District Court New South Wales Medium Neutral Citation: Shingle Inn Franchising Pty Ltd & Anor v Majestic Coffee Pty Ltd & Anor [2020] NSWDC 142 Hearing dates: 18, 19 and 20 March 2020 Date of orders: 22 May 2020 Decision date: 22 May 2020 Jurisdiction: Civil Before: Smith SC, DCJ Decision: 1. Verdict and judgment on the amended statement of claim in favour of the second plaintiff against the defendants in the amount of $19,666.72. 2. Verdict and judgment on the cross claim in favour of the cross claimant against the first cross defendant in the amount of $171,292. 3. The parties are directed to submit short minutes of order within 14 days reflecting the appropriate amount of interest and costs in respect of each judgment. 4. Failing agreement in respect to order 3, each party is to file an outline of submissions on those issues of no more than 2 pages indicating whether there is consent to the issues being determined on the papers. Catchwords: LICENSING – Breach – licence agreement – licence term – unpaid fees. TORT – conversion – damages – conversion of business assets – value of goods. TORT – bank guarantee – failure to return on demand – conversion. Legislation Cited: Competition & Consumer (Industry Codes-Franchising) Regulation 2014 (Cth), Div 5 of Pt 3 to Sch 1 Cases Cited: Australian Development Corporation v Allco Steel Corporation [1999] NSWSC 736 Bunnings Group Limited v CHEP Australia Limited (2011) 82 NSWLR 420 Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653 Butler v Egg & Egg Pulp Marketing Board (1966) 114 CLR 185 Ferguson v Eakin & Ors [1997] NSWCA 106 Gaba Formwork Contractors Pty Ltd v Turner Corporation Ltd (1991) 32 NSWLR 175 Hoath v Connect Internet Services Pty Ltd (2006) 229 ALR 566 Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1 NSWLR 545 M'Leod v M'Ghie (1841) 133 ER 771 MBF Australia Limited v Malouf [2008] NSWCA 214 OBG Ltd v Allan [2008] 1 AC 1 Simic v New South Wales Land & Housing Corporation (2016) 260 CLR 85 Strand Electric & Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 QB 246 T C Industrial Plant Pty Ltd v Robert's Queensland Pty Ltd (1963) 180 CLR 130 Wenkart v Pitman (1998) 46 NSWLR 502 Wood Hall Ltd v Pipeline Authority (1979) 141 CLR 443 Category: Principal judgment Parties: Shingle Inn Franchising Pty Ltd – First Plaintiff/First Cross Defendant Shingle Inn Leasing 1 Pty Ltd – Second Plaintiff/Second Cross Defendant Majestic Coffee Pty Ltd – First Defendant/Cross Claimant Troy Benjamin Battese – Second Defendant Representation: Counsel: Mr M Gunning – Plaintiffs/Cross Defendant Ms McDonald - Defendants/ Cross Claimant Solicitors: Baybridge Lawyers – Plaintiffs/Cross Defendant Coleman Greig Lawyers – Defendants/Cross Claimant File Number(s): 2018/170988 Publication restriction: Nil Judgment 1. The first plaintiff, Shingle Inn Franchising Pty Ltd ("Franchising") is the franchisor of a coffee shop and restaurant franchise. In 2016, the first defendant, Majestic Coffee Pty Ltd ("Majestic") entered into a franchise agreement with Franchising pursuant to which it was entitled to conduct a Shingle Inn business at a shopping centre in Rouse Hill, a suburb of Sydney. Majestic conducted that business on premises pursuant to a licence granted to it by the second plaintiff, Shingle Inn Leasing 1 Pty Ltd ("Leasing"). Leasing leased the premises from the owner of the shopping centre, GPT Funds Management 2 Pty Limited ("GPT"). 2. The second defendant, Troy Battese, is the sole director and shareholder of Majestic and guarantor of its obligations under the licence agreement. 3. The business did not flourish. By the end of 2017 Mr Battese notified Franchising that the business could not continue and he wanted to sell it. [1] On 29 March 2018, Majestic abandoned the premises, taking some of the assets of the business. On 12 April 2018, Franchising terminated the franchise agreement. This also had the effect of terminating the licence agreement. On 17 April 2018, Majestic offered to sell the business assets of the business to Franchising pursuant to Franchising's right of first refusal under the Franchising Agreement. There was no reply to that offer. In the meantime, Franchising had taken over the operation of the business on the premises and eventually sold it and so much of the business assets that had been left on the premises to a third party, Lans 1 Pty Ltd ("Lans 1"). 