Allphones Retail Pty Ltd (Allphones) operates a mobile phone
franchised business retailing mobile phones with the choice of
numerous carriers. Allphones entered into a franchise agreement
with Hoy Mobile Pty Ltd (Hoy Mobile) for the operation of a mobile
phone retail franchise.
Allphones discovered that Hoy Mobile was fraudulently unlocking
and selling mobile phones (disconnecting mobile phones that were
meant to be sold packaged to a particular telecommunications
network and selling them with an ability to connect to any
In response, Hoy Mobile accused Allphones of:
accepting commissions or bonus payments from telecommunication
receiving rebates from mobile phone handset and other product
making unilateral deductions from commission payments payable
to its franchisees which were not permitted by their franchise
in circumstances which, in the context of Allphones'
relationship with its franchisees, was unconscionable and a breach
of section 51AC of the Trade Practices Act (Cth).
Following Hoy Mobile's fraudulent conduct and in accordance
with its express contractual right to terminate for fraud,
Allphones gave notice to terminate the franchise agreement.
Hoy Mobile argued that Allphones did not have the right to rely
on its contractual rights to terminate as it had repudiated the
franchise agreement as a consequence of its unconscionable
Hoy Mobile commenced initial proceedings seeking damages for the
losses it sustained from the alleged unconscionable conduct and
sought an order restraining Allphones from terminating the
At first instance, the primary judge found that Allphones had
repudiated the agreement by deliberately withholding commissions,
rebates and bonus payments from its franchisee. The court found
that while Hoy Mobile had engaged in fraudulent conduct,
Allphones' unconscionable conduct prevented it from relying on
its express contractual right to terminate. The primary judge
issued an injunction restraining Allphones from terminating the
agreement and ordered Allphones to pay Hoy Mobile a sum of
A$52,893.35 (the sum that would have been payable under the
On appeal, the Federal Court set aside the primary judge's
order and found that Allphones was entitled to terminate the
agreement. The court also confirmed Allphones liability to pay the
A$52,893.35 for the money it unconscionably withheld.
Perram J explained that the injunction restraining
Allphones' right to terminate was inappropriate as Allphones
did not cause or contribute to the fraudulent conduct which gave
rise to Allphones' right to terminate.
Allphones unconscionable conduct should not prevent it from
exercising its contractual rights, including those contractual
rights borne out of the dishonest actions of Hoy Mobile as there
was no causal connection between Allphones' unconscionable
conduct and the termination of the agreement.
Common law repudiation has "no impact on the position of
express powers of termination" and therefore, it is not ideal
for a party with an express right of termination to be forced to
remain in that contractual relationship as a result of a prior
The Full Federal Court concluded that Allphones had the right to
terminate the franchise agreement in accordance with its express
contractual right to terminate as a result of Hoy Mobile's
This case demonstrates the Courts' willingness to give
effect to the contractual rights agreed upon by the parties
It is advisable that any circumstance which grants a party with
a right of termination be clearly set out in the franchise
In his judgement, Perram J suggested that parties could draft
their agreements to expressly capture the circumstances under which
their contractual rights of termination can be exercised, even
where the party seeking to rely upon those rights has repudiated
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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On 12th November 2016, new laws will commence to protect small businesses from unfair terms in standard form contracts.
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