Jersey Unreported Judgments

Companies - claim by the plaintiff for summary judgment and the strike out of the defendant's answer and counterclaim.

[2013]JRC244B

Royal Court

(Samedi)

19 December 2013

Before     :

Advocate M. J. Thompson, Master of the Royal Court.

 

Advocate M. L. A. Pallot for the Plaintiffs.

Advocate N. M. Sanders for the Defendant.

judgment

the master:

Introduction

1.        The plaintiffs bring two connected applications, firstly for summary judgment pursuant to Rule 7/1(1) of the Royal Court Rules 2004, as amended, and, secondly, to strike out paragraphs 6 to 10 and 14 of the defendant's answer and paragraphs 18 to 21 of the defendant's counterclaim. 

2.        The applications relate to the Hard Rock Café franchise and in particular a franchise agreement between the first plaintiff and the defendant and a related agreement, known as a memorabilia lease, between the second plaintiff and the defendant, and whether these agreements have been terminated lawfully.  I refer later in this judgment to the relevant provisions of these agreements. 

Factual Background

3.        The first plaintiff is a Jersey Company forming part of the Hard Rock Group of Companies.  It enters into franchise agreements for the Hard Rock Group. 

4.        The second plaintiff is a New York Corporation and is the vehicle within the Hard Rock Group which enters into memorabilia leasing agreements for items displayed in Hard Rock Café premises as part of the Hard Rock Café image. 

5.        The defendant is a BVI Company. 

6.        By an agreement in writing dated 11^th June, 1999, (the "franchise agreement"), the first plaintiff granted the defendant a franchise to operate a Hard Rock Café branded restaurant in the Cayman Islands.  The relevant terms provide as follows:-

"By an agreement in writing dated 11^th June, 1999, (the "Franchise Agreement") the first plaintiff agreed to and did grant the defendant a franchise to operate a "Hard Rock Café" branded restaurant in the Cayman Islands.  The Franchise Agreement provides as follows:-

"SECTION 1 - CERTAIN DEFINITIONS

"Business Day" shall mean any Monday, Tuesday, Wednesday, Thursday, or Friday that is not a day on which banking institutions are authorised or obligated by law to close in Orlando, Florida or in the Area. 

"Food & Beverage" means those, and only those, items of food and beverage included within Franchisor's approved menu, as the same may be amended, supplemented, or otherwise modified by Franchisor from time to time in its sole discretion ....  The term "Food and Beverage" shall also include food and beverage items specifically approved by Franchisor in writing, in Franchisor's sole discretion, following a written request therefor by Franchisee. 

"Franchisee" shall have the meaning set forth at page one of this Agreement [the Defendant]. 

"Franchisor" shall have the meaning set forth at page one of this Agreement [the First Plaintiff]. 

"Merchandise" shall mean those and only those items of merchandise specified in Exhibit B attached hereto and incorporated herein by this reference bearing the Licensed Rights.  Franchisor hereby reserves the right to amend, supplement, or otherwise modify Exhibit B as attached hereto upon at least 10 days' Notice to the Franchisee ....  The term "Merchandise" shall also include Merchandise items specifically approved by Franchisor in writing, in Franchisor's sole discretion, following a written request therefor by Franchisee. 

"System" shall mean the method of operation of the Restaurant pursuant to this Agreement and the Manuals, and shall include the right to advertise and sell Food and Beverage and Merchandise to the extent specifically authorised herein.

SECTION 2 - GRANT:AREA:SCOPE OF GRANT

"(A) Grant.  Franchisor hereby grants to Franchisee, upon and subject to the terms and conditions contained in this Agreement, and Franchisee hereby accepts, the exclusive right and license to operate at retail one (1) Restaurant; to use the Licensed Rights in the operation thereof, and to sell therefrom Food and Beverage and merchandise, at a specific location, selection as provided for herein, within the Area as specified in 2(B) hereof.

(B) Area.  The area in which the Premises for operation of the Restaurant shall be located is the Cayman Islands (the "Area").

...

SECTION 4 - COMPENSATION OF FRANCHISOR.

(A)...  

