Supreme Court New South Wales Medium Neutral Citation: AMC Commercial Cleaning v Coade [2011] NSWSC 932 Hearing dates: 25/07/11, 26/07/11, 27/07/11, 28/07/11 and 29/07/11 Decision date: 25 August 2011 Jurisdiction: Equity Division Before: McDougall J Decision: Master Franchise Agreement validly terminated; interlocutory injunction dissolved; remaining issues referred to Associate Justice for determination. Catchwords: CONTRACT - termination of Master Franchise Agreement by franchisor - whether termination valid - breach by franchisee of obligations under franchise agreement - franchisor entitled to terminate franchise agreement - termination not invalidated by want of good faith. EQUITY - relief against forfeiture - whether conduct of defendant contributed to the events that gave rise to the forfeiture - no entitlement to relief against forfeiture. Cases Cited: 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 Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR 41-703 Horrocks v Lowe [1975] AC 135 Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No.2) [2008] FCA 810 Legione v Hateley (1983) 152 CLR 406 Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 Tanwar Enterprises Pty Limited v Cauchi (2003) 217 CLR 315 United Group Rail Services Ltd v Rail Corporation New South Wales (2009) 74 NSWLR 618 Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 Category: Principal judgment Parties: AMC Commercial Cleaning (NSW) Pty Limited ACN 103 612 620 (Plaintiff) Stephen Keith Coade (First Defendant) Australian Maintenance & Cleaning Pty Ltd ACN 007 440 995 (Second Defendant) Representation: Counsel: T A Alexis SC (Plaintiff) M A Ashhurst SC / M Seelig (Defendants) Solicitors: Rockliffs Solicitors (Plaintiff) Linacre Lawyers (Defendants) File Number(s): 2011/109399 Judgment 1HIS HONOUR: The plaintiff (AMC NSW) and the second defendant (AMC National) made a "Master Franchise Agreement" (the MFA) on 5 March 2003. On 21 April 2011, AMC National gave AMC NSW notice of termination of the MFA. The notice of termination relied on three grounds (and I paraphrase it): (1) AMC NSW had engaged in conduct reflecting unfavourably on the business operations of AMC National; (2) AMC NSW had been engaged in fraud; and (3) AMC NSW had failed to comply with a notice, given pursuant to a clause of the MFA, requiring it to supply certain specified documents and information to AMC National. 2The first and third grounds were based on provisions of the MFA. The second ground was based on a provision of the MFA or, alternatively, on a provision of the Trade Practices (Industry Codes - Franchising) Regulations 1998 (the Code). The issues 3Before setting out the issues, I note that there was prior litigation (the 2009 proceedings) between the parties. Rein J heard those proceedings in March 2010, and gave judgment on 21 July 2010. In substance, AMC NSW succeeded, and indeed obtained an order for indemnity costs. There was an appeal to the Court of Appeal on a discrete issue, on which AMC National succeeded. Subject to that, issues of assessment of damages were referred to an Associate Justice of the court. 4The proceedings with which I am concerned raise a host of issues concerning the relationship between AMC NSW and AMC National under the MFA. They were fixed for hearing for five days. It was clear that there was no prospect of a hearing on all issues concluding in anything remotely approaching the time allotted. 5Since the real heart of the dispute, in the current proceedings, relates to the alleged termination of the MFA - that is raised by the first eight prayers for relief in the amended summons and all issues on AMC National's cross-claim - I decided to deal with those issues separately from and before all others. I made an order accordingly, and directed that all remaining issues be heard by an Associate Justice once I had decided the question of termination. 6On that basis, the issues with which these reasons are concerned are in substance: (1) whether any of the grounds for termination has been made out on the proper construction of the relevant provisions of the MFA or the Code, and on the facts of this case? (2) Whether, if yes to (1), the exercise of the power to terminate was constrained by obligations of good faith, and whether it was exercised in good faith? (3) Whether, if yes to (1) and no to (2), AMC NSW should have relief against forfeiture? Credibility 7The principal witnesses in the case were Mr George Kijurina, the managing director of AMC NSW, and Mr Stephen Coade, the sole director of and principal shareholder in AMC National. 8Other witnesses in the case included Ms Sofia Lazos, who is the administration/office manager of AMC NSW, and Mr Stephen Rockliff, AMC NSW's solicitor. They were called for AMC NSW. Mr Peter Donovan and Mr Gregg Harpur also gave evidence. They were called for the defendants. Mr Donovan is a claims officer employed by Mission Australia (I explain its role at [38] below). Mr Harpur is the principal of AMC NSW's sub-master franchisee for the Northern Region of NSW: a territory extending northward from the Hawkesbury River to the Queensland border (I do not know how far west it goes). 9I do not regard Mr Kijurina as a witness on whose evidence I can rely. I have come to the conclusion that I should not accept his evidence (to the extent that it is in contest) unless it is corroborated by other, acceptable evidence; or is consistent with the probabilities, objectively ascertained; or is against interest. The factors that lead me to this view may be stated relatively briefly. 10It was apparent, almost from the beginning of Mr Kijurina's cross-examination, that he was desperate to attempt to distance himself from the fraudulent activities that, ultimately, were admitted to have occurred. He was also at pains to suggest that Messrs Lyle Holm and Tony Osmani of AMC NSW (I explain their roles at [35] and [36] below), were acting beyond their authority. Ultimately, he was forced to concede the facts that showed he had some degree of involvement, and to concede that it fell within Mr Osmani's authority to organise training, and within Mr Holm's authority both to organise training and to arrange for payment. 11Almost every page of the transcript of the detailed cross-examination of Mr Kijurina demonstrates an evasion of a question put to him, and an unwillingness to give a direct answer. It was a notable feature of Mr Kijurina's evidence that, when questions on what he perceived as sensitive matters were put: he would first of all give a non-responsive answer; when pressed, he would give a temporising answer; and when pressed again, he would, reluctantly, concede the point of the evidence. From time to time, during this process, Mr Kijurina was forced to admit that previous answers that he had given were "false". 12Mr Kijurina's evidence was replete with inconsistencies, contradictions, and evasions. At times, it was unworthy of any credibility: for example, when he tried to explain why it was that AMC NSW had tried desperately to block a freedom of information request made by AMC National of the Department of Education and Training (the department - I explain its role at [37] and [38] below). In this context, I find that the clear purpose, of which Mr Kijurina well knew (and of which, I have no doubt, he was an author), was to prevent AMC National from getting hold of documents that might show AMC NSW's involvement in the fraudulent scheme. 13It is clear that Mr Kijurina has a direct and substantial interest in the outcome of these proceedings. As was put for him, he would be ruined if the termination were held to be valid. In my view, this has compromised in a fundamental way his ability to give objective and truthful evidence. 14I accept that Mr Kijurina was subject to many personal and business stresses over the time span relevant to these proceedings. I accept that those stresses have had a very significant impact on him. Thus, I have tried to exclude, from my analysis of the acceptability of Mr Kijurina's evidence, considerations of demeanour. If reference were to be had to those considerations, they would not assist Mr Kijurina. 15I was left with the overwhelming impression that Mr Kijurina has a very strong sense of grievance, as to what his company has suffered at the hands of AMC National. I might add that, if the findings of Rein J were to be treated as evidence in these proceedings, that feeling of grievance would be amply justified. Nonetheless, I think, it has warped Mr Kijurina's judgment, and affected adversely his ability to give objective and truthful evidence. 16Making all the allowances that I can for the matters that I have just referred to, I am not prepared to act on Mr Kijurina's evidence except with the limitations that I have stated. 17So far as it goes, I accept the evidence of Ms Lazos. No submission was put that I should not do so. 18I regret to say that I have some concerns at the reliability of the evidence given by Mr Rockliff. Those concerns demonstrate why it is that solicitors who are to give contentious evidence in proceedings should not act in those proceedings. 19A factual question in these proceedings related, as I have indicated, to AMC NSW's attempts to block a freedom of information request made by AMC National of the department. Mr Rockliff's firm dealt with the department on that. A letter of 22 November 2010, for which Mr Rockliff very properly accepted full responsibility although it was written not by him but by an employee, gave reasons why the request for access to documents should be denied. One of those reasons was: The documents in question relate to issues the subject of current legal proceedings in the NSW Supreme Court between our client and the National Franchisor, AMC [National], as first defendant, and Mr Stephen Coade the director of AMC [National] as the second defendant. 20Mr Rockliff was questioned as to the accuracy of that statement. I should observe that the statement was factually incorrect, because, when the letter was written, there was no issue raised in the 2009 proceedings as to the department. (There had been a prayer for relief in relation to production of documents relating to the fraudulent scheme, but that prayer for relief had been dropped when, well before the hearing and almost a year before the letter in question was written, the summons was amended.) 21Mr Rockliff sought to maintain the truth of the assertion that I have quoted. His attempts to do so, extending over some seven pages of transcript (T177-182), were entirely implausible, particularly coming from a solicitor with more than 40 years' experience. Both the substance of that evidence and the way in which it was given suggest to me that Mr Rockliff has become so involved with his client's cause that his objectivity has been compromised. I do not accept this aspect of his evidence. 