Lindfield NSW Pty Ltd v Netdeen Pty Ltd trading as GJ Gardner Homes (No 2)

In the briefest of terms, the plaintiff has sued the defendant for breach of a Master Franchise Agreement (MFA), but in particular for the refusal of the defendant to renew the agreement in accordance with an option exercised by the plaintiff.

If the MFA had been renewed it would have been for a term of 10 years, commencing on 1 July 2024 and ending on 30 June 2034. If the renewal had proceeded the plaintiff would have continued to derive monies arising from the implementation of the MFA, in particular, through building work carried out by sub-franchisees.

The plaintiff, as an alternative to the breach of agreement case, says that the defendant acted unconscionably, in contravention of the Australian Consumer Law. The defendant denies any breach of the MFA and rejects the notion that it acted unconscionably. These two issues are issues of liability.

If the plaintiff succeeds on liability, it has proposed two methods of approaching damages. One of these methods is to estimate the royalties it would have received, derived from the work of the sub-franchisees (the builders) during the above ten-year period. This is essentially a loss of chance approach.

In order to assess the value of the lost chance the plaintiff relies on a report of a forensic accountant, Mr Potter. Mr Potter’s primary report is dated 3 May 2024. There is a report from a Mr Ross, dated 3 July 2024, which responds to Mr Potter’s report, and then a report in reply from Mr Potter dated 17 July 2024.

The defendant has objected to the admissibility of Mr Potter’s reports. The starting point for the objection was by reference to the decision of the New South Wales Court of Appeal, and in particular the judgment of Heydon JA, in Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305, at [85]:

In addition, I was referred to the decision of the Court of Appeal in Western Australia in Automasters Pty Ltd v Bruness Pty Ltd & Anor [2004] WASCA 229, at [29]:

Relying on the principles set out in the above authorities, the defendant submitted that:

The plaintiff, in response, categorised the objections in a different way, suggesting that it was more concerned with relevance than admissibility. In addition, the plaintiff submitted that I could draw an inference, pursuant to s 183 of the Evidence Act 1995 (NSW), that the industry figures were reliable. I think the categorisation of admissibility, at least as far as the reliability question is concerned, is the correct approach. I also agree with the defendant that s 183 has no part to play in the argument.

Turning now to the question of reliability of the MBA, HIA and ABS material. There is no doubt that the MBA and HIA reports are well-known in the building industry. I think I can take judicial notice of that fact. Mr Ross does not say the figures are unreliable, although he does have a number of arguments arising from their applicability.

In addition, it is very apparent that the MBA and HIA figures were not only well-known to the defendant but also utilised by it. Mr Wallace said he relied on HIA data from time to time to gauge the progression of the business. Mr Trent Gardner sent an email congratulating the Australian network on having done very well in the HIA results. And Mr Trent Gardner also uses the HIA material in his response to the alternative damages claim put forward by the plaintiff. This is apparent from [23] of his affidavit of 5 August 2024. Mr Thornton, in the COO report refers to the ABS data.

As pointed out by the plaintiff, Mr Potter’s use of the material is not the product of a random Google search producing possibly unsubstantiated figures. It is true that there is no independent evidence put forward by the plaintiff to say that the HIA, MBA and ABS material has been independently scrutinised and found to be reliable. I do not think such evidence is necessary. To require such evidence, I think would be an unnecessary waste of time and costs.

In my view the established use of these sources, including by the defendant itself, is enough to enable the plaintiff to rely upon them and to treat them as assumptions from which calculations might be made.

Once Mr Potter was able to use the figures, then I agree with Mr Ross, although he said it in a different context, that the calculations were mechanical. Mr Potter’s experience as a forensic accountant well qualifies him for the mechanical exercise he has undertaken.

I think there is a good deal of weight in the point made by the defendant concerning the use of 2024 figures to establish the loss from 2030 to 2034. However, I think this point is one to be made through the cross-examination of Mr Potter.

In relation to the averaging point, namely the use of New South Wales figures generally and not figures derived from each sub-franchisees, again the point is well made, but I think one for exploration in cross-examination.

Accordingly, I will allow the admission of Mr Potter’s reports into evidence.