(B) Continuing Fee.  As additional consideration for the use of the Licensed Rights and the System, Franchisee hereby agrees to pay to Franchisor a Continuing Fee equal to:

(1) Five percent (5%) of Gross Receipts (as hereinafter defined) from sales of all Food and Beverage items; and

(2) Ten percent (10%) of Gross Receipts (as hereinafter defined) from sales of all Merchandise items and of all other Gross Receipts other than from the sale of Food and Beverage items (collective, "Non-F&B Receipts"), to the extent that the total Non-F&B Receipts during any Operating Year do not exceed Three Million United States Dollars (US$3,000,000.00).  Adjusted for inflation; twelve percent (12%) of all Non-F&B Receipts from Three Million United States Dollars (US$3,000,000) up to Four Million United States Dollars (US$4,000,000), Adjusted for Inflation, and fifteen percent (15%) of all Non-F&B Receipts that exceed Four Million United States Dollar (US$4,000,000), Adjusted for Inflation.  The dollar threshold amounts in this paragraph shall be reduced pro rata for partial years. 

The Continuing Fee will be payable to Franchisor monthly, within the first ten (10) days of each month, based on Gross Receipts of the Premises generated during the preceding month.  Notwithstanding the foregoing provisions of this §4(B), the Continuing Fee percentage of all specifically approved Food and Beverage and Merchandise items be as mutually agreed upon between Franchisor and Franchisee at the time of any written approval of the same by Franchisor.  In addition to the amounts specified above, in the event Franchisee receives the proceeds, as compensatory, punitive, or other damages or compensation, or settlement amounts paid to Franchisee, a result of the actual or alleged infringement, misappropriation, or adverse use by any Person or any of the Licensed Rights, Franchisor shall be entitled to receive a Continuing Fee from Franchisee in respect thereof in an amount which, under the circumstances of the award or settlement, would equitably compensate Franchisor at the same rate of Continuing Fee per dollar of Gross Receipts as is specified in the preceding provisions of this §4(B).

(C)      CPI Adjustment.  The dollar amounts specified in §4(B)(2) above shall be Adjusted for Inflation annually, commencing in the second Operating Year.

(D)      Gross Receipts Defined.  For all purposes hereof, the term "Gross Receipts" shall mean and includes all receipts generated as a result of operation of the Premises, or otherwise resulting from or attributable to the rights granted herein to Franchisee, whether arising from sales of Food and Beverage items.  Merchandise items or other items sold on or from such Premises, or otherwise, and shall include, without limitation, the following: ...

(E)      Month Defined. For purposes of this Agreement, a "month" shall mean a calendar month, that period between the date this Agreement was executed and the last day of the month in which this Agreement was executed, and that period following the end of the last full calendar month during the term of this Agreement and the last day that this Agreement is in effect.

(F) Payment of Continuing Fee, Etc.  The Continuing Fee and all other fees, contributions, expenses, and reimbursements due from Franchisee hereunder (collectively, "Fees") shall be paid by wire transfer of immediately available funds to an account designated in writing from time to time by Franchisor.

(I) Late Payments.  Unpaid amounts owing and due from Franchisee, including, without limitation, any Continuing Fee and Contributions to the Global Advertising Fund, shall bear interest, pro rata per day, on the past due balance at the lower of 1.5% per month or the highest rate of interest allowed by applicable law from the dates such sums first become due until paid; provided, however, that if the last day on which any such amounts due and owing from Franchisee can be paid without being considered past due falls on a non-Business Day, then the last day for paying such sums without being considered past due shall be the earlier of the next Business day thereafter or three (3) calendar days after such last day."

SECTION 10 - ADDITIONAL OBLIGATIONS OF FRANCHISEE

(A)      Keep Restaurant Open; Obtain and Maintain Necessary Permits. Franchisee will continuously during the term hereof keep the Restaurant open for serving Food and Beverage and the sale of Merchandise in accordance with the terms of this Agreement and the Manuals.  Franchisee will obtain and maintain such liquor and other licenses and other Permits as shall be necessary to operate the Restaurant in accordance with the terms hereof, including, without limitation, all required Permits in respect of music played in the Restaurant.  The risk of obtaining and maintaining any Permits required to develop and/or to operate the Restaurant and/or the Premises as contemplated herein shall be upon Franchisee, and Franchisor assumes no responsibility therefor.

 (F)      Best Efforts Required.  Franchisee will use its best efforts to procure the greatest volume and value of turnover for the Restaurant consistent with good service to the public and compliance with the terms of this Agreement.

