Damages for breach of franchise agreement

Howard’s Storage World (HSW) granted Haviv a franchise to operate an Howard’s Storage World retail outlet at Burwood in Sydney. The terms of the franchise included a grant of an exclusive territory for a radius of 5km.

Subsequently, HSW granted someone else an franchise to operate an Howard’s Storage World franchise at a new shopping centre at Rhodes, approximately 4,840m from Haviv’s Burwood store.

The breach of the contractual exclusivity promise was found, but claims for breach of TPA by misleading or deceptive conduct were rejected.

Jagot J explores the basis on which the damages payable to Haviv should be calculated in Haviv Holdings Pty Limited v Howards Storage World Pty Ltd [2009] FCA 242.

Her Honour considered the nature of the grant of exclusivity – it did not extend as Haviv contended, to a right to be offered the franchise for Rhodes. Nor did it preclude the opening of another store with a territory radius of 5km which overlapped with the territory within 5km of the Burwood store.

On the calculation of damages, her Honour considered the following issues:

  1. Was Haviv entitled to claim damages on the scenario that, if the third party had not been granted the Rhodes franchise, Haviv would have been – No
  2. Did Haviv prove that the breach of the exclusivity promise caused it loss – Yes
  3. How to assess that damage on the basis of loss of net profits
  4. The extent to which damages should be calculated for the period after Haviv closed the Burwood store in 2007 – damages would be payable until the expiry of the last option for renewal period – 2022
  5. The date the loss should be assessed at
  6. What discount rate should be adopted and how should it be applied
  7. What gross profit percentage should be used
  8. How should fixed costs including rent and refurbishment costs be treated?

At [110] her Honour summarised her findings:

 (1) Mr Halligan’s “alternative C” period of assessment should be used (that is, with damages assessed until the end of the option period, being 17 July 2022).

(2) The benchmark group should comprise Hornsby, East Gardens, Macquarie and Bondi Junction stores.

(3) The discount rates applied should be 28% for losses to the date of judgment and 30% for losses thereafter.

(4) The rent increase should reflect the true position where known (that is, $138,490.56 per annum for seven months from 1 September 2007 and an annual rental of $187,000 from 1 April 2008 to the end of the current lease on 31 March 2013 with appropriate adjustments thereafter from that base).

(5) The figure of 50.3% should be used as the gross profit percentage for the 2007 financial year onwards.

(6) The refurbishment costs should be $40,000 in July 2007, $155,000 in July 2012 and $40,000 in July 2017 and subject to mid-period discounting. 

The parties were sent away to have their experts recalculate their reports on the basis of her Honour’s findings.

Productivity Commission on parallel imports

The Productivity Commission has released its draft report into the copyright restrictions on parallel importing books:

Australia’s Parallel Import Restrictions (PIRs) for books should be modified as follows. 

• PIRs should apply for 12 months from the date of first publication of a book in Australia. Thereafter, parallel importation should be freely permitted. 

• If a PIR-protected book becomes unavailable during this 12 month period, then parallel importation should be freely permitted until local supply is re- established, or the expiry of the 12 month period allows for generalised parallel importation.  

• Booksellers should be allowed to overtly offer an aggregation service for individual orders of imported books under the single use provisions. 

All other aspects of the current PIR arrangements should continue unchanged, including the 30 day rule. 

All to be topped up with what appears to be the now mandatory 5 year review to see if it’s working.

I wonder how many books your local bookseller will have to order at once before he or she will start to consider absorbing the cost of freight? Of course, we can always hope that they also find out about addall.com and all those other internet sites rather than using that complicated clunky thing they play with on their computers while you are growing a beard.

Links to the full report here.