4. Franchising and Leasing commenced proceedings against the defendants. Franchising initially sought payment of unpaid royalties and advertising fees but abandoned those claims and ultimately made no claims. Leasing sought to recover unpaid licensing fees. That claim was initially for the period from March 2018 to June 2018, when Lans 1 took occupation of the premises. However, the claim was eventually reduced to the period from 1 March 2018 to the end of April 2018. 5. The defendants ultimately admitted that the fees for 1 March 2018 to 12 April 2018 were owing but argued that, by failing to obtain a licence fee from Franchising, Leasing had failed to mitigate its loss. That argument must fail and there will be judgment for Leasing in the amount of $19,666.72. 6. Majestic brings a cross claim against both plaintiffs. Against Franchising, it seeks damages for conversion of the business assets left on the premises. That claim will succeed. 7. Against Leasing, Majestic claims an order requiring Leasing to do all things necessary to ensure the return to Majestic of a bank guarantee given at its request in favour of GPT as security for the performance of Leasing's obligations under the lease from GPT. That claim must fail. The reasons for these conclusions are as follows. Relevant facts 1. There is little contest about the primary facts in the proceedings. They largely appear from documents including the franchise agreement, licence agreement and correspondence. The following summary of the relevant facts is adopted from the defendants' outline of submissions. 2. Franchising and Majestic entered into a Franchise Agreement on 26 April 2016. The agreement entitled Majestic to establish and operate a Shingle Inn business from certain premises in the Rouse Hill Town Centre ("Premises"). [2] 3. The agreement provided that Franchising could either take a lease of the Premises in its own name, or its nominee, or require Majestic to procure a lease. [3] Franchising took the first of these options and, on 15 August 2016, Leasing entered into a lease of the Premises with the registered proprietor, GPT (the Lease) [4] . In those circumstances, the Franchise Agreement required Majestic to enter into a licence agreement with Leasing in order to occupy the Premises. [5] It also required Majestic to provide to Leasing "any bank guarantees or security deposits … if required under the Lease". [6] 4. The term of the Franchise Agreement was from 25 August 2016 until the day prior to the end of the term of the Lease which was 14 August 2023. 5. The Franchise Agreement required the Premises to be fitted out in accordance with the specifications in the Franchisor's Operations Manual and Majestic was to pay the costs of fitting out the Premises to the suppliers or as directed by Franchising. [7] In April and June 2016 Majestic paid the sum of $344,850.00 to Franchising for plant, equipment and fit out costs (together, the Business Assets). [8] 6. Mr Battese agreed to guarantee the performance of all obligations of Majestic under the Franchise Agreement [9] and was the manager of Shingle Inn Rouse Hill. 7. Franchising was entitled to terminate the Franchise Agreement by written notice if, amongst other things, Majestic voluntarily abandoned the business. [10] 8. Franchising had an option to purchase any stock and the Business Assets from Majestic within 14 days of the expiration or termination of the agreement. [11] The price to be paid for the Business Assets was the fair market value as determined in accordance with standard accounting practices. [12] 9. On 24 May 2017 Majestic entered into a Licence to Occupy Premises (Licence) in respect of the Premises with Leasing, although Majestic had commenced trading as Shingle Inn Rouse Hill from the Premises on or about 24 August 2016, some nine months earlier. 10. The Licence commenced on the same day as the Lease and expired on the earlier of the termination of the Franchise Agreement or the day before the expiry of the Lease. 11. Mr Battese guaranteed the performance of Majestic's obligations under the Licence. 12. Clause 4.2 of the Licence provided, inter alia: "During the Licence Term, the Licensee must:- (a) ensure that it is in compliance and that it has fulfilled all of the covenants, terms and conditions of the Lease; (b) pay the Licensor the Licence Fee seven (7) days before any amount included in the Licence Fee is due under the Lease; ...." 1. Licence Fee was defined in cl 1 of the Licence to mean: "The total sum payable by the Licensor from time to time in accordance with the terms and conditions of the Lease, including but not limited to the following:- (a) rent, as adjusted in accordance with the terms of the Lease; and (b) outgoings relating to the Premises or otherwise in relation to the Lease." 