Contracts can sometimes use terms which appear to have
specialised meanings. Even so, it will not always be helpful to
obtain expert opinion evidence on how to interpret those
Up until August 2015, the defendants had been franchisees of the
plaintiff. The franchise business involved renting household items
to consumers. The franchisees asserted that, by reason of changes
to the franchisor's business system which were unacceptable to
them, they ceased operating as its franchisees and began to operate
the same business in their own names.
However, the franchise agreements entered into by the
franchisees included a term under which, if the agreement expired
or were terminated for any reason, the franchisor had the right
(but not the obligation) to buy "such of the Business
Assets" as it might select and, if it wished, to "have
the Franchisee assign or transfer to the Franchisor...or
surrender..." the lease of the premises from which the
franchisee carried on the franchised business. If the option was
exercised, a purchase price was payable, defined as:
22.7 Purchase Price
The Purchase Price to be paid by the Franchisor (or its nominee)
to the Franchisee ... shall be the price nominated by the
Franchisor in the notice exercising the option ... unless within
seven days of receipt of such notice the Franchisee notifies the
Franchisor that it requires the price to be the lesser
the written down value of the Business Assets selected by the
Franchisor as recorded in the Franchisee's books of account,
the fair market value of the Business Assets selected by the
Franchisor as determined by the Valuer. In conducting the valuation
the Valuer acts as an expert and not as an arbitrator and must not
include any component for leasehold improvements. The Valuer's
decision is final and binding on the parties and the Valuer's
costs must be shared equally between the Franchisee and the
The Valuer, in determining the fair market value, must take
into consideration, in any goodwill calculation, the value of the
goodwill, based on the current customer transfer policy in
operation at that time.
Around three weeks before the scheduled commencement of the
trial in this matter, the franchisees filed applications to amend
their pleadings and rely on the expert report of a valuer, Mr H.
The Court made the following comments in relation to Mr H's
Although I have not had the opportunity of reading [Mr
H's] splendid report in complete detail, it seems that he says
in substance that the concept of goodwill is irrelevant to, or
meaningless in the case of, a chattel asset of a business. He says,
in substance, that goods do not have 'goodwill' attached to
them as a matter of valuation and expertise and practice. Further,
he says, as a matter of such expertise and practice, the concept of
goodwill cannot inform any calculation of the fair market value of
The case for the franchisees, in relation to reception
of this evidence, is that it is admissible to explain a special
meaning to be given to the word 'goodwill' in the practice
of valuers: in effect, a meaning to be derived from that
The Court rejected the franchisees' application for leave to
rely on Mr H's report. Its reasons included that:
The application was too late and brought without advance
warning or sufficient explanation for the delay. The almost certain
consequence would be that the hearing date would be vacated while
the franchisor considered the report and obtained its own expert
evidence in reply.
It did not appear that the evidence on which the franchisees
sought to rely had any real utility. 'Goodwill' was only a
relevant consideration if the franchisees did not accept the
purchase price in the 'notice' and elected to have the
'Valuer' derive 'fair market value' (rather than
adopting 'written down value').
If Mr H was correct, any valuation which included
'goodwill' would invalidate the Valuer's opinion, hence
making Mr H's opinions redundant.
In any case, the Court said that:
... it seems to me that what [Mr H] is really trying to
do is tell the Court how a valuer could and should apply the
concept of 'goodwill' in carrying out the exercise for
which cl 22.7 calls. I do not think that this is an acceptable use
of expert evidence.
Many terms, including 'goodwill' have different meanings
in different contexts. This does not necessarily mean that a Court
will be assisted by 'expert' evidence on the meaning of a
term in an agreement. Rather, care is required to assess whether
any explanation of contractual terms will be assisted by
'expert' evidence and, if so, when such evidence might
usefully be put forward. Just before trial may be too late.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Do not depart from the contract terms, or encourage the other party to do so, unless you plan to alter the contract.
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