(O) Prompt Payment of Amounts Due.  Franchisee will pay to Franchisor, Franchisor's Affiliates, and all suppliers of Franchisee, any and all amounts due any such Person promptly and in accordance with the agreed or, if not previously agreed, customary terms of payment."

SECTION 14 - TERMINATION.

(A) Termination by Franchisor.  Franchisor may not terminate this Agreement prior to the expiration of its term except for "good cause", which shall mean the occurrence of any event of default described below.  ....

(1) ...

(2) If Franchisee fails to pay any financial obligation pursuant to the requirements of paragraph 10 (O) of this Agreement within five (5) days of the date on which Franchisor gives notice of such delinquency or immediately upon written notice if such payment has not been made within sixty (60) days after the date on which it is required to be paid." 

...

SECTION 15 - FRANCHISEE'S OBLIGATIONS UPON TERMINATION OR EXPIRATION.

(A) Termination of Use of Licensed Rights: Other Obligations.  In the event of the early termination or other expiration of this Agreement for any reason Franchisee will (a) promptly upon demand therefor by Franchisor, and, in any event, not later than the scheduled date thereof after any such event, pay any Continuing Fee and all other fees and amounts due and owing to Franchisor or any Affiliate of Franchisor under this Agreement; (b) comply with all of Franchisor's instructions with respect to the transmittal or storage of all Manuals, written guidelines, recipes, menus, advertising materials and all other printed materials pertaining to the operation of the Restaurant received at any time from Franchisor or created at any time by Franchisee; and (c) comply with all other applicable provisions of this Agreement.  Upon termination or expiration of this Agreement for any reason, the Franchisee's right to use the Licensed Rights and the System will terminate immediately. 

...

SECTION 18 - GENERAL PROVISIONS.

(F)       Waivers.  No failure by any party hereto insist upon the strict performance of any covenant, agreement, term, or condition of this Agreement, or to exercise any right or remedy consequent upon the breach thereof, shall constitute a waiver of any such breach or any subsequent breach of such covenant, agreement, term or condition.  No covenant, agreement, term or condition of this Agreement, and no breach thereof, shall be waived, altered, or modified except by written instrument signed by the party to be charged therewith.  No waiver of any breach of any covenant, agreement, term, or provision of this Agreement shall affect or alter this Agreement, but each and every covenant, agreement, term, and condition of this Agreement shall continue in full force and effect."

(I) Applicable Law and Jurisdiction.  This Agreement shall be construed, enforced, and performed in accordance with the internal Laws of the Island of Jersey, without reference to the principles of comity or conflicts of [law] thereof.  For all purposes and disputes hereunder, the parties hereto consent and agree that the courts of the Channel Islands shall have nonexclusive jurisdiction over any case, claim or dispute arising out of this Agreement." 

7.        The memorabilia lease was entered into by the second plaintiff and the defendant on 14^th April, 2000.  The relevant terms provide as follows:-

"SECTION 1 - CERTAIN DEFINITIONS.

(A) Certain Terms Defined.

...

"Franchise Agreement" shall mean that Franchise Agreement dated as of June 11, 1999 by and between Hard Rock Limited, a company organized under the laws of the Channel Islands of Jersey, and Lessee for the Premises location at Grand Cayman.

"Premises" means the real property upon which the Restaurant (as hereinafter defined) is located, and includes such real property, all structures located thereon, all furniture, fixtures and equipment, and all appurtenances to any of the foregoing, together with all easements, entrances, exits, rights or ingress and egress thereto, and all improvements thereon and thereto. 

"Restaurant" shall mean the Hard Rock Café restaurant and merchandise sales establishment operated on the Premises pursuant to the Franchise Agreement." 

SECTION  -  TERM OF LEASE

The term hereof shall commence upon the date of execution of this Lease, and, unless terminated earlier as provided for herein, shall continue for as long as the Franchise Agreement is in full force and effect.  This Lease shall terminate automatically, without prejudice to any accrued rights and liabilities of the parties prior to termination, concurrently with any termination of the Franchise Agreement. 

SECTION 4 - PAYMENT OF RENT.

(a) Rent:

(b) ...

(c) ...

(d) ...

(e) ...

(f) Late payments:

...

SECTION 15 - SHIPMENT AND RETURN OF PROPERTY.

...