1. On 24 May 2017 Majestic provided GPT with a Bank Guarantee in the sum of $27,113.81. There was no express provision in either the Franchise Agreement or the Licence for the return of that guarantee in the event of the termination of either agreement. 2. Between January 2017 and April 2018, Majestic did not make sufficient income to make the payments required under the Franchise Agreement and the Licence, in addition to paying staff and supply costs. Consequently, during this time Mr Battese was not paid a regular wage, despite working seven days a week for an average of 70-80 hours a week. 3. In late 2017 Mr Battese decided that Majestic could not keep running Shingle Inn Rouse Hill. On 6 November 2017 Mr Battese sent an email to Mr Andrew Bellchambers and Mr Michael Walker of SI Franchising advising that: "…After much consideration around this and other issues I have decided that the best course of action for me is to place the café on the market to be sold or shut down. I feel that there are and have been too many restrictions placed on my business under the franchise model. As per the franchise agreement I am giving you first right of refusal to purchase the business or assets within the business." 1. On 9 November 2017 Mr Patrick Mulcahy of Franchising sent an email to Mr Battese outlining the process for Majestic to transfer Shingle Inn Rouse Hill to a new franchisee, including that Majestic would be required to offer Franchising the right of first refusal. [13] 2. On or about 24 November 2017, Mr Battese contacted Mr Andrew Bellchambers and advised him that the sale price for Shingle Inn Rouse Hill was $229,000. On 26 November 2017, Mr Andrew Bellchambers sent an email to Mr Battese stating, inter alia: "…In this instance we decline to purchase Shingle Inn Rouse Hill at the current stated price. We understand that you will now endeavour to sell the business to a potential buyer at this price. Should the sale price of the business change please advise us so that we may again assess our First Right of Refusal. …" 1. Meanwhile, on or about 3 January 2018, Mr Nithin Earabelly made an enquiry with Franchising about applying to become a Shingle Inn franchisee. His online 'expression of interest' form recorded that he lived in Schofields, NSW, (around 6 km from Rouse Hill Town Centre) and was interested in a franchise in NSW and that he would like to "receive updates and information on outstanding new Café locations and resale opportunities". 2. Over the ensuing months Mr Earabelly had numerous communications with representatives of Franchising, but at no time did they inform him that Shingle Inn Rouse Hill was for sale. Instead they discussed Mr Earabelly taking a franchise at Wetherill Park, Castle Hill and/or Liverpool. 3. On or about 2 February 2018 Mr Earabelly heard that Shingle Hill Rouse Hill was for sale. A few days later Mr Earabelly called Mr Mulcahy of Franchising and told him that he would like to purchase Shingle Hill Rouse Hill, as it was right next to his home, rather than take a franchise at Wetherill Park. Mr Mulcahy told him "[w]e are having some discussions with the Rouse Hill franchisee but don't believe what people are saying. It is not available for sale." 4. On or around 29 March 2018 Majestic ceased trading. 5. On 30 March 2018 Mr Battese removed some of the Business Assets from the Premises. The evidence about what was removed was a little confused; however, it was clarified in Mr Battese's affidavit sworn on 20 September 2019 and explained in a schedule of damages prepared by Majestic. Given that there was no real dispute about the items that were taken, it is unnecessary to make any detailed findings about those items other than to say that I accept Mr Battese's evidence as clarified and that Majestic's schedule of damages is an accurate summary of them. 6. On 3 April 2018 GPT sent Leasing a notice of breach stating that there was a breach of the Lease due to the Shingle Inn business not being open for trade on the Premises. 7. On or about 6 April 2018 Mr Mulcahy informed Mr Earabelly that Shingle Inn Rouse Hill was available for purchase, but he had to "move quickly" as they had "someone else who is interested". 8. On 11 April 2018 Mr Battese sent an email to Mr Andrew Bellchambers saying: "Would like to know what you want to do about the equipment? If we can come up with a suitable deal I can have it there by close of business today or tomorrow at the latest. I am available from Friday morning onwards so I would like to sort it out today at some point if you are interested." 