Franchise Renewal Option Dispute: Does refusing renewal without considering the Master Franchisee’s interests breach clause 4.7 and amount to unconscionable conduct under the Australian Consumer Law?

Based on the authentic Australian judicial case Plaintiff v Defendant [2024] NSWSC 1305, this article disassembles the Court’s judgment process regarding evidence and law. It transforms complex judicial reasoning into clear, understandable key point analyses, helping readers identify the core of the dispute, understand the judgment logic, make more rational litigation choices, and providing case resources for practical research to readers of all backgrounds.

Chapter 1: Case Overview and Core Disputes

Basic Information

Court of Hearing: Supreme Court of New South Wales
Presiding Judge: Elkaim AJ
Cause of Action: Contractual construction and breach concerning renewal of a Master Franchise Agreement; statutory claim for unconscionable conduct under the Australian Consumer Law; subsidiary issues concerning the Franchising Code of Conduct; damages assessment
Judgment Date: 17 October 2024
Core Keywords:
Keyword 1: Authentic Judgment Case
Keyword 2: Option to renew
Keyword 3: Commercial contract construction
Keyword 4: Implied term and business efficacy
Keyword 5: Unconscionable conduct and sharp practice
Keyword 6: Franchising and damages valuation

Background

This dispute grew out of a long-running master franchise relationship in New South Wales and the Australian Capital Territory. The Plaintiff operated as the Master Franchisee within a three-tier franchise structure, sitting between the franchisor (the Defendant) and numerous Sub-franchisees. The Plaintiff’s business model relied on ongoing royalty income from Sub-franchisees, and the Master Franchise Agreement contained an option to renew for an additional 10 years. When the Plaintiff attempted to exercise that option, the Defendant refused, setting off a confrontation about what the renewal clause truly required and whether the Defendant’s conduct crossed the legal line from hard commercial dealing into unlawful conduct.

Core Disputes and Claims

The Court was required to determine, in substance, four interlocking questions.

1. Contract construction and breach: Did clause 4.7 of the Master Franchise Agreement require the Defendant, when deciding whether to refuse renewal, to consider the best interests of the Plaintiff as Master Franchisee, or could the Defendant refuse renewal by reference only to its own interests and those of other participants in the franchise network?

2. Alternative breach case: Even if the Defendant’s construction of clause 4.7 were accepted, did the Defendant nevertheless breach the contract by failing to undertake a genuine, honest, and reasonable decision-making process when refusing renewal?

3. Statutory wrong: Regardless of the contractual analysis, did the Defendant engage in unconscionable conduct in contravention of section 21 of the Australian Consumer Law by leading the Plaintiff to believe renewal remained possible while pursuing a strategy to remove master franchisees?

4. Remedy: If liability were established, what was the proper measure of damages for the loss of the renewal opportunity, and what role did expert evidence play in quantifying that loss?

The Plaintiff sought substantial damages for loss of the business opportunity tied to the renewal term, framed as the loss of a valuable option and the economic value of continuing to operate the franchise for a further decade. The Defendant resisted liability and challenged damages, while also raising issues about termination and alleged repudiation in the latter stages of the relationship.

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Chapter 2: Origin of the Case

The origins of the dispute lie in the commercial psychology of a renewal option.

A renewal option in a long-term commercial relationship is not ornamental. It functions like the “second act” promised to the party who invests heavily in the “first act”. In franchising, especially where a master franchisee builds a network over years, the option to renew operates as the bridge between upfront investment and long-term realisable value.

The Plaintiff’s position as Master Franchisee involved building and servicing a network of Sub-franchisees. The income model was straightforward: Sub-franchisees paid a percentage of their contract revenue, a portion went to the franchisor, some to marketing, and the Master Franchisee retained the remainder. Over time, the Plaintiff’s operation became highly profitable, with annual profit around AUD $4 million. The business was not merely a job; it was structured as an asset capable of being sold, consistent with franchising marketing themes about building something with resale value.