(B) Lessee's Duty to Return:  On termination of this Lease, Lessee shall, at Lessee's expense, return the Property to Lessor in good repair, by loading the Property on board such carrier as Lessor shall specify or approve in writing, and shipping the Property by air freight to the destination designated by Lessor.  Lessee, at Lessee's expense, shall fully insure the Property in the amount and with an insurance carrier designated by Lessor in its sole discretion against loss or damage during transport, with Lessor as loss payee.  Lessor shall have the right to supervise the packing, loading, moving, unloading and unpacking of the Property.  The Property shall be packed with at least such care and with such quality containers and packing materials as used in its shipment from Lessor to Lessee.

(C) Right of Lessor to Repossess:  If upon the termination of this Lease, Lessee fails or refuses to return the Property to Lessor, Lessor shall have the right to take possession of the Property, and, for that purpose, to enter into the Premises where the Property is located without being liable to Lessee for such removal in any suit, action, or other proceedings.  Lessee shall reimburse Lessor for all of Lessor's expenses in connection with any such repossession of the Property.

SECTION 16 - HOLDING OVER.

The failure of Lessee to return the Property on the termination of this Lessee, with or without the consent of Lessor, shall result in the creation of a Month to Month lease at a Monthly rental of one-twelfth (1/12th) of one hundred twenty-five percent (125%) of the annual return payment in effect immediately prior to the commencement of such Month to Month lease, without affecting Lessee's obligations to pay all other payments due from Lessee hereunder.  Such amount shall be payment on the first (1st) day of each Month in which the Lessee holds over.  It is the intention of the parties hereto that interest shall not accrue on the payments required hereunder except to the extent the same are not made when due, in which event the same shall bear interest at twelve percent (12%) simple interest per annum from the date due until paid.  Should a Month to Month lease be created under the provisions of this section, such lease may subsequently be terminated by either party hereto by that party giving thirty (30) days written notice of the intention to terminate the lease to the other party.  This provision does not give Lessee any right to hold over at the expiration of the Lease term, and all other terms and conditions of this Lease shall remain in force during any Month to Month tenancy created by any holding over by Lessee.  Nothing in this S16 shall be deemed to infringe Lessor's right to demand return of the Property on termination or expiration of this Lease."

...

SECTION 20 - DEFAULT AND TERMINATION.

(A) Termination by Lessor.  This Lease may, upon Notice to Lessee, be terminated by Lessor under any of the following circumstances: 

(1) Breach by Lessee.  Except as otherwise provided in this [section] 20, in the event Lessee fails to keep, observe, or perform any of the material requirements imposed upon Lessee pursuant to this Lease, and such default remains uncured for a period of thirty (30) days after Notice of such default is given by Lessor to Lessee. 

(2) ...

(3) ...

(4) ...

(5) ...

(6) Termination of Franchise Agreement: Immediately upon the termination of the Franchise Agreement."

8.        The governing law of the memorabilia lease is the law of England and Wales.  Nothing turns on this as the second plaintiff's case is advanced on the basis that the memorabilia lease has been terminated automatically as a result of the franchise agreement being terminated. 

Procedural History

9.        Proceedings were commenced on 14^th August, 2013, by way of order of justice.  An answer was filed on 4^th October, 2013, a reply on 25^th October, 2013, and a rejoinder on 19^th November, 2013. 

10.      The summons seeking summary judgment was issued on 7^th October, 2013, three days after the answer was filed.  The strike out summons was issued on 26^th November, 2013.  I agreed on 27^th November, 2013, that the strike out summons could be heard at the same time as the application for summary judgment. 

11.      Mr Michael Beacham served an affidavit in support of the plaintiffs' application on 22^nd November, 2013.  Mr Kevin Doyle served an affidavit in response the day before the application, due to a late change of Advocates.  Despite the late filing of Mr Doyle's affidavit no adjournment of the hearing was sought by the plaintiffs. 

The Law

12.      The law on summary judgment is well known so I do not repeat it.  I considered the relevant legal principles recently in Corefocus Consultancy Limited v Cronk [2013] JRC 194 at paragraphs 8 to 14 and am familiar with them. 

13.      At paragraphs 18 and 19 of Corefocus I held that I did have power on a summary judgment application to construe an agreement.  At paragraph 21 I stated, "I therefore consider my jurisdiction to grant summary judgment can only be exercised if I am satisfied on a short point of construction that the defendant's assertions are misconceived or plainly unsustainable". 