1. Mr Andrew Bellchambers responded by email later that afternoon saying: "Removing the equipment from the premises has created greater complexity to the situation and is at odds with the terms of the Franchise Agreement. If you meet your responsibilities by COB today for March rent, which remains unpaid, we will consider our position with the equipment. Please advise." 1. On 12 April 2018 the Franchise Agreement was terminated by Franchising by written notice to Majestic in accordance with cl 13.3(iv) of the Franchise Agreement and subs 29(1)(d) of the Franchising Code of Conduct. [14] 2. In light of the definition of Licence Term in the Licence, termination of the Franchise Agreement had the effect of terminating the Licence on the same day. 3. On 17 April 2018 Majestic's solicitors wrote to Franchising's solicitors offering it the right of first refusal to purchase the Business Assets, pursuant to cl 14.3(a) of the Franchise Agreement for $65,000. No reply to this offer was received. 4. On 24 April 2018 Mr Battese wrote to Leasing asking for return of the Bank Guarantee. That request was refused by email of the same day. No amount has been paid to Mr Battese or Majestic in the amount of the Bank Guarantee, nor has the Bank Guarantee been returned to Majestic. 5. By this time, Franchising had obtained equipment to replace that which had been taken by Majestic and it started operating the franchise business from the Premises. On 12 June 2018 Franchising sold the franchise and the fit out and equipment required to run the franchise to the company of which Mr Earabelly was a director and shareholder, Lans 1 Pty Limited. Licence fee 1. The first issue is what damages are recoverable by Leasing for the breach of the licence agreement. The licence agreement required Majestic to pay Leasing the "Licence Fee seven (7) days before any amount included in the Licence Fee is due under the Lease": cl 4.2(b). The rent payable by Leasing under the Lease was part of the Licence Fee: cl 1. 2. The Lease required Leasing to pay an annual rent in equal monthly instalments, in advance, on or before the first day of each month: cl 7. The annual rent for the relevant period was $99,750 making the monthly rent $8,312.50. There was no dispute that other charges were payable by Leasing. In addition, GST was payable on all supplies: cl 4.2. The amount payable by Leasing under the Lease for the month of March 2018 was $9,833.36. Majestic did not pay this amount to Leasing and so breached the licensing agreement. There is no dispute that it is liable to pay that amount in damages. 3. The amount payable by Leasing under the Lease for the month of April 2018 was also $9,833.36. There is no question that Majestic did not pay that amount to Leasing. However, Majestic argues that it is only liable for $3,933.34 first, because the monthly fee should be reduced to reflect the fact that the licence was terminated on 12 April 2018 and, secondly that, in any event, Leasing unreasonably failed to mitigate its loss by allowing Franchising to occupy the premises without charging it a licence fee. 4. The Licence Agreement expired on the earlier of the Expiry Date of the Lease Term on the termination of the Franchise Agreement: cl 1 and Item 3 of the Schedule. The Franchise Agreement was terminated on 12 April 2018 [15] and so the Licence Agreement expired on that day [16] . Majestic agreed that the obligation to pay the Licence Fee in cl 4.2(b) only arose during the Licence Term which expired on termination of the Franchise Agreement. For that reason, it only owed a Licence fee up to 12 April 2018. That argument is rejected. The obligation under cl 4.2(b) was to pay any amount in the Licence Fee due under the Lease. That payment was to be made seven days before the amount was due under the Lease. As the rent and other outgoings were due by 1 April, Majestic was required to pay the Licence Fee to Leasing by 24 March 2018. That date was during the Licence Terms. Accordingly, Majestic was in breach of cl 4.2(b) by not paying the Licence Fee for the whole month of April. 5. Clause 4.3 does not assist Majestic. It provides: "If the Franchise Agreement is terminated as a result of a breach of the Franchise Agreement by the Licensee then the Licensee must compensate and reimburse the Licensor for any loss incurred by it in relation to the Lease up to the date of termination of the Franchise Agreement." 