- Unreported Judgment
SUPREME COURT OF QUEENSLAND
Binaray Pty Ltd (ACN 119 724 211) as Trustee for the Allen Family Trust v RAMS Financial Group Pty Limited (ACN 105 207 538)  QSC 33
BINARAY PTY LTD (ACN 119 724 211) as Trustee for the Allen Family Trust
RAMS Financial Group Pty Limited (ACN 105 207 538)
BS No 11484/13
Supreme Court at Brisbane
22 February 2019
26 April 2017 - 10 May 2017, with further submissions received on 17 and 24 November 2017.
I order that:
CONTRACT – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – BREACH OF CONTRACT – where defendant franchisor had various sales channels including brokers and franchisees – where plaintiff franchisee and defendant entered into a Franchise Agreement – whether on the proper construction of the Franchise Agreement the defendant was obliged to allocate and provide information about broker-originated customers to the plaintiff – whether that obligation extended to broker-originated customers with existing loans or who had discharged their loans - whether the defendant breached its contractual obligation to allocate and provide broker-originated customers to the plaintiff by not providing the plaintiff with a list of broker-originated customers in its allocated territory – whether access to a ‘Loan Viewer’ sufficient to discharge defendant’s obligation
DAMAGES – MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS FOR BREACH OF CONTRACT – REMOTENESS AND CAUSATION –LOSS OF PROFITS – where the plaintiff argued that as a result of the defendant’s breach it lost the opportunity to sell loans to those customers on the list of broker-originated customers and others – where there were a number of barriers and risks affecting the plaintiff being able to sell loans to broker-originated customers – where some broker-originated customers had drifted to the plaintiff – effect on value of commercial opportunity and valuation of loss – where disputed evidence as to strength of list of broker-originated customers as a lead – where dispute as to conversion rate to be adopted in valuing loss - whether the opportunity lost should include referrals and loans other than broker loans – whether plaintiff established on balance of probabilities that breach caused loss of a valuable commercial opportunity
LIMITATION OF ACTIONS – LIMITATION OF PARTICULAR ACTIONS – SIMPLE CONTRACTS, QUASI-CONTRACTS AND TORTS - where defendant contended part of action for breach of contract statute barred – where proceeding issued more than six years after alleged breach – whether continuing obligation
INTEREST – RECOVERABILITY OF INTEREST – IN GENERAL - whether undue delay by plaintiff – whether interest should not accrue until moneys were payable
Limitation of Actions Act 1974 (Qld) s 10(1)
Civil Proceedings Act 2011 (Qld) s 58
Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570, followed
Badenach & Anor v Calvert (2016) 257 CLR 440, followed
Baldwin v Icon Energy Ltd  1 Qd R 397, followed
Bobux Marketing Ltd v Raynor Marketing Ltd  1 NZLR 506, distinguished.
Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544, followed
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, followed.
GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1, followed
Interchase Corporation Ltd (in liq) v Grosvener Hill (Qld) Pty Ltd (No 3)  1 Qd R 26, applied
IW & CA Price Constructions Pty Ltd v Australian Building Insurance Services Pty Ltd & Ors  QSC 39, followed
LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd  NSWCA 74, distinguished
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, followed
Principal Properties Pty Ltd v Brisbane Broncos Leagues Club Limited  QCA 254, followed
Prosperity Advisers Pty Ltd v Secure Enterprises Pty Ltd t/as Strathearn Insurance Brokers Pty Ltd  NSWCA 192, followed
Secured Income Real Estate (Australia ) Ltd v St Martins Investments Pty Ltd ( 1979) 144 CLR 596, followed
Sellars v Adelaide Petroleum NL & Ors (1994) 179 CLR 332, applied
Winky Pop Pty Ltd & Anor v Mobil Refinery Australia Pty Ltd & Anor  VSCA 187, followed
WL Marshall v The Colonial Bank of Australasia (1904) 1 CLR 632 at 647, followed
A P J Collins, with S F Lamb, for the plaintiff
P Neskovcin QC, with N Andreatidis, for the defendant
Bell Legal Group for the plaintiff
Allens Linklaters for the defendant
RAMS is a well-known brand name associated with a number of financial products and services which are particularly directed to the home loan market. It entered into a written Franchise Agreement with Binaray Pty Ltd (ACN 119 724 211) as Trustee for the Allen Family Trust (“Binaray”) on 25 July 2006. At the time the Franchise Agreement was entered into RAMS products were sold through:
RAMS home loan centres operated by franchisees (“the Franchise Network”);
Brokers, who had to be mortgage brokers accredited by RAMS (“the Broker Channel”);
Direct application via telephone or the internet (“RAMS Direct”).
Mr and Mrs Allen were both directors of Binaray and worked in the business. Under the Franchise Agreement, Binary’s Allocated Territory was referred to originally as RAMS Home Loans Brisbane Inner-South, encompassing a number of areas referenced by their postcodes.
Binaray had non-exclusive rights to market and sell RAMS products in its allocated territory. RAMS could also market its products through accredited mortgage brokers and market and sell products directly in the allocated territory. The present dispute is whether Binaray should have been provided customer information by RAMS in relation to customers within its allocated territory who had obtained RAMS products through a mortgage broker, so it could market and sell RAMS products to those customers. The customers of mortgage brokers are referred to as broker originated customers (“BOCs”). Whether such an obligation existed or not depends on the proper construction of the Franchise Agreement, which was constituted by a number of documents.
If the Court finds RAMS was obliged under the Franchise Agreement to provide customer information as to BOCs to Binaray, there is a factual dispute as to whether the Franchise Agreement has been breached. Binaray contends it was not provided with such access, whereas RAMS contends there was a means of accessing BOCs through its database which included information about BOCs.
Assuming that there was a breach of the Franchise Agreement by RAMS, Binaray claims it has suffered loss and damage as a result of the loss of the opportunity to sell additional loans to BOCs. RAMS contends that no such loss has been suffered because the opportunity lost was not a valuable opportunity. Even if there was a valuable opportunity, RAMS contends that the amount of such loss is a much reduced amount from that claimed by Binaray.
Binaray commenced these proceedings claiming damages for breach of contract on 29 November 2013. RAMS claims that if it breached the agreement, such a breach would have occurred on or shortly after the date the Franchise Agreement was entered into in July 2006 and that the action became statute barred by operation of s 10(1) of the Limitations of Actions Act 1974 (Qld) in late July 2013. Binaray, however, contends the breach upon which it relies is a continuing breach and its action is not statute barred.
RAMS contends that even if Binaray is successful in this proceeding, it has delayed in commencing and in prosecuting the proceeding such that its conduct should disentitle it to claiming interest over the entire period from the date when the cause of action arose.
At my request, the parties prepared a list of issues. They could not agree on the articulation of all of the issues between them. The key issues which this Court must determine are:
Whether on the proper construction of the Franchise Agreement, RAMS was obliged to allocate BOCs to Binaray and provide access to or the use of that customer information;
If the obligation in (a) exists, did that obligation extend to a BOC with an existing loan with RAMS or a BOC who had discharged its loan;
If there was a contractual obligation to allocate and provide BOC information, did RAMS breach the Franchise Agreement;
Assuming a breach of the Franchise Agreement is established, did Binaray suffer loss or damage through the loss of an opportunity to contact BOCs and earn a financial return through the sale of additional loans;
What, if any, is the extent of any loss suffered;
Are the proceedings statute barred or, alternatively, is Binaray precluded from claiming damages for loss incurred more than six years before the commencement of the proceeding; and
If successful, whether Binaray is entitled to interest and, if so, for what period.
It is appropriate to summarise some key chronological events. The summary is not meant to encapsulate all of the relevant factual events, which will be considered in more detail by reference to each of the issues outlined.
Summary of key chronological events
Between 1996 and 3 January 2008, the operations of the RAMS home loans business were conducted by a number of entities but were principally conducted by RHG Home Loans Pty Ltd (“RHG”).
In July 2006, the parties entered into the Franchise Agreement.
Binaray was aware of its potential claim against RAMS in relation to BOCs from at least 15 April 2008 when a notice of dispute was first issued.
On or about 4 January 2008, Westpac Banking Corporation (“WBC”) acquired shares in the defendant and the right to conduct the RAMS business in the future. Under that agreement:
“WBC made the acquisition of the Defendant and the RAMS Business on the basis that:
the franchisees, including the Plaintiff, were paid a sum of money that represented a negotiated present day value of the trailing commissions they were to be paid on the value of their loan books as at 4 January 2008;
the customer information relating to all RAMS home loans and other products taken out by customers prior to 4 January 2008 (the RHG Customer Database) was not part of the sale to WBC; and
RHG retained control and ownership of the RHG Customer Database.”
After January 2008, RAMS had very limited access to the pre-2008 database as a result of being bought by Westpac. That affected the ability to calculate the size of the pre-2008 BOC database, which had to be estimated by the experts engaged on behalf of the parties. However, from January 2008, the RAMS database accumulated all customer information whether that customer originated through the franchise, a broker or RAMS Direct channels.
On 15 April 2008, Binaray issued a notice of dispute to RAMS, which included the contention that Binaray should have access to BOC information.
Under the Franchise Agreement, a franchisee was entitled to be paid upfront commissions and trail commissions in respect of a loan. From 22 September 2009, Binaray was obliged to repay 100 percent of the upfront commission received if the loan was discharged within the first 12 months, and 50 percent of the upfront commission received if the loan was discharged in the 12 to 18 month period.
On or about August 2011, Binaray exercised an option to extend and extended the Franchise Agreement for a further five year term from 25 July 2011.
Proceedings against RAMS were filed by Binaray on 29 November 2013.
The Franchise Agreement between RAMS and Binaray expired on 24 July 2016.
What were the relevant obligations under the Franchise Agreement?
As to the dispute regarding the rights and obligations under the Franchise Agreement, the question is whether on the proper construction of the Franchise Agreement, RAMS was required to:
allocate to Binaray customers of RAMS who were BOCs generated through RAMS accredited brokers;
provide Binaray with access to or the use of customer information of and relating to the BOCs;
on the proper construction of the Franchise Agreement does the term Customer as defined in clause 33 of the Franchise Agreement apply only to a BOC with an existing relationship with a broker and loan with RAMS or does it extend to a BOC who has discharged their RAMS loan.
The Franchise Agreement
The Franchise Agreement between Binaray and RAMS with respect to the franchise consisted of three documents:
The franchise agreement;
The Operations Manual; and
The Disclosure Document.
The Disclosure Document was not the subject of any submissions by Binaray or RAMS, except insofar as both parties submitted that the document was irrelevant to the matters which this Court has to determine. As such, it will not be the subject of any further discussion.
The obligations contained in the Franchise Agreement varied from time to time. Exhibit MFI-A provided by the plaintiff outlines the relevant changes in the clauses in the Operations Manual over the relevant period. I will consider the franchise agreement which was the version of the agreement entered into by the parties in 2006 and the Operations Manual, which is the version as at 17 July 2006. To the extent that any amendments over time need to be considered and are material to this decision, I will address them in the course of these reasons.
The Operations Manual forms part of the Franchise Agreement as if it were fully set out in the agreement. According to clauses 14.3 and 14.8 of the franchise agreement:
“14.3 You acknowledge and agree that the Operations Manual contains the rules you must follow in running your Business including rules about marketing, customer service, hours of opening, security and other rules.
14.8 You acknowledge and agree that we may vary the Operations Manual from time to time and you acknowledge that we anticipate that this will happen at reasonably frequent intervals.”
The franchise agreement provides that if there is any discrepancy between the franchise agreement and the Operations Manual, the documents must be “…interpreted and applied in the following order: First the special conditions, second the Operations Manual, and last this Agreement”. No special conditions are relevant in the present case.
Binaray relies principally upon clauses 4.1, 4.17, 4.26(c), 4.28, 7.2, 7.17, 7.19 and 13 of the franchise agreement, clauses 8.3, 13 and 17 of the Operations Manual and the terms it contends were implied. RAMS contends that the construction contended for by Binaray is not supported by the clauses relied upon by Binaray, particularly when the clauses relied upon are construed in the context of other provisions in the franchise agreement.
Pursuant to clause 4.1 of the franchise agreement, Binaray was granted the non-exclusive right to operate their Business in the Allocated Territory provided it was done in accordance with the franchise agreement and the Operations Manual.
Under the franchise agreement, a number of obligations were imposed upon RAMS as the franchisor. This included an obligation under clause 4.17 to provide “a technology platform including a mortgage processing system, a system capable of tracking Franchisees’ loan applications processing, a commission system to calculate Commissions and … to provide access to existing Customer information”.
The first paragraph of “About this Agreement” in the franchise agreement provides that, “Words that are printed in italics in this Agreement have specific meanings. These meanings are explained in clause 33 of this Agreement”.
Clause 33 provides:
“Customer means any person who has or potentially will acquire an Approved Product from us whether through you or otherwise, including any customer who is part of our existing portfolio of customers.
Customer Information means any information whatsoever relating to the Customer or the Customer’s affairs.”
Customers are referred to a franchisee in various ways. One way is through the Call Centres. Clause 5.4 of the franchise agreement provides that where RAMS refers “a Lead to you [a franchisee] from the Call Centre and you make a sale from that Lead, the Customer becomes part of your Customer Database”.
“Leads” are defined in clause 33 to mean “a referral of a potential Customer of Approved Products”.
Clause 7 deals with marketing and customer ownership.
Clause 7.1 provides as follows in terms of ownership of a customer:
“We will provide you with a Local Area Marketing Kit to assist you with your Local Area Marketing activities.”
Clause 7.2 provides:
“You must conduct Local Area Marketing activities in your Allocated Territory to generate sufficient business to meet the Performance Standards.”
Clauses 7.4 to 7.6 provide that:
“7.4 You must comply with the Operations Manual in relation to your Local Area Marketing activities.
7.5 You will be responsible for your Local Area Marketing and you accept all liability for any action, claim, damages and costs arising out of your Local Area Marketing. We are not liable in any way whatsoever for your Local Area Marketing even if we are aware of it.
7.6 We accept responsibility for the RAMS Material and the marketing templates provided in the Local Area Marketing Kit provided that you use them strictly in accordance with the Operations Manual and any other guidelines issued by us from time to time in relation to use of the RAMS Material.”
Clause 7.11(d) and (f) are directed to marketing in a franchisee’s Allocated Territory. They provide:
“7.11 Despite clause 4.1, we can carry out the following activities in any Territory (including your Allocated Territory), or appoint a representative to carry them out on our behalf:
(d) Market, develop and advertise our Business and make sales of Approved Products directly to Customers via the internet whether those Customers are within or outside your Allocated Territory.
(f) Permit others (such as mortgage brokers or originators) to sell Approved Products through their distribution networks.”
Clause 7.14, 7.17 and 7.18 provide as follows:
“7.14 You agree that we own the Customer and the Customer Relationship at all times. We give you the right to Manage the Customer Relationship on our behalf for the Term to carry on your Business provided you are not in breach of this Agreement, particularly clause 17.
7.17 We agree to provide you with Customer Information in report format from time to time as provided for in the Operations Manual.
7.18 You agree that all Customer Information collected by you is collected on our behalf and you agree to keep proper and adequate records of Customer Information collected by you that is not recorded on the RAMS computer systems and to provide us with copies of that Customer Information if we request it.”
Clause 7.19 refers to “Managing the Customer Relationship”. “Manage the Customer Relationship” is a defined term and means:
“…to undertake any activity required to ensure that the Customer receives assistance, information and best practice customer service in relation to the Customer’s requirements for Approved Products.”
Clause 7.20 and clause 7.21 provide as follows:
“7.20 Despite this clause 7, you acknowledge and agree that the Customer can request to be allocated to any Territory for the purposes of Managing the Customer Relationship and that we will comply with any such request.
7.21 No matter where the Customer is allocated for the purpose of Managing the Customer Relationship, the Trailer Income will be given to the Franchisee who sold the Approved Product or, in the case of a Franchise Direct loan to the Franchisee who operates in the Territory in which the Customer resides or in case of joint Customers as advised by Customer.”
Clause 11.1.1 of the Operations Manual as amended on 1 July 2008 provides that:
“RAMS Marketing may:
- Proactively market to customers whose loans were originated by a broker or other third party only for the purpose of selling additional RAMS products and non-home loan products such as the RAMS credit card.
A Franchisee may:
- Communicate initially with broker-introduced customers using only the communication tools provided by RAMS Marketing and when approved by the Head of Broker Sales and the Head of Franchising.”
Clause 13 of the franchise agreement is addressed to “Commissions and Borrowing against Future Trailer Income and Churning”.
Clauses 13.1 and 13.4 provide that:
“13.1 We agree to pay you Commission on the sale of all Approved Products in accordance with the Operations Manual and clause 21 of this Agreement.
13.2 You acknowledge and agree that we may change the Commission payable on the Approved Products from time to time by giving you written notice. We agree to act reasonably when determining Commission. We cannot change the Commission to apply retrospectively.
13.3 You acknowledge that some of the Approved Products are supplied by third parties and that we might not have control over payment of commissions on products supplied by those third parties.
13.4 The Operations Manual sets out the Commissions and the conditions relating to the Commissions.”
Clause 13.11 provides that it is a material breach of the franchise agreement to:
“… re-finance an existing Customer loan with an Approved Product in circumstances where a variation to the customer’s existing loan would achieve substantially the same outcome for the Customer unless the franchisee has the prior consent of RAMS.”
“Variation” is defined in Clause 33 to mean “a change to the loan amount, a change or addition to the loan security, a change to the loan features, transfer to different product type or any combination of these”.
Clause 13.12 provides that if a franchisee does re-finance an existing Customer in breach of clause 13.11, the franchisee will not receive any Trailer Income in respect of that Customer’s loan.
Clause 3 of the Operations Manual, as amended 17 July 2006, relates to the RHLC Website and describes it as “a secure site that facilitates access to product, customer, marketing, supplier, training information and more that will assist Franchisees and Centre staff to operate and run the business of a RAMS Home Loans Centre”. Clause 3.1 states that by accessing the RHLC Website, a franchisee has access to the latest information on matters including “Reports” and “Customer Service”. Under the heading of “Reports” in clause 3.1, it states “Find out all of the information that you need to manage your sales, settlements, portfolio, customers and loan status. Access these reports when you need them. Reports are available on a daily, weekly or monthly basis”. Further, under the heading of “Customer Service”, reference is made to “Access to Loan Viewer, a system that lets you view customer loan details and make requests for information, changes and more”.
Clause 8.3.1 of the Operations Manual provides that:
The achievement of Performance Standards by Franchisees is central to the ongoing success of RAMS and all Franchisees. Due to the limited number of allocated territories and thus Franchisees, the requirement for minimum achievement levels is essential. Over the term of the agreement, a Franchisee should expect that RAMS will vary the Performance Standards to ensure that the entire business continues to grow and remain viable for all Franchisees.
Performance Standards for each RAMS Home Loans Centre are required to:
- Ensure RAMS achieves growth and profit as required by RAMS Operating Plan
- Allow RAMS to plan resources to provide acceptable levels of operations support
- Enable RAMS to measure the performance (both qualitative and quantitative) of each RAMS Home Loans Centre
Two areas of the RAMS Home Loans Centre performance will be measured to meet these objectives. Failure to meet these areas could result in serious consequences for the business.
- Sales Performance
- Legal & Compliance
Other areas of the business will be reviewed (as outlined in the Performance Standards – Leading Performance Indicators) with the expectation that Franchisees will meet compliance requirements however a failure to meet these Performance Standards will not lead to a breach in the Franchise Agreement.
Each month, the Franchisee will prepare a Monthly Report tracking the performance of their Centre against the Performance Standards. This report will be used as the basis for discussion with the Franchise Business Manager at the Monthly Franchisee Meeting.”
Performance Standards template
Details the criteria for achieving Performance Standards.
Monthly Report template
Sets out the format for submission of performance information to the Franchise Business Manager.
Performance standards include the achievement of a number of minimum settled RAMS home loans in the first 6 months of operation and being ranked in the top 80 percent of the total number of settled loans in specified quarters after 6 months of operation.
Clause 8.10 of the Operations Manual relates to Management Reporting Systems (“MIS”). It makes reference to the MIS Reports available through the RHLC Website, which is said to provide information to help run the business and plan local marketing activities. Clause 8.10.2 provides as follows:
126.96.36.199 Compliance Requirement
- RAMS MIS reports are confidential.
- The Franchisee and all his or her employees must comply with the Privacy Law in respect of use, storage and destruction of customer information. Refer to Privacy Training for detailed information.
188.8.131.52 Business Rules
- The MIS Reports can be accessed through the RHLC Website.
- If there are any problems or questions relating to MIS Reports consult the MIS Reporting Training Guide.”
A self paced training program required to be completed as part of compliance training.
MIS Training Guide
Detailed information about reports, access and management of them.
Operational Behaviour Policy
Link in Ops Manual
Policy covering confidentiality and privacy of RAMS information.
Clause 8.10.3 of the Operations Manual sets out standards reports and suggested frequency of use and refers to “Customer Database Report”, “At least monthly” and “Generate on an ad hoc basis to support targeted customer loyalty or referral mailings”.
Clause 13 sets out the Business Partner Charter. Relevantly, clause 13.1 includes the following:
“13.1.1 RAMS Franchises
Each RHLC franchisee is allocated a specific geographic territory. This territory is their base from which to prospect for new customers. They are also allocated all existing RAMS customers in their territory to provide service and assistance. They may also communicate with customers who reside outside their territory only if the customer chooses or if there is an existing relationship with that customer.
A Franchisee will provide service and assistance to all RAMS customers in their territory regardless of how the customer originally came to RAMS.
A Franchisee may:
- Proactively market to customers whose loans were originated by a broker or other third party only for the purpose of selling additional RAMS products and non-home loan products such as the RAMS credit card.
- Communicate initially with broker-introduced customers using only the communications tools provided by RAMS Marketing.
A Franchisee may not:
- Proactively market to customers whose loans were originated by a broker or other third party for the purpose of refinancing that loan.
- Actively dissuade a customer from contacting their broker in the future.
13.1.2 RAMS Accredited Mortgage Brokers
Brokers are required to become accredited before they can recommend a RAMS loan and they are expected to comply with the RAMS Customer Charter.
A RAMS broker may not proactively market to customers for the purpose of refinancing that loan to another lender.
RAMS brokers should recognise a customer’s right to choose. A broker-originated customer may opt to deal subsequently with a RHLC or directly with RAMS.
13.1.3 Direct Applications
A customer may submit a loan application via a telephone contact centre operated or engaged by RAMS, the RAMS Internet site or a RAMS employed sales person.
13.1.4 Loan Refinancing
RAMS does not advocate “churn” in any channel; that is to say, refinancing loans where there is no benefit to the customer to do so.
13.1.5 Commissions and Agreements
Agreements are structured to discourage churn and to promote proactive customer relationship management.
A Franchisee is paid commission by the way of trail only. This trail is calculated as a percentage of the loan balance and is paid over time.
A broker is paid commission by the way of a one off up front payment and a trail that is paid over time.
A Franchisee will only generate revenue from a broker-introduced customer by selling them a second loan or by pursuing referrals. Payments are as per the Franchise Agreement.
All commissions are paid by RAMS and no commission costs are passed on to the customer.
Commission varies by channel as follows:
Variations include conversions, increases, substitutions, term extensions and release of borrower. For an originator to receive commission, the variation must include an increase. Commission payable on increases is dependent on the increase value and is subject to the agreements.”
Initial Trail Owner
Trail Owner After Activity
Payee of Upfront Increase
Franchise @ Franchise Direct (if applicable)
Franchise @ Franchise Direct (if applicable)
Franchise @ Franchise Direct rates
Clause 17 provides for customer sales and service. Clause 17.1.7 is particularly relied upon by Binaray and provides as follows:
“17.1.7 Principles for allocation of customers to a Territory for Service and Marketing
Customers will be allocated to a Territory for the purpose of customer service and database marketing as detailed in the table below. Customers can elect to move from territory to territory at any time. The allocation of customers for customer service and marketing does not affect commission payments.
Sale of Loan
Loans written by a Franchisee.
The default is the customer is allocated to the Franchisee’s territory.
Loans written by a staff member of the Franchisee.
The default is the customer is allocated to the Franchisee’s territory.
Loans written by Franchise Direct.
The default is the customer is allocated to a territory based on the customer’s post settlement mailing address postcode.
Loans written by a Broker
The default is the customer is allocated to a territory based on the customer’s post settlement mailing address postcode.
Loan written by a Franchisee who sells their Franchise.
The customer database will be transferred to the new Franchise owner.
Loans written by Franchise Direct, broker or where a territory has not been allocated.
A customer who has been or will be allocated to an unallocated territory can be marketed to and serviced by RAMS or can be allocated to another territory as determined by RAMS.
Existing HLM becomes a Franchisee.
The ex HLM/new Franchisee will retain their existing customer database regardless of territory.
Existing HLM who works for a Franchisee.
The HLM does not retain their existing customer database. These customers will be allocated to a new territory based on the customer’s post settlement mailing address postcode.
Currently, the UCS system for tracking movements of customers between territories is not available as a customer database function. We are currently working towards delivering a technology solution, which will facilitate this activity.”
Relevant Legal Principles
The relevant principles to be applied in the construction of the Franchise Agreement were generally not controversial between the parties, save that Binaray sought to rely on subsequent conduct as bearing upon the meaning of clause 17.1.17 of the Operations Manual.
Both Verve and the Sellers recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties … intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”. (footnotes omitted)
This approach was endorsed in Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd, by Kiefel, Bell and Gordon JJ (as the Chief Justice then was) at  and , where their Honours stated:
 It is well established that the terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract. In a practical sense, this requires that the reasonable businessperson be placed in the position of the parties. It is from that perspective that the court considers the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it.
 Clause 4 is to be construed by reference to the commercial purpose sought to be achieved by the terms of the lease. It follows, as was pointed out in the joint judgment in Electricity Generation Corporation v Woodside Energy Ltd, that the court is entitled to approach the task of construction of the clause on the basis that the parties intended to produce a commercial result, one which makes commercial sense. It goes without saying that this requires that the construction placed upon cl 4 be consistent with the commercial object of the agreement. (footnotes omitted)
In determining how a reasonable businessperson may interpret the words in question, the High Court in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd stated as follows:
The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.
However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.
Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations.
Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption “that the parties … intended to produce a commercial result”. Put another way, a commercial contract should be construed so as to avoid it “making commercial nonsense or working commercial inconvenience.” (footnotes omitted)
Competing contentions as to construction
Binaray contends that on the proper construction of the Franchise Agreement:
The defendant was obliged on an ongoing basis throughout the period of the Franchise Agreement:
To allocate to the plaintiff customers of the defendant who were generated through RAMS accredited mortgage brokers (referred to in these reasons as BOCs); and
To provide the plaintiff with access to or the use of customer information (as referred to in clause 4.17 of the franchise agreement) of and relating to the BOCs, for the purpose of the plaintiff providing customer service and database marketing;
The identity of the BOCs to be allocated and the customer information to be provided were confined to those customers whose contracts had settled and whose post settlement mailing address postcode was within the plaintiff’s allocated territory (as particularised);
The obligations in (a) and (b) were subject to the provisions of clause 7.20 of the franchise agreement.
RAMS denies the construction contended for by Binaray. In support of its construction, it relies on the limitations in other clauses of the Franchise Agreement as well as the context and purpose of the Agreement. RAMS admits that there is an implied term in the agreement that the parties would exercise their rights and perform their obligations in good faith, but denies the terms sought to be implied in paragraphs 9(b) and (c) of the Further Amended Statement of Claim. It contends, in any event, that such implied terms are subject to the express terms of the franchise agreement and the Operations Manual and that the parties are not required to go beyond their respective contractual obligations to ensure that the other party enjoys the benefit of the Franchise Agreement.
A critical point of distinction between the parties in their construction of the Agreement arose out of the context and commercial purpose each attributed to the Franchise Agreement. Binaray contends that the Franchise Agreement was a relational contract, where the parties had an interdependent relationship in which both parties were intended to have the potential to profit from the relationship. RAMS does not dispute that the relationship with Binaray was a commercial one where both parties were to potentially profit, but contends that the Franchise Agreement was limited by the fact that the relationship was to operate in an environment where RAMS had three different channels through which it sold its products, which necessarily did not involve the franchisee having access to customer information of mortgage brokers who were competitors of the franchisee.
Adopting the well-established approach of the High Court and accepting that there is ambiguity at least in clause 17.1.7 of the Operations Manual, it is appropriate to look at the context and purpose of the Franchise Agreement to assist in determining what a reasonable businessperson would have understood the terms to mean.
Context and Purpose
The franchise agreement contains a section, “Franchise Opportunity and Document Overview”. While it is not intended to be part of the legal Agreement, it is said “to provide some background information to the overall offering being made by RAMS so that a person reading this Franchise Agreement can better understand why certain clauses are drafted in the manner that they are”. Both parties would obviously have been aware of its content at the time of entry into the Agreement. The overview identified the following matters as existing at the time of the agreement, namely, that:
A franchisee is allocated a non-exclusive marketing territory in which to operate the franchise business;
There are others who may sell RAMS products in the franchisee’s territory; and
RAMS itself and brokers may sell in the allocated territory.
The overview further states that:
“Another example of where RAMS products may be sold in your area is through the broker network. While RAMS sees that there may be some potential conflict between the Franchise network and the broker channel, RAMS discloses that it actively promotes the broker channel as a means of further distributing its products in the relevant market while at the same time endeavouring to ensure that the rights of Franchisees are protected as much as possible.”
It is obvious that both parties are aware of the overview statements. RAMS submits that both parties were aware of the potential conflicts that existed between the different providers in an allocated territory. RAMS further submits that in that context, the clauses relied upon by Binaray should not be construed to extend the obligations of RAMS to providing information about customers in a territory where they had originated as a customer through a broker.
According to RAMS, the reasonable businessperson would recognise that the co-existence of the different sales channels and the non-exclusive nature of Binaray’s territory meant that:
The sale of RAMS products was an important aspect of the RAMS business;
The different sales channels would be competing to sell RAMS products; and
Each of the different sales channels was important to RAMS to achieve sales of RAMS products.
The franchise network and the broker channel had been operating since 2003 or thereabouts, well before entry into a Franchise Agreement by Binaray and RAMS.
RAMS submits that it makes no commercial sense for the Franchise Agreement to be construed to give Binaray the contractual right to information regarding customers who effectively belonged to the brokers, for the purpose of effectively cold-calling the customer with a view to marketing additional RAMS products to the customer. In that regard, RAMS relies upon a number of clauses including the Business Partner Charter in the Operations Manual, the limitations upon marketing, providing or re-financing loans and the circumstances in which commissions were payable. It contends that the Business Partner Charter and commission structure recognised that the customer relationship belonged to the broker. Further, it contends that RAMS actively discouraged franchisees and brokers from engaging in predatory behaviour regarding the opposite channel’s customers by prohibiting churning.
According to RAMS, the reasonable businessperson would recognise that, read as a whole, the commercial purpose and objects of the contract were to:
Promote the sale of RAMS products through the different sales channels whilst ensuring the provision of service and assistance (i.e. post settlement service) to RAMS customers, regardless of whether the loan was originated by a broker, RAMS direct or a franchisee;
Recognise that a competition for business would inevitably arise between the broker channel and the franchise network;
Protect specific aspects of each of the brokers’ and franchisees’ various business “patches”; and
Maintain business harmony between RAMS on the one hand and each of the broker channel and the franchise network.
Binaray, however, states that the underlying premise of RAMS’ argument is incorrect, in relation to the notion of the brokers and franchisees having “business patches”. It contends that error necessarily infects the whole of the construction argument contended for by RAMS.
Clause 7.14 provides that RAMS owns the Customer and Customer Relationship. Under the clause, RAMS gives Binaray as franchisee the right to Manage the Customer Relationship on RAMS’ behalf, in order to carry on Binaray’s Business, provided that they are not in breach of the Franchise Agreement, particularly clause 17.
Clause 7.14 only deals with the franchisee’s customers. Binaray submits that it is inconceivable that a broker would somehow “own” a customer when a franchisee does not. I was not referred to any provision in the Franchise Agreement, nor was evidence put before me of an extrinsic fact, suggesting that brokers owned their customers. The suggestion would, to a certain extent, have been counter to clause 13.1.2 of the Business Partner Charter which refers to RAMS brokers recognising a customer’s right to choose and that a customer may opt to deal subsequently with a franchisee.