Conflict began to crystallise when strategic priorities within the franchisor’s organisation shifted. Evidence in the proceedings showed that the Defendant explored a move away from a three-tier model toward a direct model in which the franchisor would deal directly with Sub-franchisees. Such a shift would “de-master” the Master Franchisee: the middle tier would disappear, and with it the Plaintiff’s royalty stream and effective business value.

The dispute escalated when the Plaintiff sought renewal. The Plaintiff gave notice exercising the option to renew, consistent with the agreement’s mechanism. The Defendant refused within the contractual timeframe, invoking clause 4.7. In addition, the Defendant supplied a “current” form of master franchise agreement said to apply to any renewal, which the Plaintiff alleged was deliberately commercially unattractive and designed to make renewal practically impossible. The atmosphere became litigious. Concerns about pre-determination, internal strategy, board processes, and communications with lawyers moved from background noise to the heart of the factual contest.

Finally, as the end of the term approached, the Defendant served a termination notice and took steps contemplated by the agreement to assume the sub-franchise agreements, ending the Plaintiff’s operational role. This was the practical “closing of the door” that made the legal contest not merely about wording, but about whether the door had been unlawfully slammed.

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Chapter 3: Key Evidence and Core Disputes

Applicant’s Main Evidence and Arguments

1. The Master Franchise Agreement text, especially the renewal framework (Parts 4.2–4.7) and termination consequences (Part 14), to show the commercial bargain and the contractual mechanics of renewal refusal.

2. Communications at the time renewal was negotiated and introduced, including an email exchange during negotiation that highlighted why renewal mattered: the renewal term was said to be central to the value of the master franchise and the economic logic of taking on debt to operate it for a decade.

3. Evidence of profitability and business performance, including admissions about annual profit around AUD $4 million and the scale of the Sub-franchise network, used to argue the option to renew had substantial economic value.

4. Evidence of the Defendant’s internal strategic shift toward a direct model, including the commissioning of expert reports supportive of “de-mastering” and internal presentations indicating the direct model was regarded as preferable.

5. Evidence challenging process integrity: allegations that the refusal decision was effectively pre-made, and that a board report and meeting were used to justify a predetermined outcome rather than to conduct a genuine evaluation.

6. Expert damages evidence (forensic accounting) valuing the lost opportunity associated with a further ten-year term, supported by discounted cash flow analysis and alternative scenario modelling.

Respondent’s Main Evidence and Arguments

1. Contractual construction argument: clause 4.7 focused on the best interests of the franchisor and other franchise participants, not the Plaintiff’s interests, and therefore the Defendant was not required to consider the Plaintiff’s best interests.

2. Decision-making evidence: a board process was said to have occurred, supported by a detailed executive report and a board meeting convened specifically to decide renewal. Under the Defendant’s reading, the report dealt with matters relevant to clause 4.7 and the decision was honestly and reasonably held.

3. Conduct justification: performance concerns and network considerations were said to justify non-renewal. The Defendant relied on matters such as market share decline, servicing concerns, investment decisions, and interpersonal conduct alleged to affect Sub-franchisees.

4. Damages resistance: criticism of the Plaintiff’s expert modelling, discount rates, and assumptions about future cash flows and Sub-franchise numbers. The Defendant’s expert was retained to criticise methodology, although his evidence later became significant in the Court’s valuation outcome.

Core Dispute Points

1. Meaning of clause 4.7: whether the words “and/or” and the reference to “other” franchise participants meant the Plaintiff’s interests were excluded, or whether, as a matter of businesslike construction and implication, the Plaintiff’s interests had to be considered.

2. Integrity of the refusal process: whether the decision was made with an open mind at the time of the renewal notice or was merely the ratification of a strategy already adopted.

3. Good faith and sharp practice: whether the Defendant’s conduct, in allowing the Plaintiff to believe renewal was realistically possible while pursuing de-mastering, constituted unconscionable conduct.

4. Quantification: whether the loss should be valued as a high forecast of future profits, a discounted chance, or a more conservative valuation derived from comparable valuation methods and expert admissions.

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Chapter 4: Statements in Affidavits

Affidavit evidence in commercial litigation often serves two functions at once: it is both a witness narrative and a strategic architecture for cross-examination. In this case, affidavits became the staging ground for two sharply different stories.