1. Majestic argued that the Franchise Agreement was terminated because it abandoned the premises. The letter of termination expressly relied on cl 13.3(iv) of the Franchise Agreement as the basis of the termination. Accordingly, so it was agreed, it was not required to pay any amount for past breaches under cl 4.3 of the licence agreement. If that is correct, it does not negate Leasing's right to claim damages at common law for breach of cl 4.2(b). Further, and alternatively, cl 4.3 is not limited to the amount payable by Majestic in respect of March 2018. As I have explained, the obligation to pay the amounts for April 2018 arose, and was breached, prior to 12 April 2018. 2. Majestic originally argued that it was not liable to pay the Licensing Fee because Franchising had not acted in good faith by not taking steps to have Lans 1 (who eventually bought the franchise) acquire the franchise from Majestic. It ultimately did not pursue that argument and I need not deal with it other than to say that it ignored the fact that the claim for the Licence Fee was made by Leasing and not Franchising. 3. The argument that Leasing failed to mitigate its loss should also be rejected. 4. An innocent claimant is under no positive duty to take action to mitigate losses resulting from another's breach of contract. However, that party may not recover damages for that breach in respect of losses which it might reasonably have been expected to avoid. The party in breach has the onus of establishing failure to mitigate: Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653, 673; T C Industrial Plant Pty Ltd v Robert's Queensland Pty Ltd (1963) 180 CLR 130, 138; Wenkart v Pitman (1998) 46 NSWLR 502, 523. 5. In its defence, Majestic pleaded a failure to mitigate but did not specify what should reasonably have been done by Leasing to mitigate its loss. In its submissions it relied on the failure by Leasing to charge Franchising a fee for its occupation of the Premises. The difficulty with that submission is that there was no evidence either way about the terms on which Franchising occupied the Premises. Indeed, the evidence about its occupation was scant. At its highest, the evidence was that Franchising had to obtain replacement equipment in order to run the business and that it only did that by 24 April 2018. From that I infer that Franchising ran the business from that date until it sold it on 12 June 2018; however, I cannot infer that Franchising paid nothing by way of licence fee to Leasing. 6. In light of the bare pleading of failure to mitigate, Leasing cannot be criticised for failing to adduce evidence of the terms of its occupation of the Premises. It was the innocent party in respect of this issue and bore no onus of proof. 7. Majestic has failed to establish that Leasing failed to take reasonable steps to mitigate the loss caused by Majestic's breach of the Licence. There will be judgment against both defendants in favour of Leasing in the amount of $19,666.72. Conversion of the Business Assets 1. The essential elements of the tort of conversion were explained by Allsop P in Bunnings Group Limited v CHEP Australia Limited (2011) 82 NSWLR 420; at [124] as follows: "The essential elements, or basic features, involve an intentional act or dealing with goods inconsistent with or repugnant to the rights of the owner, including possession and any right to possession. Such an act or dealing will amount to such an infringement of the possessory or proprietary rights of the owner if it is an intended act of dominion or assertion of rights over the goods: see generally Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204 at 217–220 (per Latham CJ), 228–230 (per Dixon J, with whose statements of principle Starke J agreed at 221), 234–235 (per McTiernan J), and 239–244 (per Williams J); and Kuwait Airways at 1084 [39]–[42] (per Lord Nicholls of Birkenhead), 1104 [119] (per Lord Steyn) and 1106 [129] (per Lord Hoffmann)." 1. Here, there were two distinct acts which amounted to conversion of so much of the Business Assets that were left on the Premises from 30 March 2018: first, their use in the conduct of the business from 24 April 2018; and secondly, their inclusion in the sale of the business to Lans 1 on 12 June 2018. In both instances, there was an exercise of dominion by Franchising over goods belonging to Majestic that was repugnant to Majestic's right to remove those goods and deal with them as it saw fit. 2. Franchising did not argue at any point that Majestic had abandoned the goods in question. 