Binaray contends that clause 7.14 undermines one of the tenets of the defendant’s argument, namely that the BOCs are customers of the brokers. It contends that it negates the submission by RAMS that the construction propounded by RAMS makes “commercial sense”, whereas Binaray’s construction ignores commercial sense and would result in a franchisee being entitled to trawl, in an unfettered way, through the details of someone else’s customers.
The Business Partner Charter section of the Operations Manual refers to RAMS managing its successful working relationships with its associate business partners and refers to RAMS selling products through the different sales channels. RAMS contends its construction is supported by the acknowledgment in the Business Partner Charter that franchisees were allocated a specific geographic territory, which was their base from which to prospect for new customers. It contends that allocation had a further purpose. RAMS also “allocated” all existing RAMS customers in their territory to provide “service and assistance”. That service and assistance was to be provided to all RAMS customers in the allocated territory, including BOCs. Franchisees were not remunerated for the service and assistance provided to BOCs, but were obliged to provide such service and assistance under the franchise agreement.
According to RAMS, Binaray was obliged to provide service to all RAMS customers regardless of how the customer was originated. In this way, Binaray might have contact with BOCs and might obtain details from the BOC. If and when a BOC contacted Binaray, it could then proactively market to that BOC for the purpose of selling additional RAMS products and non-home loan products.
Binaray contends that such a strained construction cannot sensibly be derived from the Franchise Agreement. Binaray further contends that clause 7.19 of the franchise agreement refers to a customer of either RAMS Direct or a broker being allocated to the franchisee operating within the Allocated Territory, not to a customer who approaches the franchisee.
It is true that the clauses themselves do not confine the allocation of the BOCs to those who approach Binaray for service. There was also no specific incentive in the franchise agreement for the franchisee to provide such a service in return for a fee. RAMS, however, contends that the commission system requires different service to be delivered by a franchisee depending on the type of customer, which supports its construction of allocation.
There were limitations on promotion to BOCs by franchisees set out in the Business Partner Charter. In particular, a franchisee could proactively market to a BOC “only for the purpose of selling additional RAMS products and non-home loan products” (emphasis added). The franchisee could not proactively market to a BOC for the purpose of refinancing a loan, nor could they actively dissuade a BOC from contacting their broker in the future. Contact was to be made by franchisees with BOCs only using the approved tools provided by RAMS marketing.
There were also limitations referred to in the Business Partner Charter which applied to a broker. It stated a broker could not proactively market to customers for the purpose of refinancing a loan to another lender. The Business Partner Charter also provided that RAMS brokers should recognise a customer’s right to choose and that a BOC may opt to deal subsequently with a franchisee or directly with RAMS. No evidence was presented as to whether there was any agreement with RAMS brokers which contained similar terms.
Consistent with the limitations in dealing with customers, the Business Partner Charter noted that agreements are structured to discourage churn and to promote proactive customer relationship management. A franchisee was paid commission by way of trail, which was calculated as a percentage of the loan balance and paid over time in relation to loans settled by Franchise Direct. Under clauses 17.2.1 and 184.108.40.206 of the Operations Manual, once the loan had settled, the franchisee was responsible for the ongoing management and retention of the customer. RAMS contends the trail commission was paid in recognition of the immediate service obligations of the franchisee.
A broker was paid commission by way of an upfront payment and a trail that was paid over time. The franchisee’s options to earn income were limited. A franchisee would only generate revenue from a BOC by selling them a second loan or by pursuing referrals. In 2008, the Business Partner Charter was amended to provide that a franchisee was entitled to an upfront fee if they negotiated a variation of the original agreement.
According to RAMS, the provisions governing the commission payable and the prohibition on churning were consistent with maintaining the working relationships between the different sales channels.
The prohibition on churning, contained in clause 13.11 of the franchise agreement, was, according to RAMS, to enable RAMS to protect its own interests and maintain harmony between the broker channel and the franchise network, by requiring each channel to respect existing customer relationships. Clauses 13.11 and13.12 provided a financial disincentive for churning and for a franchisee to be in breach of the agreement if they churned an existing loan, unless they had the prior consent of RAMS. There was limited scope for a franchisee to earn income from a BOC as opposed to a customer who had written his or her loan through Franchise Direct. According to RAMS, the franchisee did not need to access the BOCs’ details to carry out the obligations of ensuring best practice customer service to BOCs, except where they were approached by a client, in which case they could access the customer’s details using information provided by the customer.
RAMS therefore contends that it makes no commercial sense for the contract to be construed to give Binaray the contractual right to information regarding customers who effectively belonged to the brokers for the purpose of Binaray effectively cold-calling the customer, when not invited to do so by that customer, with a view to marketing additional RAMS products to the customer. However, the Franchise Agreement did provide for the eventuality that if Binaray had contact with BOCs, it might obtain details from the BOC that would enable Binaray to access information about the BOC and then proactively market to the BOC within the constraints of the Franchise Agreement.
Binaray contends that RAMS’ construction does not make commercial sense and the Franchise Agreement does not support such a strained construction, particularly when regard is had to clause 7.19. It contends that unlike a broking arrangement, a Franchise Agreement creates an interdependent, ongoing commercial relationship between a franchisee and a franchisor. It refers to the case of Bobux Marketing Ltd v Raynor Marketing Ltd. In that case, relational contracts were described by Thomas J as recognising the existence of a business relationship between the parties and the need to maintain that relationship. According to his Honour, a relational contract is “one which involves not merely an exchange but a relationship between the contract parties”. His Honour further stated:
“Expectations of loyalty and interdependence mark the formation of the contract and become the basis for the rational economic planning of the parties. The norms of the ongoing relationship, of necessity, tend to supplement the express contractual obligations. Good faith is required to ensure that the requisite communication, cooperation and predictable performance occurs for the advantage of both parties. In short, the obligation seeks to hold the parties to the promise implicit in a continuing, relational commercial transaction.” (footnotes omitted)
As part of its contention, Binaray relies upon the fact that there is a shared existing RAMS customer database and the fact that the Franchise Agreement is to allow franchisees to develop and build their own business while RAMS offers support with local area marketing, training, site setup, technology and business development.
Binaray particularly relies on the fact that the interdependency between the franchisor and franchisee was intended to be for the economic gain of both Binaray and RAMS. Binaray contends that RAMS’ construction of the Franchise Agreement has little regard to the fundamental features of the Franchise Agreement and gives undue weight to the role of a broker and the market share which a broker may enjoy.
Binaray contends that the interpretation of the Franchise Agreement should proceed on the basis that RAMS conducts a business by which it attempts to secure and service customers through the provision of financial products. Franchisees, including Binaray, have a dual purpose in that they are not only servicing RAMS’ customers, but also actively growing their own base of customers from which to derive their own profits. The entire process is commission driven. Customers provide repeat business and refer other customers. Those customers include BOCs. Binaray contends that the fact that the franchisee may be in competition with any number of brokers is not a basis for restricting the entitlements of the franchisee.
Proper construction of the terms
Relevant to the context of the Franchise Agreement is the fact that RAMS operated through three different sales channels, where there was potential for conflict between the franchise network and the broker channel.
While the overview of the franchise agreement supports the fact that RAMS actively promoted the broker channel, it does not suggest that the broker channel was given primacy over the franchise network. The fact that the broker channel may have been more successful is not a fact that was established as being known by both parties, such that it is an extrinsic fact relevant to the construction of the Franchise Agreement.
The commercial purpose of the Franchise Agreement is to facilitate the promotion of RAMS products and growth of the RAMS customer and loan base by franchisees, through the application of the RAMS business model. However, the growth of the business of the franchise was not unconstrained. It had to recognise the existence of the broker channel and did not have primacy over the RAMS brokers who were recognised as competitors under the agreement.
Binaray has drawn upon the fact that the contract is a relational contract. In particular they have referred to the decision of Bobux Marketing Ltd v Raynor Marketing Ltd. The judgment referred to by Binaray in Bobux Marketing is that of Thomas J, who was the dissenting judge. In that case, his Honour had regard to the fact that a distributorship agreement for an indefinite period was a relational contract and concluded that the parties were subject to a duty of good faith. The majority, however, consisting of Keith and Blanchard JJ, approached the question of whether there was a right to terminate without cause or on reasonable notice, using what Thomas J recognised was an orthodox approach to contractual construction. Keith and Blanchard JJ did not consider the question of good faith, having determined that there was no right to terminate without cause or on reasonable notice.
In the context of interpretation in the present case, Bobux Marketing is not of great assistance. Characterising the agreement as a “relational contract” may well be apt in the case of a franchise agreement, insofar as the term is used to refer to a contract that involves not merely an exchange but also a relationship between the contracting parties. However, Finn J in GEC Marconi Systems did not suggest that special rules of construction applied to such contracts. Nor do I consider Bobux Marketing is authority for applying special rules of construction to a franchise contract. To the extent that the notion of a “relational contract” has been referred to, it is in the context of it supporting the implication of a duty of good faith more readily in a franchise contract. The nature of the relationship created by the agreement between parties and the purpose of the agreement are matters which are relevant to the interpretation. However, defining a contract as “relational” does not import any special rules of construction that would otherwise not apply.
Relevant to the construction of the various documents constituting the Franchise Agreement is clause 14.11 of the franchise agreement, which provides that to the extent that there is inconsistency between the franchise agreement and the Operations Manual, the Operations Manual is to apply in preference to clauses contained in the franchise agreement.
Clause 7.19 and Clause 17.1.7
Binaray principally relies on clause 17.1.7 of the Operations Manual and 7.19 of the franchise agreement as obliging RAMS to provide it with details of BOCs in its allocated territory to which it could market.
The heading of clause 17.1.7 refers to “Principles for allocation of customers to a Territory for Service and Marketing”. Clause 17.1.7 also refers, inter alia, to customers being allocated to a territory “for the purpose of customer service and database marketing as detailed in the table below” (emphasis added). That table provides that for loans written by a broker: “The default is the customer is allocated to a territory based on the customer’s post settlement mailing address postcode”.
Binaray contends that there is a clear correlation between clause 7.19 of the franchise agreement and clause 17.1.7 of the Operations Manual, given that clause 7.19 applies to a Customer who has originated through RAMS Franchise Direct, a Call Centre, the RAMS Internet site or a RAMS accredited mortgage broker. That Customer “will be allocated to the Franchisee operating within the Allocated Territory within which the Customer resides for the purpose of “Managing the Customer Relationship”. Binaray contends therefore that the phrase Managing the Customer Relationship in clause 7.19, on a sensible commercial interpretation, relates to the process of “servicing and marketing” referred to in clause 17.1.7. It further asserts that clause 7.19 states that there will be an allocation and it invokes the notion that all customers will be allocated to a franchisee, not just the isolated customers who happen to contact a franchisee to be “managed”.
Binaray contends that none of the provisions relied upon by RAMS, in relation to the Business Partner Charter section of the Operations Manual, the commissions payable, churning, and the meaning of “Customer”, “Customer Information” and “Managing the Customer Relationship” derogate from the interpretation contended for by Binaray. In particular, it notes that the Franchise Agreement contains no express prohibition on the allocation of BOCs to franchisees for servicing and marketing.
Binaray further contends that the Franchise Agreement necessarily contemplates that such an allocation will occur because of the specific designation in the Franchise Agreement as to what action franchisees may undertake in respect of BOCs. Binaray contends that there is nothing to support RAMS’ submission that the isolated reference to “database marketing” in clause 17.1.7 is anomalous. It contends that the heading of clause 17.1.7, together with the obligation to “allocate the BOCs to a franchisee” supports the construction that the concept of “database marketing” by reference to BOCs refers to the process of allocating in clause 7.19. It contends, however, that whether clause 7.19 is construed such that its meaning is informed by clause 17.1.17, or clause 17.1.7 is taken alone, RAMS was nonetheless obliged to provide those BOCs within the allocated territory for the purpose of the franchisees providing database marketing.
The reference to “database marketing” was removed from clause 17.1.17 in 2011. By that stage, the broker channel had been shut down by RAMS. Binaray relies on that amendment to support its contention. Binaray contends that both parties would have been aware that the defendant, RAMS, closed the broker network in or about February 2010. RAMS contends that there is no evidence as to the basis of the amendment and therefore it is irrelevant. It also points out that the provision had been amended prior to the 2011 amendment which removed the reference to “database marketing” but after the Broker Channel had been shut down.
Binaray contends that the removal of the words “and database marketing” in clause 17.1.7, after the date on which the broker network closed, supports its interpretation of clause 7.19 of the franchise agreement. It rejects the proposition that the words “database marketing” should simply be disregarded as an anomaly, pointing out that the Operations Manual has priority. It contends that it also supports the interpretation that whilst new BOCs were continually added to the customer database, there was to be an allocation of them for the purpose of service and marketing. It contends that after the broker channel was closed, allocation would then only be for the purpose of customer service, given that there were no longer any newly added BOCs to whom to market. Binaray contends that if the construction of clause 7.19 is accepted, then clause 4.17 would oblige RAMS to provide access to the customer information relating to the BOCs.
RAMS contends that the reference to “database marketing” is an anomaly and is a vague and meaningless term in the context of the Franchise Agreement. Clause 17.1.7 is the only clause which makes that reference in the Franchise Agreement and it is an undefined term. It therefore is not, RAMS contends, a matter of conflict between the franchise agreement and the Operations Manual where the latter has priority. The franchise agreement is silent in this regard. The remainder of clause 17.1 deals with service. RAMS contends that having regard to clause 17.1 in its entirety, the isolated reference to “database marketing” should not be construed to confer an obligation to allocate BOCs to Binaray for the purpose of Binaray providing or undertaking database marketing.
RAMS contends that Binaray’s construction of clause 7.19 should be rejected because it is contrary to the plain language of the defined term “Managing the Customer Relationship”, which does not refer to marketing or sales. The clause was to ensure that customers receive assistance, information and best practice customer service. RAMS contends that what was required to Manage the Customer Relationship would vary with each type of customer. For example, a RAMS Direct Customer who franchisees were obliged to immediately service would require greater service than a BOC who had a number of different avenues to which to resort for service, including the broker. RAMS contends that the franchisee did not need unrestricted access to all information in order to ensure that the BOCs received “best practice customer service”. RAMS contends that the more restrictive interpretation for which it contends is the proper one, and is supported by the restrictions in the Business Partner Charter and the reality of the contact that franchisees had with BOCs. RAMS further contends that the obligation to allocate presupposes an existing loan and should not be construed as conferring an obligation to allocate previous BOCs who had discharged their loans.
Both Binaray and the RAMS recognise that there is a correlation between the subject matter of clause 7.19 of the franchise agreement and cl 17.1.7 of the Operations Manual. RAMS contends that they should be construed as having the same meaning.
By virtue of the terms of clause 17.1.7 of the Operations Manual, Binaray contends that a reference to “Managing Customer Relationships” in clause 7.19 is not confined to service but extends to marketing to those customers. In particular, Binaray refers to “database marketing” and contends that the concept of database marketing by reference to BOCs can only be relevant to the interpretation of “allocating” in clause 7.19. The difficulty with Binaray’s construction is that it does not take proper account of the definition of “Manage the Customer Relationship”.
Binaray relies upon the fact that the words “and database marketing” were removed from the Operations Manual of 2011 and later versions. The use of subsequent conduct in respect of the construction of a contract is limited. The majority of the High Court in Agricultural and Rural Finance Pty Ltd v Gardiner approved the rule in Whitworth that it is not legitimate to use subsequent conduct as an aid in construction of a contract. There are exceptions; such conduct may be relevant where it constitutes evidence of a term as opposed to informing the meaning of a term, particularly where the agreement is partly written, partly oral. In the present case, Binaray seeks to rely on the subsequent conduct, namely the removal of the reference to “database marketing”, as confirming that database marketing applied to BOCs. Insofar as it seeks to use subsequent conduct to construe the term prior to the amendment, that is not permissible. However, even if that conclusion was incorrect, the link between the removal of the reference to “database marketing” and the closure of broker channel is a tenuous one, given the time which had passed before the amendment.
Clause 17.1.7 sets out “Principles for allocation of customers to a Territory for Service and Marketing” and refers to customers being “allocated to a Territory for the purpose of customer service and database marketing as detailed in the table below”. That table not only refers to loans written by a franchisee but also to loans written by Franchise Direct, as well as loans written by a broker. The clause itself does not address what is intended by “customer service” or “database marketing”.
By its terms, clause 17.1.7 does not of itself provide for a general obligation upon RAMS or a general right in Binaray to receive all information as to BOCs for the purpose of service and marketing.
What is therefore intended by “customer service and database marketing” is to be construed by reference to the other rights and obligations in the Franchise Agreement which apply to those activities.
Clause 7.19 of the franchise agreement is directed to service of allocated customers, as is made apparent from the words “Managing the Customer Relationship”. That phrase is defined to mean “any activity required to ensure that the Customer receives assistance, information and best practice customer service in relation to the Customer’s requirements for Approved Products”. While it is of broad meaning, it is not so broad as to extend to marketing per se, but rather is directed to providing for the meeting of an existing customer’s needs and ensuring service is provided in accordance with RAMS best practice. That is supported by the distinction within clause 7 itself, the earlier sub-provisions of which are directed to marketing.
Clause 9 of the Operations Manual addresses marketing. It is directed to different types of marketing but does not address marketing to BOCs.
Clause 13 of the Operations Manual, the Business Partner Charter, provides the parameters for marketing to customers whose loans were originated by a broker or other third party, including how communication may initially occur with such broker-introduced customers. It also confirms that franchisees are allocated all existing RAMS customers in their Territory to provide service and assistance, consistent with clause 7.19.
The Business Partner Charter permits franchisees to proactively market to customers whose loans were originated by a broker or other third party only for the purpose of selling additional RAMS products and non-home loans products. It does not permit franchisees to proactively market to customers whose loans were originated by a broker or other third party for the purpose of refinancing that loan, or to actively dissuade a customer from contacting their broker in the future. It imposed limitations in terms of commissions to discourage churning by any channel and originally provided for a franchisee to generate revenue from a BOC only by selling them a second loan or by pursing referrals. Until 2008, the amount the franchisee was paid for a variation of a loan originated by a broker was limited to a flat fee.
In my view, the reference to “database marketing” in clause 17.1.7 of the Operations Manual does recognise that franchisees can compete for the work of BOCs, within the limitations of the Business Partner Charter. While the Business Partner Charter imposes clear restrictions upon a franchisee in relation to the marketing and sales of RAMS products to a BOC, it does provide for proactive marketing to BOCs to occur. There is a recognition of the brokers having written the business of BOCs and their having some primacy over those customers through the restrictions imposed upon a franchisee. However, the fact that franchisees may compete in the sale of additional loans of RAMS products to BOCs is acknowledged in the specific reference to brokers recognising that customers may opt out. It is also consistent with the fact that franchisees, who unlike brokers were obliged to primarily promote RAMS loans and products, were to provide customer service to BOCs for which they were not separately paid, other than in the particular circumstances provided for in the Franchise Agreement. Given that service role, contact with the BOCs was not akin to permitting franchisees to “cold call” BOCs. The restriction on “churning” was to protect the customer from being subject to marketing without any benefit to them and protect RAMS in terms of its obligations to pay commissions.
A reasonable businessperson would in my view recognise that, read as a whole, the commercial purpose and objects of the contract relevant to the provisions in question were to:
Allow the sale of RAMS products through the different sales channels, recognised by the fact that RAMS granted non-exclusive rights to a franchisee in their territory, including provisions allowing for RAMS to actively market in an allocated territory and permitting brokers to sell Approved Products in an allocated territory;
Protect customers and RAMS from churning which may occur as a result of the competition between the different channels, particularly the franchisees and the brokers, in an allocated territory;
Regulate the manner in which competition could occur between the franchisees and brokers to maintain business harmony, which is particularly reflected by provisions in the Business Partner Charter as to how BOCs could be initially contacted by franchisees and not permitting franchisees to actively dissuade customers from continuing to deal through their broker;
Promote the growth of the business of a franchisee by setting minimum sales targets and allowing access to potential customers, namely BOCs, in the limited circumstances provided in the Business Partner Charter; and
Ensure protection and promotion of the RAMS brand by providing that customers, regardless of where they had obtained their RAMS product, were provided with service and assistance post settlement, particularly by franchisees in circumstances where brokers did not have contractual obligations to ensure loyalty to RAMS products.
I do not accept RAMS’ contention that a reasonable businessperson would interpret the reference to “database marketing” as an anomaly. I consider that a reasonable businessperson would recognise the constraints of contact with BOCs and sales to them that apply to franchisees but recognise that, within those constraints, it makes commercial sense for the franchisee to be able to access the details of the BOCs which is provided for in clause 4.17, as potential customers of the franchisee in the future. I do not consider “database marketing” provides for the franchisee to have a broader right of marketing than provided for specifically in clause 13 of the Business Partner Charter. Such a limitation would not make commercial sense given that franchisees were obliged to provide service to BOCs for the purpose of Managing the Customer Relationship, for which they needed access to the details of that customer and the RAMS Approved Product which they had obtained. Given that RAMS maintains ownership of the customers under the Franchise Agreement, it would not make commercial sense in terms of maintaining business harmony if brokers were to enjoy additional protection over and above a franchisee, particularly where they were free to sell competitors’ products to the customer at a future point in time.
Turning to the other clauses relied upon by Binaray, Binaray contends that if its construction of clause 7.19 is accepted, then clause 4.17 would oblige the provision of access by RAMS to the customer information relating to BOCs.
Clause 4.17 provides that RAMS is to provide a technology platform, including, inter alia, access to “existing Customer information”. Only “Customer” is italicised, thus referring to the definition section of the Agreement. The definition of “Customer” is broad in its terms. It is not confined to customers generated by a franchisee as it refers to a Customer who has acquired or may acquire an Approved Product “whether through you or otherwise”. RAMS quite correctly, in my view, accepts that the definition is broad enough to include a BOC in the context of that provision.
Binaray contends, however, that the reference to “existing Customer information” extends to customers who had a loan which was discharged, if it is still on the database. It does not contend that it refers to all customers, but rather the commercial construction is that it refers to customers of any type who have taken out a loan and whose address is within Binaray’s allocated territory.
RAMS, however, contends that notwithstanding the breadth of the definition of Customer, the term does not always refer to all individuals falling within the definition, but is limited by the commercial purpose and context in which it appears. In particular, clause 4.17 does not refer to the more broadly defined “Customer Information”. RAMS contends that all clause 4.17 required was for RAMS to provide a system and means by which Binaray could access information.
RAMS submits that clause 4.17 introduces a temporal concept. It is not to be construed as obliging RAMS to provide any “Customer” information in perpetuity, given it refers to “existing”. Further, the reference to “existing Customer information” restricts the information to which access had to be given and excludes information about previous BOCs who had discharged their initial loan.
According to RAMS, the reasonable businessperson, reading clause 4.17 in the context of the contract read as a whole, would recognise that:
RAMS had an obligation to provide a technology platform to be used for a variety of purposes;
RAMS was to give Binaray access to information about customers that existed as at the date of the contract; and
Binaray contends that the interpretation proposed by RAMS is uncommercial. It contends that the clause applies to the information that exists from time to time about the customer, not the customers “who existed as at the date of the contract”.
According to Binaray, this fits squarely with the concept that “Customer information” will alter from time to time but the information as it exists at any point in time will be “allocated” to the franchisee in a formal report.
There is a certain ambiguity in clause 4.17, insofar as “existing” could be construed as referring to “Customers” or “Customer Information”.
Clause 4.17 relates to a technology platform which encompasses various processes relevant to a Customer. In the context of the clause, I consider that “existing Customer information” refers to information pertaining to customers who are customers at the time that the Franchise Agreement is entered into, but also to the updated information about customers throughout the operation of the franchise. “Existing” is referable to customers who were existing at the time of entry into the Franchise Agreement, but extends to customers who are added as customers during the lifetime of the Franchise Agreement. That is supported by the fact that clause 4.17 contemplates a technology platform that is an evolving one and that will be continuously updated, as it includes a system capable of tracking the Franchisee’s loan applications. It would not include information about previous BOCs who had discharged their initial RAMS loans. Clause 4.17 does not on its proper construction extend to a right of access to information about previous BOCs who had discharged their loan. Franchisees of course may have accessed and maintained those details on their own system, but RAMS did not have an obligation to maintain those details on the system. That is reflected by the use of “existing” and the definition of “Customer”, neither of which extend to past customers.
The restrictions in the Business Partner Charter relied upon by RAMS for its interpretation relate to the use to which information may be put. Given the scope of the services which the franchisees must provide to customers, regardless of how they originated, and the fact that franchisees would need to access information about the customers’ loans to provide that assistance, I do not accept that clause 4.17 should be construed such that the information to which access is to be given in the technology platform is limited by reference to the restrictions in the Business Partner Charter. A reasonable businessperson would recognise that the technology platform was a platform that would evolve and be updated as new loans were entered into and would need to be accessed by a franchisee for a variety of purposes, including providing service to customers. A reasonable businessperson would not construe clause 4.17 to be confined to customer information as at the date of the franchise agreement.
RAMS further contends that the limitation on the information to be provided to franchisees is further supported by clause 7.17 of the franchise agreement and clause 8.10 of the Operations Manual. Clause 7.17 provides for franchisees to be provided with Customer Information in report format from time to time as provided in the Operations Manual. Clause 8.10 does not refer to “report format”, nor is it a defined term, but it does identify the various reports available to Binaray. RAMS contends that a reasonable businessperson would recognise that the reports to be provided to Binaray were reports about Binaray’s customers and franchise business and that clause 7.17 did not confer an obligation on RAMS to provide information about BOCs and particularly BOCs who had discharged their loan.
Binaray, however, contends that the concept of a “report format” would not simply be a report by which information relating to the Customer would be provided, so as to permit Binaray to carry out its obligations under the Franchise Agreement, but rather, it would be an available document containing the relevant information relating to loans held or discharged by Customers.
Clause 7.17 refers to the “Customer Information” being provided in report format as provided in the Operations Manual. Clause 8.10 of the Operations Manual correlates to that obligation and does identify the reports which RAMS was obligated to make available to franchisees, via the RHLC website. The reports described are clearly designed to provide the franchisee with information in relation to its customers for whom it had written loans in order to meet its obligations under the Franchise Agreement and monitor the progress of its customers. A reasonable businessperson would not construe the obligation to extend to providing reports about customers in the allocated territory generally, which would risk providing an advantage to franchisees as compared to brokers by disclosing details as to brokers’ business. Clauses 7.17 and 8.10 limit the extent of the reports that must be provided and do not extend to all “Customers” as defined in clause 33 of the franchise agreement.
This is supported by the fact that one of the commercial objects and purposes of the Franchise Agreement is to ensure harmony between the different channels, particularly franchisees and brokers. Nor do I consider the wording of clause 7.17 or clause 8.10 supports an obligation to provide reports about customers who had discharged their RAMS loan, nor would a reasonable businessperson construe it as imposing such an obligation. In particular, clause 8.10.3 of the Operations Manual refers to “Customer Database Report” which is to be “Generate[d] on an ad hoc basis to support targeted customer loyalty or referral mailings”. That suggests that it is a report generated by reference to Customers of the franchisee themselves. That supports the construction which RAMS seeks to place upon clause 7.17, namely that it does not expand beyond providing reports to Binaray about their customers and franchise business. It would make no commercial sense to oblige RAMS to provide such reports as Binaray contends, given the restrictions on marketing by a franchisee to BOCs.
Further, while the commercial purpose of the Franchise Agreement is to grow the RAMS business and the franchisee’s business in an allocated territory, that is commensurate with RAMS itself being able to market directly to customers in the allocated territory and the franchisee being able to engage in some marketing to BOCs. However, harmony between brokers and franchisees is maintained by the interpretation outlined above and an express provision in the Business Partner Charter preventing a franchisee from actively dissuading a customer from contacting their broker in the future.
I construe clause 17.1.7 and the reference to “database marketing” to be a recognition of the marketing which is permitted to be carried out in relation to BOCs in accordance with the Business Partner Charter;
I do not construe clause 7.19 and the reference to “Managing the Customer Relationship” to extend to database marketing;
The reference to “database marketing” in clause 17.1.17 recognises that franchisees can market to BOCs in the limited circumstances provided for in the Business Partner Charter;
“Database marketing” does not provide any broader right of marketing in relation to BOC, but rather recognises details of BOCs is on the database provided pursuant to clause 4.17;
Clause 4.17 with its reference to “existing Customer information” does provide for the franchisee to have access on an ongoing basis to existing customers’ information throughout the life of the franchise agreement. Existing is referrable to the customer. It does not provide any contractual right of access to information about previous BOCs who had discharged their initial RAMS loan;
Clause 7.17 does not provide an obligation to provide “Customer information” in report format about BOCs to the franchisee; and
The obligation to allocate BOCs referred to in clause 17.1.7 refers to allocation of BOCs to franchisees not only for the purpose of franchisees providing customer service to the BOCs, under clause 7.19 but also for the purpose of permitting a franchisee to market within the limited parameters of the Business Partner Charter.
Duty of good faith
The plaintiff contends that a duty of good faith is to be implied into franchise agreements as an incident of that type of contract, as a matter of law. That was admitted by the defendant. In Diab Pty Ltd v YUM! Restaurants Australia Pty Ltd, Bennett J, by reference to the authorities with respect to good faith, stated that the duty generally has been described in terms of good faith and fair dealing and extends to performance of a contractual obligation and the exercise of a power conferred by a contract. That the duty is therefore referrable to the obligations and powers under a contract, rather than itself imposing some separate obligation, is supported by the weight of authority.
Duty to cooperate and do all things necessary to allow the other party to enjoy the benefit of the contract
Binaray alleges there are implied terms of the contract that the parties would:
Not act in a way that would prevent the other party performing its obligations and enjoying the benefit of the contract; and
Do all things reasonable necessary to allow the other party to enjoy the benefit of the contract.
RAMS accepts that there is a duty to cooperate to do all things necessary to allow the other party to have the benefit of the contract, which is an implied duty incorporated into every contract. It also accepts that the negative covenant, a duty not to hinder, is implied. However, RAMS contends that it is necessary to identify what RAMS was obliged to provide the benefit of and what was the promise that the contract made in favour of the plaintiff that the defendant was obliged not to hinder. They are not standalone obligations. That is consistent with authority. RAMS correctly identifies that the benefit conferred by the contract in relation to which the implied term would operate would be the provision of BOC information or the allocation of BOCs for the purpose of providing customer service and database marketing.
The duty to cooperate does not impose any obligation to enhance the commercial value to the other party of the contract.
Was the Franchise Agreement breached?
Based on the above analysis, RAMS had to allocate customers to Binaray for the purpose of customer service and database marketing which included BOCs. That obligation did not extend to providing customer information about BOCs in a format report. There was no obligation to allocate and provide information about BOCs who had discharged their loan prior to the Franchise being entered into in 2006. There was an ongoing obligation to allocate BOCs and provide a database with access to information about BOCs up until the sale by RHG to Westpac in 2008. As a result of the sale, the obligation remained but the customers on the database prior to the sale went to RHG, not RAMS.
Binaray contends that in order to ‘allocate’ customers to it, RAMS was obliged to, at a minimum, identify the BOCs in the plaintiff’s allocated territory separately from other existing RAMS customers. Binaray contends it was also obliged to provide to the plaintiff, or authorise the plaintiff, to have access to or use of Customer Information of and relating to the BOCs. This would have required the presentation of some form of accessible list for the purpose of providing customer service and database marketing.
Given my findings above, the extent of RAMS’ obligation was to allocate relevantly a BOC to a franchisee under clause 17.1.7. Under clause 4.17, Binaray was to be provided with access to the RAMS database and information relating to a BOC insofar as they were a customer at the time the Franchise Agreement was entered into or became a customer during the life of the Franchise Agreement. There was no provision however, for RAMS to provide “Customer Information”.
RAMS contends that even if obliged to give Binaray access to Customer Information and allocate BOCs to Binaray, RAMS discharged its obligation by giving Binaray access to a database that included information about BOCs. RAMS contends that the database included the information of all RAMS customers, including the BOCs in Binaray’s territory. That is uncontentious. Prior to 2008, RAMS contends it provided access to BOC information through the “Loan Viewer” electronic platform, insofar as Binaray could enter a customer’s loan details or input a letter of the alphabet and one of the postcodes of Binaray’s territory and obtain a list of customers for that letter. RAMS contends that if Binaray then scrolled through customer by customer, they could ascertain the BOCs. RAMS submits that could have been done with regularity by a franchisee to ascertain whether there were any new customers who had been added to the list.
