Oceanwalk awarded Damages

Oceanwalk Pty Ltd was the Master Franchisee for the Mr Whippy territory in south-eastern Queensland. The master franchise was for a term of 10 years (ending in May 2003) with an option to renew for a further 10 years. Oceanwalk exercised its option in accordance with the Master Franchise Agreement.

The Franchisor, Mr Whippy Pty Ltd refused to recognise the renewal. On the basis that Oceanwalk had not complied with the terms of the Agreement, as it:

• did not use its best endeavours to seek new business sites; and
• did not render assistance and advice as required under the Agreement leg: providing adequate reports

At trial, Oceanwalk was awarded $143,654.25 in damages for breach of contract for the refusal to renew. On appeal, the judgement was upheld.

Oceanwalk was required to use its best endeavours to locate new business sites. No new sites had been established during the period 1998 and 2003. Oceanwalk argued that they had been seeking new sites, however no suitable sites were identified. Property consultants engaged in 2001 by Mr Whippy identified a number of sites, however, none were considered suitable. Mr Whippy had not produced evidence to the contrary. The Court held that an obligation to use best endeavours merely requires a person to do all he reasonably can in the circumstances to achieve the contractual objective, but no more.

Oceanwalk was also required to provide assistance and advice to Mr Whippy, including, providing various reports. Mr Whippy alleged that the reports were insufficient as they were not provided regularly enough (the content of the reports was not in issue). The Court found that Oceanwalk had not breached its obligation to furnish written reports in relation to the Business being conducted. Under the Agreement, written reports were to be furnished 'from time to time and in any event at intervals of not less than 30 days'. As no maximum interval was specified, there was nothing requiring Oceanwalk to furnish a certain number of reports per year.  In this case, Oceanwalk furnished reports, on average, approximately 4 times per year. The Court held that this was sufficient to meet the reporting requirement. The fact that there had been no complaint regarding reporting intervals during the term of the Agreement was significant.

This case highlights the need to provide written warning and notices to Franchisees throughout the term where appropriate, and to keep detailed records of any "disciplinary action" or problems as they arise.

This article appears courtesy of Macpherson & Kelley Lawyers