14.      Advocate Sanders in his submission referred me to the Supreme Court 1999 Edition ("the White Book") and the approach I should take in relation to counterclaims under an application for summary judgment.  At paragraph 14/4/14, page 178, the White Book states:-

"Moreover, where the defendant sets up a bona fide counterclaim arising out of the same subject-matter of the action, and connected with the grounds of defence, the order should not be for judgment on the claim subject to a stay of execution pending the trial of the counterclaim, but should be for unconditional leave to defend, even if the defendant admits the whole or part of the claim (Morgan & Son Ltd v S Martin Johnson & Co [1949] 1 K.B. 107, CA (whole claim admitted)".

15.      Advocate Pallot in response referred me to the next paragraph which provides as follows:-

"On the other hand, the mere fact that the defendant has a counterclaim does not necessarily entitle him to leave to defend (Anglo-Italian Bank v Wells & Davies (1878) 38 L.T. 197; Rotherham v Priest (1879) 49 L.J.Q.B. 104; 41 L.T. 558).  Where therefore there is clearly no defence to the plaintiff's claim, so that the plaintiff should not be put to the trouble and expense of proving it, but the defendant sets up a plausible counterclaim for an amount not less than the plaintiff's claim, the order should not be for leave to defend but should be for judgment for the plaintiff on the claim with costs, with a stay of execution until the trial of the counterclaim or pending further order (Sheppards & Co. v. Wilkinson & Jarvis (1889) 6 T.L.R. 13, CA).  In a proper case e.g. claim by solicitors for costs with a counterclaim for damages for negligence, the Court may order payment into Court of part of the claim with a stay of execution pending the counterclaim (Slater v. Cathcart (1891) 8 T.L.R. 92)."

16.      In evaluating the nature of a counterclaim advanced by a defendant, I consider I also must have regard to the final paragraph on page 178 and the first paragraph on page 179 of the White Book which follows on from the extracts cited above.  The relevant paragraphs provide as follows:-

"If however, the counterclaim arises out of quite a separate and distinct transaction or it is wholly foreign to the claim or there is no connection between the claim and the counterclaim, the proper order should be for judgment for the plaintiff with costs without a stay pending the trial of the counterclaim.  (Drake and Fletcher Ltd v. Batchelor (1986) 83 L.S. Gas. 1232, per Sir Neil Lawson, applying A.B. Contractors Ltd v. Flaherty Brothers Ltd (1986) 16 Build. L.R.8 and see Anglian Building Products Ltd v. W. & C. French (Construction) Ltd (1986) 16 Build. L.R.1: Redpath Dorman Long Ltd v. Tubeworkers Ltd, CA (unrep.), March 15,1984. 

The degree of connection between the claim and counterclaim, the strength of the counterclaim and the ability of the plaintiff to satisfy any judgment on the counterclaim are some of the considerations which the Court may take account of in the exercise of its discretion whether or not to order a stay."

Chronology of Relevant Events

17.      For the purposes of the application before me, the chronology of relevant events began on 13^th May, 2013, when the first plaintiff wrote to Mr Doyle of the defendant alleging certain breaches of the franchise agreement, including failing to employ properly trained management in the restaurant.  The letter gave the first defendant thirty days to cure the defaults. 

18.      On 7^th June, 2013, Mr Doyle wrote to J. Wolszczak, Vice President of Business Affairs of the Hard Rock Group, copied to Mr Beacham (who is Vice President of Franchise Cafés, also of the Hard Rock Group).  In his email Mr Doyle stated that the defendant was having cash-flow problems in Cayman.  He also admitted that the defendant had failed to make a £25,000 royalty payment due that month.  However he raised an issue that royalties had been overpaid on memorabilia but did not specify the amount.  He did suggest that any amount overpaid would go a long way to reducing the royalty debt.  By royalties he was clearly referring to the obligation to pay continuing fees contained in the franchise agreement.  In other words Mr Doyle admitted that a debt was due but was looking to set off memorabilia royalties which he said had been overpaid. 