22Nor do I accept evidence given by Mr Rockliff as to why it was that settlement negotiations between AMC NSW and AMC National had broken down. Mr Rockliff sought to suggest in his evidence that junior counsel for the defendants, Mr Seelig, had offered some sort of indemnity from them. That assertion was inconsistent with what had been said by Mr Rockliff in a letter of 24 February 2011. Again, I regard Mr Rockliff's attempts to explain this inconsistency as implausible, and as demonstrating lack of objectivity (see, generally, T183-187). 23That part of Mr Rockliff's evidence was given in reply to evidence of Mr Coade that the settlement in question had fallen through because AMC NSW was insisting on a full indemnity in relation to the department. I do not accept that evidence of Mr Rockliff, and I do not regard it as casting any doubt on the reliability of this portion of Mr Coade's evidence, which on this point I accept. 24Nonetheless, I had concerns with aspects of Mr Coade's evidence. The principal concern is that it appeared, in the course of his cross-examination, that AMC National had divested itself of all of its state master franchises except for the one in dispute between it and AMC NSW. Mr Coade said that this occurred because the other state master franchisees were expressing disquiet to him about the situation in New South Wales. That aspect of his evidence was supported by emails, and I accept it. Accordingly, on 9 March 2011, AMC National and those other master franchisees, and a company known as AMC Commercial Cleaning Pty Limited (AMC 2) - a company in which Mr Coade appears to have no interest - made deeds of surrender and release. By those deeds, in substance, the existing master franchise agreements between those master franchisees and AMC National were novated to AMC 2. 25All this occurred as I have said on 9 March 2011. The deeds were expressed to be effective from 9:00 am that day. That same day, Mr Coade attended the "AMC State Master Meeting", which was due to commence at 9:30am. The agenda showed that he was to open the meeting, welcome staff and advise of any national updates. He agreed that he did so, in his capacity (as listed in the agenda) as "CEO". He did not see fit to advise those present of what one might have thought was quite an important update - namely, the change in arrangements that had occurred with effect from 9:00 am that very day. Many of those present, who were either state master franchisees or senior officers of state master franchisees, would have known of the changes, because they were parties to them. But there were also present three sub-master franchisees, who were not party to those changes, and who would not have known unless they had been let into the secret beforehand. Another person present was a representative of AMC NSW (Mr Kijurina was listed to attend, but sent a delegate). That person would not have known, and it is clear that AMC NSW had not been let into the secret. 26Mr Coade's attempts to explain why he had been introduced as the "CEO" when in fact he was no longer CEO (on his evidence, he has neither any connection with nor any role in AMC 2), and his attempts to explain why he did not think it necessary to inform those present of the changes, were entirely unconvincing. 27There may have been sound (if not entirely laudable) commercial reasons for the change in operations. But having said that, this aspect of Mr Coade's behaviour and evidence does him no credit. 28Mr Alexis of Senior Counsel, who appeared for AMC NSW, also relied on efforts that Mr Coade had made to divest himself of assets (or to encumber assets that he still held). Mr Alexis submitted that these were attempts by Mr Coade to render himself judgment-proof. Rein J had ordered judgment against Mr Coade personally, as well as against AMC National, for damages to be assessed. On AMC NSW's view, those damages might amount to about $1.1 million. On AMC's National's view, they might amount to about $100,000.00. In addition, Mr Coade and AMC National are liable for indemnity costs. AMC NSW claims, in round figures $600,000.00 for those costs (which have not yet been assessed). Whatever the outcome may be, it is clear that Mr Coade and AMC National are facing substantial monetary liabilities. 29In my view, there is reason to think that AMC National and Mr Coade have taken steps to render themselves judgment-proof, or more accurately to deprive AMC NSW of any real prospects of recovering the fruits of its success in the 2009 proceedings. That does not strike me as commercially honest conduct. 30In those circumstances, I have concluded that I should be very careful in accepting Mr Coade's evidence. I do not go so far as to say that I would not accept it unless it is corroborated, or is consistent with the probabilities objectively ascertained, or is against interest. It is sufficient to say that I do not accept it without very careful scrutiny. 31There was no attack on the credibility of either Mr Donovan or Mr Harpur and I accept each of them as a witness who sought to give truthful evidence to the best of his ability. Factual outline 32Up until 9 March 2011, AMC National conducted a franchising operation throughout all the states, and at least one of the territories, of Australia. It appointed a "Master Franchisee" for each state. AMC NSW was the Master Franchisee for this state and the Australian Capital Territory. 33Master franchisees entered into further franchise agreements. Some were "sub-master franchises" whereby a master franchisee would grant a "sub-master franchise" for a particular area of its territory. Master franchisees also entered into direct franchise agreements with individual franchisees (and so did sub-master franchisees), and it was those franchisees who carried out the actual cleaning operations. 34The fraud alleged in this case is clear, and by the time of counsel's closing addresses was not in dispute. In essence, two employees of AMC NSW caused it to enter into fraudulent arrangements whereby AMC NSW's franchisees would receive training pursuant to a Commonwealth Government initiative for training apprentices and trainees. The Commonwealth Government subsidised that training, to the extent of about $1,500.00 per apprentice or trainee on commencement of the training, and another $2,500.00 on completion. The subsidy was intended to reimburse the employer for the costs (direct and indirect) of the training. Since the franchisees were neither apprentices nor trainees (they were not employees of AMC NSW at all), the scheme was inapplicable. 35The training was conducted by a company known as JobLynk Recruitment and Training Services (Joblynk). That company was introduced to Mr Kijurina by a Mr Paul Stephens of a company known as PanaClaire Consultants Pty Limited. Mr Kijurina also had dealings with Ms Marina Khoury of Joblynk. However, most of the arrangements for training, and, I find, all the arrangements in relation to payment, were made by Mr Holm and Mr Osmani. 36Mr Holm was AMC NSW's general manager. Mr Osmani was its operations manager. Mr Kijurina finally agreed, after much equivocation and evasion, that it was within the actual authority of each of those men to organise training. That this was so appears, in the case of Mr Osmani, from the fact that his "job description" specified that his duties included the training of franchisees; and, in the case of Mr Holm, from Mr Kijurina's evidence that he himself looked after sales, and left all other aspects of AMC NSW's operations to Mr Holm. 37It is readily open to infer, as I do, that the scheme hatched between Ms Khoury and Messrs Holm and Osmani was that franchisees would register for the scheme on the basis that they were employees of AMC NSW, and either apprentices or trainees; that training would be conducted; and that the subsidies paid by the Commonwealth Government for that training would be used both to pay Joblynk and to provide some financial return to AMC NSW. 38The training was organised through Mission Australia. Although Mission Australia is a charity, it has an "Apprenticeship Centre" which operates on a commercial basis, tendering for training contracts to the department. The department is frequently referred to in the evidence by the acronym "DEEWR", derived from its former name. 39Numerous franchisees signed up, as apprentices or trainees, for the program, and were trained by Joblynk. Some employees of AMC NSW signed up, again as apprentices or trainees (although they were not). However, the evidence suggests that they did not receive training. 40The fraud was detected before payments had been made. An investigation was carried out by the department, and the matter was referred to police. It does not appear that any criminal or other punitive action has been taken. The agreed facts: the fraudulent scheme 41Although, on the pleadings and when the case was opened for AMC NSW, its involvement in any fraudulent scheme was contested, that position evaporated after Mr Kijurina's cross-examination. It evaporated for two reasons. First, the scheme was clearly proved, through documents and otherwise. Secondly, Mr Kijurina was driven (after much hesitation and prevarication) to admit that Messrs Holm and Osmani were authorised to arrange both for the training of franchisees and for the method of payment for that training. 42As a result, the parties produced an agreed statement of the facts relevant to the fraudulent scheme. It is convenient to set it out in full: 1.On or about 20 and 21 November 2008, Apprenticeship/Traineeship Training Contracts ("Training Contracts") were completed by 7 of AMC NSW's employees, 1 AMC NSW contractor and 59 of AMC NSW's franchisees. 10 additional forms were completed in the names of other people who were neither franchisees nor employees of AMC NSW. These additional forms listed were completed with the same details as the franchisees' forms. 2.The Training Contracts for the 7 employees were false in the following respects; a)AMC NSW Employees were not apprentices or trainees of AMC NSW (Qs 3, 6 & 7); b)Some of AMC NSW Employees had successfully completed formal qualifications (Q 21); c)AMC NSW Employees were not subject to a probationary period (Q 5); d)AMC NSW did not employ 300 people (Q 36); e)AMC NSW did not employ 150 apprentices (Q 36); f)Some of AMC NSW Employees were undertaking other study (Q 25); 3.The Training Contract for the 1 contractor was false in the following respects; a)The AMC NSW Contractor was not an apprentice or trainee of AMC NSW (Qs 3, 6 & 7); b)The AMC NSW Contractor had successfully completed formal qualifications (Q 21); c)AMC NSW Contractor was not subject to a probationary period (Q 5); d)AMC NSW did not employ 300 people (Q 36); e)AMC NSW did not employ 150 apprentices (Q 36); 4.The Training Contracts for the 59 franchisees were false in the following respects; a)AMC NSW Franchisees were not apprentices or trainees of AMC NSW (Qs 3, 6 & 7); b)AMC NSW was not the employer of the AMC NSW Franchisees; c)The Franchisees' workplace is not AMC NSW's head office in Rockdale (Q35); d)AMC NSW Franchisees were not subject to a probationary period of employment with AMC NSW (Q 5); e)AMC NSW did not employ 300 people (Q 36); f)AMC NSW did not employ 150 apprentices (Q 36); g)AMC NSW Franchisees are in a business relationship with the AMC NSW, specifically that of a franchise arrangement (Q 41); h)AMC NSW does not employ and train the AMC NSW Franchisees as agreed in the Training Plan (Training Contract Obligations section); i)AMC NSW could not release the AMC NSW Franchisee from work to attend the training and assessment (Training Contract Obligations section); j)AMC NSW did not pay the appropriate wages for the NSW Franchisees to attend the training and assessment specified in the training Plan (Training Contract Obligations section); k)AMC NSW could not meet all legal requirements regarding the apprentice/trainee, including occupational health and safety requirements and payment of wages and condition under the relevant employment arrangements because no such employment arrangements exist; 5.The 10 other Training Contracts were false as per the franchisee's training contracts; they were neither AMC Employees or Franchisees and are unknown. 