After 2008, RAMS contends it discharged its obligation because Binaray could access BOC information via the Loan Viewer by entering the customer’s details or the customer’s surname and postcode.
The undisputed evidence from the Allens was that they were not told about the use of the Loan Viewer to identify BOCs prior to or after 2008 except by using the customer’s loan details or surname and postcode. The Allens did access BOCs using a name and postcode, although they had difficulties insofar as Mr Allen described the use of the postcode as a ‘hit and miss affair’ due to errors in the system.
Even if Binaray could access BOCs using the Loan Viewer, there was no search they could do to produce BOCs nor by which they could identify from looking at the system whether or not a customer was a BOC allocated to them except by assuming that was so by reason of the postcode. Both Mr and Mrs Allen gave evidence as to what a cumbersome and time consuming exercise it would have been to carry out the process RAMS describes to try to identify BOCs. That evidence was not controverted by any of the RAMS witnesses, particularly Ms Thammiah who gave evidence as to the operation of the Loan Viewer search engine and access to customer information. RAMS conceded that it could have provided a list of BOCs to Binaray within their allocated territory if required.
The fact that information about a BOC could be accessed through the Loan Viewer search engine was sufficient to satisfy RAMS’ obligation under clause 4.17 of the franchise agreement.
The reference to ‘allocation’ in clause 17.1.7 suggests that RAMS needed to take a positive step, to allocate, inter alia, BOCs in the allocated territory to the relevant franchisee. It carries its ordinary meaning and in the context of the phrase used means ‘assign’ or ‘distribute’. In order to “allocate” BOCs for the purpose of customer service and database marketing, Binaray would have to be informed of that allocation. The fact that Binaray could access BOCs through the Loan Viewer search engine by a process of inputting a name and postcode or initial and postcode, and identify them as BOCs through a process of scrolling through the names having regard to Binaray’s customers, was not sufficient to meet RAMS’ obligation to allocate BOCs. In my view, RAMS was in breach of clause 17.1.7 of the contract in not providing Binaray with a list of the BOCs who were allocated to it and their postcodes, to then allow Binaray to access the BOCs’ customer information on the database to provide customer service and engage in database marketing.
I do not need to decide whether RAMS breached the implied terms of good faith, to cooperate and to not hinder, given my finding that RAMS had to do a positive act to allocate BOCs to the franchise, which would, in my view, involve the act of allocating BOCs and informing Binaray of the allocation. If the latter was in doubt, I consider the implied duty of cooperation would require RAMS to inform Binaray of the BOCs within their territory with sufficient information for them to be identified through the database, so as to enable Binaray to have the benefit of being able to access and market to BOCs in their territory, within the parameters provided in the Business Partner Charter of the Operations Manual.
I find that RAMS breached the Franchise Agreement with Binaray by failing to allocate BOCs to Binaray by informing Binaray of the names and postcodes of the BOCs sufficient to access the database who:
Were in their allocated territory and who were existing BOCs when Binaray’s franchise commenced; and
Subsequently became BOCs during the life of Binaray’s franchise.
Given that loans were written on an ongoing basis by brokers and Franchise Direct, the obligation was an ongoing one. In the case of the BOCs who subsequently became BOCs during the life of the franchise, the allocation had to occur within a reasonable time after they had become a BOC. In the context of the Franchise Agreement, given the nature of the business, I consider a reasonable time would have been within a month, however it is not a matter which I presently need to finally determine.
Did Binaray suffer a loss of opportunity after the breach?
Binaray claims damages arising from the loss of a commercial opportunity. The commercial opportunity lost is the opportunity to make profits from being able to contact and market to BOCs and introduce the BOC to a product of RAMS and obtain commissions and other income.
According to Binaray’s pleaded case, if the defendant had complied with its ongoing obligations pursuant to the Franchise Agreement, the plaintiff would, on an ongoing basis since on or about July 2006 until the cessation of the agreement, have:
been allocated the broker referred customers;
been provided with customer information of and relating to BOCs;
been able to contact BOCs in the plaintiff’s allocated territory identified from the database of customer information provided by the defendant from time to time for customer service and database marketing and customer management, and to attempt to obtain business from those customers as permitted by the Franchise Agreement; and
had the opportunity to obtain business from the BOCs identified from the database of customer information and any further referrals from any of those customers, resulting in the opportunity to obtain commissions in accordance with clause 13 of the Franchise Agreement in relation to that business.
It is alleged by Binaray that as a result of the pleaded breaches by the defendant of the Franchise Agreement, the plaintiff has suffered and continues to suffer loss and damage on an ongoing basis in the course of the franchise business, being:
The loss of opportunity to market and cause loans to be entered into by the broker referred customers;
The loss of commissions which would have been generated from obtaining commissions in accordance with clause 13 of the Franchise Agreement from the sale of the defendant’s approved products to the broker referred customers;
The loss of opportunity to contact BOCs within the allocated territory of the plaintiff allocated to for the purpose of managing the customer relationship with the defendant and for customer servicing and database marketing and the opportunity to obtain business from those customers; and
As a consequence thereof, the loss of opportunity to obtain commissions in accordance with clause 13 of the Franchise Agreement from the sale of the defendant’s approved products to those customers and any referrals there from.
The plaintiff particularised its loss and damage in a schedule, Annexure A. That was the subject of dispute between the parties. RAMS complained that the particulars of the income said to be lost in paragraph 3 went beyond Ms Letts’ evidence in referring to the sale of new loans to BOCs. That was to be dealt with in the context of the expert evidence.
In order to successfully establish its entitlement to damages, Binaray must prove:
That on the balance of probabilities it suffered some loss or damage, by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value); and
If (a) is satisfied, the value of the lost opportunity which requires the Court’s assessment of degrees of possibilities or probabilities of events occurring.
As to the first step, as French CJ, Kiefel and Keane JJ stated in Badenach & Anor v Calvert, “An opportunity will be of value where there is a substantial, and not a merely speculative, prospect that a benefit will be acquired or a detriment avoided”. It is necessary to prove to the usual standard that there was a substantial prospect of a beneficial outcome. Their Honours further stated that proving there was such a prospect “requires evidence of what would have been done if the opportunity had been afforded”. Brennan J in Sellars described the proof of causation in this way:
“Unless it can be predicated of an hypothesis in favour of causation of a loss that it is more probable than competing hypotheses denying causation, it cannot be said that the plaintiff has satisfied the court that the conduct of the defendant caused the loss. Where a loss is alleged to be a lost opportunity to acquire a benefit, a plaintiff who bears the onus of proving that a loss was caused by the conduct of the defendant discharges that onus by establishing a chain of causation that continues up to the point when there is a substantial prospect of acquiring the benefit sought by the plaintiff. Up to that point, the plaintiff must establish both the historical facts and any necessary hypothesis on the balance of probabilities.”
The onus of proving causation is only discharged where a plaintiff can prove that it was more probable than not that they would have acquired a valuable opportunity, not by a finding that there was more than a negligible chance that the outcome is favourable or even by a finding that there was a substantial chance of such an outcome.
Both parties agreed that the approach to be adopted on the basis of the authorities is accurately set out in paragraph 45(a) and (b) of the plaintiff’s closing submissions:
“45. It is respectfully submitted, the following can be gleaned from the above extracts:
whether or not a loss of commercial opportunity is compensable requires a two-step process:
first, proof of causation of some loss or damage (determined on the balance of probabilities);
second, proof of damages (which is not required to be determined on the balance of probabilities). That is, the quantification of the loss or damage ascertained by way of the Court’s assessment of degrees of possibilities or probabilities of events occurring.
to satisfy the first step, it must be demonstrated that the breach of contract caused the loss of the commercial opportunity which had some value (not being a negligible value).
To do so, the plaintiff is required to demonstrate, by evidence, to the balance of probabilities standard, that:
the opportunity was valuable; and also that,
had the plaintiff been offered the lost commercial opportunity, the plaintiff would have acted to secure the benefit.
an opportunity will be valuable if it offers a substantial, not merely speculative, prospect of acquiring the benefit being sought;
To prove the substantiality of a prospect of acquiring a benefit and what would have been the plaintiff’s actions if the opportunity had been offered, it will usually be necessary to tender evidence to establish plaintiff’s objectives and the contingencies in the way of their achievement. Evidence of that kind will bear upon both the existence and the value of the lost opportunity.”
The Court of Appeal handed down the decision of Principal Properties Pty Ltd v Brisbane Broncos Leagues Club Limited shortly after the parties made their closing submissions. As a result of that decision, the defendant withdrew its submissions as to the approach to be taken to the first step of the Sellars approach. In particular, it withdrew its submission based on Principal Properties at first instance that the highly speculative nature of the commercial opportunity is relevant to both steps and that if Binaray was likely to make a loss, it should be concluded that the commercial opportunity was not a valuable opportunity. It maintained, however, that the highly speculative nature of the commercial opportunity is relevant to the value of the opportunity, taking into account the prospects of success of that opportunity had it been pursued. RAMS contended that the effect of the authorities is that the assessment is undertaken according to the degree of possibilities or probabilities or the chance that the benefit would have been secured. In that regard, RAMS referred to the approach of McMurdo JA in Principal Properties in assessing the value of the opportunity by considering the prospects of the success of the development in that case by reference to the risks that affected the commercial opportunity to develop the land at a profit.
In Principal Properties, McMurdo JA (with whom the rest of the Court agreed), by reference to Sellars reiterated that “There may be a compensable loss of a commercial opportunity, even though there is a less than 50 percent chance that, if pursued, the opportunity would have resulted in a financial return”. At , his Honour reiterated the relevant principles to be:
“In order to recover substantial, as distinct from nominal, damages upon this basis, a plaintiff must establish that the lost commercial opportunity had some value. If the opportunity had no more than a theoretical or negligible value, then no compensable loss has been caused. The fact that some loss or damage was caused must be proved on the balance of probabilities. If that fact is proved, it is then for the court to assess the extent of the plaintiff’s loss. The value of the lost opportunity must then be “ascertained by reference to the degree of probabilities or possibilities” of relevant factual hypotheses, by the approach explained in Malec v JC Hutton Pty Ltd.” (footnotes omitted)
As to the interrelationship between the first and second limbs of the Sellars approach, his Honour stated at -:
“If a commercial opportunity has no chance of being profitable, it is an opportunity of no value and its loss could not be compensable. I would also accept that a commercial opportunity which no rational investor would pursue, having regard to the relative probabilities of a profit and a loss and the likely magnitude of each, would be a valueless opportunity.
However, I do not accept that the same may be said whenever it is more likely than not that the pursuit of the opportunity would have resulted in an investor’s loss…”
His Honour considered that the relative probabilities for the profit and loss, in a particular case, could be relevant in assessing whether the opportunity has some value. However, his Honour considered that where the provision of the opportunity was the subject matter of the contract, it would be unlikely that “both the likelihood of a profit and the magnitude of that profit are so small that no rational investor would pursue the opportunity with the risk of thereby suffering a comparatively large loss”. In that case, his Honour found that a likelihood that the relevant development “would have been a loss making development, did not, as a matter of law, preclude the award of more than nominal damages”. His Honour considered the question was “whether the opportunity to profit from the development had a value and that was possible, although a developer’s loss was more likely than a profit”. Adopting the approach of Brennan J in Sellars, McMurdo JA stated that it would “usually be the same body of evidence that tends to establish both the existence of a loss and the amount to be recovered”. His Honour then examined the risks identified by the trial judge which affected the commercial opportunity to determine the extent of the loss suffered.
In Prosperity Advisers Pty Ltd v Secure Enterprises Pty Ltd t/as Strathearn Insurance Brokers Pty Ltd, Tobias AJA (with whom MacFarlane JA and Barrett JA agreed), in discussing the threshold that needed to be met under the first limb stated that:
“Whether or not a lost chance has some value which is more than just speculative involves an evaluative judgment based on all the circumstances and, in particular, the evidence elicited to support the proposition that the prospects of the chance coming to fruition was sufficient to enable a positive rational assessment of it to be made.”
In the present case, the loss claimed by Binaray is the benefit which it would have received had the opportunity to contact the BOCs been taken. Binaray must prove as part of the chain of causation that they could and would have taken the opportunity to make contact with and market to the BOCs within the terms of the Business Partner Charter and that the benefit, namely, business from BOCs through, inter alia, additional loans would then have been yielded.
In Winky Pop Pty Ltd & Anor v Mobil Refinery Australia Pty Ltd & Anor, the Victorian Court of Appeal considered that the trial judge was correct in his approach that the valuable opportunity said to have been lost must be properly identified. In that regard, they stated that without proper identification of the opportunity there can be no basis for determining whether a plaintiff has established, on the balance of probabilities, the existence of an opportunity which had some value. It is then for the plaintiff who asserts the loss of valuable opportunity to establish on the balance of probabilities “not only that the opportunity existed, but that it was lost, and that the breaching party’s conduct was causative of the loss”.
Contentions of the Parties
Binaray frames the loss of opportunity as the loss of opportunity to make financial returns from BOCs, arising from the loss of the ability to contact and market to BOCs in order to secure additional business from them, even when they had discharged their loan, and the loss of the ability to not only secure additional business from the BOCs themselves but by way of referrals from the BOCs. It contends there is no doubt that the list of BOCs provided a commercial opportunity which they could have exploited.
Underpinning Binaray’s case is that the opportunity to be provided with the BOCs in order to manage the relationship with them and market to them within the confines of the Business Partner Charter in the Operations Manual was a valuable one because:
Binaray utilised the RAMS model which was a successful model which emphasised the importance of maintaining contact with potential customers and providing good customer service which enhanced the possibility of the potential customer becoming an actual customer;
By Binaray applying the RAMS model to BOCs, it could compete with brokers for future business of BOCs;
Franchisees, such as Binaray, had added incentives to provide customer service to BOCs compared to brokers;
The pool of potential customers not only included BOCs but referrals from those clients;
BOCs included those customers who had discharged their loans with RAMS. I have found that on the proper construction of the Franchise Agreement that ‘existing Customer information’ does not include information about BOCs who have discharged their loan. I will however, address this briefly below;
The RAMS documentation itself and evidence from Mr Melvin, Mr Fardon and Mr Kirkpatrick support the fact that access to BOCs offered a commercial opportunity to Binaray; and
Binaray was a strong performer as a franchisee and would be able to exploit the opportunity offered by access to BOCs and had the infrastructure to do so, such that it would have converted the opportunity into business and a financial return.
Binaray rejects the contention that the opportunity is limited to those BOCs who drift through the door or are dissatisfied with their broker.
In the counterfactual, Binaray contends that if they had the list of BOCs and access to a database they would have contacted them. Binaray would then have had the opportunity to consistently carry out various marketing techniques and educate the BOCs and influence them. While this may not necessarily immediately result in an increased business, they would have an established relationship with that customer. Thus, in the future when the BOC wanted to take out a further loan, replace an existing loan with a new loan, or utilise some other products, there was a substantial prospect that they would deal with Binaray, not the broker. The brokers with whom the BOCs were dealing varied from brokers with whom the BOCs had no relationship at all to highly skilled brokers.
Further, in the counterfactual, Binaray contends that when the broker channel was shut down in or about February 2010, Binaray would have been in a position to immediately take advantage of the situation because it would have been following the RAMS business model and staying in front of the BOCs. Similarly, in 2013 when RAMS indicated it would be referring BOCs to the franchisees when calls were received at the contact centre, and Binaray obtained a number of BOCs, Binaray would already have had established relationships with the BOCs and the BOCs would have known to come to them.
Binaray also relies on the fact that the BOCs are existing RAMS customers and already have a relationship with RAMS products as supporting their contention that there was a high possibility of converting the BOC when Binaray had established a relationship with the BOC. Binaray contends that there is no reason to confine the opportunity to just customers looking for a second loan. By continually educating BOCs, it would also open up opportunities relating to persons who had discharged a loan and then subsequently decided to take out a further loan down the track, and referrals.
Binaray contends that it had an established infrastructure and a successful business model which had led to a continual increase in revenue, which could have accommodated the additional referrals without significant financial burden, according to Mr Allen. It submitted that it is really a matter of common sense that it was not going to be cost prohibitive to perform the necessary tasks and secure ongoing business from BOCs.
Binaray contends that the benefit is not confined to those customers who went to Binaray as a result of “natural drift”, meaning those BOCs who became their customers without Binaray having been provided with a list of BOCs and marketing to them. Rather, it contends that the natural drift is indicative of the fact that by Binaray being able to make contact with the BOC and applying the RAMS Business Model, they would have attracted a lot more business from BOCs, given such drift occurred without any marketing taking place.
RAMS does not submit that Binaray has not proved on the balance of probabilities that it would take the steps needed to take advantage of the opportunity. However, RAMS contends that Binaray has failed to establish that the breach caused any loss of opportunity of some value, because Binaray would not be able to overcome the necessary hurdles to turn the opportunity from being a speculative opportunity to a valuable one. It contends that the evidence of Mr and Mrs Allen demonstrated that Binaray’s case as to a loss of opportunity was only a narrow one, namely that the opportunity that was lost was the opportunity to try to convert the BOCs who were dissatisfied or could not find their brokers, whereas they acknowledged that larger brokers who were still there belonged to aggregators and had platforms and infrastructures to do all the things that they did were a competitive force.
RAMS contends that the natural drift represents the customers dissatisfied with their brokers and that reduces the value of any lost opportunity. RAMS contends that because of natural drift the value of the opportunity has been had and the value of the opportunity relating to the rest of the BOCs is speculative, because brokers were a competitive force who did all the things a franchise did and the broker’s relationship with the customer was stronger than what Binaray could have had.
In asserting that the opportunity was of negligible value, RAMS relied on a number of factors, which it contends the Court should take into account in determining whether the alleged breach caused any loss:
First, that there were a relatively low number of BOCs that had a RAMS product in Binaray’s territory after January 2008 until July 2016 and very few had obtained an additional RAMS product. In this regard, they relied on the evidence of Mr Choo that there were 316 BOCs and that the amended BOC Return Frequency Report prepared by Mr Choo identified that 39 BOCs returned to RAMS for further business;
Secondly, RAMS contends that Binaray accepts that brokers would be competing with it to try to sell the additional products in circumstances where the broker has the benefit of the existing relationship;
Thirdly, the competition for the BOCs’ additional business had to be understood in the context of a number of matters which presented a hurdle to Binaray in the hypothetical situation of it having details of BOCs and to the probability of it successfully selling additional products and converting a BOC to Binaray. In that regard, they referred to a number of matters which were identified by Binaray’s witnesses and RAMS’ witnesses;
Fourth, that it is speculative as to whether Binaray could or would have been able to undertake the tasks it says it would have undertaken to build the relationships with BOCs and covert additional loans to Binaray. In that regard, RAMS referred to privacy legislation presenting an obstacle to contacting all BOCs and the restraints on contact and marketing with BOCs in the Business Partner Charter;
Fifth, the RAMS main customer base was first home buyers and small businesses in the context of RAMS offering loans based on an LVR of 97 percent as opposed to other lenders’ LVR of 95 percent. That matter weighed against the probability of a large number of BOCs being able to take out additional loans. They contend it also explains Binaray’s actual loans with their own customers;
Sixth, that Binaray’s evidence was that its offices were highly visible and intentionally picked for that reason. It was a high profile franchisee that was in frequent contact with BOCs, as a result of which they entered those customers’ details in their own CRM system. Those customers included those who were referred to as being the “natural drift”. Those are the customers who became dissatisfied with their broker, or whose broker no longer operated or could not be found and who then went to the franchisee for assistance. According to RAMS, the fact that Binaray had dealings and success in converting BOCs to being their own customers is proof that the value of a list of remaining BOCs is highly speculative; and
Finally, that Mr Allen accepted the GFC resulted in lending restrictions becoming tighter and that affected the eligibility criteria for loans.
RAMS in particular contends that the inference to be drawn is that the BOCs who were converted by Binaray were customers of transient brokers and not brokers who were part of an aggregator group, who were sent back to the broker. In that regard, RAMS particularly relies on the evidence of Mrs Allen.
According to RAMS, Binaray has failed to identify the transient brokers. The only evidence as to who the transient brokers is really confined to smaller brokers and must exclude brokers who are part of an aggregator group. RAMS relies on Exhibit 15, which is a list of brokers in Binaray’s territory as at 29 March 2010, which was provided by RAMS to Binaray. 35 of the 39 brokers were part of an aggregator group such as AFG, Choice and Mortgage Choice. In that regard, RAMS points to the fact that the identity of brokers who were the subject of complaint and the number and identity of BOCs that complained were not the subject of any evidence by Binaray. It further contends the evidence of Mr and Mrs Allen about the prospects of converting BOCs into further loans was practically non-existent or comprised of unsubstantiated and non-specific self-serving assertions. In that regard, it contends that Binaray failed to provide such evidence even though it was in a position to do so by reference to its own database, at least until July 2016 (after proceedings had been issued).
RAMS contends that there was nothing extraordinary about Binaray or its techniques for running its business, and every factor that Binaray relied on as a foundation to assert that it would have succeeded in converting the BOCs is a marketing technique used by brokers.
There is little dispute that the provision of a list of BOCs would have provided an opportunity to market to an expanded customer database or that Binaray would have taken the opportunity. The parties diverge, however, on whether that opportunity had some value within the meaning of the first limb of Sellars, such that RAMS could be found on the balance of probabilities to have caused loss.
Operation of Binaray’s franchise
The evidence as to the nature of RAMS’ business and the operation of its business model was not the subject of any real contention. Nor was it in contention that Binaray applied the RAMS business model in operating its business. The particular market which RAMS targeted was first home buyers and the self-employed. Compared to other lending institutions such as the ‘big four’ banks, RAMS provided loans with a 97 percent LVR as opposed to 95 percent, which was attractive to first home buyers. It offered ‘low doc’ loans to the self-employed. Franchisees were given non-exclusive rights in an allocated territory. The RAMS business model works on maintaining contact with customers and providing ongoing customer service in order to maintain and build further business. RAMS provided ongoing training to franchisees to provide advice on marketing and the process of securing customers as well as having representatives visit the business from time to time to provide advice on how to improve the business.
Both Mr and Mrs Allen gave evidence on behalf of Binaray. I found both of them to be honest witnesses, however, their evidence suffered from being very general and reliant on anecdotes and guesstimates, rather than the presentation of facts by reference to the operation of their business. Both Mr and Mrs Allen gave evidence that they worked hard to make Binaray’s business a profitable one and applied the techniques promoted by RAMS in servicing and marketing to their customers and promoting their business. While they had operated the RAMS franchise profitably and successfully, I consider that their view of where they stood compared to other franchisees was an unreliable one. It was based on their recollection of RAMS conferences with other franchises when they had received recognition from time to time for Binaray’s performance as a franchisee. It was not based on an analysis of reports from RAMS, such as commission reports provided by RAMS as to franchisees’ performance. I also found the evidence of Mr Allen as to conversion rates and additional loan rates to be unreliable, both in respect of rates and timing. While Mr Allen’s estimates of matters such as conversion rates of customers were his best estimates, they were based on his recollection or incomplete data and overestimated the success of Binaray significantly, having regard to the data that was available. While he suggested he had carried out an analysis of commission reports provided to Binaray’s expert, Ms Letts, the commission reports were not tendered through him and it remained unproven. In any event, his evidence did not support a number of matters which were part of the instructions provided to Ms Letts. Where there is hard data supporting figures provided to me, I have generally preferred that evidence as more reliable, subject to some qualifications which I will discuss in the context of my consideration of specific factual matters.
Mr and Mrs Allen both gave evidence as to how brokers operated their business. In Mr Allen’s case, that was based on customer feedback and contact with the brokers in the area rather than observations of a broker’s business. In Mrs Allen’s case, it was based on customer feedback, as well as discussion with a friend who was a broker. Thus, while both could give direct evidence as to the matters identified by BOCs as to why they came to Binaray rather than the brokers, their evidence as to how brokers operated was generally of an anecdotal nature and hearsay such that it can be given little weight. That said, they did not dispute a number of the propositions put to them by RAMS as to how it operated its business. Mr Bowen was also called by Binaray. I will discuss his evidence separately.
Both Mr and Mrs Allen gave evidence that the Binaray franchise was a start-up in the area when they were allocated the territory. According to Mrs Allen, there was a considerable gap in the time between when a previous RAMS franchise had operated in the area and when Binaray began to operate the RAMS franchise. Binaray initially opened the Mt Gravatt office and Mrs Allen the Tingalpa office. The first year, from 2006 to 2007, was spent building up the business with little remuneration. Mrs Allen began working in the franchise in September 2006 and was involved in the day to day running of the business including answering phones, entering leads into the system and learning about the business. By about March 2007, she had become or had nearly become RAMS accredited and could deal with customers in relation to RAMS products. In 2008, when the second office opened, she ran the Tingalpa office initially on her own and later with a loan writer. Neither she nor Mr Allen had previously operated a franchise for a lending institution. Mr Allen had worked for some years in retail banking, but not in the prior 10 years.
Mr and Mrs Allen both gave evidence that Binaray utilised the RAMS model and engaged in a number of public relations activities with customers and potential customers such as sending birthday and Christmas cards, providing customers with a health financial check and educating potential customers as to the steps needed to be able to take out a loan or a further loan. They also gave evidence that Binaray engaged in promotional activities such as building relationships with local solicitors, accountants and real estate agents to obtain referrals, sponsoring local sporting events and seminars in order to build their customer and referral base. I accept that evidence.
In approximately 2010, Binaray established the CRM database to keep track of the steps for each stage of the loan process for a customer, commencing from the time the application for a loan was made and continuing up until settlement. Binaray placed all their customer details on the system which included information for future marketing to and servicing of the customer. Prior to establishing the CRM database, they used an Excel spreadsheet. That facilitated marketing to their clients with records of customers’ birthdays and so on, and they could utilise the system to do regular financial health checks. They monitored the progress of the loan so they would be able to be on the spot when the customer might be ready to take out a new or additional loan. They sought to develop long term relationships with clients so they were the first point of call and were referred to other customers by satisfied clients.
When BOCs came into Binaray’s offices, they were asked for their contact details which were then put on a database. Binaray then made and maintained contact with the BOCs as they did for their other customers. Mrs Allen’s evidence, however, suggested that this might not have been the case where the broker was part of an aggregator, at least in relation to services for which Binaray would not have been paid. Ms Allen’s evidence in that regard was:
“What were the circumstances whereby prior to Westpac you came into contact with broker generated? When they walked in our door.
Right. And why were they – well, are you able to give some information as to why those clients typically were coming to see you? Because they either couldn’t contact their broker.
Yes? Or they were dealing with RAMS direct and it was easy to deal with a shop – someone in a shop rather than on the phone or not being able to find their broker.
Right. Was that it, simply not being able to find their broker, or were there other issues as well, at that time? No, that’s basically it.
So if they couldn’t find their broker what would you do? I would obviously ask them that question, I would get their information, check on their loan.
Yes? See – and see if I could assist them.
Right. If you could check on their loan and had brought up where their – who their broker was, did that provide you with any guidance as to whether or not the broker was still around, or you just did not know? Wasn’t for me to check on that.
Okay. Now, what then would happen with that customer, typically? Depending on their – what their requirements were, I would assist them best I could. If it was for an increase – and it depended on that loan viewer - - -
Yes? --- - - - where – what that broker was. If it was part of an aggregated group or an – or a company, another franchise company
Yes? --- - - - because there was no remuneration for any of that work, we would refer them back to that company.
Yes. What if they didn’t want to go? Well, if they didn’t want to go, then – and they’d walked into my door, they were mine.
Right. But do they sign up with you? How does it work? Well, we would find out what their needs were.
Yes? If they had a loan, wanted an increase, I would do it. It’s the same process as doing an application. And get no remuneration for it and hope that the goodwill that I had done, I would get previous work – extra work, I should say, by way of other referrals and hope that they would come back to me.
Right. Can we move then from the pre-Westpac time and post-Westpac time. Westpac say is it took over in January ’08 and opened its broker channel in May ’08, or thereabouts, that [indistinct]? Right.
Did you have dealings with broker generated clients, whether from the Westpac era or prior to the Westpac era, after Westpac took over? Yes.
What were those – first off, in the early period after Westpac took over, what were the nature of the communications? It wasn’t pretty. It was ugly.
Right? We would have clients very upset. Their broker had either disappeared; why have we sold their loan book – their loan to somebody else, not understanding the processes.”
Both Mr and Mrs Allen gave evidence as to what they would have done if provided with access to BOCs’ details in Binaray’s territory. The effect of that evidence was:
That prior to the Westpac acquisition of RAMS, BOCs would have been contacted by way of email or letter using an approved letter to introduce Binaray to the customers and start building a rapport;
After the initial written contact had been made, the BOCs would have been followed up by a telephone call. Enquiries would have been made of whether Binaray could do anything further for them and Binaray would have informed them that they were there to assist;
Mrs Allen indicated that when speaking with a BOC, she would enquire as to whether they were happy to be kept on Binaray’s CRM database. If they were, then she or any of her staff would confirm the information kept on the RHLC was correct and updated if necessary, which was often the case;
If contact through email had failed, Binaray’s staff may then have sent a letter to the BOC and if that was returned, they may have called the BOC on the telephone;
Mrs Allen considered that it was to Binaray’s benefit to make those efforts because of the fact that the BOC had already utilised RAMS products;
Following up customers was part of the RAMS culture and was followed by Binaray to the extent that Mrs Allen was asked to run a Best Practice session over what Binary did when they followed up their customers;
Mrs Allen gave evidence that the plaintiff’s franchise staff would treat BOCs in the same way that they treated all of their customers, as that was part of the RAMS culture. By remaining in the forefront of the BOC’s mind, Mrs Allen considered that they would then have been sources of referrals and repeat business;
Mrs Allen considered that they would attract BOCs and secure additional business from them if the broker was bad at his or her job and the customer really liked a RAMS loan; and
Mr Allen gave evidence that if they had needed to, they would have increased their staff in order to accommodate the BOCs and could have ordered additional computers. He considered that it was unlikely they would have had to supply the motor vehicles because the majority of the time, the staff had cars.
In examination in chief, Mr Allen gave evidence that in the counterfactual, if he could have accessed BOCs’ details quickly and efficiently, he would have ensured that they were put in Binaray’s CRM system once it was established and would have made contact with them and ensured that they would be become a part of the marketing program. Over a six to 12 month period, the BOCs would have been sent various emails by Binaray and invitations to seminars. Binaray would have treated BOCs in the same way as they did their normal clients to build a relationship with them, ensuring they were maintaining constant contact and educating them as to how they could take out further loans.
Mr Allen gave evidence that he considered that BOCs were a stronger lead than a RAMs lead because of the fact that a BOC already had successfully obtained a RAMS loan and had established a relationship with a RAMS product and would have been the subject of RAMS’ own marketing campaign. Given that relationship, he considered that Binaray contacting the BOCs was not akin to cold calling. His evidence was that he did not see any distinction in respect of his ability to market to BOCs or provide services to them going forward from his own clients. He did, however, consider that the conversion rates to further loans would be marginally smaller than those achieved with Binaray’s franchise clients because of the fact that some brokers have built a rapport with their own client.
Mr Allen contends the difference between Binaray’s operation and a broker is that the franchisee has greater “skin in the game”, having to expend considerable money to set up the business required as a franchisee. It is therefore essential for franchisees to grow their loan books and keep their clients. Brokers could churn whereas RAMS franchisees could not. While brokers could deal with a number of lenders, RAMS franchisees could refer a customer to another lender on a RAMS prescribed panel if the RAMS product was inappropriate.
Mr Allen estimated that the number of their customers who would take out a second RAMS loan was between 60 and 70 percent. That was not substantiated by reference to any documents, particularly the commission reports which Mr Allen had otherwise made reference to.
Mr Allen prepared a list of names which he contended were BOCs that ended up with his company without any marketing by Binaray, which is Exhibit 20. Some names were repeated a number of times because, according to Mr Allen, they had multiple loans. These customers have been referred to above as part of the ‘natural drift’ of BOCs who brought their business to Binaray.
Mr Allen gave evidence that they had the infrastructure in place and would have been able to cope with having to put in additional staff to meet any additional need created by the additional business from BOCs.