3. However, it did argue that there was no conversion because there was no demand for the goods. In support of that argument it relied on the statement by Allsop P at 455 [117] in Bunnings, that for "possession or keeping to be a conversion a demand is required". However, his Honour was not saying that there must always be a demand for goods in order for there to be a conversion. That would have been inconsistent not only with the passage set out above but also with the first sentence of [117]: "Conversion can, of course, occur by retaining goods after a demand…" (emphasis added). 4. Rather, what his Honour was explaining at [117] was that mere unauthorised possession of another's chattel is not a conversion of it. That was not the case here. Franchising was not only in possession of Majestic's goods, but was, at first, using them for its own profit and, in the second place, selling them for its own gain. In both instances, its actions denied Majestic the ability to sell or otherwise use the goods. 5. The more difficult issue is the damages which flow from the conversion of the goods. The general principle of compensatory damages is that the injured party should receive compensation in a sum which, so far as money can do so, will put it in the same position as it would have been had the tort not been committed. In cases of conversion the general rule is that the plaintiff is entitled to recover the full value of the goods converted: Butler v Egg & Egg Pulp Marketing Board (1966) 114 CLR 185 at 191. 6. The difficulties raised on the facts of this case include that Majestic was not making any use of the goods and, so it was argued, did not suffer any loss. Further, the goods were, for the most part, specially built for the purposes of the business. Given that Majestic no longer had the right, or intention, to continue to run a Shingle Inn franchise business, the use to which it could put the goods was very limited and this, in turn, could have a substantial impact on the sale value of the goods. 7. Majestic relied on Bunnings, Strand Electric & Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 QB 246 and Gaba Formwork Contractors Pty Ltd v Turner Corporation Ltd (1991) 32 NSWLR 175 for the proposition that the fact that it was not using the goods did not impede its claim for damages. Those were cases where the business of the owner of the goods was the hire of the goods that were converted. While the proposition relied on by Majestic may be accepted, the cases are of limited assistance here. 8. What the cases do show is that the value of the converted goods may be assessed in different ways and depends on the circumstances of the case. 9. The facts of Australian Development Corporation v Allco Steel Corporation [1999] NSWSC 736 are closer to this case. There, the plaintiff had bought two lots of steel to be used for construction work. One of the lots was specially manufactured for that work. The other lot was raw steel. Both lots were retained by the defendant at its premises. After the plaintiff's contract for the construction work was terminated, the defendant sold the steel without the plaintiff's consent. The issue was whether the plaintiff should obtain damages on the replacement basis or, if not, on the basis of the price obtained by the defendant on sale of the goods, or the price supported by expert evidence. 10. His Honour Foster AJ found that calculating damages on a replacement basis was inappropriate because the goods were no longer required for the project and there was no evidence that it would use the steel in its fabricated state: [35]. His Honour also rejected the defendant's sale price as appropriate because no assumptions should be made in favour of a tortfeasor who has converted another's property: [39]. The appropriate measure of damages was the sale figure that would have been achieved by careful selling of the steel into selected markets: [38]. 