Supreme Court New South Wales Medium Neutral Citation: Police and Community Youth Clubs NSW Ltd v Millenium Training and Hyper Martial Arts Pty Ltd [2012] NSWSC 754 Hearing dates: 29/06/2012 Decision date: 09 July 2012 Before: Fullerton J Decision: 1. Summons dismissed. 2. Plaintiff to pay the first and second defendants' costs of the appeal. Catchwords: Appeal from Local Court - contract - termination of agreement - breach of implied term Legislation Cited: Local Court Act 2007 Category: Principal judgment Parties: Police and Community Youth Clubs NSW Ltd (Plaintiff) Millenium Training and Hyper Martial Arts Pty Ltd (1st Defendant) Kim Burke (2nd Defendant) Representation: Counsel: A Vincent (Plaintiff) M Bennett (Defendants) Solicitors: Thomsons Lawyers (Plaintiff) Cordato Partners (Defendants) File Number(s): 2011/409349 Decision under appeal Jurisdiction: 9109 Date of Decision: 2011-11-23 00:00:00 Before: O'Shane LCM JudgmenT 1HER HONOUR: The plaintiff appeals the decision of O'Shane LCM of 23 November 2011 in which she entered a verdict for the defendants, with costs, on a statement of claim to which the plaintiff claimed an entitlement of $30,000 plus interest following termination of an agreement with the defendants under which those monies were paid. 2The plaintiff, the Police & Community Youth Clubs NSW Limited ("PCYC") is a not for profit, community organisation with clubs situated throughout NSW providing extracurricular programmes for young people. Mr Gardiner held the position of Chief Executive Officer. 3In April 2010, the first defendant, Millenium Training and Hyper Marial Arts Pty Ltd ("Hyper"), entered into a licence agreement with a corporation based in the USA, identified in the proceedings as Hyper LLC ("Hyper LLC"), to use and promote Hyper LCC's intellectual property and martial arts programs in Australia and New Zealand ("the Licence Agreement"). The second defendant, Ms Burke, was an officer of Hyper and for all relevant purposes the person with whom the Hyper LCC negotiated the licence and with whom the plaintiff dealt in Australia. Mr Osborne was the president of Hyper LLC. 4On or about 1 December 2010, following pre contractual negotiations between the parties, the plaintiff and Hyper entered into a Memorandum of Understanding ("MOU") whereby Hyper agreed to design and develop a "Hyper Martial Arts Development Program" ("the Development Program") for which the plaintiff would pay $30,000. 5Under the MOU it was agreed that the Development Program would contain the following elements: (a) Identification of potential instructors and provision of approved candidates for PCYC-Hyper training days; (b) A PCYC-Hyper curriculum and teaching manual, providing martial arts instruction and grading over an annual 4 [school] term cycle; (c) PCYC-Hyper character development materials for use as part of the PCYC-Hyper martial arts curriculum; (d) Curriculum, manual and materials for a PCYC-Hyper school-based character program covering areas such as values, bullying, self motivation, and fitness; (e) PCYC-Hyper branded achievement recognition devices such as clothing patches. Clothing patches are to be designed by both parties and supplied through Hyper; and (f) A PCYC-Hyper website for communication, promotion and celebration of events and achievements to be created as per development proposal. 6It was also agreed that the Development Program, as constituted, would be subject to specific contract and invoicing arrangements. In accordance with those arrangements on or about 16 December 2010 the plaintiff paid Hyper the sum of $30,000 on presentation of an invoice in that amount dated 27 October 2010 for the design and delivery of the development program. It would appear at that time that it was anticipated that the program would be created and provided by 1 January 2011 with a view to its implementation thereafter. 7On 17 December 2010 the terms of the MOU were adopted by the plaintiff and Hyper, such that, as expressly provided for in the MOU, it became the agreement between the parties ("the Agreement"). 8On 23 March 2011 Mr Osborne of Hyper LLC forwarded an email to Ms Burke attaching a notice dated 18 March 2011 giving 30 days notice of termination of the Licence effective from the date of receipt alleging a material breach of the licence agreement. On the same date and also by email Mr Gardiner was informed by Mr Osborne that Hyper and Ms Burke were no longer endorsed by Hyper LLC and could not deliver the Development Program as the Licence Agreement had been terminated. It was clear from the terms of the email that there was an existing relationship between the correspondents and that it was Mr Obsorne's intention to deliver the development program independent of Hyper making whatever adjustments to the agreement that were sought by the plaintiff and to compensate it for any inconvenience resulting from the termination of the Agreement with Hyper. 9On 6 April 2011 Mr Gardiner issued a notice of termination on behalf of the plaintiff and sought repayment of the $30,000 advanced the previous year in the following terms: I understand that you no longer hold the licence for Hyper in Australia. It is also my understanding that none of the work outlined in the MOU relating to a payment be(sic) PCYC last year of $30,000 has been undertaken and completed. 