King of the Pack Pty Ltd v Luong [2012] NSWSC 785

Supreme Court New South Wales

Medium Neutral Citation: King of the Pack Pty Ltd v Luong [2012] NSWSC 785 Hearing dates: 30/03/2012 Decision date: 16 July 2012 Before: Fullerton J Decision: Summons is dismissed. Catchwords: APPEAL FROM LOCAL COURT - franchise agreement - early termination fee - contractual penalty - genuine pre-estimate of loss - termination of contract Legislation Cited: Local Court Act 2007 Cases Cited: Ashi Pty Ltd v Karasco Investments Pty Ltd [2009] NSWSC 780 Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; 230 CLR 89 Fermiscan Pty Ltd v James [2009] NSWCA 355 Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd [2008] NSWCA 310; 257 ALR 292 O'Dea v Allstates Leasing System (WA) Pty Ltd [1983] HCA 3; 152 CLR 359 Pratten v Johns [2010] NSWSC 327 Ringrow Pty Ltd v Bp Australia Ltd [2003] FCA 1297 Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71; 224 CLR 656 Category: Principal judgment Parties: King of the Pack Pty Ltd (Plaintiff) Van Hao Luong (Defendant) Representation: MW Sneddon (Plaintiff) CD Wood (Defendant) AI Legal (Plaintiff) Lawside Lawyers (Defendant) File Number(s): 2011/334019

Judgment 1HER HONOUR: On 23 September 2011 Brown LCM entered judgment for the defendant, Van Hao Luong, on a statement of claim where the plaintiff company, King of the Pack Pty Ltd (as franchisor) claimed damages in the amount of $28,967.21 (plus interest) from the defendant (as franchisee) for breach of a franchise agreement ("the Agreement"). The plaintiff was ordered to pay the defendant's costs. 2The question in dispute in the lower court was whether Clause 19.5 of the Agreement (the clause pursuant to which part of the damages claimed were calculated) was a contractual penalty and therefore unenforceable at the suit of the plaintiff company. After referring in detail to the relevant authorities, and what the Magistrate accurately identified as settled principles, he determined that, properly construed, Clause 19.5 was a penalty. 3The plaintiff company appeals that decision. 4The grounds of appeal identify what are submitted to be multiple errors in the Magistrate's approach to that question and in his reasoning to the conclusion that the clause was unenforceable as a penalty. The grounds condensed into two questions: (a) whether Clause 19.5 of the Agreement, as a matter of construction, is capable as constituting a contractual penalty; and (b) whether the Early Termination Fee, provided for in Clause 19.5, did not constitute a genuine pre-estimate of the damage that the plaintiff company might suffer on breach where it resulted in termination of the contract. 5The 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 questions of mixed fact and law require a grant of leave. 6Whether a contractual clause requiring payment of a stipulated sum is a penalty is a question of construction (Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 at 86 - 87) and therefore amenable to the appellate jurisdiction of this Court under s 39 the Local Court Act as a question of law. 7Counsel for the defendant submitted that because it was necessary for the Magistrate to construe the operation of Clause 19.5 by reference to the evidence for the purposes of determining whether or not it amounted to a genuine pre-estimate of damage and was unenforceable as a penalty for that reason (the second issue identified by the plaintiff as constituting error), the appeal necessarily involved a mixed question of fact and law, and that a grant of leave was required under s 40(1). Counsel also submitted that since no application was made for a grant of leave, and even if an application were made there were no special factors in favour of leave being granted, leave should be refused. Counsel referred to Ashi Pty Ltd v Karasco Investments Pty Ltd [2009] NSWSC 780 and Pratten v Johns [2010] NSWSC 327) to inform that question. 8The plaintiff's counsel did not seek to persuade me that leave should be granted to agitate the second question raised by the appeal or that the question involved a pure question of law such that leave was not required. 9I am satisfied that a correct analysis of the second question raised by the appeal involves a mixed question of fact and law and that no proper basis has been laid for a grant of leave permitting it to be agitated under the summons. Even were there a basis for considering a grant of leave (and none has been suggested), having regard to the Magistrate's detailed analysis of the evidence and his factual findings which, in my view, are well supported by the evidence, I would not have found error in his approach or his conclusions in any event. On one reading of his reasons in the judgment, some of his findings concerning the second issue raised by the appeal are purely factual findings which are beyond the reach of the appellate jurisdiction of this Court under the Local Court Act.