On one side, the Plaintiff’s affidavits and supporting material framed the relationship as a long-term commercial bargain in which the renewal option was central to the asset value of the master franchise. The Plaintiff’s narrative emphasised investment, performance, and reliance: the Plaintiff maintained profitability, serviced the network, and operated under an expectation—anchored by the option—that the business would continue or at least remain a realisable asset.

On the other side, the Defendant’s affidavits sought to recast the renewal clause as a protective mechanism for the network, giving the franchisor a legitimate commercial pathway to refuse renewal if, on honest and reasonable grounds, renewal was not in the network’s best interests. This narrative relied heavily on internal assessments, the executive report, and claimed board deliberations.

A revealing feature of the affidavit landscape was the dispute about document integrity and contemporaneity. Evidence emerged that a file note of a key meeting was altered shortly before an affidavit was sworn, with the alteration tending to soften language that suggested renewal was already foreclosed. The Court treated this as significant to witness credit and to the broader question of whether the Defendant’s approach was candid and fair.

Strategic Intent Behind Procedural Directions Regarding Affidavits

While the judgment is not a procedural manual, its treatment of contested factual material illustrates a standard judicial concern in complex commercial trials: ensuring the case remains within pleadings and that evidence is used for proper purposes. The Court noted that the Plaintiff ran its case within pleadings, even if at the edge, and that the Defendant’s complaints about matters being outside pleadings ultimately did not demonstrate prejudice. This reflects a practical judicial approach: focus on whether the responding party could meet the case, not on technical skirmishing.

The Court also made targeted evidentiary rulings to confine how certain contested documents could be used. For example, material from a key internal report was permitted with limitations preventing it from being used to litigate the truth of every asserted fact within it, signalling a judicial effort to keep the trial focused on the legally determinative issues rather than turning it into an unlimited factual inquiry.

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Chapter 5: Court Orders

The judgment records several important procedural arrangements and directions that shaped how the dispute was tried.

1. The Court required the trial to proceed within pleadings, and addressed objections that evidence was said to stray beyond them. The Court ultimately found the Plaintiff’s case remained within pleadings to an extent that caused no prejudice.

2. The Court made evidentiary rulings limiting the use of certain internal report content, permitting its admission with caveats as to how it could be relied upon, in order to maintain trial fairness and discipline.

3. The Court dealt with objections to expert evidence, including challenges to admissibility of the Plaintiff’s expert reports, and permitted expert valuation evidence to be received and tested.

4. The Court managed the use of cross-examination on collateral matters by permitting certain lines of questioning only for limited purposes, such as credit.

These arrangements are best understood as the Court building guardrails: allowing the parties to present their competing narratives while preventing the case from becoming unmanageable or unfair through uncontrolled evidentiary expansion.

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Chapter 6: Hearing Scene: Ultimate Showdown of Evidence and Logic

The trial’s factual conflict was not resolved by a single dramatic confession or a solitary “smoking gun” email. Instead, it was resolved by the Court’s evaluation of a chain of events and the credibility of witnesses who described them.

Process Reconstruction: Live Restoration

The cross-examination landscape exposed two central patterns.

First, there was a persistent contest about whether the renewal refusal was a genuine decision made at the time of the board meeting or merely the formalisation of a decision already made as part of a direct model strategy. The Plaintiff’s theme was “pre-determination dressed as process”. The Defendant’s theme was “a serious decision made with rational grounds”.

The Court accepted that some elements of the Defendant’s evidence were evasive or misleading, particularly where witnesses attempted to portray concern for the Plaintiff as materially influencing decisions that were, in substance, driven by commercial self-interest and strategy. The Court was not persuaded by broad claims of procedural purity merely because a report existed and a meeting occurred; rather, the Court examined how those tools were used and what they were designed to achieve.

Second, credibility fractures appeared in documentary handling and memory reliability. The alteration of a key file note shortly before affidavit swearing became a focal point. The Court treated the alteration as damaging to credit and supportive of the Plaintiff’s contention that the true position was being softened for litigation.