10By return email Ms Burke asserted that she continued to hold a licence from Hyper LLC and that the work done by Hyper to that date was in accordance with what she described as "the requirements and specifications discussed and detailed at our last meeting". The evidence makes clear that this is a reference to the meeting in February 2010 to which later reference will be made. 11The plaintiff commenced proceedings in the Local Court in May 2011 to recover the $30,000 paid pursuant to the Agreement. The statement of claim relied upon breach of two contracts, only the first of which was relied upon as grounding the right to terminate, namely breach of an implied term of the agreement by reason of what was said to be the termination of the licence between Hyper and Hyper LLC which entitled it to use and promote the intellectual property of Hyper LLC in this jurisdiction. It was this breach that was said to amount to a repudiation of the agreement which was accepted by the plaintiff. In the alternative, the plaintiff relied upon breach of a further agreement, wherein the second defendant, in her own capacity and as the authorised representative of Hyper is alleged to have agreed with the plaintiff (by its solicitors) to repay the sum of $30,000 on receipt of confirmation from the plaintiff as to how it became aware that Hyper LLC contended that the licence had been terminated ("the Confirmation Agreement"). 12At the hearing the plaintiff also relied upon what was said to be Hyper's failure to deliver the development program as a further breach grounding the right to terminate and an additional basis upon which it claimed a right to the return of the monies paid under the Agreement. 13The claim was defended on the basis that: (a) the defendants were not in breach of the Agreement and that the plaintiff did not otherwise have a right to terminate; and/or (b) the Confirmation Agreement, as pleaded, was denied. 14In entering a verdict for the defendants, the learned Magistrate made clear the basis upon which she found against the plaintiff on the essential factual finding underpinning the relief sought in the statement of claim, namely whether the plaintiff had proved a valid termination of the Agreement on either of the bases Mr Gardiner nominated in his email of 6 April 2011. In essence she found that at all material times Hyper was licensed by Hyper LCC to promote and distribute its intellectual property and martial arts programs and that there was no evidence to support the contention that Hyper had failed to deliver the development program in accordance with its contractual obligations. Grounds of Appeal 15The amended summons set out four grounds of appeal: (1) Her Honour erred in finding that the plaintiff wrongfully terminated the Agreement. (2) Her Honour erred in determining the proceedings based on matters not raised by the parties. (3) Her Honour erred in determining that Mr Gardiner acted deviously or otherwise was not a witness of credit. (4) Her Honour erred in finding that the defendants had performed work under the Agreement without any evidence. 16The plaintiff did not press the fourth ground of appeal. The relevant law 17The appeal is governed by ss 39 and 40 of the Local Court Act 2007 which provide that an appeal to this Court may only be taken as of right on a question of law alone and that leave is required where a ground of appeal involves a mixed question of fact or law. The plaintiff did not seek a grant of leave. 18In order for her Honour's finding that the plaintiff had wrongfully terminated the agreement to be susceptible to challenge, it is not enough to argue that the finding was unreasonable or that the evidence was insufficient to support it, still less that another construction of the evidence was open or even equally open. The proposition that there is no error of law is simply making a wrong finding of fact (unless there is no evidence to support it) should not need restating. In addition, it is not to the point that the learned Magistrate expressed her findings of fact with some force or flourish, or that her criticisms of Mr Gardiner's conduct in his dealings with Mr Osborne (also expressed in colourful terms) and which, in her Honour's view reflected adversely on his credit may not have been strictly necessary to determine the plaintiff's claim for return of the monies advanced under the Agreement because his subjective intention in terminating the Agreement was not relevant to a determination as to whether Hyper was in breach of the Agreement. In order to establish error of the kind asserted in the first and primary ground of appeal it was necessary for the plaintiff to demonstrate that the evidence supporting the plaintiff's right to terminate the Agreement on either of the bases relied upon at the hearing below compelled a finding that the plaintiff validly terminated the Agreement such that her Honour was in legal error in concluding otherwise. 19On the appeal, the plaintiff's counsel both failed to address his submissions to this question. When the evidence supporting her Honour's factual findings was raised with him he was unable to advance a submission as to why it was not open for her Honour to have found against the plaintiff by reference to this evidence, or to deal with my further observation that there appeared to be no evidence to the contrary of what her Honour found. 20It is only necessary to set out a summary of that evidence for the purposes of disposing the appeal. Breach of the implied term 21In dealing with the claim that Hyper was in breach of an implied term of the Agreement as grounding the right to terminate, it would appear that her Honour proceeded on the assumption that the existence of a valid licence was an implied term of the Agreement. (This was put in issue on the appeal but does not need to be resolved on the appeal as I am well satisfied there was no legal error in her honour's finding that a valid licence existed at the date of the notice of termination.) 