In cross-examination, Mr Allen was asked about the counterfactual proffered by Binaray. In that regard, his evidence was as follows:
“And by a loan to a previous customer, you’d consider a previous customer to include someone who’s paid out their loan?‑‑‑It would be both. It would be people who have paid out loans or they’re adding additional loans to their facilities.
And you’d include a person who’s a previous – I’m talking about who’s a previous customer; a previous customer wouldn’t have a loan?‑‑‑No.
Yes, so they could have discharged their loan because they paid out the loan?‑‑‑Yes.
And they could have discharged the loan because they’ve gone to another lender?‑‑‑Yes.
And you’d include that as a previous customer of yours?‑‑‑Yes.
And you’d continue to market to that customer in the way that you would your existing customers; is that right?‑‑‑Yes.
You agree that not all of the plaintiff’s customers obtained an additional loan. By that I mean when you have an initial loan that’s in place and you obtain an additional loan, a second loan?‑‑‑Yes.
And you’d agree that not all broker customers in the plaintiff’s territory would have required or obtained an additional loan?‑‑‑Yes.”
Mr Allen agreed that post-2013, broker customers were open game following the receipt of an email from RAMS of September 2013. He was cross-examined about the period prior to that. In the course of that cross-examination, he agreed that prior to 2013:
All he could do was sell the BOCs an additional loan and review what their facilities and goals and aspirations were;
At the time they would have received the hypothetical list, the customers already had a RAMS loan and had a broker;
They would not know until they contacted the customer whether they ever required an additional loan;
A customer may not be actively seeking an additional loan;
Binaray hoped that if it made contact with them and built a relationship that when the customer did want a loan, they would come to Binaray for the loan;
If the customer was seeking an additional loan, a broker would have been competing with Binaray to try to write the business;
A broker already had a relationship with the customer;
Some brokers were good at building rapport, establishing relationships and staying in contact with their client, saying “It’s very similar to what we would do. The issue there is it’s usually the smaller brokers who don’t have the infrastructure or abilities to provide those sort of services and updates and keep in contact”;
Brokers who were better brokers would tell customers about new products and changes in interest rates, send them promotional material, provide birthday cards and loan anniversary reminders and regularly contact the clients; and
Brokers were not prohibited from churning and if they were engaging in that behaviour, they would still seek to maintain contact with their clients in order to be able to then convince the clients to move to a different loan with different lenders.
Mrs Allen was also questioned about how she would approach the counterfactual if she had been provided with the list of BOCs. She gave evidence that the BOCs would have been contacted by way of email or letter, using an approved letter to introduce the plaintiff’s franchise to the customers and start building a rapport. They would then have aimed to follow them up with a phone call and would follow them up using the RAMS Best Practice. She gave evidence that she considered consistent with the RAMS model, that education was key and that even if a BOC was not interested in a loan when they first made contact, they could be potential investors down the track, upgrade down the track or refer other people to Binaray. Mrs Allen stated, when asked about the plaintiff’s prospects of securing additional business from a BOC, that “if the broker was really bad at his job and the customer really liked a RAMS loan … or a RAMS facility and wanted further ones, then they wouldn’t be going back to their broker who stayed in their pyjamas all day…and worked from the basement”.
In cross-examination Mrs Allen gave the following evidence:
“I want you to assume that a broker originated lead is a person who has a loan at that time?‑‑‑Yes.
And they have a broker relationship?‑‑‑Yes.
And I suggest to you that, at that point in time, the broker lead or the broker customer lead is just a potential for you, Binaray, to write an additional loan and obtain referrals?‑‑‑Correct.
And you agree that not all broker customers would, in fact, require or ever obtain an additional loan?‑‑‑Correct.
And you agree that some brokers are, in fact, happy with their – with their broker. Sorry, I withdraw that. You agree that some broker customers are happy with their broker?‑‑‑Yes.
And some brokers do give good service?‑‑‑Yes.
And some of them are good at staying in touch with their clients?‑‑‑Yes.
And if the good broker has done all that, they will know the time at which their clients have the need for another loan?‑‑‑Correct.
So that scenario that we’ve stepped through, Binaray would be competing with the broker to try and secure the new business from or with the broker customer?‑‑‑At that point in time we would not be competing with them because they’re happy with their broker.
Thank you. So you see a distinction between broker customers who are happy with their brokers and those that are not?‑‑‑Correct.”
Mrs Allen accepted that Binaray’s ability to stay in contact with the customer, whether or not they were happy with their broker, depended on the customer not electing to go on a Do Not Mail Register. Mrs Allen accepted that they were relying on marketing opportunities to put themselves at the forefront of a customer’s mind but that a good broker would be doing the same thing.
While I consider Binaray would have sought to make contact with all BOCs within their allocated territory, I do not find that they would have pursued the opportunity if the BOC did not wish to be contacted, if they became aware that the BOC was happy with their broker, or if their broker was a part of an aggregator group, unless the BOC of the aggregator indicated that they wished to have Binaray take them on as a customer.
Binaray contends that its performance shows that it was a high performing, efficient franchisee which would be capable of exploiting any opportunity offered by being provided with the BOCs. RAMS submits that Binaray was an average performer.
RAMS did not, however, suggest that Binaray was not a successful franchisee. It had built its loan book such that its gross revenue by the financial year ending 30 June 2015 was $1,165, 898. RAMS’ submission that Binaray was an average performer arose out of reports which RAMS prepared regularly, which they used to measure franchisees’ performance. Binaray contends that the reports used by RAMS may serve as an internal guide to RAMS about a franchise but could not otherwise be given any weight, because there was no independent statistical analysis and the report did not compare like with like.
Mr Fardon was the RAMS regional manager for New South Wales, Queensland, the Northern Territory and the Australian Capital Territory and had held that role since 2012. Prior to that, he was the state manager for New South Wales and the Australian Capital Territory. Part of his role was to manage franchisee performance. That included an overseeing role of managing the field managers who worked with franchisees on a day to day basis to ensure they were providing the right support to franchisees, as well as ensuring adherence to franchise agreements and the Operations Manual and helping in the performance of their overall business. He reviewed the performance of franchisees by looking at the pipeline report which shows how sales are tracking and trending across franchisees in various states. Mr Fardon met with franchisees on a regular basis. He saw them at least quarterly at the Quarterly Franchisees Meeting and saw every franchisee face to face at least twice a year. He saw poor performers more. Binaray were franchisees which he would have seen twice year, suggesting he did not regard them as poor performers.
Mr Fardon regularly reviewed the ‘one on three reports’ and ‘three on seven reports’. He considered that the one on three report was a very good report to give an early indicator as to a franchisee’s performance. The three on seven report tracked three months’ worth of leads and tracked the progress of those leads within that three month period through to seven months. Mr Fardon stated that the three on seven report gave insight into ability of the franchise and or lenders with that franchise to convert a lead into an appointment and an application and hopefully a settlement.
It is uncontroversial that the one on three reports and three on seven conversion reports were generated in respect of RAMS generated leads on a monthly basis by RAMS since April 2011 and were provided to franchisees on a monthly basis. The one on three report recorded a lead created in the first month and then recorded it becoming an application or reaching a settlement in months one, two or three. The three on seven report recorded the leads produced, then recorded in, say, months one, two and three, the application, and then settlements in months one to seven.
The one on three reports from September 2013 until July 2015 showed that the conversion rate for Binaray ranged between 2.33 percent up to 23 percent.  The three on seven reports showed the conversion rate for Binaray ranged between 3.47 percent up to 11.26 percent. Binaray contends that the reports are also of limited worth in the present context because they relied on RAMS leads.
Mr Fardon stated that the data collected on RAMS leads was used to compile the one on three and three on seven reports. He agreed those leads had no filtering. He also agreed that RAMS had no specific way of monitoring self-generating leads until very recently, when a ‘Symmetry’ program was adopted. He classified self-generating leads, consistently with other witnesses called on behalf of RAMS, as all leads which were not RAMS leads. That included walk-ins, direct phone-ins, referrals from existing clients, referrals from solicitors and accountants. Mr Fardon considered that the self-generating leads were far more valuable than RAMS leads in terms of the ability to convert the lead to a settlement. He stated however, that there was a broad range of self-generating leads, such that a referral from a solicitor would lead to a much higher conversion rate whereas a shopping centre promotion may depend on whether the person who attended the shopping centre could save a deposit. Mr Fardon stated that he does not utilise the data from the self-generated leads.
Mr Fardon also had regard to the pipeline reports which were used for the period of 1 October 2009 to 30 September 2010 and contained the pipeline business for the entire year, in terms of setting out how many applications were lodged, whether the loan was conditional or not, whether a valuation was required and providing information as to the various stages of the loan process through to settlement. The pipeline reports provided national data with the total number of loans, how many were converted and the dollar value.
Mr Fardon stated that an application to settlement conversion report measured how many applications submitted had actually been converted through to settlement for a given period and, in particular, was used to measure the quality of the submissions made for the loan by the franchisee.
He confirmed that he used the reports to make comparisons between different franchisees. Looking at Queensland itself, he considered that Binaray was an average performing franchise.
Mr Fardon acknowledged in cross-examination that the reports which he reviewed to compare franchisees’ performance had limitations. He agreed that there was no metric produced by RAMS to take account of all statistical differences to produce a grading point for every franchisee, such as one which takes into account the variations in markets arising from the disparity in demographics, population number and status as urban or rural. Mr Fardon considered that Brisbane Inner North and Brisbane North-East were markets which he did not consider would have had great variances for franchisees. He said RAMS’ focus was on the productivity side, of the number of loans written, and the one on three and one on seven reports were a measure that they used that was consistent as a benchmark for all franchisees. While Mr Fardon acknowledged the differences that could occur between different franchises, he considered that there were similar opportunities between franchise territories, notwithstanding the disparity in demographics, and stated that was why RAMS measured numbers and dollars.
In his role as head of sales, Mr Melvin reviewed individual franchisees’ performance.
Mr Melvin said that he also relied, in terms of a franchisees’ performance, on the one on three report and three on seven report as a means of checking the financial health of the franchisee.
Mr Melvin generally relied on information that came through the RAMS generated leads in his reviews, because the information was generated through RAMS in a consistent way and was, in his view, therefore reliable. He did not give as much weight to self-generated leads, because they were not recorded through an internal RAMS system and were not reported in a consistent manner by franchisees. RAMS had no control over their recording. His evidence was that ultimately the performance of a franchisee was determined by the size and growth of their loan book.
Mr Melvin considered that Binaray’s performance as a franchisee was average.
Mr Ziino also gave evidence. He was the head of best practice and change for RAMS since approximately May 2016. Between 2001 and 2007, he operated Investment Property Solutions. The purpose of that business was to assist RAMS customers who were wanting to acquire an investment property and help the general public in terms of funding and financing investment properties. RAMS franchisees would do the finance for the customers. They also had other financiers service those customers, including brokers. In that role, he had contact with brokers and had dealings with them. He later contracted with RAMS to start up a first time investor proposition, in which he had contact with RAMS franchisees, but not brokers. He was then asked to stay and work in an operations best practice role. He held that role for some five years until he was promoted to head of best practice. That role and his role at the time of giving evidence were national roles. His role in relation to best practice involved him determining what best practice looked like within the RAMS franchise business, looking at performance and operational gaps within the business, assessing franchisees that were doing particularly well, trying to understand why those franchisees were doing well, and using that understanding to develop a package of ideas to be shared with other franchisees who were not performing as well. That role involved a comparison of franchisees’ performances. For that comparison, Mr Melvin particularly looked at settlement volumes, application volumes, RAMS lead conversion, application to settlement conversion, loan book growth and loan book balance. He would review the various reports produced by RAMS, which were produced on a daily, weekly, monthly and annual basis. The Pipeline B reports, which he received on a daily basis, outlined the date of settlement and application transitions from the day before at a national and state franchise and home loan manager level, and were reports which he reviewed and analysed. He also used the one on three and three on seven reports. He compared the statistics in those two reports. The one on three and three on seven reports were analysed on a franchise by franchise basis. In particular, he was concerned to determine which franchisees were converting leads better than other franchisees. He also reviewed sales figures reports, which came out on a daily basis, as well as a monthly summary report that summarised total applications and settlements per state and nationally.
Mr Ziino met with Mr and Mrs Allen in the course of his role on a number of occasions, including visiting their offices on a couple of occasions and assisting in a seminar. In that role he formed a view as to the way that Binaray conducted its business based on his contact with them as well as the various statistics reviewed in the reports.
Mr Ziino characterised Binaray as slightly above average as a franchisee in relation to RAMS leads when comparing them nationally, state by state and regionally. In terms of loan book size, they were average or maybe slightly less than average compared to other franchisees that were in the business for the same length of time.
Binaray produced a comparison between the plaintiff’s franchise and seven other territories which they claim were comparable in Queensland, New South Wales, Victoria and Western Australia, in their closing submissions. Rather surprisingly, notwithstanding the evidence of Mr Fardon, Brisbane Inner North and Brisbane North East were not included in the comparison which Binaray has made. There may well be some basis upon which one might suggest that the inner city areas chosen by Binaray would be comparable to Binaray’s franchise in Brisbane Inner South, but the level of comparability with Binaray in terms of affluence, distribution or population density was not the subject of any evidence. As such, whether those areas chosen by Binaray are genuinely comparable to Binaray’s allocated territory is not established. While there was cross-examination of RAMS’ witnesses and they accepted that there were differences between different allocated territories, they were not asked about the comparability of the franchises referred to in Binaray’s closing submissions nor was the comparability established through any other witnesses. The witnesses for RAMS gave evidence that notwithstanding the differences between franchise territories, they still considered the RAMS method for comparing franchisees was a valid one.
In any event, little turns on whether Binaray was a high performer or an average performer. Binaray was clearly a competent franchisee capable of converting applications to settlements as is reflected by its expanding income over the years. As I have found above I do think that it would have taken the opportunity presented by having the BOC list and taken steps to exploit it, applying their skill as franchisees and the RAMS model. However, I am not satisfied that the evidence supports the proposition that it was a superior franchisee who was more capable of converting a lead to a settlement than most other franchisees, with the result that it would have enjoyed a high level of success in converting BOCs. I consider that the submissions of Binaray as to the relevance of Binaray being a highly skilled franchisee exaggerated its relevance in the ability of Binaray to convert a BOC by contending that the sale given that successfully converting BOCs depended on a number of factors. Of greater significance was whether the BOC had or would have had any interest in taking out an additional loan at all and were open to Binaray establishing and maintaining contact with them, notwithstanding that they had taken out a loan through a broker. The weight of the evidence, even of the Allens themselves, supports the fact that the BOCs who would be open to such contact would generally be those who were dissatisfied with or could not find their broker.
Franchisees vs Brokers
One of the significant issues between the parties is whether the pre-existing relationship between a BOC and a broker and the competition between brokers and franchisees for additional business created barriers which could be overcome by Binaray in order to convert BOCs to Binaray in respect of additional or further loans.
Binaray contends that franchisees offered constant service to customers which would be extended to BOCs and had more “skin in the game” and that the relationship between a broker and a customer was not so strong that Binaray would not convert BOCs. They also emphasise that the BOC was already a RAMS customer and therefore familiar with RAMS products. RAMS submits the relationship between a broker and its customer was as strong as that which a franchisee had with its customers, and that brokers engaged in similar marketing strategies to franchisees to ensure they maintained their customer base. RAMS contends that other than those dissatisfied customers who Binaray obtained through natural drift there was no real prospect that Binaray would attract BOCs, particularly given the limitations imposed upon contact with the BOCs by the Business Partner Charter and the fact they already had an existing loan with a broker.
It was accepted by the Allens and it was also the evidence of Mr Kirkpatrick, Mr Melvin and Mr Bowen that franchisees and brokers are in competition with each other. RAMS relies on the similarities between brokers and franchisees and particularly that both seek to maintain and grow their customer base in order to grow their loan book. Binaray however, relies on distinguishing features between the two to support its argument that Binaray could convert BOCs to its own business.
Binaray contends that a RAMS franchise was usually long term and thus had a compelling incentive to maintain the relationship with customers in accordance with the RAMS model. In contrast, they contend that brokers had no such contractual relationship and chose whether or not they maintained ongoing contact with a customer or provided minimum service. I accept that there was a different contractual framework driving a franchisee to maintain its relationships with customers and RAMS, which may not have been the case with a broker who was free to deal with multiple lenders. However, that does not lead to a conclusion that there is a significant point of distinction in terms of the motivation and behaviour of a franchisee and a broker to maintain the customer.
A number of matters were common ground on the basis of evidence given on behalf of both parties at the relevant time:
That there were good and bad brokers;
The broker had an existing customer relationship with BOCs;
That if Binaray approached a BOC, the broker would generally actively try to retain their customers;
Binaray and brokers were in competition with each other;
Good brokers stay in contact with BOCs and keep a record or have a system to keep in contact with customers about the customer’s requirements and to see if they can be of assistance and operate customer systems in a similar manner to a RAMS franchisee;
A RAMS broker, like Binaray as a franchisee, would not get paid if it did not have customers; and
Generally, a broker would be motivated to work hard to keep a customer for the same reasons that Binaray works hard to keep a customer.
The Allens gave evidence that:
They dealt with customers whose brokers were of a transient nature, such that they were there one day and gone the next;
Brokers could not be located and they were uncaring;
Otherwise, brokers received the same general complaints that a franchisee would receive such as interest rates being too high and repayments being too difficult; and
According to Mrs Allen, pre-Westpac, they came into contact with BOCs when they walked in the door because they could not find their broker or dealing with RAMS directly was easier and, post-Westpac, the complaints would be that they did not like brokers, they were not happy with them or felt that they were better off dealing with RAMS directly.
The evidence given by Mr and Mrs Allen was based on their contact with customers of brokers who attended their offices and what they were told by those customers. Otherwise, it was based on contact they may have had with a broker at a function or socially.
Mr Bowen was a RAMS franchisee who operated in Victoria for some eleven years until approximately 2017. Prior to that time, he was a mortgage broker in Victoria. Mr Bowen also gave evidence that in his experience customers of brokers contacted his franchise when they found that their broker was unhelpful, unwilling or unable to help them or that they could not make contact with their broker.
Binaray contends that RAMS seeks to overstate the strength of the relationship of a broker with its customers and states that the evidence of the defendant’s witnesses was largely hearsay and speculation, given it did not call any brokers to give evidence as to how they conducted their business. Binaray emphasises that the contention of RAMs fails to answer the evidence of the Allens and Mr Bowen that they received BOCs as customers who were dissatisfied with their broker, without any marketing at all, which indicates the poor quality of brokers generally. It also contends that if the relationship between brokers and their customers was so strong there would have been no natural drift of BOCS from their brokers to Binaray and Mr Bowen’s franchise, which is contrary to their evidence.
Further, Binaray emphasises that there are important distinctions between the brokers and franchisees, namely:
The broker was not bound to RAMS and thus had no incentive to continually service the RAMS customer;
The broker after the expiration of a clawback period was in a position whereby it could “churn” or seek to write the customer into a new loan elsewhere, thus increasing the upfront commission;
The broker unlike a RAMS franchisee had no minimum performance standards to meet;
The RAMS franchise was long term and had a compelling incentive to maintain the relationship with a customer; and
The broker could vary in size from a sole trader operating from home in their pyjamas to one who operated through an aggregator.
RAMS contends that good brokers would approach their business and customer service in the same way that Binaray would as a franchisee and also had the same motivation to maintain that client, which presented a significant hurdle which Binaray would have to overcome to be able to convert any of the BOCs to being their customer by selling an additional product. The Allens conceded in cross-examination that this was the correct position.
RAMS largely relies on the evidence of Mr Kirkpatrick, Mr Melvin, Mr Fardon and Mr Ziino, as well as concessions made by the Allens.
Binaray contends that the evidence called by RAMS as to brokers should be disregarded as the RAMS witnesses were not brokers. That is a rather surprising submission, given that Binaray led evidence from the Allens as to their understanding of the operations of brokers which was based on hearsay. In the case of Mr Kirkpatrick and Mr Ziino, they had dealt with brokers directly and observed how they conducted their business. As such, they could give direct evidence as to the operations of a broker business. Mr Melvin’s evidence was limited insofar as it was based on his knowledge of the mortgage industry through his involvement in the banking and finance sector for many years. I accept he had sufficient knowledge of the industry and expertise to provide high level comments on the nature of the competition between brokers and franchisees but not on the individual operations of a broker. Mr Fardon could comment on the impact of competition on a franchisee’s business and his experience of franchisees being able to exploit opportunities. I found Mr Kirkpatrick’s evidence to be the most persuasive and of the greatest weight, given his experience in dealing with both brokers and franchisees.
Mr Kirkpatrick was formerly the head of the RAMS broker and franchise businesses. He worked for RAMS from 2009. He was the head of the broker channel for six months and then the head of the franchise channel for approximately two years and subsequently became the head of the broking channel for St George Banking Group from approximately September 2011. At the time of giving evidence, he was the general manager for VOW Financial, a financial wholesale aggregation business in mortgage broking. As the head of the broker channel, he met with brokers at their premises. Generally, he tried to meet brokers two days a week. He stated that he made observations from going to the offices of brokers and carrying out the accreditation process of brokers for RAMS as to how the business of a broker operated, and developed an understanding of the ownership and structure of the business. In his position as head of franchise, Mr Kirkpatrick stated that he had direct contact with franchisees and visited and saw franchisees operating in their businesses, observing systems approximately two days a week. In his role at St George, Mr Kirkpatrick met with brokers two to three days a week and observed how they ran their businesses and operated their business structure. While Mr Kirkpatrick was not a broker himself, he had directly observed the operation of the businesses of both franchisees and brokers. He therefore could give evidence as to the operation of the business of a broker and a franchisee based on his observations. I found that his evidence reflected considerable knowledge about the broking and franchise industries in the context of lending and that his evidence was honest and measured.
Mr Kirkpatrick’s evidence was that in the case of a BOC and broker, the relationship with a customer is stronger with a broker than it would be with the RAMS brand. This was based on the fact that brokers would have undertaken the interview process with the customer. At those meetings, the broker and the customer would have agreed on what was the best solution for their needs at the time, based on the advice of the broker. From his observations of the business of franchisees and brokers, he considered that brokers had an advantage of being able to offer better deals to their customers from other lenders, which was of a particular advantage after the claw-back period compared to the position of the franchisee who could not market a better deal from another lender with a view to discharging the RAMS loan. A RAMS accredited broker could offer a range of products from a range of lenders, whereas a RAMS franchisee was largely restricted to RAMS products.
Mr Fardon observed that brokers operated their businesses in a similar manner to franchisees. His observations about brokers bore considerable similarity to the way that Binaray described their business, particularly in relation to making contact with customers post-settlement and then continuing to make contact with them, using their CRM or their aggregator’s platform to plot milestones to maintain contact with the customer through information bulletins, milestone notes such as the anniversary of the loan, birthday cards and the like. Mr Kirkpatrick’s experience was that once a RAMS broker wrote a RAMS loan, the loan would become part of the broker’s loan book. The loan book was measured by outstanding debts and was protected by brokers because it represented an annuity stream. He observed that like franchisees, brokers grew their loan book by contacting their customers when they observed that they had rising equity to encourage them to take out further loans and seeking referral sources, such as solicitors, accountants and property developers. He also found that both franchisees and brokers provided a flexible service in terms of meeting clients at different hours and at informal settings such as a cafe. For both brokers and franchisees, the incentive to provide good customer service was, from Mr Kirkpatrick’s observation, the value of customer service: “The more lulled your customer becomes, they stay longer, plus they recommend you…to other people”.
Mr Kirkpatrick considered that, as a general proposition, a RAMS franchisee was in the same position as a broker to provide customer service, but it obviously depended on the individual and their business practices. Based on his observations about the relationship between a customer and their broker, he considered that that relationship was stronger than the relationship with the customer to the RAMS brand, and that it would therefore be a stronger relationship than a RAMS franchisee who had the list of BOCs.
Mr Kirkpatrick, however, accepted in cross-examination that RAMS had no control over a broker and whether they wanted to maintain a service relationship with the customer depended upon the broker, although RAMS could have removed a broker’s accreditation if they were refusing to provide customer service. He disagreed that after the claw-back period, it was necessarily in the interests of a broker to re-write a loan to another lender because a broker was also trying to build their loan book and a trail of commission has a recurring value, thus creating an asset for the broker to sell in the future.
Mr Kirkpatrick agreed that the RAMS business model provided for continuous communication and servicing based on the notion that customer satisfaction leads to further business and that customers are a valuable source of future business. He agreed that if a franchisee could market to a BOC, it provided an opportunity to up-sell.
Mr Kirkpatrick stated that RAMS did not engage brokers directly, but did accredit brokers. RAMS was not responsible for paying brokers. That was the responsibility of an aggregator. An aggregator is the supplier of a platform through which the lenders have a relationship with mortgage brokers. It is a supplier of a platform which includes a product selection platform, a compliance or governance platform and a payments clearing mechanism. The aggregator is responsible for the quality of brokers that it introduces to the lender. Mr Kirkpatrick’s recollection was that RAMS and the aggregators with which they dealt had an agreement whereby RAMS could not market to the customers of the broker. That agreement was not produced. No further evidence was provided to me in that regard. As such, I give it no weight.
Mr Melvin gave evidence. He was a candid witness. At the time that he gave evidence, he was the interim Chief Executive Officer (CEO) for the Bank of Melbourne but he was otherwise the head of sales for RAMS. He had held that position since 2014. In that role, his job was to grow the franchise network. Prior to that, he had worked for Abbey National in the United Kingdom as the Director of Franchise. Upon moving to Australia in 2003, he worked for Australia and New Zealand Banking Group and held positions as State Manager of Retail for a number of States. He then worked for the National Australia Bank as the General Manager of Mortgage Services.
His evidence was in his role with RAMS, he worked with franchisees and met with them regularly at their office or in a group setting. Those meetings often occurred at the franchisee’s office if he was meeting with them individually. In his role as head of sales, he stated he had the opportunity to observe how the franchisees did their business. He said that his role was to observe their businesses and to share RAMS’ best practice. As part of his role, he regularly reviewed individual franchisees’ sales performance, doing so each Monday. He received a 13 week report which showed weekly applications for loans and weekly settlements by unit number and dollar number.
Mr Melvin had not been a broker nor had he worked with brokers, but he had extensive experience in loans and particularly franchisees or financial institutions. He stated that he kept across the developments in the broker industry in Australia by obtaining data as to the broker’s presence in the loan market and reviewing market literature on the broker business.
From his experience in the industry as head of sales, Mr Melvin considered that there was significant competition for referrals between mortgage brokers, banks and franchisees. His observation of the loan market was that brokers were as keen to hold onto their customer base as everybody else, including franchisees.
Mr Kirkpatrick and Mr Ziino identified that an advantage that a broker had over a franchisee was its ability to deal with a broad range of lenders. That was to some extent mitigated by the fact RAMS franchisees could deal with other lenders. Mr Melvin gave evidence that Choice was an aggregator platform through which RAMS allowed franchisees to place loans when RAMS could not meet the customer’s need in terms of a loan. In that case, a franchisee was able to place the loan with any other financial institution approved under the Choice platform.
Binaray contends that RAMS overstates the relationship between a broker and customer, as if the relationship were as strong as RAMS contends, there would not have been drift from the broker to the franchisee while the broker remained in business. They contend that the Court should not accept that the relationship between a broker and their customer could not be broken by Binaray, given that was contrary to the evidence of the Allens and Mr Bowen. Mr and Mrs Allen gave evidence that BOCs approached them because they could not find their broker, they were unhappy with their broker or they wanted to deal with somebody face to face.
Mr Bowen gave evidence that his franchise had frequent approaches from customers of brokers, although the notion of the frequency was ill-defined. Moreover, his evidence as to how many BOCs his franchise successfully converted to his business was non-specific. Further, its relevance is of a tenuous nature, given that he operated in a different area, namely Victoria. He suggested that there was an 80, 20 rule in relation to how brokers would look after their customers, meaning that 20 percent of brokers would have looked after their customers and the other 80 percent would not have. No factual foundation was provided to support such a rule. He clarified that he was not talking about RAMS brokers, but brokers in general. He stated that he had contact with 20 or 30 RAMS brokers between 2004 and the end of his franchise, as both competitors and referral partners. He accepted that some of those brokers were good brokers in terms of performance and how they ran their businesses, and that they had been motivated to deal with their customers and build rapport and good relationships with them in the same way as franchisees were motivated. Mr Bowen stated that he could not comment about whether brokers were able to retain customers because he did not know what happened in relation to those customers. He also stated that he did not know the ins and outs of the individual businesses in order to be able to comment on whether the good brokers were good at keeping customers and adding customers to their loan book. He only understood in a general sense the nature of their business, but accepted that good brokers in a general sense were good at keeping and building customer relations by staying in contact with their customers and servicing their needs when they wanted a new loan. He agreed it was in the franchisees’ and brokers’ interests to make sure that they did not lose a customer and that if they did lose a customer, they would lose income and referrals as well as the opportunity to write additional loans.
Mr Bowen considered that a difference between a “not so good broker” and a franchisee was that a franchisee had a long term commitment and contractual performance requirements and was building a business in which they were encouraged to open offices and brand them. In the case of a broker, they dealt with a whole spectrum of lenders who chopped and changed as to their policies and their interest rates, they took time to process a loan and most brokers were a one man band. In relation to a not so good broker, broker customers found their way to his RAMS franchise office because they could not find their broker, their broker did not know how to do what the customer was asking or they were simply not interested. In some cases, the brokers had gone out of business.
I found Mr Bowen’s evidence was of a very general nature. While he had been a broker, that had been prior to 2004. No evidence was lead as to how he operated as a mortgage broker, how long he had engaged in that business or how the operation of his business as a franchisee differed from his operations as a broker. While I found him to be a precise witness, I found he was cautious about making concessions he considered may be to Binaray’s detriment. I consider that his evidence was not impartial and was influenced by the fact that he had been a RAMS franchisee and favoured the position of the franchisee. Like much of the evidence in this case as to the operations of brokers, his evidence was at such a level of generality, being based on his own limited experience as opposed to the broader experience of Mr Kirkpatrick and Mr Ziino, that I can give it limited weight, but accept it gave some support to the experience of the Allens as to how they acquired BOCs..
In that regard, while the potential to attract BOCs and their additional business would have been greater where a broker was underperforming or was of a transient nature, no evidence was provided by Binaray as to the number of such brokers in the area. While Binaray submits that Mr and Mrs Allen could, by their frequent dealings with customers, ascertain the quality of brokers generally, the evidence of those dealings was non-specific and general. While I accept that the Allens and Mr Bowen did deal with dissatisfied customers of BOCs, and some evidence was provided of BOCs who became customers of Binaray and Mr Bowen’s franchises, no evidence was given as to the approximate number of BOCs who contacted them.
One of the difficulties in this case is that scant evidence was lead as to:
The number of brokers who were in the Allocated Territory;
The nature of the business operated by brokers who operated in the Allocated Territory and whether they maintained relationships with their customers; and
The number and identities of BOCs that complained about the brokers to the Allens. In particular, notwithstanding that this litigation began in 2013 and Binaray’s franchise did not end until July 2016, no analysis was provided of the data on the CRM base which, according to Mr and Mrs Allen, recorded BOCs and their history, once they had agreed to be placed on the database. Rather, the evidence was given on the basis of recollection with the assistance of commission reports, which did not identify whether a customer was broker originated or not.
Mr Allen did identify Resi Home Loans as a lending aggregator that lasted for about six months that set up shop three or four shops away from them. He otherwise did not identify any brokers who were transient or from whom unhappy customers had come to their office. Mrs Allen similarly did not identify any brokers by name with whom customers had expressed dissatisfaction. Mrs Allen did identify from a list of brokers provided by RAMS to Binaray in March 2010 that she recognised the aggregator groups. Mrs Allen identified that Choice and Aussie Home Loans were aggregators that had brokers in the area during the entirety of Binaray’s franchise. Mr Allen identified AFG as an aggregator which had brokers in the area, which stayed throughout Binaray’s franchise. Mr Allen stated that he believed that the brokers listed in Exhibit 15 were operating in Binaray’s territory in March 2010. 35 of 39 of the brokers on that list were identified as being part of aggregator groups such as AFG, Choice and Mortgage Choice.