11. Majestic relied on the expert opinion of Ian Hyman, a senior valuer with considerable experience in valuing commercial goods including plant and equipment. In his report, jointly written with another valuer, Mr Hyman explained that he valued the fit out on the basis of the cost of manufacture less depreciation. For the plant and equipment he used a sales comparison approach. Importantly, these approaches were based on the most advantageous market for the goods, namely, an incoming franchisee. Taking those approaches, his opinion as to the value of the converted goods was $171,292 as at 12 April 2018. This figure represents the value of the fitout ($140,200) and the plant and equipment that was left on the site after Majestic had vacated the premises ($15,520) [17] plus GST. 12. Franchising argued that this was not an appropriate measure of damages because Majestic had done nothing to try to sell the goods other than offering them to it. I reject that argument. Majestic had been trying to sell the goods since November 2017 when it first offered the business to Franchising. More importantly, there was a market, indeed, an identifiable buyer, for the goods at the time that Majestic abandoned the Premises. 13. Mr Earabelly had been making inquiries about acquiring a franchise since January 2018. He lived in Schofields (not far from Rouse Hill) and, on his own evidence, was interested in taking on a franchise close to home. However, even though Franchising was aware that Majestic wanted to sell its business, Mr Earabelly was never told about that. In February 2018 he asked Franchising about the availability of the Rouse Hill franchise and was told, falsely, that it was not for sale. 14. On 3 April 2018 Mr Earabelly went to the Rouse Hill store and then spoke to Mr Mulcahy of Franchising on 6 April 2018. Mr Mulcahy told Mr Earabelly that it was available but that someone else was interested. He said that the old owner had gone. That was true only insofar as it related to the business. It was not true in connection with the goods left behind. Mr Mulcahy said that the price would be $100,000. Mr Earabelly was told that that price would include the franchise fee of $53,350. 15. When Lans 1 took possession of the business on 12 June 2018 the goods left by Majestic were still there. They formed part of the price paid by Lans 1. In the meantime, Franchising had been using the goods when it was running the franchise itself. 16. In those circumstances, there can be no assumption made in favour of Franchising as to the market for the goods. Franchising knew that the market existed and kept that fact hidden from Majestic. Indeed, it kept hidden from Mr Earabelly the opportunity of acquiring the business as a going concern. That said, at the time of the conversion (whether that was 24 April 2018 or 12 June 2018) Majestic was not in the position to sell the goods as part of a going concern. 17. Although the valuation given by Mr Hyman is considerably higher than the price actually paid by Lans 1 for the goods, I consider that that valuation is the appropriate amount to properly compensate Majestic for the conversion of the goods by Franchising. Lans 1 (or Mr Earabelly) was only one potential purchaser at the time of the conversion. He was told by Mr Mulcahy that there was another purchaser interested in the business. Franchising did not suggest that that, too, was a lie. 18. Finally, although the valuation date given by Mr Hyman was 12 April 2018, sometime before the conversion, there was no evidence to suggest that the goods had deteriorated at all since that time. 19. For those reasons, Majestic is entitled to a verdict on its cross claim in the amount of $171,292. It is also entitled to interest from 12 June 2018, the clearest date on which the conversion took place. Bank Guarantee 1. Majestic argued that Leasing had committed the tort of conversion by failing to return the bank guarantee to it on demand. Ultimately, its argument was based on the proposition that the bank guarantee had some value to Majestic because of the money held by the bank in order to meet any obligation that arose under it. 2. Wrongful dealings with documents such as title deeds, life insurance policies, guarantees and cheques may amount to conversion: MBF Australia Limited v Malouf [2008] NSWCA 214; M'Leod v M'Ghie (1841) 133 ER 771. However, title to sue does not arise merely by virtue of the value represented by the document, but by the possession or right of possession of a chattel. Thus, conversion is not available in respect of the balance in a bank account because that is a chose in action rather than a chattel: Ferguson v Eakin & Ors [1997] NSWCA 106 at [15] cited in Hoath v Connect Internet Services Pty Ltd (2006) 229 ALR 566, see also OBG Ltd v Allan [2008] 1 AC 1. 