrary to what I have found) the Code did apply, in my view Mortgage House did not have to comply with cl 21 because Alpha Centauri voluntarily abandoned the franchise business or the franchise relationship as contemplated by cl 23(c) of the Code. 445 Although I was not taken to any authority pertinent to the meaning of the term of the words "voluntarily abandons", it seems to me that Alpha Centauri's conduct satisfies both the requirement of voluntariness and abandonment. 446 From its purported termination on 22 April 2005 onwards its position was that the 2004 agreement was rescinded and it left the premises on that footing. By 29 April 2005 Alpha Centauri was moving out. Mr Sheales could not get his fax through on the Branch fax number. 447 Alpha Centauri's access to the EMMS system was deactivated on 29 April 2005, according to Mr Davies, an information technology training and development manager who did some work for Mortgage House, but who was called by Alpha Centauri and whose evidence I accept. 448 In no way was Alpha Centauri compelled either to terminate the agreement or to leave. There was no suggestion that Alpha Centauri moved out because of Mortgage House's termination. Indeed it has throughout challenged the efficacy of Mortgage House's termination. 449 Alpha Centauri left of its own free will. 450 It follows that Alpha Centauri's claim for loss of bargain damages fails. 451 I will nevertheless deal with the question of damages. 452 If one party repudiates its obligations the other acquires the right to terminate the contract. If that right is exercised the parties are discharged from the obligation further to perform. The right is exercised by "acceptance" of the repudiation, that is by the innocent party electing to terminate performance of the contract: McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 469-470. 453 Upon valid termination by the wronged party, that party obtains the right to sue for damages for the loss of the bargain it had. The measure of damages is that the plaintiff should be put in the position that it would have been in but for the breach, that is, the position if the contract had been performed: Wenham v Ella (1972) 127 CLR 454. 454 Alpha Centauri claimed that the damages it suffered by way of loss of bargain should be assessed as equivalent to the value of Alpha Centauri's business then being conducted under the 2004 agreement, as at the date that agreement came to an end. 455 Alpha Centauri relied on the evidence of Mr Gwynne, a licensed real estate agent and business broker who provided a business valuation. 456 Mr Gwynne valued the business as the sum of: a a multiple of 2.5 x trailer income (disclosed and undisclosed) for the 2004 financial year; b the value of plant, equipment, fixtures and fittings; and c a "franchise territory fee" . 457 With regard to trailer income, Mr Gwynne was instructed that disclosed trailer income for 2004 was $44,308 and undisclosed trailer income was $18,157 making a total of $62,465 which when multiplied by 2.5, yielded $156,163. 458 Neither his report or oral evidence disclosed why he chose the particular multiplier, beyond that he approached it on the basis that it was an operating business with a relationship and that it was market related. He did not identify a comparable transaction. 459 He attributed $50,000 to plant, equipment, fixtures and fittings. 460 He attributed $100,000 to a franchise territory fee on the basis that on previous occasions Alpha Centauri had sold part of its Territory and had been paid goodwill in respect of each part sold of $100,000. He also relied on "the presence of two offers around the time for between $150,000 and $200,000" to which reference will be made further below. 461 His valuation accordingly resulted in a total of $306,163. 462 Mortgage House submitted that Mr Gwynne's evidence should not be accepted because he was not an independent expert but had been actively involved in trying unsuccessfully to sell Alpha Centauri's business. He has no pecuniary interest in the present dispute. There is no reason not to accept his factual evidence as to earlier events and his connection with Alpha Centauri is not sufficient reason on its own to reject his evidence. 463 It was put that he should have adopted a comparable sales method of valuation as the best method, which he agreed it was. 464 The methodology chosen by him was apparently not chosen because he independently concluded it to be appropriate, but because as he said "Our inquiries based around comparable sales in an industry indicated that the third valuation method, which is the multiple of trailer income, was the most widely used method". 465 Accepting that the methodology which he adopted was appropriate in the circumstances, there are a number of difficulties with his approach which drive to the conclusion that his evidence should not be accepted. 466 Firstly, the figure for undisclosed trailer income used by Mr Gwynne was described in his report as "Underpaid Commissions – as identified by the Independent Accounting Expert's Loss Report, by the MBA Partnership Proprietary Limited". This is a reference to the report of Mr Missen which was rejected. 