6.On or about 29 January 2009, Australian Government Australian Apprentice Employer Incentives Claim Forms ("Claim Forms") were signed by Tony Osmani as the Employer's Representative. 7.The Claim Forms were provided to Mission Australia. 8.On or about 11 February 2009, the Claim Forms were stamped as received by Mission Australia. 9.The statements made in the Claim Forms that related to AMC NSW's employees were false in the following respects; a)the AMC Employee whose name appears on the Claim Form was not an Apprentice / Trainee of AMC NSW (Australian Apprentice Details Section); b)the employee was not employed by AMC NSW as an Australian Apprentice or Trainee; 10.The statements made in the Claim Forms that related to AMC NSW's Franchisees were false in the following respects; a)the AMC Franchisee whose name appears on the Claim Form was not an Apprentice / Trainee (Australian Apprentice Details Section); b)AMC NSW was not the employer of the AMC Franchisee; c)the workplace address for the apprentice/trainee was not the AMC NSW head office; d)the Franchisee had not completed nor was subject to the nominal applicable State Government prescribed employment probationary period; e)the Franchisee was not employed by the employer as an Australian Apprentice by AMC NSW; 11.The statements made in the Claim Forms that related to those people that have not been identified as AMC NSW Employees or AMC NSW Franchisees were false as per the franchisee's Claim Forms. They were neither AMC employees or franchisees and are unknown. 43The reference at various points to "questions" refers to questions that were asked, and answered, in the "Training Contracts" that appear to have constituted both an application by the supposed apprentices or trainees to participate in the scheme and the agreement whereby their participation was regulated. It is not necessary to set out the terms or substance of those questions, because they appear sufficiently from the references to them in the agreed statement. Relevant provisions of the MFA 44The MFA was made between AMC National (described as "AMC"), AMC NSW (described as "Master Franchisee") and Mr Kijurina (described as "Covenantor"). 45The recitals set out AMC's reputation and business system, and the desire of the parties that it should grant, and AMC NSW should acquire, a master franchise for the territory of New South Wales and the Australian Capital Territory. That grant was effected by cl 2.1. 46Clause 4 set out various duties of AMC National. They included the provision of training and training material, the provision of appropriate documentation, and the provision of sales and other assistance. In addition, by cl 4.6, AMC National was responsible for invoicing and collection of money. I set it out: 4.6 Invoicing and Collection of Money Invoice the Clients of the Franchisees and collect and distribute payments to the Master Franchisee and the Franchisees on the following basis: (a) Within 5 days of the end of each invoice period, AMC must issue and send tax invoices to each Client to whom cleaning services were provided by the Franchisees in the previous month, as reported by the Master Franchisee. (b) AMC must use its reasonable endeavours to collect payment of such invoices. AMC may cease pursuing a debt that it reasonably considers is unable or uncommercial to be collected. (c) Within 5 days of the end of each invoice period, AMC must pay to the Franchisees the Gross Sales collected in the preceding period by AMC for cleaning services provided by them, less any amounts required to be paid by the Franchisees to the Master Franchisee; (d) Within 5 days of the end of each invoice period, AMC must pay to the Master Franchisee any amounts required to be paid by a Franchisee to the Master Franchisee based on the Gross Sales Collected in the preceding period by AMC less any amounts required to be paid by the Master Franchisee in accordance with clause 5.3. (e) In addition to any amount payable to the Master Franchisee or Franchisees by AMC pursuant to clause 4.6, AMC must pass on to the Master Franchisee or Franchisee the proportion of any GST received from Clients that relates to the payment being made. (f) AMC has established a trust account in the Master Franchisee's name ("Trust Account"). Any bank fees payble in relation to the Trust Account are the Master Franchisee's responsibility. Any interest which accrues to the Trust Account belongs to the Master Franchisee. 47By cl 5, AMC NSW agreed to pay various fees and royalties, and other costs and amounts, to AMC National. 48Clause 6 cast a large number of general obligations on AMC NSW, relating to all sorts of matters ranging from training (cl 6.1) to maintaining appropriate licenses and permits (cl 6.28), and covering many topics in between. 49Clause 13.1 contained provisions relating to accounting and records. I set it out: 13.1 The Master Franchisee must: (a) keep accurate records and accounts ("Records") of the operation of the Master Franchise and the Franchised Operation in the form prescribed by AMC; (b) submit to AMC on request copies of the Records; (c) keep the Records for at least seven (7) years; (d) provide to AMC in a form prescribed and approved by AMC: (i) by five (5) p.m. on the Monday commencing each week complete details of all Cleaning Contracts tendered for and/or secured in the preceding week; (ii) by the end of the first month after six (6) months after the Master Francisee's financial year end an unaudited financial statement for such six (6) month period including balance sheet and profit and loss statement; (iii) by the end of the third (3 rd ) month after the end of Master Franchisee's financial year end, a financial statement for the Master Franchise for such financial year prepared by a certified practicing accountant including balance sheet and profit and loss statement; (iv) within 5 days from the due date of such reports, all the reports, records and financial statements the Master Franchisee is entitled to receive from each Franchisee; and (v) such other reports, invoices, order forms, records, calculations and indices relating to the Master Franchise or Franchised Operation as AMC may from time to time reasonably require. 50Clause 16.1 provided for audit and inspection. I set it out: 16.1 Inspection The Master Franchisee must permit AMC or its authorise[d] representatives to: (a) inspect and observe the Franchised Operation including the Master Franchisee's business premises and the premises at which any Cleaning Contract is conducted during normal business hours of the Franchised Operation at any time during the Term; and (b) review the Records during normal business hours of the Master Franchise. The Master Franchisee must supply copies of any document contained in the Records relating to the Master Franchise or Franchised Operations when requested by AMC. 51I pause to observe that it appeared to be common ground that the reference to "Records" in cl 16.1(b) was a reference back to the definition of that word in cl 13.1(a). 52Clause 18 dealt with secrecy and information. Only cl 18.4 is relevant. I set it out: 18.4 Information The Master Franchisee authorises AMC to make enquires of the Master Franchisee's suppliers, Clients, bank and trade persons and to provide to AMC such information and copies of documents as AMC requests in relation to the operation of the Master Franchise. 53Clause 24 set out specific circumstances in which AMC could terminate the MFA. Clauses 24.2 and 24.8 are of particular relevance. I set out: 24. TERMINATION AMC may, without prejudice to any other rights or remedies it might have, by service of notice of termination upon the Master Franchisee, immediately terminate this Agreement upon the occurrence of any of the following events: ... 24.2 Breach of Covenant The Master Franchisee defaults in any of its obligations under this Agreement or any other agreement between AMC or any Related Entity of AMC and fails to remedy the default after service of a default notice on the Master Franchisee, advising of the default and remedial action required, and providing a reasonable time (not being more than 30 days) to remedy the breach. ... 24.8 Fraudulent Operation of the Master Franchise The Master Franchisee acts fraudulently in relation to the Franchise or the operation of the Business, including without limitation: (a) if the Master Franchisee understates or overstates its income or Services performed for any week or month by five percent (5.0%) or more, unless the Master Franchisee demonstrates that such understatement or overstatement resulted from an inadvertent error. (b) The Master Franchisee uses AMC's Intellectual Property or Marks in a manner not authorised by AMC. (c) In the reasonable opinion of AMC, the Master Franchisee makes or has made any material misrepresentations relating to the acquisition of the Master Franchise or engages in conduct which reflects unfavourably on the operation and reputation of the System, the Services or the Materials. 54For the purposes of cl 24.8, the following definitions are relevant (see cl 1 of the MFA): (1) "Business" - "the business of operating pursuant to this Agreement a Master Franchisee cleaning business specialising in the servicing of commercial, industrial, office and other cleaning contracts using the System [and specified know-how and intellectual property]". (2) "Franchise" - "the rights under a Franchise Agreement to operate an AMC franchise". (3) "Franchise Agreement" - "a franchise agreement to be entered into between AMC, the Master Franchisee and the Franchisees in the form provided by AMC, as amended from time to time" (the evidence showed that individual franchise agreements, pursuant to which cleaning work was actually carried out, were made between the parties described in that definition). (4) "System" - "the methods of providing the Services by using the Image, methods, techniques, Intellectual Property, information and know-how of AMC". (5) "Services" - "the services to be provided by the Master Franchisee in accordance with this Agreement and the Franchise Agreements within the Territory..." 