3. Bank guarantees, often more accurately called performance bonds, are typically issued by a financial institution at the request of one party to a contract in favour of another party pursuant to a requirement of the contract: Simic v New South Wales Land & Housing Corporation (2016) 260 CLR 85 at [2] (French CJ). Their purpose is to act as security for the due performance of the contract (Wood Hall Ltd v Pipeline Authority (1979) 141 CLR 443 at 445) and take the "form of a promise by the issuing institution that it will pay, to the beneficiary named in the bond, an amount up to the limit set out in the bond unconditionally or on specified conditions and without reference to the terms of the contract between the parties": Simic at [2] citing Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1 NSWLR 545 at 551. 4. Any rights to the document, then, must arise from the terms of the contract pursuant to which the security is given. 5. However, Majestic did not rely on any contractual (or indeed any other) right to the document constituting the bank guarantee. For that reason, its claim to an order concerning the return of the bank guarantee, or damages for its conversion, must fail. 6. I would add that, in spite of the injustice that might arise from the continued reliance by GPT and, in turn, Leasing, on the bank guarantee, I can see no proper way to construe the contracts that would require either GPT to return the guarantee to Majestic, or Leasing to take all reasonable steps to ensure that is done. 7. The outline of the relevant contractual provisions set out above reveals that the Licence and Franchise Agreements are closely interconnected. For example, the obligation to provide a guarantee under the Franchise Agreement only arises if it is required under the Lease: cl 9B.2(c)(ix). The requirement under the lease (cl 16.3) was for the purpose of enabling the lessor to recover its loss due to any breach of the lease by the lessee. That purpose existed up to the end of the lease. The only provision for the return of the guarantee was "[w]hen the lease ends and the lessee has vacated and made good the premises" (emphasis added). Although that provision could readily be construed to require the return of the guarantee to the franchisee at the end of the lease, there is no provision in either the Licence or the Franchise Agreement for return of the guarantee to the franchisee at any earlier time. Although the term requiring the return of the guarantee might be easily described and obvious, it could not be implied because it would not be necessary. In those circumstances, it would require a substantial re-writing of the bargain made by commercial parties to construe the agreements to require a return of the bank guarantee prior to the end of the lease. 8. Further, there could be no proper construction that required the return of the guarantee in circumstances where, as here, the franchisee remained in breach of terms of the Licence. 9. The evidence of Mr Bellchambers for Leasing was that no steps had been taken to return the guarantee because Majestic had not paid the licence fees owing under the Licence. It appears from his evidence that once the licence fees are paid, it is likely that Leasing will take all necessary steps to have the guarantee returned to Majestic. Conclusion and orders 1. There will be a verdict and judgment on the amended statement of claim in favour of Leasing against the defendants in the amount of $19,666.72 and a verdict and judgment on the cross claim in favour of Majestic against Franchising in the amount of $171,292. 2. I direct the parties to submit short minutes of order within 14 days reflecting the appropriate amount of interest and costs in respect of each judgment. Failing agreement, each party is to file an outline of submissions on those issues of no more than 2 pages indicating whether there is consent to the issues being determined on the papers. ********** Endnotes 1. Ex 3, p 150. 2. Cl 2.1, Sch item 5: Ex 3, pp 15 and 59. See also cl 9B.1(a). 3. Cl 9B.2(a); Ex 3, p 25. 4. Ex 3, p 298. 5. Cl 9B.2(c)(ii); Ex 3, p 26. 6. Cl 9B.2(c)(ix); Ex 3, p 26. 7. Cll 7.4 and 9B.3(b); Ex 3, pp 21 and 27. 8. Ex 3; pp 70, 73. 9. Cl 17; Ex 3, p 52. 10. Cl 13.3(iv); Ex 3, p 44. 11. Cl 14.3(a); Ex 3, p 47. 12. Cl 14.3(c); Ex 3, p 47. 13. See cl 15.4 of the Franchise Agreement. 14. Div 5 of Pt 3 to Sch 1 of the Competition & Consumer (Industry Codes-Franchising) Regulation 2014 (Cth). 15. Ex 3, p 251. 16. Arguably the day before if "one day before" in Item 3 is read distributively: see Tcpt, 19 March 2020, p 114(32). 17. As clarified by the affidavit of Mr Battese in his 20 September 2019 affidavit. 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: 22 May 2020