467 Alpha Centauri did not establish any such undisclosed trailer income. 468 Additionally the information used by Mr Gwynne was unaudited and unverified. 469 Secondly, the value of the bargain which Alpha Centauri had, was the value of the rights it had under the 2004 agreement as at the date of termination. Mr Gwynne's methodology did not involve valuing those rights. 470 Whilst Alpha Centauri had a right to receive trailer income on business transacted, it also had ongoing obligations under the 2004 agreement to operate the business. Mr Gwynne did not take into account the cost of doing so. His exercise was to value the benefit whilst leaving out of account the accompanying burden. 471 There was no evidence that Alpha Centauri would have made a profit rather than a loss during the year to which he applied a multiplier. 472 There is no basis upon which to find that Alpha Centauri would have made any profit from the agreement during the remainder of its life. 473 The 2004 agreement was entered into on 19 February 2004. Accordingly under cl 2.2, Mortgage House could have terminated it with effect from 19 February 2006, without cause. At most, Alpha Centauri had a right to conduct a business for a period of some 11 months from the date of termination. At worst, its rights could have been terminated forthwith (as they were) because of failure to meet the Key Performance Indicators. 474 On any realistic view, given the breakdown of the relationship between the parties it was improbable that the 2004 agreement would have extended beyond February 2006. In the circumstances both the starting point of a year's trailer commission and the application to that figure of a multiple cannot be justified. 475 Even if one accepted that on its own, the right to receive trailer income in the future for the remaining life of the agreement had a value, no evidence was led as to that value as at the date of termination. 476 Mortgage House put that on termination, under cl 8.4(c) of the 2004 agreement it could in its absolute discretion refuse to pay trailing commissions. Alpha Centauri put that the provision was a void penalty provision. Clearly, if Mortgage House was entitled to withhold ongoing trailing commissions and did so there would be no right to assign which had any value. Having regard to my other findings it is not necessary to determine this question. 477 Thirdly, Mr Gwynne did not take into account that Alpha Centauri did not have an unconditional right to sell the business but needed Mortgage House's approval under cl 19.3(b) and (c) of the 2004 agreement. I am not satisfied that Mortgage House would have given consent in April 2005. I think it is unlikely. Even if it would have consented, on the two previous occasions when Alpha Centauri sold part of its Territory, Mortgage House imposed a condition that one third of the goodwill had to be paid to it. Either way even if Alpha Centauri had sold, it is likely that any consent would have involved paying at least one third of goodwill received to Mortgage House so that Alpha Centauri would not have received a benefit of $100,000 as assumed by Mr Gwynne. 478 Fourthly, I am also not satisfied that a purchaser would have been prepared to pay any such fee in April 2005 given the state of the relationship between Alpha Centauri and Mortgage House. 479 Through the business agency of Mr Gwynne, on 12 November 2004 Alpha Centauri entered into an agreement with a company called Service Corp Pty Limited to sell its remaining Mortgage House business for $150,000 apportioned as to $100,000 for goodwill and $50,000 for equipment. The purchaser carried out investigations of the financial accounts of the business and was not satisfied with them. On 26 November 2004, it terminated the sale under a provision of the sale agreement as it was entitled to do. 480 On 20 January 2005 Alpha Centauri entered into a further sale agreement through the business agency of Mr Gwynne with a buyer called Ourways Pty Ltd for the sale of the business, this time for $200,000 of which $150,000 was attributable to goodwill and $50,000 to equipment. That purchaser also withdrew, as it was entitled to do, after auditing Alpha Centauri's records taking the position that it had found a large number of discrepancies associated with trail commissions and that it appeared that over a period of time some of those trail commissions had been halved for no apparent reason. 481 Mr Gwynne accepted that the purchaser might have "pulled out" because it concluded that the business was not in fact worth the price. There was no other purchaser prepared to proceed during the time of his agency. 482 I do not consider that in the circumstances these aborted and uncompleted transactions are evidence of the value of the business; see for example Smith v Smith [1991] FLC 78,753 at 78,755 and the authorities cited there. 483 Fifthly, upon termination of the 2004 agreement Alpha Centauri still owned and did not lose the plant and equipment, which Mr Gwynne valued at $50,000. That component cannot be part of any loss of the bargain. Further, Mr Gwynne's view was that this equipment looked like "a $100,000 fit-out every day of the week". 484 For all of these reasons, I do not accept Mr Gwynne's approach nor the conclusion which he reached. 