The evidence of the Allens suggested that Binaray would not seek to attract BOCs whose loans had been underwritten by brokers who were part of an aggregator group. Mrs Allen’s evidence was that if a BOC who was originated by a broker who was part of an aggregator group came into Binaray’s franchise, they were sent back to the broker. In that regard, I think RAMS overstates the effect of that evidence. Mrs Allen was not suggesting Binaray would not pursue the opportunity at all, but rather that she would turn away BOCs who were customers of aggregator brokers because Binaray would have received no financial benefit for writing an increased loan.
Conclusion as to brokers
There was not on the evidence any significant controversy that good brokers would adopt similar practices like Binaray and would maintain ongoing contact with their clients, monitor their loans and seek to ensure that they were informing them as to options available for further loans so they would be able to write the business. The broker would also wish to grow the value of his loan book and would take active steps to protect it and seek further work from his customers including through referrals. That evidence was given by Mr Kirkpatrick who had had the opportunity in his position to adopt the practices of both franchisees and brokers. Mr Bowen gave similar evidence as to brokers from his experience. Mr and Mrs Allen did not dispute that good brokers would seek to service their clients and compete to maintain their customer base in a similar way to Binaray and at least accepted that would be true of brokers working through brokers.
I also accept Mr Kirkpatrick’s evidence that given the nature of a broker’s business whereby they access a number of lenders, the majority of BOCs would have gone to brokers to obtain the most suitable and competitive loan available and would not have loyalty to the RAMs brand, although they may have developed that over time. A competent broker however who maintained that relationship with their client would have been cognisant of that when dealing with their client as to any future loans or other products.
While there was some incentive for brokers to write new loans for customers after clawback provisions ceased, there were also incentives for them to not do so and build the value of their loan book. I do not consider this is significant factor in the present case. While I accept that brokers were not bound to performance standards like the franchisees I accept the evidence of Mr Kirkpatrick and Mr Melvin as to the value of customers to a brokers business and infer that most brokers would wish to grow their customer base and business and maintaining service and contact with customers would also be a priority for the broker. I accept Binaray’s contention that the broker would not have the same loyalty as a franchisee to the RAMS brand and its products but I do not consider would have been a matter which weighed significantly in favour of Binaray attracting customers. Customers going to brokers would generally be aware they could facilitate loans through a number of lenders. The more important fact would have been the loyalty the customer had developed with the RAMS brand. Unless the RAMS products were particularly tailored to the need of the customer or the customer developed that view over time because, for instance, they were self-employed or did not earn sufficient income to get a loan from one of the larger banks. I do not infer the customer would have developed greater loyalty to the RAMS brand over and above their broker unless dissatisfied with them. No evidence was given as to the demographic in Binaray’s allocated territory.
While the evidence as to the makeup of brokers in Binaray’s allocated territory was fairly scant, the evidence does show that brokers predominantly worked with aggregators in Binaray’s allocated territory and that there had been throughout the period of its franchise. I find that in relation to those brokers who operated through aggregators it is likely that the majority competed with Binaray for customers adopting similar practices to Binaray to maintain and develop those customers, given Mr Kirkpatrick’s evidence as to their operations.
While the RAMS model did provide for a process of education and constant contact with the client as a proven method of maintaining clients and procuring further business from them directly and I am satisfied that Binaray would have applied that model in relation to the BOCs, that contact would have been constrained by the terms of the Business Charter and privacy legislation which enabled the customer to elect not to be contacted by Binaray. I consider that there would have been approximately five percent of BOCs that would have been unlikely to respond to the contact made by Binaray and a number would have elected not to have their details placed on Binaray’s database, preventing Binaray from developing a relationship with those BOCS to apply the model. This is because the BOCS would have had an existing loan with the broker and the majority of brokers in Binarya’s area who worked with aggregators would have been servicing the clients and maintaining contact to ensure that they maintained their customer base and attracted any further business from them. Even though the BOC would have been dealing with RAMS and familiar with its products I consider that a good broker would have been alive to that.
I find that prior to the closure of the broker channel, brokers in the allocated territory would have competed with Binaray for BOCs and that Binaray was only likely to have attracted BOCS who were dissatisfied with their broker or could not find them. I find that there is likely to have been more customers dissatisfied with their broker than were the subject of natural drift but I do not infer that there were a significant number given that based on the evidence before me, brokers working through aggregators made up the majority of brokers in the allocated territory in which Binaray operated.
After the broker channel closed, I find that good brokers would have still sought to keep their clients satisfied and maintained contact with them. However given that the brokers could no longer write RAMs loans directly they would be unlikely to seek to promote RAMs loans to their clients where there was a product available to them from a lender for whom they could directly write the business. I consider it is likely some customers in a counterfactual would have been satisfied with the RAMS product and found it met their needs and if Binaray had been able to make and maintain contact with them, Binaray would have had the opportunity to convert them if they wished to take out an additional or further loan after the broker channel closed.
While it is possible that Mr and Mrs Allen may have had personal appeal to some BOCs who they contacted and developed a relationship with them, I consider the value of that opportunity is speculative.
Which lead is the best proxy?
The question of the appropriate proxy for the conversion rate of BOCs in the counterfactual was the subject of considerable evidence at the trial. RAMS contends RAMS leads are the best proxy whereas Binaray contends self-generated leads should be used.
RAMS leads which were leads directed through the RAMS phone centre or internet to franchisees suffer from the fact there is no filtering. The evidence of Mr and Mrs Allen, Mr Bowen and Mr Fardon support the fact that those leads will often not lead to any business for a franchisee on the basis that the people who are RAMS leads, may not have any ability to be able to qualify for a loan, may be making a random enquiry such that the person concerned is not interested in obtaining a loan at all or may simply be engaged in an information gathering exercise.
Self-generated leads are any leads which are not RAMS leads. They include referrals that are made through other clients, through solicitors, through accountants or through real estate agents. There is no dispute that the referrals, particularly through professionals, are regarded as hot leads. Both Binaray and RAMS also agree that the RAMS leads are not as strong as the self-generated leads. The witnesses called by RAMS regarded RAMS leads as slightly warmer than cold calling because the individual has made the enquiry.
Binaray contends that the BOC list with contact details is not akin to providing the franchisee with an opportunity to cold call clients. That is on the basis that the BOC is already an established RAMS customer, familiar with the brand and the method of operation and has qualified as a borrower at least once. They would generally be in the category of people who had existing home loans. Given they had previously qualified for a RAMS loan, they would have a high probability of qualifying for a loan under the RAMS model and if they had enjoyed an existing loan, they were potentially a person who was in a position to take on a further or additional loan. Binaray therefore submits that they are more akin to the self-generated lead and clearly superior to a RAMS lead. RAMS contends that BOCs are on a colder scale because the BOC is somebody else’s customer who may or may not be looking for a loan and who may or may not qualify for an additional loan. Mr Melvin considered in the initial contact with the BOC, the BOC would be someone who would be in the position of being cold called by a stranger, not having any sort of relationship with the franchisee at that point in time, although it would depend on whether or not the customer was looking for an additional loan.
Mr Allen stated that 90 percent of RAMS leads were useless. Mrs Allen also gave evidence about the time wasted upon such leads because they could not afford a home loan, did not have a job, did not have a property, were making requests for services not provided by the franchisee or sometimes even RAMS, or gave false contact details. Both Mr and Mrs Allen complained as to the accuracy with which RAMS recorded the figures. Ms Letts’s analysis of Mr Choo’s requested conversion report for Binaray, which was reduced to a table, Table 1 in Exhibit 74, reveals that approximately 40 percent of Binaray’s business was generated by a RAMS lead. It was also the measure by which RAMS measured franchisees’ productivity and advised them on how to improve their business. After September 2013, BOCs who called RAMS were referred to Binaray which according to Mr Allen, led to them acquiring a number of customers.
While I accept RAMS leads were significantly weaker than self-generated leads, I do not accept that 90 percent of the RAMS leads were useless and consider Mr Allen exaggerated the position. I found the evidence of Mr Fardon, who was the regional franchise manager, who received complaints from franchisees about RAMS leads to be measured and reasonable. He accepted that there were a certain percentage of RAMS leads who wanted a home but were not in a position to obtain a loan or were ‘tyre kickers’. He accepted there were some leads who had zero or one percent of conversion to a loan, but others who were as high was 30 percent and some who would require a longer time to convert because they were first time home buyers. I consider his evidence accurately indicated the range of RAMS leads and find RAMS leads do have value.
I accept the evidence that the RAMS lead rate was the most appropriate rate to adopt in respect of determining a reasonable proxy for the list of BOCs, taking into account all of the uncertainties involved.
If the franchisee did manage to make positive contact with a BOC such that the BOC was open to being contacted by the franchisee such that the franchisee could build a relationship over time using the RAMS business model, there were then clear advantages to the franchisee given the familiarity of the BOC with the RAMS product and the fact they had previously qualified for a loan.
Strength of Lead
Binaray contends that the conversion rate for self-generated leads was the best comparison to being provided with a list of BOCs, although it concedes self-generated leads are superior. However, while all witnesses accepted self-generated leads were the strongest leads, the collection of information relating to self-generated leads was not consistent. The difficulty in comparing the potential strength of a RAMS lead with that of a self-generated lead is that the same information is not available in order to make a true comparison. Self-generated leads were generally measured from the point of application, rather than the first point of contact, whereas RAMS leads were measured from the first point of contact. While Mr and Mrs Allen considered that the provision of the BOCs would provide a much stronger lead than a RAMS lead because they were already established RAMS customers, as Ms Letts stated in evidence, the strength of the lead would depend significantly on whether the BOCs were wanting an additional loan. The RAMS witnesses considered that the provision of the BOC list was only slightly stronger than the franchisee cold calling clients. RAMS also relies on the fact that RAMS leads are customers who have made contact with RAMS, albeit that a number of them could not be considered a candidate for a loan for various reasons, as a factor which suggests the use of RAMS leads as a comparator is conservative.
Mr Melvin gave evidence that he was very familiar with the different type of leads available to a franchisee. A RAMS lead is a lead that RAMS passes on to the franchisees when a customer contacts RAMS via its 1800 or 1300 RAMS number or via the internet. He was also aware of self-generated leads, which he characterised as any lead that was not a RAMS generated lead. Those leads primarily came from franchisees that had developed referral partners, such as real estate agents, accountants or solicitors but could also include people who walked in off the street. His view of the different leads generally accorded with the evidence given by witnesses called by Binaray and RAMS. Mr Melvin stated that at a general level, about 80 percent of settlements for a franchisee would come from self-generated leads and 20 percent would come from leads that RAMS provided.
Mr Melvin considered from his observations in working with the franchise business that a lead from a broker, real estate agent, accountant or solicitor would be between a range of eight to ten if one was talking about ‘hot leads’, with ten being the hottest. In contrast, a RAMS generated lead was more likely to be one, two or three on that scale.
I accept the evidence of the RAMS witnesses that the provision of the BOC list did not provide a strong lead and was more akin to a RAMS lead. While the Allens contended that the BOC list was more akin to a self-generated lead because the BOC had a pre-existing loan with RAMS, I consider that is unsupported by the weight of the evidence. I am satisfied that the fact the BOC was a customer of a broker and the fact they may not be interested in any future loan, had not instigated contact and the potential competition that would arise with brokers for any additional business all militate against the strength of the lead. While Binaray contends that it should not be assumed that the BOC had a relationship with a broker, the similarities between a broker and franchisee and the way they operated was borne out by the evidence. While there obviously are brokers who are not good at their role and working to maintain relationship with the customer, the value of a broker’s business depended on the value of its loan book and writing new business. The points of difference identified by Binaray do not outweigh those factors. Notwithstanding that, I accept if the customer was interested in an additional loan and willing to deal with Binaray, Binaray would have the advantage of that customer having already been a RAMS customer which would be likely to increase the chance of an additional loan being approved.
Closure of broker channel
After the closing of the broker channel, a broker could not write business for RAMS directly. They had to refer a client to a franchisee if the client wished to obtain a RAMS loan or other RAMS product.
Based on the evidence before me I cannot draw any conclusion as to why the broker channel was closed by RAMS. However, once the decision was made, RAMS subsequently determined that it would seek to expand its business by writing business directly or through the growth of the franchise network.
After the broker channel had closed, RAMS encouraged franchisees including Binaray to approach brokers in order to see if they could enter into a relationship with the brokers. Mr Allen indicated that he did not do so, because he was worried about receiving a breach notice. He considered, however, that it would have been a good thing to do, given the number of broker clients. He stated Binaray did not have any negotiations regarding what referral fees the brokers would have wanted.
In September 2013, RAMS provided a further email. That email stated:
“We have some great news for you in relation to new opportunities from RAMS Customers who have a broker originated loan with us. From this Wednesday, 4 September 2013, when a customer with a broker-originated RAMS home loan calls the contact centre about a Variation, franchisees … will receive email and SMS notifications to respond to the opportunity. This has been developed in response to the feedback from many franchisees and to provide a better experience to customers who have been referred to RAMS by a broker…”
Mr Allen stated that the process indicated in that email, which was subsequently adopted by RAMS, was successful because Binaray did obtain a number of BOCs, but he could not estimate how many. Mrs Allen’s evidence was that they got more customers when the broker channel closed. She stated that they also got more BOCs in 2009 when there were some legislative changes affecting brokers, which resulted in brokers not being available and the customers not being happy.
Binaray attaches significant attention to the closure of the broker channel in 2010, and contends that it is strongly supportive of the market impact of the franchisee. It contends that even if the broker channel was only closed down because of a shortage of funds for lending in 2010, the closure became a long term, strategic decision and showed the success of the franchisee network. Binaray submits that, similarly, the departure of BOCs from brokers was a consequence of the success of the franchise network. It contends that belies the contention of RAMS that a BOC would have been resistant to any communications from a franchisee such as Binaray and have remained with the broker in respect of future business notwithstanding the contact made with them by a franchisee such as Binaray.
Mr Melvin was cross-examined about the closure of the broker channel. It closed prior to his joining the business. He was unaware of the reasons why the channel shut down. His evidence was that his job was to grow the business and, other than direct business, the only distribution channel through which that could be done was the franchisee channel.
Mr Melvin was asked whether he saw any barrier or difficulty with returning to mortgage brokers after the closure of the mortgage channel. Mr Melvin stated that there was always going to be a barrier because RAMS exited from its brokers, and brokers were therefore going to clearly be wary of a company that was in the market and then came out of the market. He stated that RAMS did not need to get back into the broker business because their franchisees were operating well and growing and there was not a need for RAMS to go into the broker business again. Mr Melvin stated from the Westpac Group perspective, some 50 percent of their loans are written by brokers. Binaray submits that given that, RAMS must consider that their business franchisees are an effective tool to grow the RAMS business. There are no doubt a number of reasons for RAMS adopting that position. Mr Melvin stated that they had engaged more franchisees, filled more territories and engaged more people. On his evidence, franchisees were establishing themselves with more ‘best practice’ and there were more loan writers. Mr Melvin stated that in order to grow the business, RAMS had grown and developed so that the franchise network, led by its good franchisees, had effectively reduced the need to rely on the mortgage broker channel. He stated that mortgage brokers now go through franchisees as opposed to going to RAMS directly.
However, Mr Melvin stated he still monitored the position of brokers in the market by reference to market literature and considered they were still a very strong competitive force.
The fact that RAMS closed its broker channel and expanded its franchisee network does support the fact that RAMS regards the franchise network as successful. It does not establish, however, that brokers were not a strong competitor for franchisees at the time Binaray was operating its franchise. At its highest, it does support the fact that franchisees are a competitive force against mortgage brokers, given they are the vehicle through which RAMS has chosen to grow its business. While Binaray may contend that it shows that there is a greater number of brokers who have weaker customer service than franchisees such as Binaray, and that active marketing would appeal to the customers of those brokers, I do not consider that is an inference that can properly be drawn. The inference that can be drawn is that RAMS did at some point consider that franchisees were or could be as efficient as brokers for RAMS products and grow the RAMS business as effectively or that, given that RAMS had closed the broker channel, that was its only realistic option. The question remains, however, of what is the value of the opportunity to contact and market to BOCs where the BOC has written through a broker.
Binaray submits that the hypothetical that had to be considered by the Court in this matter or what would be the position if counterfactual that has to be considered by the Court, namely if the franchisee was provided with the list of BOCs with contact details, in fact became a reality when RAMS was no longer accepting work from brokers. Binaray would have actively been in communications with those people such that they had established a relationship with them and would have been in a position to take out further loans with those BOCs. That would depend on whether a BOC was willing to engage in contact with Binaray, notwithstanding that they had taken out a loan. The brokers had not closed down. RAMS had closed the broker channel. If they were willing to engage in contact with Binaray, that would have strengthened the value of the lead and increased the probability of converting the BOC into a Binaray customer. Binaray further submits that the situation in September 2013 where RAMS provided for the client centre to start sending details of BOCs to franchisees would not have been necessary because the franchisees would have had long established relationships with them and they would have contacted Binaray, not RAMS. Again, that will depend on the contact Binaray has been able to make. Binaray contends that as a result of what had happened in relation to the broker channel, the brokers became disenchanted with RAMS and sought to churn the loans. There was only anecdotal evidence by Mr Allen in this regard. It is a matter of speculation. Even if true, that indicated brokers were acting to keep their customers.
Mr and Mrs Allen and Mr Bowen all gave evidence as to BOCs becoming their customers and taking out additional loans with them even when their business had been unsolicited and no marketing had occurred. Binaray contends this supports the fact that if it had access to BOCs and their details and had been able to contact and market to them they would have attracted far more BOCs. In particular, Binaray contends it demonstrates that the hold brokers had over their customers was not as strong as contended by RAMS, otherwise customers would not have drifted at all. It also contends that it demonstrates that there are brokers who provided poor quality service. In a hypothetical world, Binaray would have been able to actively market to the BOCs and make contact with BOCs who were dissatisfied with their broker or, by establishing and making consistent contact with them and marketing to them, Binaray would have been able to reach those BOCs who were not particularly satisfied by their broker, and by the time they were ready to take out additional loans those BOCs would have used Binaray because a relationship would have been established and they would have recognised the service offered.
RAMS contends that the Court should infer that, given Binaray’s prominent position in the area, Binaray’s customers who were customers as a result of natural drift showed the full extent of the valuable opportunity lost to Binaray had the list of BOCs been provided to them and that the remaining value of the opportunity is purely speculative.
I accept the submission of Binaray that an inference can be drawn as a result of the drift of BOCs to Binaray that there were brokers in the allocated territory who had lower standards of customer service than Binaray or disappeared because they did not have a sustainable business. That said, as I stated above on the basis of the evidence in Exhibit 15 and the Allens, I consider it is unlikely to have been no more than 10.3 percent of brokers given the remaining brokers were with aggregators.
I infer that it is likely that there were other BOCs who did not have any queries about their RAMS loan which resulted in them contacting Binaray, or who were unfamiliar with Binaray, or who were dissatisfied customers of brokers, who would have responded to contact by Binaray given their connection with the RAMS product if they had been looking to take out additional loans or other RAMS products at the time of contact or in the foreseeable future. While I do not consider the number of such customers were significant, I do not consider that the BOCs who had already contacted Binaray represented the universe of dissatisfied customers who Binaray may have been able to attract as customers of their own. However, it would also largely have depended on the BOC wanting to take out an additional loan either at the time or in the foreseeable future. This is supported by the fact that when Binaray did actively market to BOCs who were referred by RAMS in 2013, the Allens stated that they obtained a number of additional customers. One would infer that they were looking to take out additional loans by the fact that they had made contact with RAMs and were subsequently a source of further business for Binaray.
While I accept that a BOC of a good broker may, if Binaray established a relationship with them, provide their further business to Binaray rather than to the broker, that opportunity could, on the evidence before me including of the Allens themselves, only be regarded as speculative. This is so given that a good broker would be seeking to maintain the relationship with its customer at the same time that Binaray might be trying to build up a relationship with that customer and would seek to provide a service of equal standard to that which could be provided by franchisees such as Binaray. The evidence does not suggest that an established customer of a broker with an existing loan is likely to have given its additional business to a franchisee such as Binaray.
I consider the question of whether “natural drift” affected the size of the notional BOC database below.
RAMS’ recognition of opportunity
Binaray contends that the fact that a commercial opportunity existed by virtue of the fact that there were BOCs in the marketplace is readily supported by the RAMS documentation as well as its own business model. In this regard, they rely on communications that took place in 2004. In an email dated 2 December 2004, George Sattout on behalf of RAMS sent an email to various franchisees including Mr Bowen with respect to initial customer communication to broker customers, describing it as great news. That email stated, inter alia:
“We want to introduce the customer to their local RHLC/Franchisee and warm them to receiving future offers whilst at the same time, acknowledge the originating Broker and their stake in the relationship.”
To that end, it was referring to all customers who are allocated to a current franchise under the relationship owner rules and who were originated by a broker. The email went on to state:
“Once this communication is underway, the Broker customer listings will then be released to each franchisee, enabling you to follow up this mailing and communicate with these customers in line with the convention set out in the Business Partner Charter. This is a positive move for Franchise as it gives you an expanded customer data base to market to. Having said this, we must stress, in the best interests of all business channels, that the Business Partner Charter… is read carefully and understood to avoid any conflict or contravention.”
The email identified a number of campaign objectives including to pave the way for future “RHLC marketing campaigns/offers to this customer segment” whilst acknowledging the relationship with the originating broker. At the time, RAMS wished to promote the RAMS MasterCard. Provision was subsequently made for the broker customer database to be provided to the franchisees in relation to their particular area.
The fact that RAMS recognised that the provision of BOCs to the franchisees presented an opportunity to them because it provided an expanded customer base was not an admission that the opportunity was necessarily a valuable one, but that it had the potential to be so. That was, however, in the context of there being a new product that was to be marketed, namely the MasterCard. The context is of importance to any evaluation of the value of the opportunity. If the BOC list was provided and the BOC already had a loan with RAMS, but was not looking for an additional loan, the value of the opportunity is considerably different from where a new product was being offered which the BOC may be attracted to take up.
I accept that the email exchange provides evidence that RAMS recognised that the provision of the BOC list would be an opportunity to make contact and were likely to permit contact, but is of little weight in establishing that it was a valuable opportunity.
The above must be weighed against the evidence of the RAMS witnesses when asked about the hypothetical situation and the nature of the opportunity that the provision of the list of BOCs would present. Binaray challenged the admissibility of that evidence. RAMS submits that such opinion evidence can be accepted by the Court. Mr Kirkpatrick, Mr Melvin, Mr Fardon and Mr Ziino had all held senior positions in the banking or financial sector for a number of years. They all had experience in working with franchisees in the finance sector and particularly in assisting them to expand their customer base. Given their experience and specialised knowledge, they were in a position to express informed opinions in relation to the hypothetical. The question of the strength of the list of BOCs and whether a franchisee with a list of BOCs would likely to be convert a BOC into a future customer is a matter which the court would be unlikely to be able to decide without the evidence of those skilled or experienced in the same. I accept that the Court can properly have regard to their opinions, taking into account their lack of independence.
There is no doubt that RAMS recognised that an expanded customer base was an opportunity to market to a customer and up-sell or cross-sell. Mr Melvin did not agree that it was a “valuable” commercial opportunity. He considered it provided a chance to talk to more customers and the details of the BOC would present an opportunity for Binaray. He particularly based his opinion on the fact that a BOC was a broker’s customer and the competition between brokers and franchisees.
Mr Melvin gave evidence as to how he would assess the BOC list provided to a franchisee in terms of the strength of the lead. His evidence was that he would regard a franchisee wanting to sell an additional loan to a BOC, where the customer had a loan with a broker which had not been discharged, as a potential lead which would be at the lower end of the scale. He described it as being in the range of two to three on that scale, because the broker has a relationship with the customer, and the customer with the broker, not the franchisee. Similarly, if the approach is made to the BOC, when the BOC is not seeking an additional loan, he would regard that as being between two to three and similar to a cold call. If, however, Binaray did successfully establish contact that would not be akin to a cold call. If the BOC had discharged the loan and the franchisee approached the previous BOC and tried to sell them a new loan, he would regard it as a cold call between one and three. He said that his answer would be the same if the BOC had gone to another lender. He emphasised that the business for writing loans was a competitive one in terms of trying to win a customer because you earn money off your upfront commissions as well as off your book in trail income.
Mr Kirkpatrick, however, agreed that if the franchisees had received the information of BOCs as suggested in the 2004 correspondence, it would have created a valuable business opportunity for them. However, he also gave evidence that he considered that it would be highly unlikely that a franchisee could convince a customer to go somewhere else because of the relationship between the broker and the customer.
Mr Fardon considered that the difficulties in achieving a settlement in the counterfactual if the BOC list was provided to the franchisee were that they do not have a relationship with the customer and it assumes an ability to take out additional loans. In particular, he made the point that obtaining an introduction to a BOC is quite different from building a relationship with a BOC. If such a relationship was built, he did regard it as different from cold calling.
Mr Ziino gave evidence that he considered that the provision of a list of BOCs to a franchisee would be more difficult than other leads such as the RAMS leads or referrals because the customer has a pre-existing relationship with someone else. Binaray submitted that Mr Ziino’s evidence in this regard should only be given limited weight. His direct dealings with brokers were only up until 2007 and his evidence thereafter was based on dealings with franchisees. I consider that his experience in both sectors gave him the appropriate experience and knowledge to express the opinion he gave, but take into account the lack of direct observation of brokers after 2007.
I found Mr Kirkpatrick, Mr Melvin, Mr Fardon and Mr Ziino to be balanced in the evidence they gave, making appropriate concessions and acknowledging the achievements of Binaray as a franchisee.
Binaray contends their views assume a relationship between a BOC and the broker. That was a matter which did factor into their views. While BOCs may not maintain the relationship with their broker, there is at least a relationship to the extent that the BOC approached the broker and worked with them to obtain a loan. The strength of that relationship may be a different matter, but it is relatively uncontroversial from the evidence given by all witnesses that a competent broker who wishes to maintain and build their business will have ensured that, like a franchisee, contact with the customer has been maintained.
I accept that the fact that a BOC was the customer of a broker and the competitive relationship between franchisees and brokers would have weakened the strength of the BOC list as a lead.
Constraints of the Business Partner Charter
Binaray accepted that its marketing could only occur within the constraints of the Business Partner Charter. RAMS contends that the Business Partner Charter contained contractual limitations that would have presented significant obstacles to being able to convert BOCs into Binaray’s customers.
The most significant constraint in the Business Partner Charter was that Binaray could proactively market to a BOC only for the purpose of selling additional RAMS products and non-home loan products. It also provided that a franchisee could “Communicate initially with broker introduced customers using only the communication tools provided by RAMS marketing”. Mr Allen in cross-examination agreed that the only communication that Binaray could have with a BOC initially was using a communication tool approved by RAMS.
RAMS contends that during the period of the Binaray franchise, there is no evidence of RAMS approving any form of communication Binaray could have had with a BOC. Little can be inferred from that, given that RAMS would not provide Binaray with access to the BOCs. RAMS submitted that RAMS’ witnesses were not cross-examined on Binaray’s proposed conduct if it were given BOC details and whether Binaray was likely to have obtained approval for their proposed communication, even if it would have been within the limits set out in the Business Partner Charter. In particular, there was no cross-examination as to whether contact by telephone would be permitted as was proposed by Mrs Allen, who gave evidence that once a BOC was sent a letter the person in question would be followed up with a telephone call.
RAMS contends that Binaray can draw no comfort from Exhibits 23, 24 and 25 as examples of approval given in the past. Those documents were part of a campaign that had occurred a couple of years before Binaray became a franchisee for the purpose of selling a credit card and RAMS had made it clear that the Business Partner Charter had to be complied with, the BOC relationship with the broker was to be acknowledged and the approach was for the BOC to contact the franchisee.
Binaray contends that it can be assumed that RAMS would have taken such steps reasonably necessary within the confines of the contractual relationship to provide the necessary support to the plaintiff in the conduct of the franchise. That support in the hypothetical would have extended to permitting contact to be made by Binaray whether by correspondence or telephone. In the hypothetical world, if Binaray was provided with BOCs and permitted to make contact within the constraints of the Business Charter to sell additional loans or non-home loan products, the evidence of Mr Melvin, Mr Kirkpatrick and Mr Fardon suggests that RAMS would have supported the franchise to grow their business and that approval would have been given for limited contact as permitted by the Business Partner Charter.
I infer that RAMS would in the counterfactual have given approval for some contact to have been made with the BOC. However, that contact would have to take into account the terms of the Business Partner Charter and occur within those constraints. Given it permits proactive marketing only for the purpose of selling additional RAMS products or non-home loan products, such as the RAMS credit card which was the cause of the 2004 correspondence, I infer that the communication which would be approved by RAMS would be of a limited nature and would provide for the BOCs to contact Binaray. Only upon that contact being made would Binaray be permitted to further communicate with that customer on an ongoing basis to educate them and establish a relationship and in the process of doing so not actively dissuade a customer from contacting their broker in the future.
I accept that it was a constraint on the exercise of the opportunity, but not such a constraint that no contact with the BOCs could have occurred. It would have provided the opportunity for an introduction, but limited the contact that could be made by Binaray. Whether a relationship developed would depend on whether the BOC was interested in such contact occurring.
The notional BOC database
RAMS submits quite correctly that the size of the notional BOC database is relevant to the existence of a valuable opportunity or alternatively the assessment of the loss of opportunity. As RAMS correctly submitted, the size of the notional database, additional loan rate and conversion rate are not ascertainable with a high degree of certainty.
Prior to January 2008, RAMS was operated by RHG Home Loans Pty Ltd. Subsequently, RAMS was sold to Westpac, however RHG maintained the customer database. As such, the number of BOCs in Binaray’s franchise territory prior to 2008 was not able to be determined with precision.
Ms Letts, the expert called by Binaray, provided two calculations as to the number of the BOCs in the allocated territory prior to 2008. The first was based on the fact that there were at least 449 active customers on the broker customer database at September 2007. That was undisputed, given there were 34,209 customers in the national broker database at the same time. She determined that 449 BOCs represented 1.31252 percent of the total number of broker loans. Using that percentage, her estimate was that there were 23,187 broker customers nationally as at June 2006. She inferred that the number of BOCs in Binaray’s territory at June 2006 would therefore be 304.33. Mr Potter agreed with that and accepted that calculation in his subsequent reports.
The second calculation of Ms Letts was that there were 615.78 customers on the database. That figure was calculated on the basis that there were 5,542 loans settled in Queensland on the broker database as at June 2006. At the time there were nine franchise territories in Queensland. Ms Letts considered that dividing that by nine would give an estimate of the size of the broker channel database in June 2006.
RAMS urges that the Court accepts the figure of 304 as the preferred figure, whereas Binaray submits that the figure of 615 BOCs is the more accurate assessment.
In particular, Binaray submits that the 449 BOCs are limited only to those who were active as at September 2007. As such, there must have been additional BOCs who discharged their contract by that time, or who had entered into contracts, or both.
I consider the figure of 304 is to be preferred as the best proxy for the size of the available BOC database as at June 2006. The broker network only began to operate in early 2003 and given that the average life of a loan according to Mr Allen is approximately 4.8 years, which was accepted by both Ms Letts and Mr Potter, it is unlikely that there would have been a significant number of BOCs who had discharged a loan before June 2006. This is supported by the fact that at the time, RAMS imposed early discharge or repayment fees on clients if they discharged their loan earlier than the original term of the contract. Given there is no evidence as to the number of brokers operating in the different territories at the relevant time and particularly in the area allocated to Binaray, the approach of using the number of loans settled in Queensland and dividing it by the number of territories to determine the number of BOCs is tenuous at best.
Post January 2008
After Westpac bought the RAMS business in 2008, Westpac had accurate information as to the database post-January 2008. RAMS then retained records relating to its customers which from 2008 included records relating to BOCs in databases maintained by it or on its behalf.
In that regard, evidence was provided by Mr Philip Choo, a RAMS employee, as to the actual size of the database. His evidence was updated just prior to trial. His evidence as to the numbers of BOCs differed from those contained in discovered lists which RAMS informed Binaray were inaccurate in April 2017. Mr Choo was not involved in the production of those lists in discovery. While Binaray was rightfully aggrieved by the late receipt of further evidence from Mr Choo, I do not find that was due to any lack of diligence on his part.