19.      By a letter dated 11^th June, 2013, sent by email at 21:51, the first defendant wrote to Mr Doyle.  The first two paragraphs of the letter state as follows:-

"This letter shall serve as Notice that Franchisee is in default of (a) Section 4(B) of the RFA for failure to pay Continuing Fees and Contributions to the Global Marketing Fund for the months of January - February 2013 and (b) Section 4(I) of the RFA for failure to pay interest on its late payments of Continuing Fees and Contributions to the Global Marketing Fund for January - February 2013.  A significant portion of these amounts is more than 60 days late, which technically under Section 14(A)(2) of the RFA would allow us to terminate the Agreements immediately. 

Nonetheless, if these defaults are not cured within five (5) days pursuant to Section 14(A)(2), a cure period Franchisor legally is not required to offer based on the fact that these amounts are already more than 60 days post-due but which Franchisor is extending this time as a courtesy given the length of the parties' relationship, Franchisor shall terminate the Agreement and seek legal recourse.  Franchisor reserves any other rights and remedies available to it under the Agreement, including a claim for monetary damages, all of which are expressly reserved."

20.      Attached to the letter was a statement, also dated 11^th June, 2013, which referred to outstanding royalties for January and February 2013 in the sum of $20,604.30 and $17,207.92 plus marketing fees for the same month of $2,565.43 and $2,205.27.  The total amount due, before interest, was set out as $42,673.92.  All figures claimed were in United States Dollars. 

21.      The statement also identified overdue interest payments in the total sum of $2,314.12 by reference to the interest provision contained at 4(I) of the franchise agreement.  Clause 4(I) provides for interest to accrue at a rate of 1.5% per month on any unpaid amounts due and owing.  By reference to Clause 4(B) of the franchise agreement any continuing fee which covers royalty payments was to be paid within ten days of the beginning of each month based on gross receipts generated during the preceding month. 

22.      On 14^th June, 2013, at 05:22, Mr Michael Beacham wrote to Mr Doyle as follows:-

"Kevin, to reiterate what Tom wrote and to be very clear, your last minute request to review memo payments will in no way change the terms or cure period of your financial default.  The cure period will end 5 days from issuance.  Please govern yourself accordingly."

23.      On 17^th June, 2013, at 21.57, Mr Doyle emailed Mr Wolszczak as follows:-

"I refer to the email from Diane Harney dated 11^th June, 2013, and the letter attached signed by yourself which threatened to terminate the HRC Cayman Islands Franchise Agreement. 

It is most puzzling and concerning that you have chosen to issue a Default Letter claiming Royalties from us whilst you have not responded to our email dated 7^th June wherein we pointed out that we believe that HRI may in fact have been overcharging us significant amounts of Royalties since 2008. 

It would also seem extraordinarily unfair and unreasonable that you would terminate a Franchisee who built businesses which have contributed between $8-9 million in Royalties to HRI, because he is late with Royalties which MIGHT amount to $44,988.04 - or substantially less if you confirm that you have overcharged us by what seems to be an amount of app. $25,000. 

Secondly we also note that we have had no response from you regarding our email dated 11^th June wherein we stated that Michael Beacham's email was, we believe, factually incorrect in stating that we had exceeded the number of defaults issued by HRI."

24.      Also on 17^th June, 2013, the first plaintiff wrote to Mr Doyle.  The first two paragraphs of the letter provide as follows:-

"Most recently, on June 11, 2013, we notified you in writing that Franchisee was in default of the Agreements for a variety of material defaults, including, but not limited to, the failure to pay continuing fees, contributions to the Global Marketing Fund, and interest on the amounts past-due.  The Franchisee continues to owe the amounts specified in the enclosed spreadsheet. 

Pursuant to Section 14(A)(2) of the Franchise Agreement, please be advised that since some of these defaults have remained uncured for more than sixty (60) days since the date the payments were due, this letter constitutes notice that, in addition to any other rights or remedies available under the Agreements, including but not limited to any additional grounds for termination, which Franchisor hereby reserves, the RFA is terminated effective immediately.  Furthermore, as a consequence of the termination of the RFA, the Memo Lease is also terminated immediate pursuant to section 20(A)(6) of the Memo Lease.  Franchisor expressly reserves any and all rights and remedies available to it under the Agreements, including a claim for monetary damages and alternative bases for termination, all of which are expressly reserved."

As a matter of evidence I was not told whether this letter was sent before or after Mr Doyle's email of 17^th June, 2013.  However Advocate Sanders accepted it was likely to have been sent afterwards. 