55The word "Materials" was not defined in cl 1. It may be that it is defined elsewhere in the MFA. The parties did not refer me to any such definition, and I do not propose to read some 59 pages in an attempt to find it. 56Clause 25 provides for the consequences of termination. In essence, the franchise, and underlying franchise agreements and cleaning contracts, revest in AMC National, and AMC National has no obligation to refund any money or pay any compensation for good will. 57It may be observed that AMC NSW paid a substantial sum of money for the grant of the master franchise in March 2003, and that the initial term of the master franchise was a period of 10 years. There were options for two further terms, each of 10 years. The Code 58It is not necessary to set out in detail the provisions of the Code. Clause 21 provides for termination in the event of breach by a franchisee. I set it out: 21 Termination - breach by franchisee (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 terminating under this clause. 59Clause 23 provides some seven exceptions to (among other things) the notice requirements of cl 21. I set it out, so far as it is relevant: 23 Termination - special circumstances A franchisor does not have to comply with clause 21 or 22 if the franchisee: ... (f) is fraudulent in connection with operation of the franchised business; or ... The proper construction of cl 18.4 60The starting point, in the construction of cl 18.4 is to consider its literal meaning. Read literally, cl 18.4 provides that: (1) AMC NSW authorises AMC National to make inquiries of AMC NSW's suppliers etc; and (2) AMC NSW authorises AMC National to provide to itself such information and copies of documents as it may request in relation to the specified subject matter. 61Clearly enough, the parties did not intend cl 18.4 to operate in that way. Some words must be supplied, probably between the words "bank and trade persons and" and the words "to provide to AMC". Mr Alexis submitted that the words to be inserted should be to the effect "and authorises those suppliers, clients, bank and trade persons". Mr Ashhurst of Senior Counsel, who appeared with Mr Seelig of counsel for AMC National, submitted that the word to be read in is "agrees". Thus, Mr Alexis submitted that cl 18.4, on its proper construction: (1) authorises AMC National to make inquiries of the specified persons; and (2) authorises those persons to give AMC National whatever information and documents it requires, in relation to the specified subject matter. 62By contrast, on Mr Ashhurst's approach, cl 18.4 speaks in each limb to AMC NSW: (1) first, AMC NSW authorises the making of the inquiries specified; and (2) secondly, AMC NSW agrees, independently, to provide information and documents, in relation to the specified subject matter, that AMC National requests. 63Mr Alexis submitted that his approach to construction was supported by the words "such information and copies of documents", and that there was already a freestanding obligation, in cl 16.1 (and also, I add, cl 13.1), on AMC NSW to supply documents on demand. Mr Ashhurst countered that the obligations under cls 16.1 and 13.1 related only to "Records" as defined in cl 13.1(a) ("accurate records and accounts... of the operation of the Master Franchise and the Franchised Operation in the form prescribed by" AMC National). 64Mr Ashhurst submitted that his approach to construction made sense of the clause in context, so that by it, AMC National was able to obtain information both from AMC NSW (pursuant to the second limb) and from AMC NSW's suppliers etc (pursuant to the first limb). 65Standing back from the particular clause for a moment, and looking at the MFA as a whole, the following features emerge: (1) the parties acknowledged that AMC National had developed distinctive systems for the operation of a commercial cleaning business, including through a network of franchisees, and involving what was agreed to be "intellectual property" (the recitals); (2) AMC wanted to take a master franchise for the State of New South Wales and the Australian Capital Territory (Recital D, cl 2.1); (3) AMC NSW would conduct its business under the MFA either by entering into sub-master franchises (so that the sub-master franchisees would contract direct with franchisees to carry out cleaning operations) or by contracting direct with franchisees to carry out cleaning operations; (4) AMC National would provide administrative, technical and other support, training, documentation and sales assistance (cls 4.1 to 4.5, 4.7); (5) AMC National would invoice customers for whom cleaning work was carried out, collect the amounts due and distribute the proceeds between itself, AMC NSW and the franchisees in the agreed manner (cl 4.6); (6) AMC National would do other things, including in relation to equipment and stock, intellectual property, referral of custom and the like, to facilitate AMC NSW's conduct of its business and the conduct by its franchisees (director or indirect) of their businesses (cls 4.8 to 4.12); (7) AMC NSW undertook various "finance related obligations" (cl 5), including to pay royalties, management fees (on revenues) and franchisee fees (on the grant, transfer and or renewal of a franchise) (cls 5.3, 5.4) and was not to withhold any payment (cls 5.7); (8) AMC NSW undertook a large number of very detailed obligations, described as "general obligations", pursuant to cl 6. Those obligations are too lengthy to enumerate, but it is clear that one of the purposes of cl 6 was to ensure that AMC NSW and its franchisees operated their business under the AMC banner in a way that promoted the standing and reputation of what may be called the AMC brand, and did not bring it into disrepute (see, for example, cls 6.1 to 6.8, 6.10; this list is not exhaustive). 66It was AMC NSW's obligation to seek and negotiate cleaning contracts within its territory, and to enter into those contracts with the written approval of AMC National, so that they could be "sub-licensed" to franchisees (cl 10.1). That ties in with cl 4.6(a), under which AMC National was required to invoice customers for whom work was done; clearly, to do so, AMC National needed to know (as cl 4.6(a) expressly recognised) who those customers were and what work was done for them, and this it would learn, in the language of cl 4.6(a), because those matters were "reported by the Master Franchisee". 67Thus, the revenue streams that were available to AMC NSW, and through it and other master franchisees to AMC National, included revenues from the grant of sub-master franchises and individual franchises, and revenues from the performance of cleaning work for customers. It was essential to the operation of the scheme, at least from the perspective of AMC National, that AMC National have an accurate record of all revenues generated by AMC NSW and its sub-master franchisees and other franchisees, so that AMC National could receive its share of those revenues. That is why, for example, AMC NSW was required to keep and make available "accurate records and accounts" (cl 13.1) and why it was required to submit to audit at the request of AMC National (cl 16). 68Under the operational system established by the MFA, AMC National was vulnerable to misconduct by AMC NSW in at least two ways: (1) if AMC NSW withheld from AMC National details of earnings made by AMC NSW, in which AMC National was entitled to share; and (2) if AMC NSW, or its sub-master franchisees or franchisees, misconducted itself, or operated the business in a slovenly or inefficient manner, so as to lose custom and as to damage the AMC brand. 69Clause 18.4 plays an important part to the overall contractual scheme. It is one of the powers that AMC National has, to assist it to protect itself from the consequences of actions of the kind that I have described in the preceding paragraph. It does so in at least two ways. First, the very fact that it is there, and what might be called the latent threat of its exercise, could deter a master franchisee in the position of AMC NSW from misconducting itself. Secondly, if misconduct is suspected, exercise of the rights may help to undercover any misconduct and minimise its consequences. 70In my view, when one reads cl 18.4 in context, it is clear that the parties meant by it to give two rights to AMC National. The first right, given by the first limb, was to make inquiries of suppliers and the other persons stipulated. The second was the right to require information and documents from AMC NSW. In other words, in my view, the clause should be read as thought the word "agrees" were inserted between the words "trade persons and" and "to provide". 71The primary reason for coming to this conclusion is that, unless cl 18.4 is read in the way that I have just indicated it should be read, there is no other adequate right given to AMC National to require documents and information from AMC NSW "in relation to the operation of the Master Franchise". Clauses 16.1(b) and 13.1 do not do so. First, they are limited to "the Records" - the term defined in cl 13.1(a). Whatever is the ambit of those "Records", they are clearly not coextensive with all documents relating to the operation of the Master Franchise. Secondly, cls 16.1(b) and 13.1 do not give AMC National the power to seek information, or impose on AMC NSW an obligation to provide it, generally (i.e., apart from provision of documents) "in relation to the operation of the Master Franchise". 72Further, as a matter of language, the two limbs of cl 18.4 vary. The first limb authorises the making of inquiries. The second limb relates to the provision of information and copies of documents. If the second limb were intended to be an authority to suppliers etc to respond to the inquiries made pursuant to the first limb, one would expect that the subject matter of the two limbs would correspond more exactly (for example, by the use in the second limb of the words "such inquiries", or some such phrase). 73I do not accept Mr Alexis' submission that the word "such" in the second limb of cl 18.4 is intended to refer back to the inquiries authorised by the first limb or their fruits. On the contrary, I think, it is used, in conjunction with the words "as AMC requests" to qualify the words "information and copies of documents". If it were intended to refer back to the inquiries, then the verb "to provide" would be inappropriate, and words such as "to answer" would be more appropriate. 