485 Alpha Centauri did not contend for any other measure than that of Mr Gwynne. 486 In my view Alpha Centauri has failed to establish that it suffered any damage as a result of the loss of its bargain. The cross claim 487 As Mortgage House put, the essence of the cross claim is that by the unlawful conduct of the defendants, they have been deprived of commissions in respect of loans placed by Alpha Centauri Wines through AFG rather than through Mortgage House. 488 Mortgage House put that cls 4.2(h) and (i) and 6.2(d) of all the agreements had been breached. 489 Clause 4.2(h) concerns churning which is defined in cl 1.1 as follows: "Churning means where a Customer, at the unsolicited request or on the unsolicited recommendation of the Business Partner, its servants, agents, contractors or related entities enters into a refinancing transaction or requests the provision of certain Services which, in the reasonable opinion of the Companies, is not a bona fide refinancing transaction or provision of Services which is in the best commercial interests of the Customer." 490 There was no evidence of churning. 491 Under cl 4.2(i) Alpha Centauri must: "not itself, nor permit any Related Entity or employees of the Business Partners to, promote or sell the products and services of any third party which is the same or similar to the Services and which any Company, in its reasonable opinion, deems to be a competitor, without the express written approval of the relevant Company". 492 Mr Duncan's evidence was that loans were only passed to Alpha Centauri Wines if they could not have been accommodated by Array. 493 Mr Slater's evidence was that this was not so. Mr Slater however was motivated by palpable malice and resentment of Mr Duncan arising out of an earlier souring of their business and family relationship. He was prepared to make assertions without direct knowledge of the facts. I do not consider that it is safe to rely on his evidence in any respect. 494 Mortgage House put that inferences should be drawn that the business could have been written by Array because some of the loans were in respect of current or former customers of Mortgage House, some of the loans were accepted by funders who were on the Array panel, some were written with an organisation called Home Loans which was funded by Adelaide Bank which was on the Array panel and Array had a large number of banks and non bank lenders on its panel. 495 There does not seem to be any logical reason why Alpha Centauri would have passed business on to Alpha Centauri Wines when it could have done the business itself. Although there are one or two instances where on the face of documents Mr Duncan's evidence as to an invariable practice may be called into question, I accept as a general proposition, his evidence that business was not referred on unless Array could not help. Additionally, Mr Stanley gave evidence (which I accept) which amounted to him having communicated to Mr Duncan that if Array could not accommodate the client, the client should be protected by being directed elsewhere. 496 Moreover Mortgage House did not call any evidence from any borrower to establish the situation with respect to any particular loans. Just as it put with respect to loans in relation to the Territory written by it, the evidence does not establish that loans written through Alpha Centauri Wines would probably have come to it. 497 This means, in my view, either that in the particular instances Alpha Centauri Wines was not a competitor of Alpha Centauri or Mortgage House for the purposes of cl 4.2(i), or that Mortgage House has not established that it suffered any loss by reason of the alleged breach or breaches. 498 Under cl 6.2(d) Alpha Centauri was prohibited from using the Premises for any purpose other than operating the business in accordance with the relevant agreement. 499 It seems to me that Mortgage House has made out a breach of cl 6.2(d) in that Alpha Centauri allowed Alpha Centauri Wines to operate there. 500 But Mortgage House did not establish that any loss has flowed from that breach. It would be entitled only to an award of nominal damages. 501 It follows that the cross claim fails. CONCLUSION 502 The Summons and Cross Claim will be dismissed. 503 Provisionally, I order that: a the plaintiffs are to pay the defendants' costs of the proceedings, except for the costs of the cross claim; and b the cross claimants are to pay the cross defendants' costs of the cross claim. 504 Unless written notice is received by my Associate within seven days after the date of this judgment, from any party that he or it opposes these costs orders, the orders will solidify. 505 I also give the parties leave to bring to my notice, by written notice to my Associate within seven days, any issue which may have been overlooked and which requires to be dealt with. 506 If notice is given, a further date may be fixed by arrangement with my Associate. 507 If no notice is given, Short Minutes of Order are to be brought in reflecting the outcome. 508 The exhibits are to be returned. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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