Core Evidence Confrontation

The decisive confrontation was between (a) the commercial meaning of a renewal option, and (b) the Defendant’s attempt to frame the renewal refusal as a unilateral power that could be exercised without meaningful consideration of the Plaintiff’s interest.

A second confrontation concerned unconscionability: whether the Defendant’s strategy involved allowing the Plaintiff to believe renewal was viable while manoeuvring toward de-mastering, including supplying a “current” agreement said to be commercially untenable.

A third confrontation concerned valuation: the clash between a complex discounted cash flow analysis and a simpler multiples valuation that emerged from cross-examination of the Defendant’s own expert.

Judicial Reasoning with Determinative Quotation

The Court’s contractual construction reasoning turned on businesslike interpretation and commercial purpose.

“Applying the interpretation as just described, I am satisfied that a reasonable businessperson would understand cl 4.7 to contemplate that a renewal clause would have, as a factor to be considered, the interests of the person seeking the renewal. To conclude otherwise would be, as I have already said, to completely extinguish the value of an option to renew. The lure that had induced the Master Franchisee into the agreement would reduce to little more than mere marketing and the existence of the option would be meaningless.”

This passage was determinative because it framed the issue in the way commercial courts often do: not as a linguistic puzzle solved by dictionary, but as a bargain interpreted in its commercial ecosystem. If a renewal option can be refused without regard to the renewing party’s interests, then the option becomes commercially hollow. The Court treated that outcome as inconsistent with how a reasonable businessperson would understand the agreement.

In the unconscionability analysis, the Court focused on systemic conduct and the concept of sharp practice, recognising that conduct can be unconscionable even where it is tied to contractual rights if it offends norms of acceptable commercial behaviour.

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Chapter 7: Final Judgment of the Court

The Court entered judgment for the Plaintiff and awarded substantial damages.

Orders included:

1. Judgment for the Plaintiff against the Defendant in the sum of AUD $20 million.

2. The Defendant to pay the Plaintiff’s costs of the proceedings.

3. The parties granted leave to make further submissions concerning the costs order and interest.

The Court indicated that because the AUD $20 million was almost entirely for future loss, there was no obvious basis for interest, while leaving the issue open for submissions.

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Chapter 8: In-depth Analysis of the Judgment: How Law and Evidence Lay the Foundation for Victory

Special Analysis

This judgment has jurisprudential weight in two overlapping areas.

First, it is a sophisticated example of commercial contract construction where the Court confronted a clause with drafting ambiguity and commercial consequences. The Court did not allow the renewal option to be reduced to a “decorative promise” capable of being nullified by a narrow reading of one phrase. Instead, the Court used the modern approach to construction—text, context, and purpose—and treated commercial absurdity as a warning light.

Second, the judgment illustrates how unconscionable conduct under the Australian Consumer Law can arise from a pattern of behaviour in an ongoing commercial relationship. The Court emphasised that unconscionability analysis is evaluative and looks to societal norms and good faith, not simply to whether a party technically complied with a contract.

Judgment Points

1. A renewal option has commercial value only if the decision-maker’s discretion is not effectively absolute.

2. A clause that speaks in terms of network interests may still require consideration of the renewing party’s interests when the bargain’s structure makes that consideration essential to business efficacy.

3. Conduct can be unconscionable even where the defendant is pursuing profit maximisation, if the manner of pursuit involves deception, concealment, or sharp practice within a relationship of reliance.

4. Courts will scrutinise litigation-influenced document preparation and revisions, especially where contemporaneous notes are altered close to sworn evidence.

5. Expert damages battles can be decided not by whose report is longer, but by what concessions and alternative valuation anchors emerge under cross-examination.

Legal Basis

The Court’s analysis was grounded in the following legal foundations.

1. Contract construction principles: The Court adopted the orthodox approach that contractual rights and liabilities are determined objectively by reference to text, context, and purpose, and what a reasonable businessperson would understand. Authorities cited and relied upon included Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 and Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7.