74Further, it is difficult to see how an authority to suppliers etc to provide information and copies of documents to AMC could be effective. If the construction for which Mr Alexis contended were correct, the second limb of cl 18.4 would operate as an authority by AMC NSW to its suppliers etc to give information and copies of documents to AMC National. The only limitation is that the information or copies of documents should relate "to the operation of the Master Franchise". Such an authority would be effective in relation to the documents of AMC NSW that the suppliers etc might hold. But it could not be effective in relation to their own documents. Further, and in any event, even if the second limb of cl 18.4 were to be construed in the manner for which Mr Alexis contended, the most that it would do is authorise suppliers etc to answer questions. It would not compel them to do so. If, for whatever reason, they refused to do so, AMC National would be left without access to the information. If, however, the second limb is read in the way that I have said it should be, AMC National has the right to compel performance of the obligation; and has the alternative right (which of course it claims to have exercised in this case) to terminate the MFA for breach pursuant to cl 24.2 by following through the notice procedure there set out. 75For those reasons, in my view, what I have called the second limb of cl 18.4 should be construed in the manner for which AMC National contended, by reading in the word "agrees" to preface the obligations that it imposes, and thereby to identify on who it is that those obligations are imposed. The proper construction of cl 24.8 76As the case was argued, there is little controversy about this. In my view, cl 24.8 operates in the following circumstances: (1) as its chapeau states, if AMC NSW acts fraudulently in relation to the franchise or the operation of the franchise business; and (2) in addition, if AMC NSW acts in any of the ways set out in paras (a) to (c). 77In this context, it may be noted that paras (a) to (c) in some ways go beyond (or may go beyond) what is generally understood by the concept of "acting fraudulently". Thus, in my view, they are intended to amplify, and not to qualify the operation of, the chapeau. 78The words "in relation to" are capable of having a very wide operation, when defining the nexus between the subject matters to which they refer. The width of the nexus in any given case will depend on the context, including of course the relevant contractual purpose intended to be served. In this case, since there was no contest that the relevant fraudulent activity was carried on "in relation to" the franchise or the operation of the franchised business, it is unnecessary to consider, at the theoretical level, the width of the degree of connection intended to be established. 79The real issue of controversy in relation to cl 24.8 is as to the extent (if any) to which the operation of the rights given by it is constrained by an implied obligation of good faith. I deal with that controversy below, in relation to the second issue. The proper construction of cl 23(f) of the Code 80Again, there was no controversy. It was accepted that the relevant fraudulent conduct occurred "in connection with operation of the franchised business". Again, it is unnecessary to expound on the phrase "in connection with". First issue: validity of the notice of termination 81Mr Ashhurst submitted that the termination could be justified by reference of each of the grounds identified at [1] above. He submitted that: (1) as to cl 24.8(c), AMC NSW, through its participation in the fraudulent scheme, had engaged in conduct which reflected unfavourably on the operation and reputation of the System, the Services and the Materials; (2) as to the chapeau to cl 24.8 and as to cl 23(f) of the Code, AMC NSW had been fraudulent in relation to the Franchise or the operation of the Business (cl 24.8), or in connection with the operation of the franchised business (cl 23(f)); and (3) as to cl 18.4, AMC National had requested information and copies of documents from AMC NSW, and AMC NSW had failed to comply fully with that request. 82Mr Alexis accepted, I think, that there was a ground for termination based on the chapeau to cl 24.8 of the MFA and on cl 23(f) of the Code. He disputed the validity of the other assigned grounds for termination. 83Further, as the second and third issues suggest, Mr Alexis submitted that, to the extent that, in principle, the termination was justified on the proper construction of the MFA and in the events that had happened, it was vitiated by want of good faith; and that in any event, AMC NSW was entitled to relief against forfeiture. Clause 24.8(c) 84Mr Coade gave evidence that he had formed the opinion for which cl 24.8(c) calls. Mr Alexis attacked that evidence. However, if I may say so, the attack was misdirected. Mr Alexis pointed to the fact that Mr Coade had neither made nor caused to be made inquiries of the department, with a view to seeing whether his fears, as to the impact of the fraudulent scheme on AMC National's operations and reputation, were justified. Further, Mr Alexis challenged the concerns that Mr Coade had expressed as to the likely impact of the fraudulent scheme (or, more accurately, news of it) on other master franchisees and on franchisees. I think that the attack was misdirected because cl 24.8(c) does not call for an inquiry into likely damage. I might add, in the case of the department, that the criticism made comes ill from AMC NSW, in circumstances where, as I have foreshadowed, it fought tooth and nail to prevent AMC National from having access to any records of the department. Perhaps more importantly, there was evidence, on which clearly Mr Coade was entitled to act, that the department would not cooperate if inquiries were made of it. I accept that evidence. 85The question is not whether damage has been or is likely to be suffered, but whether, in the reasonable opinion of AMC National (formed by Mr Coade, as the person in control of it), the fraudulent conduct would reflect unfavourably on the business model and business of AMC National and its master franchisees and their franchisees. In my view, it was clearly open to Mr Coade to form that opinion; indeed, I would have thought, no other opinion was reasonably open. There cannot be many things more damaging to a company that tenders for cleaning contracts from commercial organisations and government departments, than an allegation that it was involved in a serious attempt at fraud on a government department. It is also relevant to point out that, even if one accepts that Mr Kijurina was personally innocent of the fraud, nonetheless it was enabled to occur because he left those aspects of AMC NSW's business entirely in the hands of Mr Holm and Mr Osmani, and seemingly made no effort to oversee or check what they were doing. 86In any event, Mr Coade sought and obtained independent advice (by which I mean, advice from a source other than the solicitors and counsel retained for him and AMC National in the litigation) relating to the termination. That advice came from a Mr Stephen Godding, a partner in the legal firm Kemp Strang. Mr Godding conferred with Mr Coade on 21 April 2011 and gave written advice that day. It would appear that the instructions given to Mr Godding included the MFA and a brief outline of the fraudulent scheme. Mr Godding recited the facts on which he was instructed to advise, and concluded that: AMC [National] is able to lawfully terminate the MFA by service of a notice of termination on the Master Franchisee for a breach of Clause 24.8(c) in regard to the conduct concerning the claim for apprentice allowances in respect of the franchisees who were represented to be apprentice employees which was the subject of the [Departmental] investigation. The justification for this view is that the Covenantor himself has apparently made admissions in the witness statement to the police that the Master Franchisee acted fraudulently and accordingly this is a breach of Clause 24.8(c) irrespective of whether the Covenantor has personal knowledge of or was involved in such conduct. 87Mr Godding had set out, in his recital of the facts, an instruction that although Mr Kijurina (the "Covenantor") had denied knowing of the fraudulent conduct, that denial was "inconsistent with a statutory declaration sworn by the former General Manager in relation to this matter". That instruction may be incorrect - certainly, no such statutory declaration was produced in evidence, and thus it may be doubted that one exists - but, as is clear from the terms from Mr Godding's advice, that instruction was irrelevant to his conclusion. That is because he expressly put aside, as irrelevant, the question of personal knowledge. 88More relevantly, for present purposes, Mr Godding dealt with the reputational issue. He said: Moreover, there is no doubt that the conduct of the Master Franchisee giving to [sic] the rise to [sic] the [Departmental] investigation would on any reasonable basis be regarded as reflecting unfavourably on the operation and reputation of the System and the Services which may result in significant damage to the [sic] AMC [National] in regard to the obtaining of Commonwealth or other government contracts in relation to cleaning services for either itself or its franchisees. 89Mr Coade said that he read and considered, among other things, Mr Godding's advice before he decided that AMC National should give the notice of termination. I accept that evidence. 90In my view, not only was it inherently reasonable for Mr Coade to form the view that triggers the operation of cl 24.8(c), it was also reasonable for him to rely on Mr Godding's advice to that effect, and to regard it as providing support for his view. 91I find that Mr Coade, as the human mind or will of AMC National, did form the opinion for which cl 24.8(c) calls, and that it was reasonable for him to do so. I find, further, that the conduct of AMC NSW in relation to the fraudulent scheme was such that, to paraphrase Mr Godding, there could be little doubt that it would have an adverse impact on the operation and reputation of at least the System and the Services. 92In short, I find that the ground for termination relying on cl 24.8(c) has been made out. The chapeau to cl 24.8 93In the end, there was no dispute that, as the agreed facts record so clearly, AMC NSW had acted fraudulently in relation to, at least, the business that it operated pursuant to the MFA. 94I find that this ground of termination is made out. Clause 23(f) of the Code 95As with the chapeau to cl 28.4 of the MFA, this ground of termination is made out. Clause 18.4 96The first question to be resolved is the proper construction of cl 18.4. I have dealt with that at [60] to [75] above. 97I turn to the facts. 98AMC National made numerous attempts to get documents and information from AMC NSW in relation to the department and the fraudulent scheme. As I have said, AMC NSW fought tooth and nail to resist those attempts, and to prevent AMC National from obtaining documents or information otherwise. In particular, in my view, to the extent that Mr Kijurina referred to the fraudulent scheme in his earlier affidavits (in the 2009 proceedings), his evidence was, at best, parsimonious. I note also that although Ms Lazos said (and I accept) that AMC NSW kept copies of all documents that had been given to it in relation to the fraudulent scheme (and these included copies of the training contracts and the claim forms), Mr Kijurina was careful not to prove or produce those documents in his earlier affidavits. 