Mr Choo’s original estimate of the number of BOCs located in Binaray’s territory was that it contained 265 customers, then 267 customers. Following a letter from Binaray’s solicitors querying why 17 names did not appear on the list, Mr Choo was asked to make further investigations. As a result of those investigations, he determined that there were 316 BOCs. That resulted from him using the commissions data for every customer located in Binaray’s territory who had a loan application. That entailed using a different database from that normally used by Mr Choo and his team, because it was not used for the purpose of reporting. His exercise determined that an additional 49 customers were not in the Solace database as having a broker identity. As a result, he obtained the loan application ID and checked the commission system. The commission system showed a broker code against the application if a broker had been flagged as the originator for the application. Following this exercise, Mr Choo was confident that the 316 BOCs he identified represented the full extent of the list of BOCs because he checked the entire list of customers in Binaray’s territory whose loan might have been originated by RAMS or a broker against the commission database.
Mr Allen identified a list of names which he considered should have been on the amended broker customer list but were not. Mr Choo was cross-examined about the further BOCs Mr Allen considered had been omitted. Mr Choo rejected the suggestion that there was any such failure. A number of those names had already been investigated by Mr Choo, which was addressed in his second affidavit. Mr Choo found that the remainder were outside of Binaray’s territory, or in the case of Mr Symons, a guarantor to a loan. The remaining names appeared in the amended broker customer list produced by Mr Choo when cross-examined as to the process he had gone through in extracting the names he considered were not included. I found Mr Allen’s evidence vague and generally unreliable. Mr Allen had also carried out an exercise identifying the number of customers that he had for the period that Westpac had a broker channel to be 350. Binaray contends that the errors identified by Mr Allen and the fact that RAMS’ own statistics about the percentage of broker originated customers in the mortgage property market generally, of 50/50, suggest that there were more BOCs than identified by Mr Choo.
Binaray contends the number identified by Mr Choo should be treated with circumspection given Mr Choo accepted that he relied on the accuracy of the details contained in the database which he searched. His evidence was that his team were not involved in inputting the information in that database.
I do not consider that the exercise carried out by Mr Allen or the fact that the Commissions Data database maintained by RAMS was used by Mr Choo invalidate the exercise he has carried out or bring into question the reliability of the number of BOCs finally identified by Mr Choo.
While the updated information in Mr Choo’s affidavit came very late in the proceedings and caused some interruptions in terms of cross-examination and having been examined by experts, I found his evidence to be candid and his explanation as to why the further BOCs had not been originally identified by him to be clear. The Commissions Data database was one maintained on ongoing basis by an external provider for RAMS until 2016 and was used to calculate the amount of commissions to be paid. Consequently, the Commissions Data was uploaded to RAMS head office. Given the fact that the Commissions Data is used to calculate payments of commission one may infer that the data contained in it is reliable. Insofar as it was also used to produce Commission Reports, Mr Allen had accepted the accuracy of those reports in respect of payments to them as franchisees. I do not consider that the number of BOCs estimated by Mr Choo was materially deficient.
I accept that the best estimate of the size of the BOC list post 2008 was 316, as estimated by Mr Choo.
In terms of the calculation of the database, I prefer Mr Choo’s evidence as to the number of BOCs post 2008 until the closure of the broker channel as opposed to the approximation exercise carried out by Ms Letts and Mr Potter. While the submissions of Binaray contend the Court should exercise caution in relation to Mr Potter’s figures, it did not contend that the estimates of the database by Ms Letts should be adopted.
The calculations of Ms Letts and Mr Potter assumed that the broker channel was open for longer than it was in fact, namely from January 2008 until March 2010, rather than from May 2008. In addition, Ms Letts included the period May 2013 to December 2014 in her calculations on the basis of spreadsheets which made reference to payments to brokers which had not been included in the period of 2010 to 2013. The clear evidence given by all of the RAMS witnesses, which I accept, was that the broker channel closed in 2010 and did not reopen thereafter. While no witness was able to say what the entries that appeared in 2013-2014 were, I accept that the most likely explanation is that provided by Mr Choo and Mr Fardon, namely that the payments were trail commissions, not upfront commissions payable on settlement. Mr Allen in his evidence conceded that while he was responsible for giving Ms Letts instructions that the broker channel had continued to operate after February 2010, he had been wrong. I am satisfied that no RAMS loans were said to have been written by brokers after March 2010 and that they should not be taken into account.
While Mr Choo’s evidence did come late, no application was made to adjourn the trial, nor to object to his evidence being admitted. Binaray contends that the Court should have regard to the general evidence of the plaintiffs in preference to anything that the defendant has produced. In this respect, the principle which Binaray contends the Court should adopt, namely that when damages are uncertain for lack of evidence difficulties of assessment are in general resolved against the party who could or should have provided the evidence, which is said in this case to be the defendant, does not apply. The reference to LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd was a case where no evidence was presented at all by the relevant party, other than to state that expenses and outgoings would be minimal. Here, it is not a case of absence of evidence or lack of evidence, but rather the provision of the relevant evidence late. The principle relied upon by Binaray therefore does not apply. While Mr Allen did identify deficiencies in the first exercise carried out by Mr Choo, I don’t find that was the case in the second exercise and consider Mr Choo’s evidence based on the analyses of the relevant databases is more accurate.
Further, to the extent Mr Allen considered that the additional loans calculated by Mr Choo were incorrect and the number was higher as was the natural drift based on their commission reports, their knowledge of their client base and their own number of loans, it was unsubstantiated. Given the lack of any analysis to substantiate a higher figure, it does not cause me to reject Mr Choo’s evidence in whole or in part.
According to Binaray, Mr Choo fails to take into account the additional opportunities that would have arisen in relation to those people who would not have been identified as BOCs in his exercise because they had discharged their loans, but also those first time borrowers who may have been referred through BOCs. Binaray relies on RAMS’ own material in relation to its business model, which identifies the significant commercial opportunity which exists by way of ongoing contact and marketing and the value of repeat business and referrals, as supporting the value of having access to BOCs within its territory. Further, RAMS had recognised the value of the opportunity of being able to access BOCs to a franchisee in emails in 2004, which Binaray contends would have been no different in the period of 2006 to 2016.
On the construction that I have adopted, there was no entitlement for Binaray to be allocated BOCs who had discharged their loan. There is, however, the prospect that Binaray may have made contact and established a relationship with a BOC during the time that they were an existing customer where they subsequently discharged their loan, which I will take into account in considering the additional loan rate.
I have considered referrals and RAMS’ recognition of the opportunity separately.
Other Calculations prepared by Mr Choo
Mr Choo also prepared a BOC Average Loan Value Report. In the updated report, he identified that there were 44 additional loans taken out among 316 BOCs which equated to approximately 13.9 percent of customers.
He further prepared an updated BOC Non Return Report which identified 277 of the 316 BOCs identified did not return to RAMS for further business up until 27 April 2017, which was approximately 87.6 percent of BOCs.
He further prepared a BOC Frequency Report which identified that 39 BOCs returned to RAMS for further business up until 27 April 2017, of which:
30 BOC returned to RAMS for further business once;
4 BOC returned to RAMS for further business twice;
3 BOC returned to RAMS for further business three times; and
2 BOC returned to RAMS for further business four times.
Finally, he prepared a BOC Loan Contract Report which identified that excluding the first loan contract entered into with a RAMS approved broker, the 316 BOCs:
Entered into 48 further loan contracts with RAMS and 18 of those contracts were originated by Binaray; and
Of the 48 additional loan contracts there were 44 additional loans, 17 of which were originated by Binaray.
I accept the accuracy of the figures provided by Mr Choo subject to the limitations he identifies. Mr Choo also produced a number of other reports in relation to the commission rates for RAMS leads, of Binaray, for Queensland and on a national basis. I accept those figures are reliable. To the extent Mr Choo’s figures were the basis of the work carried out by Mr Potter, I accept that they were proven..
Mr Choo also prepared a self-generated leads conversion rate on national and Queensland bases. RAMS did not collect that data and depended on self-reporting by a franchisee. The underlying data is therefore less reliable than in the case of RAMS leads. Consistent with the evidence of the witnesses from both Binaray and RAMS, it shows, however, that the rate of conversion of self-generated leads to settlement was considerably higher than RAMS generated leads.
The data utilised by Mr Choo did not include a RAMS BOC who went through a broker, who went to another lender.
Database of BOCs should be reduced
(i) Natural Drift
RAMS contends that the notional BOC database should be further reduced to take account of the BOCs who were entered onto Binaray’s CRM system, to whom Binaray had the opportunity to market and build a relationship with as a result of natural drift.
It was accepted by Binaray that natural drift would, when calculating damages, reduce the pool of BOCs available to Binaray. Ms Letts agreed in cross-examination that it would be reasonable to reduce the loss by the number of BOCs who were on Binaray’s database and that it had had the opportunity to build a relationship with.
Surprisingly, Binaray undertook no proper analysis of the BOCs and in particular the success that they had in selling them an additional loan as opposed to the number of BOCs who Binaray had made contact with. While it was submitted by Binaray that they had not had been able to access the CRM database after their franchise came to an end in July 2016, proceedings had already been issued and expert reports, at least the initial round thereof, had been exchanged. Further, Ms Letts in evidence stated that she had not been provided the CRM or been given access to it for her consideration or analysis, despite the fact that she had been briefed in June 2015. While RAMS submit that I should, as a result of the absence of analysis more readily accept the evidence adduced by RAMS, I consider that the general nature of the Allens’ evidence and the absence of any analysis based on their own records of converting BOCs into further loans is more appropriately dealt with as reducing the probative value of the evidence given by the Allens.
The real controversy between the parties is not whether the notional BOC database should be reduced to take account of natural drift but rather to what extent it should be so reduced, which is not able to be accurately identified. I consider this further below in the context of expert evidence.
(ii) Do not contact issue
RAMS contends that the probability of Binaray successfully selling an additional product to BOCs in the hypothetical situation is also affected by the fact that BOCs could elect to be placed on the “do not mail” list thus further reducing any notional list of BOCs. Binaray contended that this was not raised by the defence. It was however raised by [14(b)(v)] of the Amended Defence and the Allens were cross-examined about it. While the actual privacy laws were not specifically identified, both the Allens and RAMS witnesses accepted that privacy laws were in place. Reference was made to “Do not Call Register laws” in the Operations Manual of 1 July 2010. Mrs Allen agreed that customers were asked about whether they wished to opt out and not be placed on Binaray’s database. The customers’ details were not placed on or were removed from the database as appropriate. Exhibit 31 which is a document maintained by Binaray in its business in 2014 had a column which detailed clients who opted out from marketing or being contacted. RAMS contends that is a proxy for the number of BOCs who would have opted out which they calculated to be some 7.9 percent.
Binaray contends that RAMs calculation is inaccurate and the figure was in fact 6.46% but in any event there was no evidence as to Exhibit 31’s accuracy and it should not be used as a proxy for the extent to which the notional BOC database should be reduced. Mrs Allen did confirm however, that it was a business record of Binaray. It contends that the figures are such that the privacy legislation did not present any barrier to the plaintiff’s prospects of acquiring the benefit sought.
I consider that the privacy legislation did affect the extent to which any BOCs might be open to being contacted by Binaray, particularly given the fact that BOCs were clients of brokers. Naturally if BOCs opted out of being contacted by Binaray it would have prevented it building a relationship with those customers and being able to convert their business to Binaray. It would therefore have reduced the size of the pool available to Binaray. It is a relevant factor which must be considered with the other matters which could have affected Binaray’s ability to convert BOCs into a business opportunity.
RAMS also contends that the notional database should be reduced to take account of the fact that BOCs might have been on a “Do Not Mail” list. Ms Letts was not given instructions in that regard and her calculations do not take such people into account. She considered it would be reasonable to apply a reduction to take such BOCs into account.
Binaray contends the figures contained in the document. The document indicates 222 customers out of 2,812 customers who had been asked, did not wish to continue with marketing. 656 had not been asked. That indicated that 7.9 percent of the customers asked to opt out of the marketing or did not want to be contacted. In that regard, the figures that Binaray has used to reach a percentage of 6.46 percent do not take account of the customers asked as opposed to the total number of customers. Obviously if the BOCs did not wish to be contacted by Binaray that would inevitably reduce the BOC database in the counterfactual since those BOCs would not be open to conversion. While it is a matter which affected to scope of any opportunity available to Binaray in terms of the size of the available pool, I consider it should be taken into account in determining any discount made to take into account the various contingencies.
Findings – Was Loss Suffered?
In order to establish that an opportunity has value the plaintiff who asserts the loss of a valuable opportunity must establish on the balance of probabilities not only that the opportunity existed but that it was lost and that the breaching party’s conduct was causative of the loss. The legal principles are not in issue between the parties in this regard.
As set out above, the first matter to determine is whether Binaray if offered the lost opportunity, namely to contact and market BOCs, would have acted to secure the benefit. That was not a matter of any substantial dispute between the parties.
I am satisfied on the basis of the evidence given by Mr and Mrs Allen that had they been offered the lost commercial opportunity the plaintiff would have acted to secure the benefit. Binaray had the relevant infrastructure to operate the business. While neither Mr nor Mrs Allen had prior experience operating as a franchise when Binaray entered into the Franchise Agreement, I am satisfied they had the infrastructure required for the business and the support of the RAMS franchise and particularly the benefit of the RAMS business model. The fact that they successfully established Binaray as a profitable franchise and continued to build revenue throughout the life of the business supports the fact that they had sufficient business acumen and were able to take up the opportunities offered to them through RAMS leads and self-generated leads. While Binaray was characterised as being an average to above average performer, none of the RAMS witnesses suggested that they were not a competent franchisee who had possessed the relevant skills to operate the business. I am satisfied that they would have taken the steps required to secure the benefit by seeking to make contact with the BOCs and, if contact was successfully made, obtaining the BOC;s details and then proactively marketing to the BOCs within the constraints of the Business Partner Charter and in accordance with the RAMS business model.
RAMS did however contend that there was nothing exceptional about Binaray which would enable it to have succeeded in converting BOCs because of those unique skills. I am satisfied that they would have maintained details of BOCs on their internal systems in order to maintain contact with the clients, including at least a number of BOCs in the pre-2008 phase. While the evidence did indicate that the Allens were passionate about the RAMS franchise and applied the RAMS business model effectively, it did not establish that they were more than a slightly above average performer. While Binaray presented a different analysis which showed them to be a high performer compared to areas which they considered were comparable, the fact they were comparable was not established by any evidence. Although some concessions were made by RAMS witnesses as to the differences between different territories and their demographics, they used the same measure for all franchisees by reference to conversion of RAMS leads Australia wide to judge all franchisees and I accept that it was a valid method of comparison.
In terms of whether the alleged breach caused loss, one of the critical issued in the present case is whether the opportunity was valuable. This requires the Court to determine whether the opportunity offered a substantial and not merely speculative prospect of acquiring the benefit sought. In that respect the Court has regard to the evidence to establish the plaintiff’s objectives and the contingencies in the way of their achievement.
Binaray in particular relied on the fact that RAMS’ own material identifies significant commercial opportunities which exist by way of the ongoing marketing and the value of repeat business referrals. It also relied on the recognition by Mr Kirkpatrick, Melvin and Fardon that the opportunity existed. The question is whether the evidence established that there was a substantial prospect of acquiring a benefit, namely additional loans, as a result of having the list of BOCs. In that regard as outlined above RAMS contends that the onus was not discharged.
Based on the concessions made by both Mr and Mrs Allen, the effect of their evidence was that they considered that the opportunity in which they would be able to convert BOCs predominantly arose in relation to BOCs who belonged to transient brokers and brokers who did not provide adequate service to and build relationships with their clients. That correlated with what they had been told by BOCs who had become their customers, notwithstanding that Binaray did not have the list of BOCs and had not made contact with them. It was also supported by Mr Bowen’s experience. I consider on the basis of Mrs Allen’s evidence that she considered there was a slightly broader opportunity which extended to a BOC who was willing to permit Binaray to contact them on an ongoing basis and develop a relationship with them over time. However, given her acceptance that they would not compete for a BOC if the BOC was happy with their broker I infer the opportunity referred to by Mrs Allen in fact was one where there was not an ongoing relationship between a BOC and a broker.
Binaray, however, contends that notwithstanding the evidence of Mr and Mrs Allen there is an array of brokers with whom Binaray could effectively compete to obtain business. In this case they relied heavily on the evidence of the drift which had occurred from which they contend the Court should draw an inference that there were brokers who did not provide service of the same standard as Binaray and have ongoing relationships with their customers, which would have provided the opportunity to Binaray to develop a relationship with those clients, particularly given the common connection with RAMS.
Binaray did not present any evidence as to the identity of brokers with whom clients had expressed dissatisfaction and other than Resi did not identify any transient broker. Nor did they provide any specific evidence by reference to how they had dealt with and the position of the BOCs or their brokers who they had acquired through natural drift. However Mr Choo’s evidence does support the fact that they did in fact write loans for BOCs. He identified 17 out of the 44 loans written for BOCs after 2008 as having been written by Binaray. 29 loans were written by Binaray for BOCs for the period up until September 2007, as identified by Ms Letts.
Binaray focussed on a number of points of distinction between franchisees and brokers.
First, that the broker was not bound to RAMS and thus had no incentive to continually service the customer. That was borne out by the evidence save that there was an accreditation process for RAMS brokers who were part of aggregator groups. No evidence was presented as to the terms of any agreement with the aggregators as to the service to be provided by the brokers in this regard. I do however accept the evidence by the RAMS witnesses, particularly Mr Kirkpatrick, that brokers competed with franchisees and that competent brokers, particularly brokers who were part of an aggregator group, offered similar services as franchisees and had similar technology available to them to record customers’ details such as birthdays to use them as a point of contact and would run events for customers.
Second, the broker after the expiration of the clawback provision was in a position to churn and write a new loan elsewhere to obtain the upfront commission. I am not satisfied that is a significant factor that weighs in Binaray’s favour based on the evidence before me. Mr Allen accepted that brokers could elect to be paid upfront commission and trail commission. The evidence of Mr Kirkpatrick supported the importance to a broker of the value of maintaining and increasing his or her loan book and also the importance of retaining the client for future business which would act as a deterrent to churning and potentially interfering with the broker relationship. Mr Allen acknowledged that even if a broker did churn, he or she would still seek to maintain the business of the customer.
Third, the broker did not have to meet minimum performance criteria like a franchisee. There was scant evidence in relation to this but even if it were accepted brokers still had the constraint of building a profitable business which was driven by writing business for customers.
Fourth, the franchise was long term and the franchisee had an incentive to maintain the relationship with a customer whereas a broker was under no such obligation. While that is supported by the evidence, I do not regard it is as significant. Given the incentives the broker had to maintain and build their business a competent broker would still have sought to maintain the relationship with his or her customers.
Fifth, the broker could vary in size and be a sole operator from their house and could easily leave the business. While that may or may not have been the case in Binaray’s allocated territory, that does not lead to a conclusion that they would not have offered proper service to their clients.
Binaray also relied on the closure of the broker channel as supporting the franchisees’ ability to compete with brokers. I have referred to this above. It is evident that RAMS considered that franchisees can compete with brokers. Mr Melvin’s evidence supported that was RAMS’ assessment at least from 2014.
RAMS focussed on the narrow opportunity which the Allens had identified to convert BOCs but also the lack of evidence providing any details as to the identity of brokers and BOCs in the territory and whether Binaray had converted them. Those criticisms are well made. The evidence only supports an inference that there were a small number of brokers who did not perform as competent brokers and provide proper service to their customers in the allocated territory.
RAMS identified the additional hurdles which Binaray would have had to overcome in order to convert BOCs and write additional loans for them. I have discussed them above. In relation to the matters identified by RAMS as to why Binaray had failed to identify any loss of a commercial opportunity:
I find that the notional BOCs were of the order of 304 in 2006 and 316 between 2009 – July 2016;
I find that competent brokers would compete with Binaray for the additional business of BOCs;
I find that competent brokers would have sought to establish a relationship with BOCs using similar techniques to Binaray. However I also accept that there are good and bad brokers, some of whom were more effective than others. However I also accept Mr Melvin’s evidence that the BOC list would be regarded as a lead, albeit of a strength of 2-3 out of 10 like a RAMS lead which indicates an acknowledgment that it may be converted into future business notwithstanding the difficulties which they identify a franchisee would experience;
I consider that the Business Partner Charter imposed limits upon the contact that could be made by Binaray with BOCs. Given clause 13 of the Business Partner Charter does provide that a franchisee can proactively market to a BOC in respect of additional RAMS products within the constraints of that section I consider it is a barrier but not a significant one. The preparedness of RAMS to permit communication is supported by the fact it had permitted such contact in the past. I accept that the privacy legislation was likely to have reduced the pool of BOCs who Binaray could market to which could be up to 7.9 percent;
The fact that RAMS’ main customer base was first home buyers and small business may or may not weigh against the probability of a large number of BOCs being able to take out loans. It may however create an opportunity for future business as equity and earnings increases over time;
Binaray did have a highly visible office space where BOCs could attend and did attend at least some of whom they wrote business for. I do not accept, however, that fact leads to the conclusion that Binaray had enjoyed the success it was going to have in converting BOCs meant that the remaining value of the opportunity was speculative; and
I accept that the GFC resulted in lending restrictions becoming tighter but I do not have any evidence which establishes that it was a significant barrier.
In the present case, I am satisfied on the balance of probabilities that the list of BOCs in their allocated territory offered a substantial prospect of acquiring a benefit by way of additional or new loans from BOCs of brokers with whom they were dissatisfied, abandoned by or not maintained a relationship with, given that:
Binaray had obtained business and written additional loans for BOCS without any marketing and I am satisfied that it was likely that there were more BOCs who were dissatisfied with their broker, had no ongoing relationship with their broker, had a transient broker or after the broker channel closed wished to continue to use RAMS products and who would permit Binaray to contact them to establish a relationship or make contact with Binaray if they wished to obtain an additional or subsequently a new loan;
RAMS witnesses themselves recognised that the list provided an opportunity, and in one case a valuable opportunity, albeit equivalent to a RAMS weak lead;
I consider that Binaray had the skills to develop a strategy to build a relationship with BOCs who permitted contact to educate them, encourage further business and maintained contact with them when the BOC required a further or new loan;
I do not find that the contingencies identified created insurmountable barriers to converting BOCs to render the opportunity a speculative one; and
I find that the BOCs the subject of natural drift did not represent the full extent of the opportunity.
I consider that a significant discount needs to be made to the valuation to take account of the probable small pool of brokers who would have dissatisfied clients or who were very transient brokers. A significant discount also needs to be made to the valuation of any loss to take account of natural drift.
Valuation of the loss
The proper characterisation of the opportunity is in my view an opportunity to make profits through being able to sell additional loans for BOCs to whom Binaray had the opportunity to market. I have found that opportunity was valuable because on the balance of probabilities I have found Binaray would have carried out the necessary marketing and educative process with BOCs who were willing to engage with them and that there was a substantial prospect of them obtaining a financial benefit by converting that BOC and obtaining additional business by writing additional loans, albeit that was on the basis of evidence that there were BOCs who were dissatisfied customers of a broker or customers of non-contactable brokers, some of whom would be looking for a loan additional to that taken out with the broker.
Although the Business Partner Charter only provided for marketing to BOCs in respect of additional loans or non-home loan products, Binaray sought to characterise the opportunity as one to sell loans other than the BOC loan. RAMS had contended particularly by reference to Ms Letts’ evidence that additional loans were confined and did not extend to loans other than the loan that was additional to the existing BOC loan. However, Mr Potter in the Second Joint Expert Report adopted a broader view as to additional loans such that they included a new loan after a customer had been repaid or refinanced. I have acted on the assumption that additional loans may extend to a new loan subsequent to the discharge of the BOC’s loan. While Binaray would not have been constrained by the terms of the Business Partner Charter once the broker loan was discharged, having contact with BOCs permitted the possibility of Binaray building a relationship with that BOC so they would obtain any additional business. In the hypothetical there was also the possibility that having converted a BOC they would have repeat business through those BOCs and the evidence of Mr Choo demonstrates that in fact occurred.
I have referred to the relevant principles above. In assessing the value of the opportunity lost, the value is to be “ascertained by reference to the degree of possibilities and probabilities and probabilities” of the relevant factual hypotheses. In the present case, many of the factors which affect that assessment have already been discussed above. Key to the valuation of the loss is the determination of the appropriate conversion rate which reflects the probabilities and possibilities of the hypothetical event and risks involved.
Expert evidence has been presented by both sides. Expert reports have been provided by both Mr Potter and Ms Letts.
Ms Letts and Mr Potter sought to provide reports estimating the loss of profits suffered by Binaray as a result of the loss of opportunity to contact BOCs and convert their business. As was submitted on behalf of RAMS a number of factors that would have confronted Binaray in converting BOCs into customers are the taken into account in the conversion rates that have been adopted by the experts in this case. There are some additional factors which must however be taken into account, which are not factored in in the conversion rate.
Ms Letts prepared 10 scenarios on the basis of a number of different figures and assumptions. Mr Potter provided his assessment of the loss claimed using two methodologies as well as substituting some of his figures for the figures used by Ms Letts for the different scenarios. Using his own calculations, Mr Potter considered that no loss was suffered by Binaray in his scenarios. In five out of the eight scenarios used by Ms Letts, using his figures he calculated that there would be no loss suffered by Binaray. The fact that there is a possibility or indeed probability that Binaray may have suffered loss pursuing the opportunity, does not mean that they have not lost a valuable opportunity for which they must be compensated. Both experts provided updated reports as a result of additional work done by Mr Choo. The second joint report contained calculations with both experts using figures provided by Mr Choo in his latest affidavit. There was no disagreement between the experts as to the calculations contained in their most recent reports.
Objections to expert reports
Both parties objected to various parts of the other side’s expert reports. Other than matters which RAMS contended needed to be resolved prior to cross-examination, the objections were made MFIs and the parties were to make any submissions as to the admissibility of the reports.
RAMS submitted that Ms Letts’ report was deficient in a number of respects. Those matters were addressed in the defendant’s closing submissions in paragraphs 98 to 106. In my view, many of the criticisms of Ms Letts’ report were well made. RAMS contends that her report is inadmissible because the assumptions on which her report is based have not been proved. In particular, regarding the assumption that the conversion rate for BOCs was 25 percent, although based on instructions provided through Mr Allen that the conversion rate of BOCs was 20 to 30 percent, evidence to that effect was not given through either Mr Allen or Mrs Allen. Binaray’s counsel contended that it was a hypothetical so the figure was not an underlying fact that had to be proved. While that may be so, the failure to have any evidential basis to support the figure used, particularly in circumstances where she agreed that the real question as to whether Binaray would have been in a position to sell depended on whether the customers were wanting to get an additional loan or some sort of loan, which she did not know had been considered by Mr Allen in providing the figure of 20-30 percent, diminishes significantly the probative value of the opinion given. I do not consider that it results in Ms Letts’ reports and opinions being inadmissible.
In fairness to Ms Letts, a number of these deficiencies were due to the limitation placed upon her by instructions given or, it appears, by the lack of explanation, according to her evidence, of the significance of documents provided or what was available such as Binaray’s CRM database. Even taking those matters into account, I did not find Ms Letts had given proper consideration to the relevant issues in the case and the appropriate way to approach the assessment of the loss of an opportunity in a case such as this. She was unable to justify the appropriateness or reasonableness of the approach adopted in her report in cross-examination but was not prepared to make appropriate concessions or deferred answering questions. I did not regard her evidence as persuasive and generally preferred the evidence of Mr Potter. For example, she was unable to provide a probative opinion on why matters such as the use of the actual rate at which Binaray sold additional loans, which had been a matter addressed by Mr Potter, was not a reasonable proxy. In estimating the conversion rate of 25 percent she simply relied on the instructions provided by Mr Allen that a conversion rate of 20 to 30 percent was appropriate to adopt in relation to the list of BOCs. Although she agreed in cross-examination that whether a BOC was wanting to take out a loan was relevant to the determining the conversion rate but she did not give that matter any consideration in her report. She initially did not carry out any analysis to support the conversion rate of 25 percent for BOCs but simply relied on the unsubstantiated opinion of Mr Allen.
Ms Letts was also criticised because she did not undertake any reasonableness checks using the same approach as Mr Potter, although she had had the benefit of his report in that regard. In this case that was significant. She calculated a profit per loan for scenario 1 and scenario 2 of $39,246 per loan and $37,888 per loan respectively. According to Mr Potter, the profit per loan was $713. While mistakes are made, the fact she carried out no reasonableness check like Mr Potter which would have demonstrated the error is of greater concern. Similarly, she had no reasonable explanation of her estimate in the joint report of May 2016 where she estimated that the loss of profit was $1,991,000, assuming 380 broker customer loans which would result in a figure of $5,436 per loan, whereas in fact the profit per loan made was less than $1,000. While errors occur, a number of significant errors had been identified by Mr Potter which were corrected in the joint report by Ms Letts. That said the errors seemed to have been resolved by the time that her final reports were delivered and by the time of the second Joint Expert report.
While Binaray makes a number of objections to the reports of Mr Potter, they have not sought to expand upon the majority of those objections in any significant way in their submissions. Counsel for Binaray indicated that the objections would really become clear through the cross-examination. At the time I indicated I wanted them to address, in terms of their submissions, the basis upon which they stated that the evidence should not be accepted. Ultimately, Binaray’s submissions were directed to the underlying premises of Mr Potter’s opinion, rather than objections. An objection was made on the basis of Mr Potter’s adoption of Mr Choo’s figures. I have above accepted those figures and found them to be reliable. In addition challenges were made to his adoption of the RAMS leads rate on the basis of the strength of the relationship between a broker and his customer, on the basis it was a matter beyond his expertise. As I have found above I consider that this is supported by the evidence of the factual witnesses and as such there is a proper foundation for his opinion.
I consider that some of matters in Mr Potter’s reports went beyond his expertise insofar as he sought to speak about the operation of a broker and franchisee., Those matters insofar as they were material to his opinion were supported by factual evidence from RAMS witnesses or concessions made by the Allens themselves.
Overall I found Mr Potter to be a generally careful and thorough witness who had considered all of the relevant material and the issues before him and was candid in the evidence that he gave.
Ms Letts and Mr Potter prepared several reports. The prepared two joint reports. They did agree on a number of matters. There were a number of key differences identified between Ms Letts and Mr Potter in respect of:
The effective conversion rate;
Other variable costs;
Loan value and loan increases;
Natural Drift; and
Interest payable on RFCS loans.
Effective conversion rate
In determining whether the opportunity to contact BOCs is a valuable one, the Court must consider the likelihood of Binaray successfully selling an additional product to BOCs in the counterfactual where Binaray had access to BOCs. Given the lack of any data on the success of converting BOCs in similar circumstances, the Court must determine an appropriate proxy for the conversion rate of the hypothetical BOC. In that regard there are competing contentions by RAMS and Binaray as to whether RAMS leads and the rate at which they are converted should be used as a proxy or self-generated leads should be used as a proxy.
The experts adopted significantly different approaches.
Ms Letts adopted a conversion rate of 25 percent based on instructions given to her that the likely conversion rate was between 20 to 30 percent. She then adopted the mid-point.
Mr Potter considered that Ms Letts’ assumed conversion rate was vastly overstated because:
The rate adopted by her was broadly comparable to the rate of additional loans that were achieved by Binaray itself;
The rate assumed that the additional loans had not been taken out already;
The rate assumed that Binaray would be able to convert borrowers who had no relationship with them but did with a broker; and
The ABS statistics for 2011-2012 reflected that 12 percent of households had loans additional to their home loan.
Ms Letts applied a notional conversion rate of 25 percent in her report as the conversion rate that should be adopted. That was based on instructions given to her by way of a written statement by Mr and Mrs Allen. While that statement stated that the estimated conversion rate was between 20 to 30 percent, no evidence was given to that effect by Mr and Mrs Allen supporting that conversion rate nor did Ms Letts carry out any analysis to determine the reasonableness of the rate as though she sought to later assert the reasonableness of the exercise by reference to an analysis of figures provided by Mr Choo. In accepting that Binaray would notionally convert 25 percent of BOCs from the broker database, Ms Letts did not have regard to Binaray’s own customers and the rate at which they obtained additional loans. She agreed that in considering a conversion rate, you would have to take into account whether or not a broker customer wants an additional loan or a loan.
According to Binaray, the figure adopted by Ms Letts is not the finite cap of all persons who would wish to take out a loan at a particular point in time but rather the adopted conversion rate overall, having regard to the conversion rates which apply to established RAMS customers as against the entire BOC population. The difficulty with that proposition is that Ms Letts adopted the rate of 25 percent on the basis of instructions, not by making such an assessment. No evidence was given by Mr Allen as to the basis of the 20 to 30 percent conversion rate.