25.      On 18^th June, 2013, Mr Beacham wrote to Mr Doyle as follows:-

"Kevin,

I must point out several inaccuracies in your correspondence. 

1.        The Cayman Franchise was today terminated due to your failure to cure a financial default.  As you admit in your email, you are in arrears in excess of $44,988.04 (in fact the statement sent to you shows a total of 95k due and owing) and have breached your RFA. 

2.        We will respond to our request for us to research your memo lease showing you that you are incorrect in your assertion and you did not in fact overpay for your memo lease.  Nevertheless, this issue has no relevance to your failure to pay ongoing royalties.  Even by your own admissions, the amount that you falsely believed you overpaid for memo was far short of what you were required to pay to cure your financial default for royalties. 

3.        The length of time that you have been in business does not allow for a failure to pay ongoing royalties. 

4.        My email to you June 11th regarding potential excessive defaults and failure to maintain a minimum sales volume, had no bearing on the actual financial default that went uncured and subsequently resulted in your financial breach. 

I trust that clears any confusion.  Please reach out to me with any additional questions.  Tom's team will be in touch to start the debranding process and to arrange for the safe removal and return of the memo."

The Parties' Contentions

26.      Without doing any disservice to the careful written and oral contentions I received, the fundamental issue at the heart of the application was whether or not the franchise agreement had been terminated in accordance with its terms.  This gave rise to 3 points that required determination:-

(i)        What was meant by "day" when the first plaintiff gave 5 days' notice on 11^th June to the defendant to pay what the first plaintiff said was due?

(ii)       Is it clear for the purposes of a summary judgment application that monies were due to the first plaintiff under the franchise agreement entitling the first plaintiff to terminate the franchise agreement and if so, how much?

(iii)      Are the express terms of the franchise agreement modified or ameliorated in their effect by an implied term of good faith to enable a defence or counterclaim to be raised?

I will deal with each of these in turn.

1. The meaning of day

27.      The plaintiffs' case is straightforward.  The plaintiffs allege that monies are due under the franchise agreement so that if the defendant did not pay under the franchise agreement the first plaintiff was entitled to terminate that agreement.  The first plaintiff further contends that, by its letter of 11^th June, 2013, it gave a voluntary concession of five days to allow the defendant time to pay.  At the end of five days the plaintiff had not paid and therefore a valid termination notice was served on 17^th June, 2013.  The first plaintiff emphasises it was not obliged to give any time at all.  Finally the first plaintiff contends that the reference to a day in its letter of 11^th June means exactly that; it does not mean business day. 

28.      The defendant's case is the word "day" must have been intended by the parties to mean "business day" because the plaintiff gave 5 days' notice pursuant to Clause 14A(2) of the franchise agreement.  By reference to the definitions of "Business Day" and "Area" contained in the franchise agreement, the argument continued that Business Day excludes Saturdays and Sundays and any day upon which banking institutions were closed in Florida or Cayman.  Monday 17^th June is a public holiday in Cayman.  Therefore the plaintiff could not have served a notice of termination until Wednesday 19^th June, 2013.  Underpinning the defendant's contention was that any reference to days in the franchise agreement meant business days. 

29.      The use of the definition "Business Days" only appears in the franchise agreement at clause 4(I).  This provision states that interest falls due at 1.5% per month on unpaid amounts due and owing.  However it contains a proviso which clarifies that if a sum falls due on a non-Business Day then interest does not start to run until either the end of the earlier of the next Business Day or for a 3 further days (not Business Days).  The franchise agreement at section 4(B) also makes it clear that all continuing fees, which cover royalties, are due "within the first ten days of each month".  Neither the reference to 3 days or 10 days is qualified in any way to suggest that a day means Business Day. 