99Against that background, I go to the particular letter on which reliance was placed. After much correspondence (in particular between the respective solicitors), AMC National wrote to AMC NSW on 18 February 2011. There is no doubt that the letter was received shortly thereafter. 100The letter was headed: Request for information and documents pursuant to clause 18.4 of the Master Franchise Agreement. 101The first paragraph of the letter stated: We refer to our previous request for documents and information by way of a letter from our lawyers sent 2 February 2011 and the subsequent correspondence between our lawyers. Consequent upon that correspondence, we have reduced the number of documents we are seeking as well as the number of questions we are requiring answers to. 102Among other things, the letter stated: We require copies of the following documents which referenced in our lawyer's letter of 2 February 2011; ... 8. Document 163; Email correspondence between AMC NSW and DEEWR ... 35. Document 471; Statement of George Kijurina dated 24 April 2009 103By the time counsel made their closing submissions, it was accepted that the other documents for which the letter called either had been produced or were unavailable to be produced. 104In addition, the letter said: We also require answers to the following questions: 1. Do the Directors or Managers of your company know of any external training taking place for your staff, or franchisees, at the Rockdale premises during the period between late 2008 and early 2009? If yes please provide full details of same. 2. Do the Directors or Managers of your company know of any application, successful or otherwise for funding for external training that any member of your staff, or consultant may have made during the period of late 2008 to early 2009? If yes please provide full details of same. 3. Do the Directors of Managers of your company know who the Mr Stephenson (or Stephens) is that is referred to in Mr Osamni's statutory declaration and in DEEWR's list of documents at document 255? 4. Is Mr Paul Stephenson (or Stephens) a consultant or supplier to AMC NSW or involved in anyway with AMC NSW? If so how, for how long has he been involved with AMC NSW and for what purpose? 5. Have the Directors or Managers at your company conducted any investigations into this matter? If so, we requires copies of any such reports or the dissemination of any and all information your Directors and Managers have in relation to this matter. 105After correspondence passed between the solicitors which generated more heat than light, some documents were produced. AMC NSW claimed that they included document 8 (the email chain). Mr Coade disputed this, and gave corroborating evidence. Mr Rockliff asserted that the document had been sent (the letter came from his firm), but gave no evidence of having personally checked what it was that had been sent under cover of his firm's letter; and no such evidence was given by (for example) his administrative assistant. 106The questions were dealt with as follows: 1. Yes. See the Statement of AMC NSW's Managing Director, George Kijurina, to the Police dated 24 February 2009, the confidential information previously provided to you and your clients and our letters to you of 24 January 2011, 10 February 2011, 23 February 2011, 16 March 2011, 17 March 2011, 23 March 2011, 25 March 2011, and 29 March 2011. 2. Yes. See the Statement of George Kijurina dated 24 February 2009, paragraphs 73 to 80 of the affidavit of George Kijurina sworn 25 June 2009 and pages 403 to 407 of Exhibit "GK1" thereto, the Affidavit of Hua Zhang sworn 21 October 2009 and Annexures "A" and "B" thereto, and our letters to you referred to in 1 above. 3&4. We refer you to the third paragraph of our letter to you of 23 February 2011 and repeat what was stated therein, that Mr Paul Stevenson (or Stevens), has never been employed as a consultant or supplier to AMC NSW nor has he been paid any monies by AMC NSW. 5. Yes. We refer you to the Statement of George Kijurina dated 24 February 2010 to the Police and our letters to you referred to in paragraph 1 above. No reports have been prepared by the Directors or Managers. 107It was common ground that a copy of the text of Mr K ijurina's statement to the department (item 35 in the list set out in the letter of 18 February 2011) was sent, but that the annexures were not. The defendant's solicitors notified Mr Rockliff of that omission. Mr Rockliff replied, on 5 April 2011, stating, relevantly: Further to our letter of 4 April 2011 we enclose copy of Statement of George Kijurina given to an investigator of Department of Education, Employment and Workplace Relations, a copy of which was subsequently provided to Mr Kijurina without the documents referred to therein. 108As to the documents, the debate focused on documents 8 and 35; and in the case of the latter, it focused on the annexures. 109In my view, the conflict in the evidence between Mr Coade and Mr Rockliff, as to document 8, should be resolved in favour of Mr Coade. He gave reasons which supported his evidence that the email chain in question had not been provided. By contrast, Mr Rockliff's evidence on this point was no more than bald and uncorroborated assertion. 110There is no such conflict in relation to the attachments to Mr Kijurina's statement to the department. The only reason proffered for the failure to provide those attachments was, as stated in the letter of 5 April 2011, that the copy of that statement "was subsequently provided to Mr Kijurina without the documents referred to therein". That is, however, no excuse for the failure to provide them. The documents that were attached, and on which Mr Kijurina commented in his statement, were copies of the various contracts purporting to have been made by apprentices or trainees, and copies of the claim formed signed, or in some cases purporting to have been signed, by those purported apprentices or trainees. Ms Lazos gave evidence, which I accept, that those documents had come into the possession of AMC NSW (I think, but it does not matter, from Mission Australia) and that, in accordance with the ordinary procedures of AMC NSW, copies of them had been made before they were been sent on to the police, or wherever else it was that they went. 111Thus, the unchallenged evidence is that AMC NSW had copies of the documents which were attached to and analysed in Mr Kijurina's statement to the department. Accordingly, the excuse for their nonprovision given in the letter of 5 April 2011 is no excuse at all. 112That behaviour on the part of AMC NSW is consistent with its behaviour in seeking to withhold from AMC National, for as long as could be done, information and documents relating to the fraudulent scheme. I do not accept that the excuse offered in the letter of 5 April 2011 offers any valid reason for the failure to provide the copies of the documents that were attached to Mr Kijurina's statement. 113Since it was not suggested that there was any other justifiable reason for the non-production of those documents, it follows that there was a factual ground available to terminate pursuant to cl 24.2 for failure to comply with cl 18.4, because not all required documents had been provided. 114I turn to the questions. Mr Alexis sought to suggest that the questions had been answered adequately and sufficiently. Unfortunately, Mr Kijurina was driven to agree that this was not so (T143.48-144.47): Q. Mr Kijurina, can you look back at the letter of 2364. You did give instructions to Mr Rockliff to write that letter on your behalf? A. I'm sure we spoke about it, yes, more than likely. Q. And you instructed Mr Rockliff to answer the questions that appear at page 2325 in the manner in which they have been answered on page 2365, didn't you? A. Yes. Q. Do you accept that in the answers that are given at page 2325, question 3 has not been answered? A. In the manner that they were given, the questions, as in sequence, is that what you're talking about? Q. Question 3 hasn't been answered at all, has it? You've answered the first part of question 4 - when I say you, Mr Rockliff on your behalf, has answered the first part of question 4, but he hasn't answered question 3 at all, has he? A. It appears not. Q. And neither has he, on your behalf, answered the second part of question 4, that is: "Is Mr Paul Stephenson or Stephens involved in anyway with AMC New South Wales. If so how, for how long has he been involved with AMC New South Wales and for what purpose?" That question is not answered either, is it? A. It is actually, 3 and 4. Q. Where do you say is the answer to, "Is Mr Paul Stephens involved in anyway with AMC New South Wales" answered? A. He's never been employed as a consultant/supplier at New South Wales. Q. That's the answer to the first part of question 4, isn't it, "Is Mr Paul Stephens a consultant or supplier to AMC New South Wales". The second part of the question is, "or involved in anyway with AMC New South Wales". He's asking something different from whether or not he was employed, doesn't it? A. Well, that's what it's asking, and that's the response we've actually drafted. Q. And what you haven't said is that Mr Stephens was in fact involved with AMC New South Wales but not as an employee or consultant, correct? A. Yes. Q. And you haven't answered that, have you? A. No. Q. And you haven't answered, "for what purpose he was involved with AMC New South Wales" either, have you? A. No. 115Mr Alexis accepted that he was bound by those answers; but putting that to one side, the concessions (although made with some hesitation and reluctance) were properly made. The answers to the questions were inadequate, in the ways that Mr Kijurina accepted. 116It follows that, for this reason also, there has been a breach of cl 18.4 that enlivened the power of termination pursuant to cl 24.2. Conclusion on the first issue 117I find that, on 21 April 2011, AMC National had a contractual right to terminate the MFA, for each of the three (or four) reasons summarised in the first issue. Second issue: good faith 118Mr Alexis submitted that, if the contractual power to terminate had arisen, its exercise was constrained by considerations of good faith. He relied on the decision of Byrne J, in Far Horizons Pty Ltd v McDonald's Australia Ltd [2000] VSC 310 at [120]. His Honour there said that there should be implied into a franchise agreement a term of good faith and fair dealing, which required each party to exercise its powers under the agreement "in good faith and reasonably, and not capriciously or for some extraneous purpose". 119Mr Ashhurst submitted that, to the extent that there was an implied obligation of good faith governing the power of termination, it should be limited to an obligation not to act arbitrarily or capriciously, or to exercise the power for a purpose for which it was not intended. He relied on Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 at [209]. 120Mr Ashhurst submitted that the obligation of good faith could not require AMC National to subordinate its interests to those of AMC NSW, citing Macquarie International Health Clinic Pty Ltd v Sydney Southwest Area Health Service [2010] NSWCA 268. 