2. Implication and interpretation continuum: The Court considered the framework discussed in H Lundbeck A/S v Sandoz Pty Ltd; CNS Pharma Pty Ltd v Sandoz Pty Ltd (2022) 276 CLR 170; [2022] HCA 4, including how implication within meaning sits on a continuum, and where necessary, the Codelfa conditions for implying a term.

3. Australian Consumer Law: The unconscionability claim was assessed under section 21 of the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010 (Cth)), with reference to the non-exhaustive factors in section 22 and the compensatory remedy in section 236 for loss or damage resulting from contravention.

Evidence Chain

The Court’s “Conclusion = Evidence + Statutory Provisions” logic can be disassembled into a clear evidence chain.

1. The contract structure and the renewal clause: The agreement contained an option to renew and a refusal mechanism in clause 4.7, which required honest and reasonable grounds that renewal would not be in the best interests of the franchisor and other franchise participants. The textual ambiguity and commercial context created a genuine constructional choice.

2. The commercial purpose of renewal: Negotiation history and the franchising philosophy emphasised that the master franchise was an asset intended to be valuable and saleable. This was treated as context that informed what the renewal option was meant to do in the bargain.

3. The Defendant’s failure to consider the Plaintiff’s interests: Having construed clause 4.7 as requiring consideration of the Plaintiff’s best interests, the Court found it was not in dispute that the Defendant did not undertake that consideration, producing breach.

4. Pattern of conduct toward de-mastering: Evidence of a strategic shift to a direct model, and of conduct allowing the Plaintiff to believe renewal remained possible while the Defendant pursued a plan inconsistent with renewal, supported the unconscionability finding.

5. Litigation-influenced document preparation: Solicitor involvement in report drafting, commentary about how figures might influence a judge, and alterations to a file note close to affidavit swearing contributed to the Court’s evaluation of good faith and credibility.

6. Quantification anchors: The Court evaluated duelling expert approaches, and adopted a valuation that drew heavily on the Defendant’s expert concessions and a multiples approach, arriving at AUD $20 million.

Judicial Original Quotation with Determinative Effect

The contract construction decision hinged on the commercial meaning of a renewal option.

“Applying the interpretation as just described, I am satisfied that a reasonable businessperson would understand cl 4.7 to contemplate that a renewal clause would have, as a factor to be considered, the interests of the person seeking the renewal. To conclude otherwise would be, as I have already said, to completely extinguish the value of an option to renew. The lure that had induced the Master Franchisee into the agreement would reduce to little more than mere marketing and the existence of the option would be meaningless.”

This was determinative because it closed off the Defendant’s attempt to treat renewal refusal as a function of its own interests alone. The Court treated that reading as commercially incoherent in the context of a renewal option designed to support investment and asset value.

The unconscionability conclusion was driven by a finding of concealment and sharp practice within a course of conduct.

“The defendant had resolved to maximise its profits. That was reasonable. What was not reasonable, and instead was sharp practice, was deceiving [the Master Franchisee], and therefore the plaintiff, into believing that renewal was a real possibility to be decided in accordance with cl 4.7.”

This statement mattered because it separated legitimate self-interest from unlawful commercial behaviour. The Court accepted that profit-seeking is normal; the problem was the method—deception about renewal viability while pursuing a plan inconsistent with renewal.

Analysis of the Losing Party’s Failure

The Defendant’s failure can be analysed across multiple layers.

1. Drafting vulnerability: Clause 4.7 attempted to balance network interests but did not clearly and expressly exclude the Master Franchisee’s interests. That opened the door to a constructional choice.

2. Commercial purpose mismatch: The Defendant’s construction made the renewal option close to valueless for the Master Franchisee, which the Court regarded as commercially nonsensical in a bargain presented as an asset-building opportunity.

3. Credibility and forensic risk: Alteration of a file note close to affidavit swearing, absence of board minutes for a critical decision, and solicitor involvement in shaping report language contributed to a judicial impression of defensiveness and lack of candour.

4. Unconscionability exposure: Even if the Defendant could argue contractual entitlement, the Court found a pattern of conduct that withheld the true strategic intention while the Plaintiff continued operating under an assumption renewal remained genuinely open. That pattern engaged section 21, informed by section 22 factors including good faith.