22Hyper LLC sought to terminate the Licence by letter dated 19 April 2011, which was communicated to Ms Burke on behalf of Hyper on 29 April 2011. Clause 11 of the Licence agreement provides the mechanism by which Hyper LLC was entitled to terminate: 11. Termination by Licensor. Licensors may terminate this Agreement by giving written notice thereof to Licensee if: (a) Licensee commits a breach of a material obligation hereunder, provided, however, (i)In the case of a breach by the Licensee that is capable of being cured, the Licensee may not terminate this Agreement unless and until Licensee has failed to correct such breach within thirty days after it has been given notice specifying the breach and that it be corrected, and stating the Licensor's intention to terminate the Agreement if the breach is not corrected within such thirty day period; and (ii) If the breach is not one which can be reasonably corrected within thirty days, the Licensor may not terminate this Agreement unless Licensee fails to begin diligent efforts to correct such breach within the thirty day period and such breach is not completely corrected within one hundred eight days after delivery of the foregoing notice. 23On any construction of the Licence, it was not open to Hyper LLC to terminate the Licence until 30 days or 108 days after the provision of the notice. The plaintiff's purported termination of the Agreement on the asserted basis that Hyper was unlicensed predates the expiration of the 30 days, (and necessarily the 108 day period). Accordingly it is clear beyond doubt that at 6 and 14 April 2011 there was a valid license as a matter of fact and that there was no valid termination of the Agreement on this basis. A failure to provide or delay in the provision of the development program 24In his submissions the plaintiff's counsel nominated 30 November 2010, and then 1 January 2011 as the dates by which Hyper was to have delivered the development program. 25Reliance on 30 November 2011 is based on clause 11 of the Agreement which states: The Development Program will be subject to specific contract and invoicing arrangements between the parties and be completed by 30 November 2010. 26On a proper construction that date was a date by which the further contractual and invoicing arrangements were to be made. So much is made clear by email correspondence dated 27 October 2010 which nominated 1 January 2011 as a date by which it was at that time anticipated that Hyper would be in a position to "have all the material created and ready to go". In the lower Court counsel for the plaintiff did not raise 30 November 2010 as the relevant date by which the program was to be delivered in his cross-examination of Ms Burke. 27In so far as the plaintiff sought to persuade her Honour that there was to be delivery of the development program by 1 January 2011, on the appeal the following submissions were advanced by the defendants: (a) Time was not of the essence in the Agreement and the plaintiff did not serve a notice making it so. An alleged failure to perform or deliver under the Agreement, if it occurred, therefore does not give rise to a right to terminate. (b) Despite ongoing communication between the parties after 1 January 2011, at no time did the plaintiff raise the issue of progress. In these circumstances, it is estopped from electing to terminate in April the right it refused to exercise in January 2011. The plaintiff may have overcome this estoppel by issuing a notice to perform, but did not do so. (c) The plaintiff's conduct after 1 January 2011, in continuing to engage with Hyper and Ms Burke in the terms contemplated under the Agreement, was a waiver of their right to terminate. (d) The plaintiff was required to provide information to Hyper to enable performance by the first defendant. The plaintiff cannot terminate when it had failed to take appropriate steps to permit performance. (e) Progress was being made under the Agreement. 28It is not necessary to consider these submissions in terms since I am well satisfied that her Honour's findings on the question of progress or performance under the Agreement are supplied by evidence even if her Honour did not refer to that at length and despite her focused criticisms of Mr Gardiner as a witness of credit. 29On a plain reading of the Agreement there was no provision for the Development Program to be designed and delivered by a nominated date. Accordingly, the agreement obliged Hyper to design and deliver the program within a reasonable time. Between December 2010 and late February 2011 the parties corresponded in terms consistent with their mutual obligations under the Agreement. At no time did the plaintiff raise with Ms Burke or anyone else who was acting on Hyper's behalf any concerns with the timing of the progress of the production of the development program. At a meeting with the representatives of the parties on 24 February 2011 (including Mr Gardiner and Ms Burke) a detailed list of matters relating to the content of the program were discussed, including what is noted as "a schedule and time line" with a view to the implementation of the program in the third school term noted as a separate line item for discussion. There was no evidence giving form or content to that aspect of the meeting. Importantly, there was no suggestion even at the date that the plaintiff was concerned with the timing of the provision of the development program in its final form or any concerns with delay in the process by which it would be delivered. Ms Burke's evidence that following the meeting the development of the program was progressing normally in accordance with the terms of the agreement was not challenged. Mr Gardiner the CEO of the plaintiff did not give evidence to the contrary. Orders 30Accordingly, I make the following orders: 1. Summons dismissed. 2. Plaintiff to pay the first and second defendants' costs of the appeal. ********** 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: 12 July 2012