121Mr Ashhurst submitted, further, that to establish "ulterior purpose", it must be shown that the termination would not have occurred but for that purpose; in this case, he submitted, that could not be shown. 122I have noted that Mr Ashhurst's submissions were limited to the implied duty to the extent that it applied. He submitted that whilst it could apply to termination pursuant to cl 24.2 based on breach of cl 18.4, and to termination based on cl 24.8(c), it was not applicable to termination based on the chapeau of cl 24.8 (or, for that matter, on cl 23(f) of the Code). That was so, he submitted, because neither the chapeau nor the Code introduced any subjective element into the test, and neither of them required the formation of an opinion. 123The implied duty of good faith is part of the law of performance of contracts (see Allsop P, with whom Ipp and Macfarlan JJA agreed, in United Group Rail Services Ltd v Rail Corporation New South Wales (2009) 74 NSWLR 618 at [61]). It is an obligation implied in aid of performance of the express terms of the agreement: a duty implied to ensure that the parties to a contract perform the obligations for which they bargained. See Burger King Corporation v Hungry Jack's Pty Ltd (2001) 69 NSWLR 558 at 570 [173]. In that case, at 570 [172], the court approved what Finkelstein J had said in Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR 41 -703. His Honour said, at 43, 014, that whilst an obligation of good faith might restrain a party from exercising a contractual power capriciously, it could not restrict a party from acting so as to promote its own legitimate interests. His Honour said (and the Court of Appeal accepted) that if "the party exercising the power acts reasonably in all the circumstances the duty to act fairly and in good faith will ordinarily be satisfied". 124In relation to cl 24.8, the clear purpose or function of the right of termination that is given if one or other of the preconditions is triggered is to enable AMC National to protect itself from having to continue to deal with a master franchisee that has been engaged in fraudulent or other damaging activities, and to limit the damage to the AMC brand caused by those activities. If the right of termination is triggered, there is no requirement for notice, nor to offer any opportunity to repent. The very nature of the power suggests that, on the occurrence of one or other of the specified events, it may, without more, be exercised. 125Again, with cl 24.2, it may be observed that the right of termination arises only after the party in breach has been given an opportunity to repent. Thus, where of necessity that opportunity has been given and has not been availed of, it is difficult to understand why there should be some further constraint on the exercise of the power to terminate that, in consequence, arises. 126Mr Alexis spent a lot of time, both in cross-examination of Mr Coade and in submissions, attacking AMC National's motives for terminating the MFA. In this context, it is desirable to bear in mind what Lord Diplock said on the question of motive (admittedly, in an entirely different context) in Horrocks v Lowe [1975] AC 135 at 150. His Lordship pointed out that it is ordinary human experience that people rarely form their beliefs strictly by a process of logic or deduction from facts rigorously established and judiciously assessed. On the contrary, people may be swayed by prejudice, may act on intuition, and may reach conclusions on an inadequate evidentiary basis; they might ignore cogent material which disputes their conclusions, and maintain them on the basis of flimsy material. Nonetheless, a conclusion reached through that imperfect means may still be honest - that is to say, may carry with it a positive belief in its truth. What his Lordship said related to the question of malice, for the purposes of the law of qualified privilege. But, as Rares J said in Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No.2) [2008] FCA 810 at [398], his Lordship's observations concern human behaviour, and may be applied equally "to the way in which people act in contractual relationships". 127Rares J was speaking in the context of considering whether a contractual power of termination was constrained by obligations of good faith. He said at [395] that contractual rights should be exercised honestly, but recognised that the motives leading to the exercise of contractual rights may be complex: A party to a contract is entitled to exercise contractual rights conferred on him or her honestly. Rarely do people act from a single motive, particularly where they have been involved in a long-term relationship with the other party or parties. In a contractual context, relationships can give rise to a complex set of considerations which one party may apply to the other. Thus, in a contract for the sale of goods where time is of the essence, and one party defaults in timeous performance, the law merchant recognises that the innocent party has a right to terminate. And such rights exist in the Sale of Goods Act 1923 (NSW) and its analogues. 128Thus, his Honour said at [397]: Courts must be cautious in characterising or giving undue weight to particular aspects of or incidents in [a long-term contractual] relationship when arriving at a decision that some action has been taken otherwise that in good faith. 129I do not find that AMC National, through Mr Coade, acted unreasonably or capriciously in deciding to terminate the MFA. There had been conflict between AMC NSW and AMC National for some time. The relationship between them had broken down irretrievably. In respect of the issues litigated in the 2009 proceedings, AMC NSW was substantially vindicated. But it does not follow that, when AMC NSW breached a term of the MFA and otherwise acted in a way that gave rise to a right of termination, AMC National was not able to rely on those matters to terminate the MFA. 130Mr Alexis submitted that AMC National's exercise of the right of termination was in some way part of the process of divesting itself of its master franchise agreements, through the arrangements with master franchisees and AMC 2 that I have described earlier. I am prepared to accept that this was one of AMC National's motives. But it does not follow either that it was an improper motive (i.e., for present purposes, capricious or ulterior). Nor does it follow that it was the sole motive. 131I have no difficulty in understanding that a franchisor in the position of AMC National would not want to have anything to do with a franchisee that had behaved in a fraudulent way, particularly in the way that the facts in this case show AMC NSW behaved. Nor do I have any difficulty in understanding that a franchisor in the position of AMC National would want to be rid of a franchisee that had conspicuously disregarded its contractual obligations in the way that, I have found, AMC NSW did: particularly when there was a clear link between the fraudulent activities in question and the disregard of those obligations. (That link exists because the request for documents and information was directed at finding out the nature of the fraudulent scheme and the extent of AMC NSW's involvement; and AMC NSW was desperate to avoid revealing those matters, and doing all that it could to avoid revelation.) 132In those circumstances, viewed objectively, I conclude that it was reasonable for AMC National to terminate as it did when the opportunity arose for the reasons that it did. 133If, as I have suggested above, the obligation of good faith is intended to promote the enforcement of contracts, its use to prevent the exercise of a contractual right which on any view had arisen is hard to justify unless it can be said that the right was being exercised for a capricious or ulterior motive; and I do not find that it was. 134Thus, whatever may be the extent of the relationship between an implied obligation of good faith and the contractual powers in question, I conclude that AMC National's exercise of the right of termination was not vitiated by want of good faith. Third issue: relief against forfeiture 135Two preliminary questions were said to arise as to the application of the doctrine of relief against forfeiture in the context of this case. The first is whether relief against forfeiture is available at all where there is no loss or determination of an estate, or interest in property or a proprietary right, by reason of failure to perform a covenant (see Brennan J in Legione v Hateley (1983) 152 CLR 406 at 455). More particularly, there is an unresolved controversy, as to whether relief against forfeiture applies to termination of a commercial contract. Caution suggests that I should proceed on the basis that it may be. For reasons that will become clear, I do not need to attempt to decide these points. 136The other question is whether relief against forfeiture is available where the event giving rise to the putative forfeiture is not a breach of contract. Uninstructed by authority, I would be inclined to restrict the role of relief against forfeiture to forfeitures effected as a result of a breach of contract. However, since I have concluded, as a matter of fact, that AMC NSW is not entitled to relief against forfeiture, it is unnecessary to pursue this question further. 137There may be a further preliminary question, as to whether relief against forfeiture is available where termination of a franchise agreement occurs in circumstances expressly authorised by the Code. Since the parties did not address that point, and since my view of the facts would extend to that situation as well, I shall leave the question unexplored and unresolved. Relief against forfeiture - the principles 138The debate proceeded on the basis that the relevant principles had been settled by the decision of the High Court in Tanwar Enterprises Pty Limited v Cauchi (2003) 217 CLR 315. The appellant in that case was the purchaser of three parcels of land from the respondents. Each contract fixed the same date for completion; time was not made of essence. In each, the completion date was extended several times. Then a new date was fixed, and time was made of the essence. The appellant did not complete, because it could not obtain finance. The respondents knew that the appellant wished to complete, and that it was seeking finance, but nonetheless gave notices of termination once the essential time for completion had passed. The appellant sought specific performance, either because the contracts had not been validly terminated or because it was entitled to relief against forfeiture. 139The plurality (Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ) identified the essential issue as being whether it was unconscientious for the respondents (vendors) to rely on the essential time stipulation and its breach to justify their termination (see at 320 [5], 324 [19]). In other words, as their Honours explained (in the second of the paragraphs to which I have just referred), it was necessary for the appellant, as purchaser, to show unconscientious use by the respondents, as vendors, of their legal right to terminate. 