5. Damages concessions: The Defendant’s expert evidence, under questioning, supplied the Court with a conservative but concrete valuation anchor. Once that anchor existed, the Defendant’s strategy of attacking the Plaintiff’s model without a compelling alternative became less persuasive.

Key to Victory

The Plaintiff’s win was built on a tight triangulation of contract, context, and conduct.

1. Contractual framing: The Plaintiff focused the Court on the renewal option as a commercial asset, not a procedural right.

2. Contextual narrative: The Plaintiff used negotiation history and franchising philosophy to show why renewal existed and what it was meant to protect.

3. Credibility attacks that mattered: The Plaintiff’s challenge was not mere character assassination; it targeted document integrity and process authenticity, which were directly relevant to good faith and unconscionability.

4. Damages discipline: Although the Plaintiff advanced a higher damages figure, the Plaintiff’s position remained credible because the Court could accept a lower valuation supported by the Defendant’s own expert without undermining the principle of compensation.

Reference to Comparable Authorities

1. Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37: Reaffirmed objective construction based on text, context, and purpose, and what a reasonable businessperson would understand, supporting a businesslike interpretation where a constructional choice exists.

2. Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7: Confirmed that commercial contracts should be construed to avoid commercial nonsense or inconvenience, assisting the Court’s reasoning that a renewal option should not be rendered meaningless.

3. Productivity Partners Pty Ltd (trading as Captain Cook College) v Australian Competition and Consumer Commission [2024] HCA 27: Explained the evaluative nature of unconscionability under the Australian Consumer Law, including systemic conduct, sharp practice, and the relevance of good faith, guiding the Court’s approach to section 21 and section 22.

Implications

1. A renewal option is not a courtesy; it is an economic bridge. If you are investing time, money, and identity into a long-term commercial role, treat renewal drafting like you would treat title to property: insist on clarity, process safeguards, and measurable criteria.

2. Strategy is lawful; concealment is dangerous. Businesses can change models, but if a party relies on ongoing relationship expectations, the law may condemn conduct that hides the true plan while extracting continued performance.

3. Document integrity wins or loses trials. A contemporaneous note is powerful evidence; a revised note close to litigation is often a credibility trap. Courts watch this closely.

4. Litigation is not only about being right; it is about proving it. The party who builds a clean evidence chain, with consistent documents and rational commercial explanations, usually speaks louder than the party who relies on broad assertions.

5. In damages, precision matters less than anchors. If you can give the Court a credible range supported by opposing evidence, you reduce the risk of your case collapsing into a “too uncertain” argument.

Q&A Session

1. Why did the renewal clause become the centre of the case, rather than termination?
   Because the economic value of the business depended on the ten-year extension. Once refusal occurred, the Plaintiff’s loss crystallised as the loss of that renewal opportunity. Termination later became secondary because damages for breach can be awarded even if the contract ends later.

2. Can a party be found to have acted unconscionably even if it argues it complied with the contract?
   Yes. The Australian Consumer Law can condemn a pattern of conduct as unconscionable where it involves sharp practice or a lack of good faith in how contractual rights are exercised or represented, especially in renewals and terminations.

3. Why did the Court award AUD $20 million rather than the higher figure claimed?
   The Court adopted a conservative valuation supported by expert evidence, including admissions from the Defendant’s expert that a multiples approach based on annual profit could yield a valuation around AUD $20 million, and treated that as a reliable anchor.

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Chapter 9: Appendix: Reference for Comparable Case Judgments and Practical Guidelines

1. Practical Positioning of This Case

Case Subtype: Commercial Franchising Contract — Renewal Option Refusal and Unconscionable Conduct Claim
Judgment Nature Definition: Final Judgment

2. Self-examination of Core Statutory Elements

The case belongs primarily to category ④ Commercial Law and Corporate Law. The following test standards should be treated as structured reference points only. Outcomes tend to depend on drafting, evidence quality, and the commercial context.