Binaray also sought to support the reasonableness of the 20 to 30 percent figure by reason of a later exercise undertaken by Ms Letts reflected in Table 1 of Exhibit 75 based on an analysis of Mr Choo’s figures. She found that the percentage of 20 to 30 percent conversion rate fell between the RAMS customer loans and the locally sourced ones so that it fitted within the 20 to 30 percent for the broker channel. By the analysis of the conversion report provided by RAMS in respect of Binaray’s leads between 1 January 2011 to February 2016, Ms Letts prepared her Table 1. By Table 1, Ms Letts determined that the RAMS leads conversion rate was 7.20 percent for customers with whom Binaray had had no dealings. Self-generated leads and RAMS leads who were existing RAMS customers was 38.71 percent. For those self-generated leads and RAMS leads who weren’t existing RAMS customers, the conversion rate overall was 14.82 percent. For all customers, the overall conversion rate was 15.98 percent.
By reference to the 38.71 percent conversion rate for existing RAMS customers which she assumed would include any BOCs, Ms Letts expressed the view that the conversion rate of 20 to 30 percent was reasonable.
Binaray contended that there were common features between an established RAMS customer who is self-generated and a BOC by virtue of the fact that they are both RAMS customers and that it could be readily inferred that the conversion rate of a BOC would be significantly higher than a RAMS lead and much closer to that of a self-generated lead. On that basis, Binaray contended that the overall conversion rate reflected in Table 1 of 38.71 percent was in fact a more appropriate rate to adopt in the circumstances of this case. It submits that allowing for contingencies and the source of the BOC, the rate adopted by Ms Letts of 25 percent is entirely appropriate. It also sought to support the conversion rate by a cross-check using the RAMS customer conversion self-generated rate in Table 1 of 60.74 percent, and stated that, adopting a 41 percent calculation using Mr Potter’s analysis, that on average 1.31 loans were written in respect of each borrower as a base, but increasing it to 1.41 take into account that the reports had been altered by filtering unique surnames, which meant it was possible unique borrowers had been removed. The two in combination resulted in a rate of 24.9 percent.
The evidence of Binaray through Mr Allen as to the additional loan rate was that 60 to 70 percent of its customers purchased an additional product. That was his best estimate and he did not provide any evidence substantiating that figure. Commission reports said to have been provided to Ms Letts which contained markings did not support the additional loan rate estimated by Mr Allen. Mrs Allen did not specify a rate at which Binaray’s customers took out additional rates. She stated however, that she had performed an analysis of Binaray’s commission reports to identify a number of its customers that took out additional loans. In re-examination of Mrs Allen, a document was produced which extracted the names of Binaray’s customers from monthly commission reports for the months of February 2011 to January 2012, December 2012 to February 2013 and December 2015. The names extracted included those customers who had previously discharged a RAMS loan and obtained a new loan from RAMS at a later stage. Based on her analysis, the rate of additional loans which Binaray’s customers took out were 19.3 percent for February 2011, 11.42 percent for January 2013 and 16.1 percent for December 2015. While clearly that was only a limited sample, it does not support a figure of 25 percent conversion for BOCs.
Binaray contends that the above analysis, together with the evidence of Mrs Allen about the efficiency of the operation and high rates identified by Mr Allen and Mr Bowen of existing customers taking out further loans also support the figure of 25 percent.
While she later sought to use Mr Choo’s spreadsheet to support the claimant’s statement that they believed it was reasonable to assume they would have been able to convert the BOCs at a rate of 20 to 30 percent, that evidence had some obvious flaws. Ms Letts agreed that Table 1 was analysing RAMS leads and self-generated leads (referred to as “local source”) and dealt with people who were actively seeking a loan that settled. She agreed that in the hypothetical, it was unknown whether or not a BOC had any interest in an additional loan. I accept the submission of RAMS that the comparison undertaken by Ms Letts is not like for like, given it is based on people who are actively looking for a loan that settled as opposed to a list of names of BOCs who may or may not be looking for an additional loan. Ms Letts agreed that the figures for self-generated leads or the local source leads with an existing loan were roughly the same as conversion of customers who did not have a RAMS product. She further agreed that Binaray was converting self-generated leads who did not have an existing RAMS product at almost the same conversion rate as they were converting the self-generated leads who did have a RAMS loan. Ms Letts agreed that the figures in Table 1 demonstrates that it is not the existing RAMS product that is relevant in getting a high percentage of conversion, but rather it is whether or not it is a local-sourced or self-generated lead which explains the higher percentage.
RAMS however, contended that Ms Letts’ analysis in Table 1 was dealing with people actively seeking a loan that settled. Ms Letts agreed with that proposition given that the figures were from lead to settlement. It therefore submitted the 38.71 percent was not one that could be used as a proxy to the hypothetical because in the case of the BOCs, some may or may not be looking for a loan. The conversion rate of 38.71 percent is more connected with the lead source than the RAMS products. Binaray contends that there is no basis to suggest that RAMS’ Table 1 leads are actively seeking a loan that settled because of the poor quality of the RAMS lead.
Table 1 includes figures for self-generated leads. It was uncontentious that they are higher quality leads which arise through referrals from solicitors, real estate agents, accountants and the like. I would infer that they are customers who were likely to have been looking for a loan. As to the suggestion that a RAMS lead was not likely to have been looking for a loan, I consider that is a reasonable inference given such customers generally approach RAMS, albeit that the quality of the loans are variable, and the table refers to settlements. That is in contrast to BOCs who may or may not desire to obtain the loan, those customers already having obtained a loan. In that regard, the assumption contained in the submissions of Binaray that a BOC is potentially a person in a position to consider further or additional loans is a proposition which may or may not be right.
Further, in the cross check which has been used by Binaray in their submissions, they have used the RAMS customers’ conversion for self-generated leads of 60.74 percent. As set out above, I do not accept that is an appropriate proxy for the conversion of BOCs. Had the rate of 38.71 percent been used, even accepting that the 41 percent, rather than 31 percent was appropriate, the figure would have been 15.87 percent.
Further, Ms Letts relied on instructions provided to her through a statement of Mr Allen. The conversion rates which were estimated by Mr Allen in respect of self-generated leads of between 80 to 90 percent and for referrals between 50 to 60 percent, was not the subject of any supporting evidence either given by Mr Allen or through any other analysis. Similarly, the figure of 20 to 30 percent estimate for further loans that would have been converted through the BOC database was also without any evidential basis and have no connection to the earlier conversion rates.
In her evidence, the rate of 25 percent was used by Ms Letts, notwithstanding that she considered that whether Binaray would have been in a better position to sell loans to BOCs who had a relationship with a broker would depend on whether the customers were wanting to go for another loan, which she ultimately conceded would be relevant to take into account. She could not state whether that had factored in any additional loan rate to take that into account and had just relied on Mr Allen.
I do not consider that there was a proper evidential basis for the notional conversion rate of 25 percent used by Ms Letts nor that its reasonableness was supported by the analysis provided by her in Table 1 of her April 2017 report. The rate of 25 percent was estimated by Mr Potter based on Mr Choo’s evidence to be the additional loan rate of Binaray’s customers. On no view of the evidence could a similar rate be supported for BOCs.
Mr Potter’s approach adopts an “effective conversion rate” which reflects:
The universe of potential additional loans (being the total number of BOCs that will obtain an additional loan); and
The rate at which the franchise is able to convert these potential customers such that additional loans are written with the franchise.
According to Mr Potter the effective conversion rate is therefore a function of the rate at which BOCs would have obtained an additional loan and the rate at which the existing customer could be expected to move from being a customer of a broker to a customer of Binaray.
As to the additional loan rate, Mr Potter assumed rates of between 13.92 percent to 25.2 percent. The rate of 13.9 percent was based on the evidence of Mr Choo as to the number of BOCs who took out further loans from 1 January 2008. The rate of 25.2 percent was a calculation of the additional rate of loans using Mr Choo’s figures based on Binaray’s loan book but removing the 2008 to 2010 figures from his calculations. That was to account for the approach of Ms Letts who contended that given the loan book for January 2008 was new given the sale by RHG to Westpac, the figures for 2008 to 2010 were lower than they would have been in the counterfactual. In order to normalise the figures to get the proper rate of conversion, she proposed that the years 2008 to 2010 should be removed. Many reasons could explain the low rates between 2008 to 2010, including, the effect of the GFC. However, the approach of Ms Letts assumes that in the hypothetical world that Binaray would have had access to the BOCs from the time that it started its franchise, it would have had details of the BOCs from the RHG database on its own database and those details would have remained on its database and Binaray would have made contact with those customers and have established a relationship at least with some of the BOCs. I accept that Binaray would have retained a number of BOCs’ details from the RHG BOC list on their own system and had would have made contact with them and begun marketing with them and developed a relationship at least with a number of them, however other factors may have operated to mean that the loans for that period were not significantly greater with the addition of the list. By adopting that approach, Mr Potter is adopting the view most favourable to Binaray.
Mr Potter considers that 13.92 percent which is the rate at which BOCs obtained further RAMS loans derived from Mr Choo’s figures is the best available objectively based proxy for the rate at which BOCs on the database would have obtained loans. Ms Letts criticises both figures used by Mr Potter as representing the ‘universe’ of potential additional loans. I consider the figure of 13.92 percent is the most sound figure which most likely reflects the rate at which BOCs in the counterfactual would have obtained loans.
Mr Potter then applies the figure of 7.09 percent to the figures resulting from the application of the additional loan rate of BOCs or Binaray’s own additional loan rate. The rate of 7.09 percent, is the rate used for the RAMS leads.
Mr Potter carried out an analysis of the Requested Account Report spreadsheet to examine how many accounts Binaray’s customers held and his analysis resulted in the higher figure of 23 percent of customers who had additional loans, which took into account of the fact customers had multiple loans. In the first joint statement of experts of 17 May 2016, Mr Potter referred to his analysis of a CMS report of October 2015, which showed 1,184 loan records created by Binaray for the period from July 2006 to October 2015. Mr Potter carried out a filtering process to remove duplicates and identified that there were 970 unique loans and 741 unique surnames. That indicated on average there was 1.31 loans written amongst each of the Binaray borrowers. Binaray objected to that evidence and contends that the figures should not be accepted and Ms Letts’ figure of 1,832 should be adopted. For present purposes, it is not a matter I need to resolve.
Mr Potter subsequently carried out an analysis using the amended BOC average loan value report prepared by Mr Choo. Mr Potter considered it was preferable to use the best available objectively based proxy for the rate at which customers on the database would have obtained further loans. It represents the best estimate of the rate at which BOCs in Binaray’s allocated territory took out additional loans with RAMS.
Binaray also submits that the rate of 13.92 percent, which was relied upon by Mr Potter is not supported by the evidence. It contends that it is comparable on the basis of those who had more than one loan at the time and does not account for customers who came to take out further loans, referred people for further loans and took out multiple loans. Further, it ignores customers who took out additional loans with other lenders.
Binaray contends that fundamentally the figure of 13.92 percent is only looking at the conduct of brokers not Binaray. It contends that it is highly probable the percentage would have been greater if the plaintiff had been permitted to interact with the BOCs. Binaray submits that the sale of an additional product by a franchisee to a BOC arises from the nature of the relationship and the skill of the franchisee. The nature of the relationship between the franchisee such as Binaray and a BOC may well give rise to that BOC buying that additional product from Binaray. However the evidence does not satisfy me that a BOC would buy an additional product because of its relationship with a franchisee such as Binaray and thus the percentage at which a BOC might take out an additional product would be higher because of that relationship. The fact that a BOC may no longer have any type of relationship with a broker and that there would be no competition again suggests that may be a reason why they would utilise the services of a franchisee such as Binaray to buy any additional product rather than a broker, but not that the BOC would buy that product because of the relationship with the franchisee.
The fact that BOCs went to another lender other than RAMS suggests, consistent with the fact they went to a broker, that they were not tied to RAMS products. Those who were dissatisfied with their brokers and wanted to continue with RAMS products could, and indeed in some cases did go to Binaray. I think the number of customers who went to other lenders, even with Binaray having made contact with them using the RAMS model, who would have taken out additional loans through Binaray, would have been marginal. I consider that the figure of 13.92 percent is appropriate to use for the additional loans, given the BOCs who took out additional loans would have been the target customers to which Binaray was intending to sell loans and the reasons that those clients would have taken out additional loans with RAMS.
Binaray also criticised the use by Mr Potter of the conversion rate used for RAMS leads and contended Mr Potter’s approach was wedded to the notion that the BOC must have had a relationship with the broker and that Binaray would be effectively cold calling the client. It contended as Mr Potter did not have the expertise, he could not provide a meaningful assessment of that position. That was however supported by the RAMS witnesses to which I have referred to above. Mr Potter accepted that his opinion was premised on the BOC having a pre-existing relationship with the broker. I did consider that his evidence that the franchisee had to break the relationship with the broker in all cases, given natural drift suggests otherwise, elevated the relationship to a higher level than was likely in the hypothetical situation.
Mr Potter’s drawing of an analogy between a RAMS lead and a BOC lead is based on the opportunity of being provided with the BOC list being little different from being provided with a RAMS lead. In particular, he accepted the weakness of the RAMS lead but considered the position of a franchisee building a relationship where a broker had already formed some relationship with a customer was weak as well. He indicated that the franchisee would be cold calling a customer initially and a number of steps would have to be gone through before the customer becomes a lead.
As to the adoption of the RAMS leads conversion rate he considered it was the best proxy for the likely conversion rate because when one looks at the character of those local-sourced leads or the self-generated leads, they are even more removed from the hypothetical circumstance of attempting to market to the broker database, in that the character of some of those leads is that the customer has been to see their accountant or their lawyer and had decided that they were going to obtain the loan and recommendations are made to go and see the franchisee. In other instances, they are referrals from family members or friends. Mr Potter did not consider that that was analogous to calling people on a database who had a pre-existing relationship with a mortgage broker and where the mortgage broker is in a much better competitive position than the franchisee because they can source products from a variety of different lenders.
Mr Potter’s evidence in relation to a RAMS generated lead was “that person’s already decided that they’re interested in talking to RAMS, so a lot of the steps the franchisee would have to go through to achieve their opportunity have not yet happened for the RAMS-generated lead data to kick in and become the right proxy” for a BOC who was contacted by a franchisee, given that “there’s a number of steps before that broker-originated customer, having received that information, decides… they’re interested and become a lead to the franchisee”.
I do not consider that ascertaining the best proxy for the purpose of valuing the loss of profits and considering the effect of the relationship between the BOC and the broker is outside his expertise. As to the factual basis of that relationship being established that relied on the evidence from RAMS.
There was no dispute amongst the witnesses that the RAMS lead was the weakest lead and had the lowest conversion rate for franchisees. While I consider Mr Allen’s view that 90 per cent of RAMS leads were useless was exaggerated, all the RAMS witnesses accepted that there were valid criticisms to be made of the RAMS leads including that a number of the leads were tyre kickers or could not qualify for loans.
Conversely, however, the RAMS leads clearly are of value to a RAMS franchisee as was demonstrated by the analysis of Ms Letts in Table 1 of her April 2017 report which showed 40 percent of Binaray’s business was generated via RAMS leads and the evidence of both Mr Fardon and Mr Ziino that they had value notwithstanding their shortcomings. I accept that evidence. Given the ongoing use made of the records of the RAMS leads by RAMS to track franchisees’ performance and Mr Allen’s acceptance of the accuracy of the commission reports, I accept the accuracy of the estimated RAMS lead in respect of Binaray. Notwithstanding that the BOC has an existing relationship with RAMS which was likely to have given any additional loan an increased chance of being accepted, the other hurdles which would have to be overcome in terms of the initial contact being made do not support the fact that the BOC lead is a significantly superior lead to a RAMS lead.
There is no doubt that some BOCs will not have continued a relationship with their broker and to that extent I accept that offers an opportunity to a franchisee such as Binaray to develop a relationship and further business. In my view, the extent of the evidence indicates that the opportunity lost and most probable BOCs likely to be converted are those who were dissatisfied with or abandoned by their broker, although after 2010 when the broker channel closed that would extend to some customers who wish to continue their use of RAMS’ products.
On the best available evidence to me there was only approximately 10 per cent of brokers who were not with aggregator groups in Binaray’s allocated territory. Those brokers were most likely to be the ones who did not provide adequate service to their clients or closed down. However it is possible that not all brokers associated with the aggregator groups would not provide such service. The evidence of Mrs Allen at least supported the fact that from Binaray’s point of view BOCs whose brokers were part of an aggregator group were unlikely to be BOCs that Binaray would have converted.
I also consider it more probable that the BOCs who would have been receptive to Binaray establishing contact with them would have been those who wanted or were contemplating a further loan or a replacement loan in the future. Having regard to the evidence given as to the operations of brokers there is only a small possibility that other BOCs may not have maintained their relationship with their broker and would have been receptive to contact from Binaray.
However, the question is whether the exercise carried out by Mr Potter best reflects the appropriate conversion rate in the context of the hypothetical exercise. Binaray submits that the approach is flawed in introducing a layer to artificially reduce the pool of BOCs available to be converted to a new, second or additional loan. The evidence of Mr Choo and concessions by Mr Allen and Mrs Allen and Ms Letts support the fact that many customers do not take out additional loans. Mr Potter’s evidence was that he carried out an analysis of the spreadsheets prepared by Mr Choo for the Requested Account Report to identify multiple loans taken out by customers even though it was not evident on the face of Mr Choo’s affidavit. In that regard I accept that Mr Potter in adopting the 13.92 percent additional rate did carry out an analysis to ensure it took into account multiple loans being taken out.
Mr Potter in his approach has narrowed the pool of potential BOCs by reducing it to those BOCs who took out additional loans using 13.92% or using the rate of additional loans of Binaray’s own customers and adjusting it to remove any anomalies for 2008-2010 which was 25.2 percent. The latter exercise did not, however, take account of loans that had been discharged and where the customer returned to RAMS for a new loan.
I accept that the 13.92 percent figure is the best predictor of what in fact occurred in terms of BOCs taking out additional loans. However, one must exercise caution in using that in assessing the hypothetical situation where the additional loan rate may have differed particularly when the opportunity is one to contact and market to BOCs to sell additional loans. Binaray may have been able to take advantage of BOCs dissatisfied with their broker who simply went somewhere else.
By narrowing the pool, however, to those who took out additional loans and then applying the RAMS lead, the effective conversion rate proposed by Mr Potter has provided for one possibility that may have occurred in the hypothetical. He does it by reference to the end point in confining the pool to the number of BOCs who in fact took out additional loan rates. Another possibility is that Binaray would have marketed to the BOCs and a different number of BOCs would have taken out an additional loan. The uncertainties that would exist in the two exercises are different. The narrowing of the pool to those who in fact took out additional loans whether by reference to BOCs or Binaray’s own customers represents the maximum number of additional BOCs which Binaray could have enjoyed. However, by narrowing the pool in that way, the uncertainty that would otherwise have existed as to whether a BOC wished to take out an additional loan, which is a matter which all witnesses agreed was relevant to whether the BOC would have responded to the approach by Binaray which could proactively market the additional loan, is removed. Therefore the prospects of Binaray in converting those BOCs must in all probability increase. In those circumstances, it would be inappropriate to adopt the RAMS leads as the conversion rate when the pool is confined already to those who would have taken out additional loans. I consider that a higher conversion rate would need to be applied to reflect the likelihood of Binaray being able to convert the BOC.
Mr Melvin’s assessment was that the provision of the list of BOCs was about the same strength of lead as a RAMS lead and on the colder side of the scale. His assessment of a franchisee approaching a BOC who was not actively seeking a loan was that would be on the scale a 2-3 in terms of the strength of the lead. The adoption of the RAMS lead rate therefore seems to take account, at least in part, the fact that the BOCs will not all be seeking an additional loan.
I do not accept Binaray’s contention that Mr Potter’s approach is an artificial one which in effect adopts a cap on the number of potential customers who may take out a loan, and to then apply a conversion rate to that number. The distinction that was drawn by Mr Potter was in fact supported, to some extent by Ms Letts, who indicated that the question of whether a BOC was wanting to take out, for instance, an additional loan was relevant to determining the appropriate conversion rate. However, in narrowing the pool by reference to customers who in fact took out an additional loan, I consider the RAMS lead rate would be too low and it is probable that Binaray would have a higher prospect of converting the BOC and a higher conversion rate than the RAMS lead should be adopted. That rate would not be as high as self-generated leads since in all likelihood Binaray would still be competing with brokers for that additional business, although there is a possibility of the circumstance that the BOC relationship with the broker will not be an ongoing one.
I do not, therefore, consider it is appropriate to adopt either the conversion rate provided by Ms Letts or the effective conversion rate provided by Mr Potter. I consider that given that in the hypothetical one is looking at the possibilities and probabilities of Binaray being able to secure the benefit of additional loans the appropriate course to adopt is to determine the number of additional loans that were likely to be taken out by BOCs, but having done that to take account of the fact that an uncertainty in converting the lead has been removed, namely the removal of the fact that a BOC may not be seeking an additional loan.
There is disagreement between Ms Letts and Mr Potter as to the labour costs that would be incurred by a franchisee in the activity of obtaining and servicing the additional customers expected from the marketing to the mortgage broker database and the writing of those loans.
Ms Letts assumed variable costs of labour of 33.5 percent to all of the upfront commissions received for each year. She relied on the statement of Mr Allen who referred to potentially an additional employee being needed and an analysis of the average labour costs for the years relevant to the revenue received from the upfront commissions, which was 66.4 percent. Mr Potter assumed additional labour costs equal to the greater of the minimum fixed cost of $5000 per annum or $750 per loan written.
Mr Potter contends that Ms Letts’ calculation of labour costs fails to include labour costs that would have been incurred in obtaining any additional income. She relied particularly on the instructions of the Allens that in 2006 they would have had no difficulty in contacting clients while the business was starting up and that they personally would have worked the necessary hours to build the client base. She also accepted their evidence that the staff costs were higher than usual and reduced the labour costs accordingly. Ms Letts considered that Mr Potter’s approach was flawed and particularly noted the difference if the calculation was made on the basis of $750 per loan rather than the amount of $5,000 per annum which is set out in a table in her second report. Mr Potter reviewed the labour costs incurred by the franchisee for the period 2007 to 2014. He calculated the franchise incurred labour costs of between $748 to $2,160 per loan written, with an average labour cost per loan of $1,631. He considered that the average labour costs incurred by the franchise over the period 2007 to 2014 provided a sound proxy for the costs that would have been incurred by the franchise.
Mr Potter considered Ms Letts’ assumption that because the franchise was owner-driven it was not necessary to include as a separate expense additional labour costs ignored the reality of what had occurred in relation to the operation of the business without the additional hypotheticals. He contended that it would be unsound to assume that any incremental activity undertaken by the franchise would be performed by Mr Allen or Mrs Allen, rather than third party labour being employed. He did, however, accept that if additional loans were written, additional labour costs may not have been incurred or may not have been incurred to the same extent as was actually incurred by the franchise on a per loan basis. He therefore adopted the lowest annual labour costs that he had calculated to be $748, which was rounded to $750, and adopted that assessment of the incremental labour costs that would have been incurred in respect of any additional BOC loans written by the franchise. Naturally, costs would have been incurred in pursuing the business, not simply in the writing of the business. On that basis, he determined that a staff member would be expected to be involved in spending 10 percent of their working week contacting BOCs to pursue the opportunity. Using the salary level of $50,000 per annum, he calculated, as an alternative, an annual fixed labour cost of $5,000. According to the statement of Mr Allen, assuming a high transfer in respect of BOCs his best estimate was that they would need to employ only one additional person and would not have needed any further office space or supplies. Ms Letts’ assessment does not appear to take this into account. He also stated that they may have needed to provide additional IT support.
Given the business was in start-up from July 2006 and Mr Allen was initially building the business, later assisted by Mrs Allen, and the fact that they controlled Binaray’s business, I consider it is unlikely that the pursuit of the opportunity would have required the incurring of any additional costs in terms of labour for the period up to the end of 2007, given both the evidence of Mr and Mrs Allen that the first year was a quiet year. That is borne out by the year on year figures of revenue. However, even on Mr Allen’s own evidence, it was likely that additional labour costs would be expended to pursue the opportunities in question. That cost would be incurred whether or not the pursuit of the opportunity was successful. Therefore, I consider that it is likely there would be some additional labour costs that would be incurred from 2008 onwards. The fact that the Allens worked in the business does provide for the possibility that they could personally absorb the additional labour costs required if they were not attracting sufficient BOCs to meet the costs of pursuing them. Mrs Allen also indicated that while they would seek to follow up BOCs if they did not initially respond to Binaray’s approach, they would only attempt to do so twice which would also limit their costs. Given that the Allens are working in the business I accept that they would have had some flexibility and taken steps to avoid incurring any loss in pursuing BOCs. I therefore consider that Ms Letts’ approach of calculating labour costs on a basis of a percentage of upfront commissions does not properly account for the costs that would likely be incurred, but will take into account the possibility that labour costs may have been higher in the overall discount.
Other variable costs
Mr Potter had calculated that the additional variable costs that should be applied per annum would be equal to the greater of $5,000 or 3.7 percent of any additional revenue. He identifies these costs to be office supplies and stationery, telephone costs and marketing costs, which would have been incurred in attempting to convert customers on the database to Binaray, selling the products to those customers and writing additional loans in respect of referrals from customers from the database that are converted to the franchise. Mr Potter determined, having reviewed the financial statements of the franchise and the total revenue earned for the period from 2010 to 2014, with the cost range between 2.6 percent to 5.5 percent with an average of 3.7 percent, he would exclude the earlier years on the basis that the franchise was not established. He therefore adopted a figure of $5,000 or 3.7 percent of any additional revenue for the additional variable costs for each year.
Ms Letts calculated the variable costs on a different basis. Ms Letts assumed a rate of 4.6 percent of upfront commissions comprising 1.5 percent to take account of additional IT costs and 3.1 percent to account for motor vehicle expenses. That followed an analysis of the expenses in the financial statements provided by the claimants. Mr Potter contends that Ms Letts’ approach does not take account of the fact that some of those variable costs have an element of being fixed costs that would be incurred by a franchise in attempting to pursue the opportunity, even if a loan was not written. Those would include telephone, printing and stationery costs. While I accept that an element of the costs will be fixed costs, they do not appear to be significant. I do not consider that Ms Letts’ approach is unreasonable in relation to the variable costs.
Loan value and loan increases
Ms Letts has relied on the monthly commission statements for the franchisee to determine monthly loan values and has in her calculations provided for subsequent possible loan increases of 1.8 percent with a 23 month time lag.
Mr Potter, however, does not include an amount for a loan increase, given that the calculation of conversions relates to new loans, not to increases in loans. He considered that in the absence of any evidence to suggest that a borrower in respect of a further loan would take out an increase in respect of that further loan, as opposed to the original loan, he would exclude any loan increases in respect of those further loans. Binaray submits that a proportion of clients would increase their loan over time and therefore if a BOC took out a loan with Binaray, they too at a certain point would increase the value of their borrowing, which would lead to further income for Binaray. This is based on the fact that there is evidence that for loans obtained through Binaray show that there was an increase in those loans during the life of the loan. RAMS contends that Binaray’s claim is put on the basis that Binaray lost the opportunity to sell loans to BOCs other than the loan the BOC had taken out through the broker. RAMS therefore contends that the Court should not include “loan increases” as part of Binaray’s claim. Paragraph 4(e) of the particulars of loss or damage provided in respect of the further amended statement of claim refers to loan increases as part of the opportunity which had been lost. Paragraph 11 also calculates the loss of profits on the basis of the reports of Ms Letts. On the basis of Binaray’s experience with its own customers, the possibility of an increase cannot be dismissed. However, it is unlikely that there would be an increase in relation to every loan, particularly if it is an additional loan to an existing loan. Doing the best I can, I would estimate that 10 percent of the BOCs would have increased their loans by 1.8 percent.
Ms Letts in her second report was instructed that in respect of the spreadsheet of 449 BOCs that were in Binaray’s territory as at September 2007, 29 of those BOCs naturally drifted to Binaray. She divided 29 by 18 to get a monthly drift rate of 1.61 per month customers per month, assuming that the drift occurred over the 18 month period from June 2006 to the end of 2007. Mr Potter considered that any damages to which Binaray should be entitled should be discounted for natural drift, but considered the amount assessed by Ms Letts was understated. In short, this is because the 29 customers may have naturally drifted to the franchisee over a shorter period, which would therefore raise the monthly average. Ms Letts assumed the monthly rate of natural drift would persist until February 2010, but thereafter, assumed it would stop because the broker channel closed at that point. Further, Mr Potter considers that Ms Letts’ approach assumed the monthly rate would remain static and did not take into account the material increase in the database of BOC loans after 2010, but assumes a flat number based on the size of the database as at July 2006.
The fact that some BOCs did become customers of Binaray notwithstanding that Binaray did not have access to the BOC database, which was attributed to customers those who were dissatisfied with their broker or could not find their broker, is a matter which would need to be taken into account both in terms of the possibility and probability of attracting further BOCs who are similarly dissatisfied in assessing the damages for the loss, as those customers were identified as part of the base of BOCs who were the subject of the loss of opportunity. Binaray contends the figure of 1.61 is an appropriate figure and more likely to be overstated than understated. Mr Allen’s analysis of the post-2008 database produced by Mr Choo determined that only 14 BOCs drifted to Binaray post 2008. RAMS, however, states that the Excel spreadsheets provided to Ms Letts in March 2017 with ticks in the column entitled “Naturally to us”, would indicate a higher number of BOCs who were the subject of natural drift than 1.61. Ms Letts did not undertake any analysis in relation to the spreadsheets provided. It is evident from the instructions given to Ms Letts through the solicitors for Binaray that a number of customers were said to have naturally drifted to Binaray, notwithstanding no approach being made by Binaray. According to those instructions, the drift of BOCs that occurred was 11 customers between 21 April 2008 and 26 June 2009; at 22 June 2014, some 17 BOCs became Binaray’s customers over time; between 14 April 2008 to 25 November 2009, some 28 BOCs became the customers of Binaray. From a spreadsheet showing BOCs in Binaray’s territory in 2007, at least 36 of those customers became Binaray’s customers over time. According to another spreadsheet, for the period between 3 March 2008 and 26 June 2009, the BOCs whose applications settled between 3 March 2008 and 26 June 2009 consisted of 97 BOCs who, without approach, became Binaray’s customers over time. While there is an overlap in relation to the date of those spreadsheets there is no suggestion that there is duplication. Given there were BOCs drifting to Binaray, Binaray was in a position to analyse whether that was the case. However, Mr Choo’s analysis identified 17 of the 44 loans for BOCs post-2008 as being an understatement. The figure of 1.61 per month based on the 29 customers who were said to have drifted to Binaray of the 449 BOCs that were in Binaray’s territory as at 2007 increased, and the figure of 1.61 per month is understated. Binary criticises the submission by RAMS stating that the notion that the figure is understated is vague and merely the matter of an assertion. It also submits that the figure of 1.61 for the period 2008–2010 is higher than the figure produced by Mr Choo. There is no doubt that the evidence in relation to this is unsatisfactory, however, as it was Binaray who was in the position to adduce the evidence on the true “natural drift” and it did not do so, it can hardly be a point of criticism for Binaray to make of RAMS.
The proposition that natural drift would have ceased in 2010 is made on the basis that the broker channel would have closed at that point. Binaray’s position would assume that Binaray would have contacted every BOC and as such, any BOC who became a customer of Binaray would in the hypothetical be the result of the contact by Binaray. The restrictions in the Business Partner Charter remained, notwithstanding the closure of the broker channel, brokers would have continued in business. Binaray’s own instructions indicate that there were those who naturally went to it without any contact being made. Ms Letts could not explain why the closure of the broker channel would have ended the drift of BOCs. RAMS also contends that the rate of drift would have been greater for the period from February 2010 to July 2016, given Mr Allen’s evidence as to the effect of the change in September 2013, when BOCs who called RAMS were directed to Binaray which was said to have resulted in a number of BOCs coming to Binaray. I consider that unlikely given Binaray would have been actively marketing in the hypothetical after the broker channel closed. In the hypothetical, one assumes, while Binaray has access to the BOCs on the database, RAMS directing BOCs to Binaray in September 2013 would still have occurred. As such, that again would reduce the amount of BOCs who could be the subject of the loss of opportunity. Alternatively, that wold reduce any loss suffered by Binaray since BOCs were actively being directed to them. The submission by Binaray that it would not have been necessary for RAMS to direct BOCs to Binaray if Binaray had had access to the database assumes that those BOCs would have gone to Binaray, rather than RAMS, and is in any event beside the point.