140After a review of the authorities, the plurality referred to that essential issue. Their Honours said at 335 [58] that: "... where accident and mistake are not involved, it will be necessary to point to the conduct of the vendor as having in some significant respect caused or contributed to the breach of the essential time stipulation." 141In doing so, their Honours focused the debate on what it was that might be said to make the conduct of the respondent unconscientious, and away from the "subsidiary questions" emerging from the judgment of Mason and Deane JJ in Legione v Hateley (1983) 152 CLR 406 at 449. Their Honours had there said: In the ultimate analysis the result in a given case will depend upon the resolution of subsidiary questions which inevitably arise. The more important of these are: (1) Did the conduct of the vendor contribute to the purchaser's breach? (2) Was the purchaser's breach (a) trivial or slight, and (b) inadvertent and not wilful? (3) What damage or other adverse consequences did the vendor suffer by reason of the purchaser's breach? (4) What is the magnitude of the purchaser's loss and the vendor's gain if the forfeiture is to stand? (5) Is specific performance with or without compensation an adequate safeguard for the vendor? 142At 330 [43] of Tanwar , the plurality said that it was not appropriate to treat those five questions "as determinative of Tanwar's appeal. The reasons for that conclusion followed from their Honours' analysis at 330 [44] to 334 [57]. It is unnecessary to set out the detail of that analysis. 143It follows, in my view, that if relief against forfeiture is available as a matter of principle, AMC NSW will not make out a case for relief on the facts unless it can show that some conduct of AMC National caused or in some significant respect contributed to the events that gave rise to the "forfeiture". If AMC NSW can show this, then the five subsidiary questions would require analysis, but as part of the discretionary calculus. The parties' submissions 144Mr Alexis submitted that it was against good conscience for AMC National to give notice of termination for the following reasons: (1) the events giving rise to termination were not the result of any act of Mr Kijurina, as managing director; he was innocent. The errant employees were acting in an unauthorised way: beyond the scope of their actual authority, although within their apparent authority. Their employment was terminated when the fraud was discovered. (2) No financial harm was caused to the department or anyone else. This was because of Mr Kijurina's prompt actions in going to Mission Australia, and speaking to the police and the department. (3) There is a gross disparity between the subject matter of the forfeiture and the damage that was caused. As to the latter: there was no damage, because of Mr Kijurina's prompt intervention. As to the former: loss of the master franchise would be catastrophic. Mr Kijurina would lose the benefit of the franchise business that he had built up over eight years, and for which he had paid a substantial sum of money. 145In those circumstances, Mr Alexis submitted, Mr Coade needed to explain how in good conscience he could terminate in 2011 for events that had occurred in late 2008 and early 2009, where those events caused no financial loss and had no operational or reputational effect. 146Mr Alexis submitted, further, that it was important to bear in mind that Mr Coade had caused AMC National to release its rights as master franchisor for all territories other than New South Wales, and submitted that the appropriate inference was that his motive in terminating was to further his attempts to render himself judgment-proof. 147Mr Alexis accepted that there were different problems insofar as the termination was based on breach of cl 18.4. He submitted that in those circumstances the question was whether it was reasonable for AMC NSW to act (or not act) as it did in response to the request for documents and information. He submitted, further, that it was relevant to note that there had been at least substantial compliance with that request. 148Mr Ashhurst submitted that the fundamental point was that AMC NSW must show that it would be unconscientious for AMC National to rely on the exercise of a contractual power for which it had bargained and which had become exercisable. 149Mr Ashhurst submitted that Mr Kijurina's alleged lack of involvement was not relevant, in circumstances where the fraud was the result of the actions of those whom he charged to deal with training. 150Mr Ashhurst submitted, further, that the question of loss was irrelevant; but, in any event, there was evidence of loss, in particular because AMC NSW had tried to put off onto AMC National liability to pay Joblynk's training expenses, and AMC National had been forced to incur expense to defend that claim. 151Mr Ashhurst disputed that conduct after the fraud was of any real relevance, but added that, if it were, the court should take into account that AMC NSW had done all it could to ensure that AMC National did not become aware of the fraud. This went so far as making a false statement to the department in respect of AMC National's freedom of information request. 152Indeed, Mr Ashhurst pointed out, it was not until Thursday, 28 July 2011 (the penultimate day of the hearing) that AMC NSW had conceded that there was fraud. By its pleadings and opening, it had put AMC National to the trouble and expense of proving the fraud as a ground for termination. Decision 153In my view, AMC NSW has not made out a case for relief against forfeiture. That is so whether the forfeiture arises only because of the breach of cl 18.4, or also because of the operation of cl 24.8 (either or both of the chapeau and subpara (c)); or, in addition, because of the operation of the equivalent provisions of the Code. 154This is not a case of accident or mistake. Nor is there any evidence that the conduct of AMC National caused or contributed to the events that gave rise to the right of termination - let alone, that they did so in any significant respect. On the contrary, so far as termination based on cl 18.4 is concerned, although no doubt the actions of AMC National, in seeking documents and information, created the situation where there could be a breach, it was the deliberate decision of AMC NSW not to answer in full that gave rise to the right of termination. And as to the fraud, there is simply no suggestion that AMC National was in any way involved. 155Some of the submissions put by Mr Alexis can be accepted. But if I may say so, those submissions tended to focus more on the subsidiary questions than the essential issue. 156I accept that Mr Kijurina was not personally involved in the fraud (although I do not accept that he was as far removed from the training of franchisees as he sought to suggest, and I do not accept his evidentiary attempts to distance himself from it). However, it is clear that the fraud resulted from the acts of those whom he had authorised to effect and pay for training, and whom he failed in any way to supervise. 157I accept that there was no financial loss to the department, and that in large measure this was because of Mr Kijurina's prompt actions. There was, no doubt, financial loss to Joblynk (because it has not been paid for the training it carried out). I do not regard that as of being of great significance, in circumstances where it is clearly open to infer that Joblynk, through Ms Khoury, was heavily involved in the fraudulent aspects of the scheme. There was, however, as Mr Ashhurst submitted, financial loss to AMC National, incurred when AMC NSW wrongly sought to deflect to AMC National responsibility for the training costs. 158I accept that the consequences of termination will be extremely serious for Mr Kijurina. That is the consequence of the breach of contract that he decided that AMC NSW should commit, and of the fraudulent scheme that was put in place because he entrusted the task of training to others, and did not supervise what they did. 159I do not accept that there is any onus on Mr Coade, or AMC National, to explain how in good conscience the notice of termination could have been given. On the contrary, as the reasons of the plurality in Tanwar make clear, it is for AMC NSW to show that the termination (or reliance on the contractual right to terminate that had arisen) was unconscientious. 160There is an additional problem, insofar as the termination was based on cl 18.4. That is that the scheme of the MFA itself provides for an opportunity to repent, because cl 24.2 required notice of intention to terminate to be given, so that the breach could be rectified. AMC NSW chose not to avail itself of that opportunity. Why should equity give it another? 161Further, to the extent that Mr Alexis relied on the lapse of time since the relevant events (in relation to the fraudulent scheme) occurred, this was due in part to the extraordinary efforts made by AMC NSW to prevent information coming to the attention of AMC National that would appraise it, in reasonable detail, of what had happened. As Mr Ashhurst submitted, that conduct went so far as putting AMC National to proof of the fraud, and not conceding it until the penultimate day of the hearing. 162Thus, as I have said, if relief against forfeiture is in principle available, I would not grant it. Conclusion 163AMC NSW's case based on prayers 1 to 7B of the amended summons fails, and the amended summons should be dismissed to that extent. AMC National is entitled to declaratory relief in accordance with prayer 1 of its cross-claim. Costs should follow the event in each case, although I will reserve leave to any party to seek some other order as to costs. In addition, the existing interlocutory relief (restraining AMC National from acting on the notice of termination) should be discharged. 164I make the following orders: (1) Dismiss prayers 1 to 7B of the amended summons dated 24 May 2011. (2) Declaration in terms of prayer 1 of the cross-claim. (3) Order the plaintiff to pay the defendants' costs to date of the proceedings, including the cross-claim. (4) Reserve liberty to any party to move on 7 days' notice for some special or alternative costs order; any such application to be made within 28 days of publication of these reasons, by notice in writing to the parties affected setting out both the orders sought and, in brief, the reasons why those orders are sought; a copy of any such notice to be given to my Associate. (5) Order that the injunctions granted on 21 April 2011, extended on 17 May 2011 and again on 20 May 2011, be dissolved. (6) Order the parties within 7 days to approach the Associate to Hallen AsJ for directions in relation to the issues in these proceedings that, on 25 July 2011, were directed to be heard by an Associate Justice and in relation to the reference to his Honour for assessment of damages in proceedings 289426 of 2009. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 25 August 2011