Core Test: Contract Formation

To analyse whether a contractual right such as an option to renew is enforceable, the Court tends to examine whether the underlying contract and the option mechanism satisfy core formation and certainty requirements.

1. Offer: Identify the contractual promise or grant. In renewal disputes, the “offer” is the grant of the option itself and the terms governing its exercise.

2. Acceptance: Confirm the method of acceptance. With options, acceptance occurs by exercising the option strictly in accordance with the contract’s mode of exercise, time limits, and notice requirements.

3. Consideration: In commercial contracts, consideration is typically embedded in the mutual promises, fees, and performance obligations. An option to renew commonly derives its consideration from the overall bargain, including performance during the initial term.

4. Intention to create legal relations: Commercial agreements are presumed to be intended to have legal effect. The issue is rarely intention and more often meaning and enforcement.

Practical warning: An option mechanism can carry relatively high risk if it is drafted with broad discretion to refuse renewal without articulated limits. If discretion is unbounded, the option’s value may be contested.

Core Test: Section 18 of the Australian Consumer Law

Although this case was decided under unconscionability rather than misleading or deceptive conduct, section 18 principles remain a practical checkpoint in similar disputes.

1. Trade or commerce: The conduct must occur in trade or commerce.

2. Conduct: Includes words, silence, patterns of dealing, and the overall system of conduct.

3. Misleading or deceptive: Assess whether the conduct is likely to lead a reasonable person in the target audience to a wrong conclusion.

4. Causation and loss: The claimant must show loss was suffered by reason of the misleading conduct.

Practical warning: Section 18 claims tend to be determined by the total impression created by conduct, not by isolated statements.

Core Test: Unconscionable Conduct

Where a party alleges sharp practice, the analysis tends to focus on section 21 and section 22 of the Australian Consumer Law.

1. Identify the relevant conduct: Is it a single act, or a system or pattern of behaviour?

2. Evaluate against all circumstances: Consider the relationship history, reliance, imbalance of power, information asymmetry, and how contractual rights were exercised.

3. Consider section 22 factors: Including the extent to which the parties acted in good faith, the use of unfair tactics, and the ability of the weaker party to understand and protect its interests.

4. Moral quality: The Court tends to require conduct that is outside societal norms of acceptable commercial behaviour, often described as sharp practice.

Practical warning: Courts often treat concealment and strategic ambiguity as relatively high-risk factors where the other party is induced to continue performance on an assumption the decision-maker knows is not genuine.

3. Equitable Remedies and Alternative Claims

Even in commercially sophisticated disputes, equity can provide alternative pathways where strict statutory or contractual avenues are uncertain.

Promissory or Proprietary Estoppel

1. Clear and unequivocal representation: Was there a representation that renewal would occur, or that the business would remain an asset capable of sale?

2. Reliance: Did the other party act in reliance, such as continuing investment, maintaining staffing, marketing expenditure, or foregoing alternative opportunities?

3. Detriment: Was detriment suffered if the representation is withdrawn?

4. Unconscionability of withdrawal: Would it be against conscience to permit the representor to depart from the representation?

Result reference: Estoppel may prevent a party from resiling from a promise where the other party has relied to its detriment, even where a formal contractual entitlement is contested.

Practical warning: Estoppel claims tend to require strong evidence of representation and reliance; vague optimism or marketing statements often carry relatively high risk of failure.

Unjust Enrichment and Constructive Trust

1. Benefit at the claimant’s expense: Did the other party obtain a benefit from the claimant’s labour, network building, or investment?

2. Unjust factor: Is the retention of that benefit unjust due to unconscionable conduct, mistake, or failure of basis?

3. Remedy coherence: Is restitution or constructive trust a coherent response, or would it undermine contractual allocation of risk?

Result reference: Courts may order restitutionary relief or recognise beneficial interests where retention of value is against conscience, particularly where the contractual framework does not fully explain the outcome.

Practical warning: Where the contract expressly addresses goodwill and termination consequences, unjust enrichment arguments can face a relatively high hurdle unless supported by independent unconscionable conduct.

Procedural Fairness Analogy in Commercial Settings

Although procedural fairness is a public law doctrine, a practical analogue often appears in commercial discretion clauses.