While I consider that the figure of 1.61 BOCs as a rate of natural drift is likely to be understated, Mr Potter did not provide an alternative analysis. However I will take into account that there would have still been natural drift and the risk it may be understated before 2010 in applying a discount to the overall figure.
Interest payable on the RFCS loan
Binaray also claimed that as a result of the loss of opportunity it lost the opportunity to repay the interest of an RFCS loan earlier and so incurred greater interest. Ms Letts was provided with instructions that should Binaray have received the additional funds, they would have been applied to pay off the RFCS loan. Mr Potter stated that the use of the RFCS loan appeared to be a refinancing decision made in respect of the franchise and did not consider that it was appropriate to include such costs in an assessment of the loss claimed to have been suffered by the franchise. That is supported by the evidence of Mr Allen.
Mr Allen was cross-examined in relation to the RFCS loan and agreed to a suggestion that if he had any interest in paying down the loan any sooner, he would have made different profit distributions to the ones that he had in fact made. RAMS contends that that is a concession on Mr Allen’s part that had he, in fact, had any interest in paying down his loan, he would have done that, but he failed to. The income statements of the trust show that in the various years it made a profit and the profit was distributed rather than paying down the loan. Thus, the evidence shows there was a capacity to pay the interest down at a faster rate, but it did not happen. I am not persuaded that the evidence established that had Binaray received the additional income from the BOCs, it would have paid the interest down on the RFCS loan at a quicker rate. I am not satisfied that Binaray suffered any loss as a result of the breach by Binaray in this regard.
Ms Letts makes a calculation on the basis that in the counterfactual, Binaray would have received referrals from the BOCs, presenting a further lost opportunity. In that regard, she was provided with an email from Mr Ramke of RAMS dated 1 December 2005 which referred to the fact that conversion of 100 phone calls to referrals from the existing broker customer database would lead to 12 settlements. That email was about conversion of leads and made provision for referrals. It was provided by Mr Ramke to Mr Allen as “a suggested matrix for his consideration and possible inclusion”. It is not evidence that referrals can account for one percent of the customer base. While the RAMS model clearly acknowledged that referrals from customers provided an additional basis upon which franchisees could expand their loan customer database, the frequency at which such referrals occurred has not been the subject of any factual evidence such as reference to clients of Binaray who referred further family or friends to Binaray. While it was the subject of anecdotal evidence by Mrs Allen and Mr Allen, there was no evidence as to the number or frequency of referrals. I am not satisfied that the evidence of Mr and Mrs Allen, nor Exhibit 57, provide any proper evidential basis upon which I can conclude that there was any real possibility, let alone a probability, that there would have been referrals from BOCs to Binaray, had Binaray successfully converted the BOCs, or determine the rate at which such referrals would have occurred.
While counsel for Binaray referred me to the marketing material of RAMS provided to its franchisees, which noted the value of referrals, that material does not form an evidential basis for estimating the possibility or probability of a referral rate in the present case.
I do not consider that there is any evidential basis for me to determine the likelihood that the loss includes a loss of referrals.
Average loan size
Ms Letts calculates the average loan size on the basis of the monthly commission statements for Binaray. Mr Potter assumed an average of the loan values for additional loans obtained by BOCs. The average value of additional loans that were actually obtained by borrowers on the BOC database is the best proxy, in my view, for the hypothetical, where the loss claimed is a loss of opportunity to convert BOCs or to sell them an additional loan. Additional loans are likely to vary in amount from an original loan given it is a further loan. Mr Potter assumed that the average loan value of $300,669 applied in respect of any additional loan written in respect to borrowers on the database in the period of July 2006 to December 2007 and that loans written after that period were at an average of $300,669.
While Mr Potter adopted the 18 month time lag used by Ms Letts, I note that he considered it was likely to overstate the loss by accelerating the time of loans. Ms Letts provided no proper basis for the timing. Given that Ms Letts agreed that she had not taken into account the difference between BOCs and previous BOCs and has assumed the conversion of those BOCs who existed at the time Binaray took over the franchise whereas on Binaray’s case it would take 18 months to build a relationship and convert the adoption of 18 months is unlikely. Mr Allen considered a period of 18-24 months would be appropriate. In my view, particularly given RAMS is targeting first home buyers and the self-employed it is appropriate to adopt the more conservative figure of 24 months. However, given the approach I have adopted it is not necessary to include this in calculations.
Doing the best I can based on the above analysis, I consider that the alternate Potter analysis at [1.5] of Exhibit 77 using the 304 BOCs for 2006 and 316 BOCs post 2008 and using the 25 percent conversion rate is the most appropriate starting basis to assess the loss. I consider that the conversion rate that Binaray would be able to effect if the BOC pool was confined to those who took out additional loans would be no higher than 25 percent and would likely be less than that. It therefore represents the maximum profit that could be achieved by Binaray before taking account of natural drift and other contingencies such as the “do not contact” issue.
By reference to [1.5] I consider that the additional loan rate figure that is the most probable would only be slightly above that which is reflected by 13.92 percent to take account of the fact that there may have been further additional loans than occurred in fact. I would therefore adopt a figure which adds 25 percent of the difference between the two additional loan rates of $38,050, which would be a total of $225,871.
However, that figure would require a considerable discount to be applied as I consider that it is only a small possibility that that could have been achieved by Binaray and that it is more probable that it would have been able to convert less than that, particularly given the small number of brokers in the allocated territory who were likely to have dissatisfied customers or stopped business. A discount also needs to be applied to take account of the contingencies and natural drift. I would then apply a 60 percent discount to reach a figure of $90,348.40.
I will, however, hear the parties as to the above approach prior to finally determining the question of quantum, given it was not a matter that was canvassed in submissions.
RAMS pleaded that the proceedings were commenced on 29 November 2013, which is out of time. It contends that if RAMS breached the contract, the breach occurred on or shortly after the contract was entered into on 25 July 2006, the six year limitation period therefore expiring about late July 2013. It contends that the breach was a “once and for all” breach and that the obligations were not the subject of a continuing covenant. It contends although the contract does not expressly specify timeframes for RAMS to complete its obligations, the time for performing those obligations was “a reasonable time from the commencement of the agreement”. Alternatively, it contends that even if the obligation was a continuing one such that a separate cause of action arises for each particular failure, any cause of action based on a breach of contract that occurred more than six years before the proceeding commenced (i.e. 28 November 2007) is statute barred.
Binaray does not contest the fact that the RAMS has a defence based on the Limitations of Actions Act 1974 (Qld) for any breach prior to 29 November 2007, however it contends that the obligation to provide access to the whole of the database was a continuing one. Therefore, it contends the limitations defence is of little consequence since as at 29 November 2007 there was a database which ought to have been allocated to Binaray and Binaray was denied that opportunity from 29 November 2007 onwards. In that regard, it relies on Larking v The Great Western (Nepean) Gravel Ltd (in liq) where Dixon J stated:
“…if his covenant is to maintain a state or condition of affairs, as, for instance, maintaining a building in repair, keeping the insurance of a life on foot, or affording a particular kind of lateral or vertical support to a tenement, then a further breach arises in every successive moment of time during which the state or condition is not as promised, during which, to pursue the examples, the building is out of repair, the life uninsured, or the particular support unprovided.”
RAMS contends that given Binaray’s case is put on the basis that once a customer becomes a customer on the database, they start the marketing campaign and within 18 months there is conversion, it must necessarily follow that persons on the list up until 29 November 2007 cannot be included in Binaray’s claim because of the failure to bring proceedings at an earlier time.
Binaray contends that RAMS was subject to a continuing obligation to provide it with the full allocation of BOCs each time there was an additional BOC added to the database.
The nature of the obligation to provide access to the BOC database is one which was a continuing obligation to allocate that BOC to Binaray after the customer took out a loan through a BOC. Thus, the whole action is not statute barred. However, I do not accept the argument of Binaray that there was an obligation to provide the whole database on an ongoing basis such that all the names who were allocated before November 2007 were still obliged to be allocated after November 2007 on the database and therefore it makes no difference that any breach before November 2007 is statute barred. On its proper construction, I consider that the reference to “allocate” in clause 17.1.7 requires an allocation at the time of entry into a franchise agreement and then allocations of additional BOCs added to the database to be provided to the Franchisee. I do not consider that the RAMS business model affects this construction. I do not consider that there was continuing obligation to allocate the whole database throughout the life of the Franchise Agreement.
In my view, for those BOCs who were on the database and should have been allocated before November 2007, the breach occurred at the time when the BOC should have been allocated to Binaray. Thus, existing BOCs should have been allocated to Binaray within a reasonable time after the franchise commenced. Where a broker had entered into a loan agreement with a BOC after July 2006, the breach occurred within a reasonable time of the BOC’s loan settling when the BOC was within its territory. Loss, of course, does not have to be incurred for the cause of action to accrue. In this regard, the case seems to be most analogous to the failure to pay instalments of interest or rent. In such a case, the claimant will succeed in respect of so much of the series of breaches or the continuing breach as occurred within the six years before the action was brought. Thus, for breaches that occurred by the failure to allocate BOCs who were placed on the database of RAMS between July 2006 and November 2007, the cause of action for breach of contract in relation to BOCs is statute barred. Given as at September 2007 there were 449 BOCs on the database that would appear to be the most accurate number available of the BOCs who should have been allocated to Binaray by November 2007, however I will hear further submissions from the parties as to that. The effect of this on the damages calculation is also a matter upon which further submissions are required by the parties.
RAMS contends that Binaray has delayed unreasonably in commencing the proceeding. It originally made a complaint in relation to its conduct proceeding to trial, however, in oral submissions that was not pursued. It contends that Binaray’s delay disentitles it from claiming interest over the entire period from the date when the cause of action arose. Binaray was aware of its potential claim against RAMS in the period from 25 July 2006 until 15 April 2008 and did not inform RAMS or try to resolve the dispute with RAMS until it issued the notice of dispute. RAMS further contends that Binaray delayed the issuing of the proceedings from 2011 until 22 May 2014, the date upon which it served RAMS with the claim, the statement of claim, the amended statement of claim and Ms Letts’ report of 29 July 2013 after the breakdown of settlement negotiations. Mr Allen stated that the breakdown in settlement negotiations would have occurred post-2010 and could not be more specific. Further, RAMS contends that if the Court finds RAMS’ obligations were a “continuing covenant” such that a separate cause of action arose for each particular failure to provide a BOC’s information (i.e. the time at which a BOC loan was originated and its information was entered on to the RAMS system but not provided to Binaray), it would be inappropriate to apply interest at the time each relevant cause of action arose because neither Binaray’s case nor Ms Letts’ calculation of loss proceed on the basis that any commission or other revenue would have been earned at that time. RAMS contends the Court should, in the exercise of its discretion, not award interest until Binaray would have allegedly earned commission from writing an additional loan to a BOC.
Binaray contends it has not acted unreasonably in commencing the proceedings such that it should be disentitled from interest for the whole period. Mrs Allen gave evidence that after the notice of dispute was issued, the plaintiff dealt with RAMS on a number of occasions in relation to the dispute, without success. Further, Mr and Mrs Allen advised RAMS between 5 November 2012 until 18 December 2012 that they were still collating all of the information so that they could fully evaluate their position and conclude the matter as soon as possible. Both parties referred to the principles dealt with by McPherson JA (with whom McMurdo P and Thomas JA agreed) in Interchase Corporation Ltd (in liq) v Grosvener Hill (Qld) Pty Ltd (No 3). The Court referred to s 47(1) of the Supreme Court Act 1995 (Qld). The Court noted that:
“The section confers a discretion which it is settled, is to be exercised judicially with a view to compensating the successful plaintiff for the injury or loss sustained…The purpose or function of an award of interest under the section is restitutionary. It is not to punish the defendant but to compensate the plaintiff for being kept out of the money represented by the judgment sum in the period between the accrual of the cause of action and judgment”.
However, as was noted by McPherson JA, the Courts have recognised that in some circumstances, it would be “unfair to order a defendant to pay interest for the whole period between the accrual of the cause of action and the date of judgment”. An example given is “where the plaintiff has been guilty of unreasonable delay in prosecuting the claim”.
In the present case, the proceedings were not served until some eight years after the plaintiff had first considered that it was entitled to be receiving the names of the BOCs. There were, however, discussions which took place between the parties in an attempt to resolve the matter. McPherson JA in Interchase Corporation Ltd (in liq) v Grosvener Hill (Qld) Pty Ltd (No 3) by reference to Moffitt P in Bennett v Jones, stated “the power to award interest ought not to be used as an instrument of policy in the public interest to procure expeditious settlement or prosecution of claims, even if it might incidentally have that effect “where delay of one party causes or may cause detriment to the other…”. I do not accept that interest should be excluded because the parties were in negotiation.
In the present case, I consider that there has been an unreasonable delay by Binaray in issuing proceedings once it had engaged solicitors in 2011 until the claim was served on RAMS on 22 May 2014, even though the statement of claim had been filed on 29 November 2013. Such a delay, in my view, is an unreasonable one. Further, given interest is restitutionary and on Binaray’s own case it would not have converted a BOC for 18-24 months interest should not accrue until commissions became payable. I would therefore consider that interest should be payable for the period from 30 November 2007 until 2011 and from the time the proceedings were instituted and served in May 2014. Given the actual date upon which solicitors were appointed is unknown but Mr Allen indicated a breakdown had occurred after 2010, I consider this period from January 2011 to May 2014 should be excluded. I will hear from the parties about the effect of part of the action being time barred.
I am therefore satisfied that:
RAMS did have an obligation pursuant to clause 17.1.7 of the Operations Manual to allocate to Binaray customers of RAMS who were generated through RAMS accredited brokers;
RAMS did have an obligation to provide Binaray with access to or use of customer information of BOCs within the constraints of the Business Partner Charter;
RAMS was only obliged to provide information as to existing BOCs and not BOCs who had discharged their RAMS loan;
RAMS did breach their contract in not allocating the BOCs in the allocated territory to Binaray;
Binaray did suffer a loss of a commercial opportunity by reason of the breach;
Binaray is precluded from claiming damages for loss more than six years before the commencement of the proceeding; and
Binaray is entitled to interest, but not for the full period.
Prior to making final orders as to quantum, the effect of the limitations issue and interest, I will hear from the parties, given the reasons above. I will also hear submissions as to costs.
I order that:
The parties provide further submissions of no more than 10 pages within 21 days of today.
 RAMS was known as RAMS Home Loans Pty Ltd between June 2003-December 2003, RAMS Franchising Pty Ltd between December 2003-March 2008, and RAMS Financial Group Pty Ltd from March 2008.
 Statement of Agreed Facts, .
 M Allen T3-63/1-11, but the particulars to paragraph 13 in the Further Amended Statement of Claim refer to requests for the list in September to October 2006.
 Statement of Agreed Facts, .
 Statement of Agreement Facts, .
 Exhibit 22.
 Statement of Agreed Facts, .
 Statement of Agreed Facts, .
 Statement of Agreed Facts, .
 The plaintiff defined the issue by adding the words after (b) “for the purpose of the plaintiff providing customer service and database marketing”, which was the wording used in clause 17.1.7 of the Operations Manual.
 The plaintiff identified an additional issue “Does the term customer as referred to in the Franchise Agreement include customers who originally took out a RAMS loan through a mortgage broker (the initial RAMS loan) but who had discharged the initial RAMS loan?”
 Document 2 of the Agreed Bundle of Documents “A”.
 Clause 14.1, tab 3 of the Agreed Bundle of Documents “A”, volume 1.
 Clause 14.9 provides for RAMS to give reasonable notice of such changes.
 “About this Agreement”, tab 3, volume 1, Agreed Bundle of Documents “A”.
 Further Amended Statement of Claim, .
 Further Amended Defence, .
 Volume 1, Agreed Bundle of Documents “A”, tab 3.
 (2014) 251 CLR 640.
 At .
 (2017) 261 CLR 544.
 (2015) 256 CLR 104 at  to  per French CJ, Nettle and Gordon JJ.
 Further Amended Statement of Claim, .
 Further Amended Defence, .
 (Volume 1, Agreed Bundle A, Tab 3) at RFG.100.203.0008.
 Defendant’s Closing Submissions, .
 Statement of Agreed Facts,  and .
 Defendant’s Closing Submissions, .
 Defendant’s Closing Submissions, ; Plaintiff’s Closing Submissions, .
 Defendant’s Closing Submissions, .
 Or any customer who had originated through a third party.
 Whether it was binding is another matter.
 Refinancing an existing Customer loan with an Approved Product in circumstances where a Variation to the Customer’s existing loan would achieve substantially the same outcome for the Customer.
  1 NZLR 506, particularly at - per Thomas J.
 At .
 At .
 Exhibit 7, “Key Features of the RAMS ‘New Franchise Model’”.
 Plaintiff’s Closing Submissions, .
  1 NZLR 506.
 At  per Thomas J and  per Keith and Blanchard JJ.
 GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1 at .
 See Leggatt J in Yam Seng Pte Ltd v International Trade Corporation Ltd  EHWC 111 (QB) at -, referred to by Lyons J in IW & CA Price Constructions Pty Ltd v Australian Building Insurance Services Pty Ltd & Ors  QSC 39, which was overruled on appeal in relation to the question of goodwill only in  QCA 313.
 Exhibit 39; Statement of Agreed Facts, .
 Clauses 17.2.1 and 17.2.2 provide the services that are to be provided and commission payable including providing that RAMS Home Loan Centres are required to provide customer service, retention and cross sale activity to customers generated by Franchise Direct.
 Plaintiff’s Closing Submissions at ; Defendant’s Closing Submissions at .
 Plaintiff’s Closing Submissions at .
 (2008) 238 CLR 570 at .
 James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd  AC 583 at 603 per Lord Reid.
 Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382 at  per Campbell JA.
 Which refers to the limitations in the Business Partner Charter.
 Which refers to the obligation of the franchisee to provide service to all BOCs.
 Defendant’s Closing Submissions, .
 Plaintiff’s Closing Submissions, .
 Further Amended Defence, [9(a)].
  FCA 43.
 Further Amended Statement of Claim, [9(b)-(c)].
 Secured Income Real Estate (Australia ) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607-608
 WL Marshall v The Colonial Bank of Australasia (1904) 1 CLR 632 at 647 per Griffith CJ; Australia Media Holdings Pty Ltd & Others v Telstra Corporation (1998) 43 NSWLR 104 at 123
 In relation to which see the discussion of the relevant authorities by A Lyons J in IW and CA Price Constructions Pty Ltyd ABN 5030103933 A Trustee for the Coastal Building Insurance Claims & Repairs Trust v Australian Building Insurance Services Pty Ltd ACN 162498599  QSC 39 at -.
 Baldwin v Icon Energy Ltd  1 Qd R 397.
 M. Allen, T2-47/30-35; S. H. Allen, T4-30/25-45, T4-31/10-15.
 M. Allen, T2-47/30.
 See for example, Ms Thammiah, T5-28/5-10.
 Australian Oxford Dictionary (2nd Ed); Oxford Dictionary (3rd Ed); see also the discussion in TC Newman (Qld) Pty Ltd v DHA Rural (Qld) Pty Ltd (1988) 1 Qd R 308 at 319-320, per Williams J.
 See paragraphs 14 and 15 of the Further Amended Statement of Claim, with  not referring to the obligation being an ongoing one.
 Further Amended Statement of Claim, .
 Sellars v Adelaide Petroleum NL & Ors (1994) 179 CLR 332 at 355 per Mason CJ, Dawson, Toohey and Gaudron JJ and 368 per Brennan J.
 (2016) 257 CLR 440 at .
 Ibid at .
 At 367-368.
 Badenach at .
  QCA 254.
 Defendant’s Supplementary Submissions in Reply, -.
 Principal Properties Pty Ltd v Brisbane Broncos Leagues Club Limited (No. 2)  QSC 252.
 Defendant’s Submissions in Reply, .
 Defendant’s Supplementary Submissions in Reply, -.
  QCA 254 at .
 At .
 At .
 At .
 At .
 At .
  NSWCA 192 at .
 Hart Security Australia Pty Ltd v Boucousis & Ors (2016) 339 ALR 659 at 688; Fenridge Pty Ltd v Retirement Care Australia (Preston) Pty Ltd  VSC 464 at .
  VSCA 187.
 At .
 At .
 M. Allen, T2-84/5-10.
 Defendant’s Closing Submissions, -.
 Exhibit 59, .
 Defendant’s Closing Submissions,  and .
 Defendant’s Closing Submissions, .
 Defendant’s Closing Submissions, .
 M Allen, T2-36/32-47 to T2-37/1-8; G Melvin T5-128/21-27, although his experience relates to 2014 onwards.
 Melvin T5-128/29-39.
 M Allen, T2-37/1-7; G Melvin T5-128. According to Mr Allen, RAMS provided for self-certification, whereas Mr Melvin referred to permitting accountants to sign off. The difference for present purposes is of no significance and may be due to different time periods being spoken of.
 C Kirkpatrick, T5-80.
 M Allen, T2-30/23; G Melvin, 5-124 and 5-127.
 M Allen, T2-60/7-15, T2-63/38-47, T3-45/1-2 and 11-12.
 S Allen, T4-32/20-31, T4-33/22-50, T4-92.
 S Allen, T4-27.
 T4-25; T4-26.
 M Allen, T2-15.
 T2-52/15-31, T2-55/15,17-18.
 M Allen, T2-52.
 S Allen, T4-28.
 M Allen, T2-68.
 T4-32/20-46; T4-33/1-30.
 S Allen, T4-52/43-46.
 S Allen, T4-52/46-47, T4-54/14.
 S Allen, T4-53/31-37.
 S Allen, T4-54/26-28.
 S Allen T4-54/31-32.
 S Allen T4-54/41-45.
 S Allen T4-56/12-16.
 S Allen T4-56/26-31.
 S Allen T4-58/23-29.
 M Allen T2-94 to T2-95.
 M Allen, T2-76.
 T2-76 to T2-77.
 T2-89/10-40. The list was based on his review of RAMS documents identified in Exhibit 21.
 M Allen, T2-89.
 T2-93 to T2-94.
 T3-16 to T3-17.
 T4-56/3-5; T4-56/3-5 and 7-10.
 T4-85/29-47; T4-86/1-10.
 Exhibit 1, BAS returns documents 216-219.
 A Fardon, T6-53.
 T6-60 to T6-51.
 Statement of Agreed Facts, -.
 Statement of Agreed facts, .
 Statement of Agreed facts, .
 T6-94, T6-96.
 Plaintiff’s Closing Submissions, -.
 E.g. M Allen, T3-17/1-2; T3-16/42-47; G Melvin T5-130/37-45.
 Defendant’s Closing Submissions, .
 Eg. M Allen T3-46/6-11; S Allen T4-85/40-46; Bowen T3-89.
 M Allen T3-17/L1-2; Kirkpatrick T5-66/L25-32; Melvin T6-49/15-20.
 M Allen T3-47/14-16; Kirkpatrick T5-62/11-33; Melvin T6-3/16-23.
 M Allen T3-17/7-10; S Allen T4-85/46; Kirkpatrick T5-56/30-41;
 Kirkpatrick T5-62/35-37 and T5-63/4-8.
 M. Allen T3-17/1-2; R3-161/42-47.
 M Allen T3-17/12-14: S Allen T4-86/1-2: Kirkpatrick T5-56/30-45.
 M Allen T3-45/25-29.
 M Allen T3-46/1-5; Kirkpatrick T5-83/5 and T5-84/11-15 and 20-26.
 M Allen T2-60/10-13.
 M Allen T2-64/21-22
 M Allen T2-64/12-16.
 S Allen T4-332/20-27; T4-33/41-47 and T4-34/1-6.
 S Bowen, T3-75/15-27.
 Plaintiff’s Closing Submissions, .
 Plaintiff’s Closing Submissions, .
 M Allen, T3-17/12-14, T3-17/7-10, T3-46/1-5; S Allen T4-85/46.
 T5-33 to T5-35.
 C Kirkpatrick T5-39.
 T5-80 to T5-81.
 G Melvin, T5-79.
 G Melvin T5-123.
 T5-130/16-24; T5-137/26-30.
 Plaintiff’s Closing Submissions, .
 S Bowen T3-77.
 M Allen T2-71/40-44.
 Exhibit 15.
 S Allen, T4-33/1-11.
 Melvin, T5-140/38-40.
 M Allen, T3-33/36-37.
 T4-41/5-6, 8-11.
 Exhibit 50.
 Fardon, T6-73/30 to T6-74/8; Ziino T7-65/44 to T7-66/45.
 T 6-73/35-47 to T 6-74/1-7.
 T5-123 to T5-124.
 Defendant’s Closing Submissions ; C Kirkpatrick, T5-64/29-46.
 M Allen, T 2-81/15-18; Exhibit 15.
 M Allen, T2-81.
 Exhibit 16.
 Plaintiff’s Closing Submissions, .
 Defendant’s Submissions, .
 MFI-L provides extracts particularly relied upon by RAMS.
 Exhibit 23.
 Exhibits 24, 25 and 26.
 See the discussion in ASC v McLeod (2000) 34 ACSR 135 at - per Owen J (with whom the remainder of the Court agreed), referring to R v Wright  VR 593.
 See for example Kirkpatrick T5-110/32-36; Melvin T6-41/9-14.
 Melvin T6-41/11-16, 20-24.
 T 6-41/10-25
 T5-112/41-45; T5-116/10-36.
 T6-82/1-47; T6-83/1-3.
 Defendant’s Closing Submissions, .
 Exhibit 1, .
 M Allen, T3-27/11-15.
 Defendant’s Closing Submissions, .
 Exhibits 73 and 74.
 Exhibit 81, [2.19.2(a)].
 Fardon, T6-97/22-27.
 Statement of Agreed Facts, -
 Exhibit 64.
 Exhibit 58, -.
 Exhibit 59, .
 Each application was assigned a unique identification number: Statement of Agreed Facts, .
 T7-105/28 to T7-106/5.
 Exhibit 28, T4-15/4-11.
 Exhibit 59, -.
 Exhibit 59,  and .
 T 2-73/12-20; Exhibit 28.
 Plaintiff’s Closing Submissions, .
 Exhibit 59, .
 Exhibit 76; cf Statement of Agreed Facts,  and .
 T5-94/1-34; T7-125/1-21.
 Plaintiff’s Closing Submissions, .
  NSWCA 74 at .
 See for example, Exhibit 40.
 Plaintiff’s Closing Submissions, .
 Exhibit 23 and 24.
 Exhibit 59, 
 Exhibit 59, .
 Exhibit 59, .
 Exhibit 59, .
 Exhibit 58, -.
 Defendant’s Closing Submissions, -.
 Defendant’s Closing Submissions, .
 Exhibit 73, ; T8-49/1-10.
 Defendant’s Closing Submissions, .
 S Allen, T4-77/1-30.
 See for example, evidence of S Allen, T4-6/42 to T4-62/46; T 9-15.
 Clauses 7 and 9.
 S Allen, T4-62.
 Defendant’s Closing Submissions, .
 Plaintiff’s Closing Submissions, .
 Defendant’s Closing Submissions, .
 T9-59/1-5; T8-57/5-9.
 Cf,  of the Plaintiff’s Closing Submissions.
 Exhibit 59, -.
 Exhibit 77.
 But not one which would not be caught within “existing Customer information”.
 Principal Properties Pty Ltd v Brisbane Broncos Leagues Club Limited  QCA 254.
 Exhibit 59.
 E.g. T8-53/10-16.
 T8-74/17 to T8-75/46.
 Exhibit 74.
 T8-41/40 to T8-45/41.
 Ex 73 -.
 Ex 80 [2.15]-[2.16]
 Exhibit 77 .
 RAMS contends such a time lag is ambitious particularly given the fact that the customers which are particularly targeted by RAMS are first home buyers. Mr Potter however was prepared to adopt it for the purpose of his report, although he expressed concerns about its basis: Exhibit 81, [2.26].
 Which was prohibited under the Franchise Agreement.
 Summarised in Exhibit 77.
 That was so whether he adopted his own analysis based on loan records created by Binaray by which he calculated the rate of additional loans to be 1.31 in respect of each Borrower: Exhibit 76, Issue 8; Binaray objected to that exercise apparently on the basis of the underlying record used. Given that Mr Choo’s analysis reveals that the additional loan rate achieved by RAMS as adjusted by Mr Potter was 23 percent which was a reasonable exercise I do not need to decide the point of objection which was not clearly articulated.
 Exhibit 72 (save for the first sentence in paragraph 5 on the basis it was provided to Ms Letts but not admitted as truth of its contents).
 T8-69/1-2; T8-72/31-34.
 Plaintiff’s Closing Submissions, .
 Exhibit 50.
 Exhibit 74, .
 Exhibit 74, .
 Exhibit 74, .
 Plaintiff’s Closing Submissions, .
 Plaintiff’s Closing Submissions, .
 Plaintiff’s Closing Submissions, .
 Exhibit 70.
 Exhibit 32.
 Defendant’s Closing Submissions, .
 Plaintiff’s Closing Submissions, [104(g)].
 Exhibit 72, which was admitted on a limited basis.
 Exhibit 82 at [3.14] to [3.17].
 Exhibit 76, Issue no. 8.
 Plaintiff’s Closing Submissions, .
 Exhibit 82, [3.12].
 Plaintiff’s Closing Submissions, .
 Plaintiff’s Closing Submissions, .
 Exhibit 74.
 T6-73/30-T6-74/8; T7-65/44- T66/45
 Exhibit 15.
 MFI N.
 T77, [1.8].
 T5-130/6-14; T6-2/25-47- T6-3/1-10.
 Exhibit 73,  to .
 Exhibit 74, .
 Exhibit 80, [5.22] to [5.23].
 Exhibit 80, [5.24].
 Exhibit 80, [5.25].
 Exhibit 72, .
 Exhibit 73, ; Second Joint Expert Report, Issue No. 4, Exhibit 77.
 Exhibit 76, Issue No. 9.
 Exhibit 76, Issue No. 9.
 See paragraph 4 of the Particulars of Loss and Damage.
 Exhibit 74, .
 Exhibit 74,  to .
 See in particular, Exhibit 82, [4.9].
 Exhibit 28.
 M Allen, T3-62 to T3-57/20; Letts, T8-53/4-10.
 T8-54 to T8-55; Exhibit 78, [4.4].
 Exhibit 28.
 M Allen, T3-20/16-19.
 Exhibit 73, .
 Exhibit 77, Issue No. 7.
 Exhibit 57.
 T9-93 to T 9-94.
 Exhibit 77, Issue No. 5.
 Exhibit 81, [2.35].
 (1940) 64 CLR 221 at 236.
 Cf Hammond v Minister for Works (1992) 8 WAR 505 where there was a continuing duty to act.
 In the case of breach of contract, the cause of action is complete upon the breach occurring.
 See Chitty on Contracts, 33rd Ed, (2018) at [28 – 035]; G. E. Dal Pont, ‘Law of Limitation’, (2016) at [5.14].
 M Allen, T3-63/1-11.
 M Allen, T3-64/40-41.
 Exhibit 29.
  1 Qd R 26 at 59-63.
 See now s 58 Civil Proceedings Act 2011 (Qld).
 At 52.
 At 53.
 At 53, referring to Serisier Investments Pty Ltd v English  1 Qd R 678, per Thomas J.
 (1977) 2 NSWLR 355 at 370.
- Published Case Name:
Binaray Pty Ltd (ACN 119 724 211) as Trustee for the Allen Family Trust v RAMS Financial Group Pty Limited (ACN 105 207 538)
- Shortened Case Name:
Binaray Pty Ltd v RAMS Financial Group Pty Ltd
 QSC 33
22 Feb 2019
|Event||Citation or File||Date||Notes|
|Primary Judgment|| QSC 33||22 Feb 2019||Plaintiff's claim for damages for breach of contract; determination that defendant did breach the contract and that the plaintiff suffered a loss of commercial opportunity by reason of the breach; limitation defence allowed for any damages for loss more than six years prior to commencement; plaintiff entitled to interest but not for full period; parties to provide further submissions on quantum and costs: Brown J.|