1. Genuine consideration: Was the decision-maker genuinely open to the decision at the time required?

2. Relevant considerations: Were the correct considerations taken into account?

3. Irrelevant considerations: Was the discretion exercised for an improper purpose?

4. Good faith: Was the discretion exercised honestly and reasonably where the clause so requires?

Result reference: In private law, these issues arise through construction, implied duties, and statutory norms such as good faith under the franchising framework.

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Chapter 10: Access Thresholds and Exceptional Circumstances

Commercial renewal disputes often turn on hard thresholds embedded in drafting, and on exceptional channels that allow relief where thresholds are not met.

Regular Thresholds

1. Exercise window: Renewal options commonly require notice within a strict period before expiry. Missing the window tends to be fatal unless the counterparty waives strict compliance.

2. Precondition compliance: Renewal options often require compliance with obligations under the agreement. Alleged breaches may be used to resist renewal.

3. Discretion clauses: Where the franchisor holds a refusal discretion based on honest and reasonable grounds, the threshold becomes whether those grounds were genuinely held and reasonable, and whether the decision considered all matters the clause requires.

4. Remedy limitation clauses: Clauses excluding compensation for goodwill can affect claims framed as goodwill. They may be less effective where the claim is framed as damages for breach of contract or statutory loss for unconscionable conduct.

Exceptional Channels

1. Constructional choice and business efficacy: If a clause produces an outcome that makes a key contractual promise commercially meaningless, courts may interpret the clause to avoid that result.

2. Implied terms: Where necessary to give business efficacy, and where the Codelfa conditions are satisfied, an implied term may be recognised.

3. Statutory overlay: Even where a party asserts strict contractual entitlement, statutory norms under the Australian Consumer Law can condemn conduct that is sharply unfair, deceptive in system, or lacking in good faith.

Suggestion: Do not abandon a potential claim simply because a clause grants discretion. Carefully examine whether the discretion is bounded by honest and reasonable grounds, relevant considerations, and statutory norms.

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Chapter 11: Guidelines for Judicial and Legal Citation

Citation Angle

It is recommended to cite this case in submissions involving:

1. Construction of renewal options in commercial contracts, especially where an interpretation would render the option commercially meaningless.

2. The relationship between contractual discretion and implied constraints required by business efficacy and reasonable businessperson interpretation.

3. Unconscionable conduct in ongoing commercial relationships involving renewal, renegotiation, or termination where a system or pattern of conduct is alleged.

Citation Method

As Positive Support:
Where your matter involves a renewal option and the opposing party’s construction would deprive it of meaningful content, citing this authority can strengthen an argument for a businesslike construction that preserves commercial purpose.

As a Distinguishing Reference:
If the opposing party cites this case, you should emphasise factual differences such as clear drafting excluding the renewing party’s interests, genuinely contemporaneous decision-making records, or absence of a pattern of concealment.

Anonymisation Rule: Use procedural titles such as Plaintiff and Defendant when discussing parties.

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Conclusion

This judgment demonstrates that commercial power is not unlimited simply because it is written into a contract. A renewal option is a promise with economic weight, and courts tend to interpret it as such when the bargain and context demand it. In parallel, the Australian Consumer Law stands as a guardrail against sharp practice, particularly where a pattern of conduct undermines good faith in renewal and termination decisions.

Everyone needs to understand the law and see the world through the lens of law. The in-depth analysis of this authentic judgment is intended to help everyone gradually establish a new legal mindset: True self-protection stems from the early understanding and mastery of legal rules.

Disclaimer

This article is based on the study and analysis of the public judgment of the Supreme Court of New South Wales (Plaintiff v Defendant [2024] NSWSC 1305), aimed at promoting legal research and public understanding. The citation of relevant judgment content is limited to the scope of fair dealing for the purposes of legal research, comment, and information sharing.

The analysis, structural arrangement, and expression of views contained in this article are the original content of the author, and the copyright belongs to the author and this platform. This article does not constitute legal advice, nor should it be regarded as legal advice for any specific situation.

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