30.      In addition to the reference to days (as distinct from Business Days) in clauses 4(B) and 4(I), the franchise agreement also contains numerous other references to days without qualifying those references to mean Business Days.  The meaning of those references is clearly a reference to actual days not business days.  I refer by way of example to clauses 5(B), 5(D) and 12(B).  Clause 12(B) refers to reporting requirements on the defendant to report weekly, monthly, quarterly and annual figures.  It is quite clear to me that the time limits in this clause, as in the rest of the agreement other than the express reference to Business Days in Clause 4(I), are all references to actual days.  This includes the references to days in clause 14A(2) itself.  I also do not consider there is any basis to construe the reference to days in clause 14A(2) in any different manner to the references to days found elsewhere in the franchise agreement.  The reference to Business Days only arises to prevent a rate of interest being charged at a weekend or on a bank holiday.  The defendant's contentions that the reference to "days" in the franchise agreement and the letter of 11^th June, 2013, is a reference to "Business Days" and not a reference to actual days, is not a sustainable argument to justify a trial. 

31.      In construing the agreement in the way I have, I am also satisfied that the agreement is only capable of one construction.  The sole reference in the franchise agreement to "Business Days" is clear, and it appears in one specific context.  The references to "days" I have referred to above are equally clear and are not capable of being construed differently.  I am therefore satisfied, applying the approach I took in Corefocus that the defendant's assertions on the meaning of Clause 14(A)(2) are plainly unsustainable. 

32.      The view I have reached on this first point is also consistent with the email of 14^th June, 2013, sent to Mr Doyle.  Mr Doyle was under no illusion on receipt of this email that five days meant five actual days not "Business Days".  I further observe that this issue was only raised for the first time fleetingly in a letter from the defendant's solicitors after termination had occurred and was only really focussed on when an answer was filed some 4 months later.  It was not, on the evidence before me, an issue that Mr Doyle raised at the time of termination.  Had he thought that the termination notice of 17^th June had been served early, I would have expected him to have raised the issue at the time.  

33.      I am therefore of the view that the five day period referred to in the letter of 11^th June, 2013, had expired by 16^th June, 2013, with the result that the first plaintiff was entitled to send a letter of termination on 17^th June, 2013. 

34.      The defendant, through Advocate Sanders, also contended by its letter of 11^th June, 2013, that the first plaintiff had made an election giving the defendant five business days and therefore he could not issue a termination notice before five business days had elapsed.  Given that I have found that the reference to five days is a reference to five actual days and not five business days, as I construe the franchise agreement, I do not need to consider whether the letter of 11^th June, 2013, amounts to an election or not.  However, out of deference to the arguments ably advanced by Advocate Sanders it is right that I make some observations. 

35.      The starting point for the argument is the English Court of Appeal case of Kosmar Villa Holidays Plc v Trustees of Syndicate 1243 [2008] EWCA 147.  The English Court of Appeal in Kosmar cited with approval a definition of waiver by estoppel of Lord Diplock in Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850 at 882-3:-

"If he has knowledge of the facts which give rise to inconsistent or alternative rights and he acts in a manner which is consistent only with his having chosen to rely on one of them, the law holds him to his choice even though he was unaware that this would be the legal consequence of what he did.  He is sometimes said to have "waived" the alternative right, as for instance a right to forfeit a lease or to rescind a contact of sale for wrongful repudiation or breach of condition; but this is better categorised as "election" rather than as "waiver".  

36.      The Court of Appeal in Kosmar continued at paragraph 38 as follows:-

"In summary, therefore, election is the exercise of a right to choose between inconsistent remedies.  It generally requires knowledge of the facts giving rise to the choice on the part of the party electing, and knowledge of the choice having been made on the part of the other party.  Those are the conditions which make the doctrine mutually fair.  It typically arises where the parties to a contract have to know where they stand.  Thus the choice has either to be communicated unequivocally by the party electing to the other party or else the objective circumstances have to be such that the effluxion of time by itself constitutes that communication.  Since the election is the choice of the party electing, it is his conduct which is decisive.  Once made the election is final and irrevocable.  Estoppel, however, is a promise, supported not by consideration but by reliance.  It is a promise not to rely upon a defence (per Lord Diplock) or a right (per Lord Goff).  It requires a representation, in words or conduct, which must be unequivocal and must have been relied upon in circumstances where it would be inequitable for the promise to be withdrawn.  The need for such unfairness probably means that the reliance of the representee has to constitute a detriment, but even the detriment has, I would think, to be such as to make it inequitable for the promise to be withdrawn.  For these reasons, the estoppel may not be irrevocable, but may be suspensory only.  An unequivocal representation without the necessary reliance, and reliance without the necessary unequivocal representation, are each insufficient.  It follows that, as concepts each in their own way designed to hold parties to fair dealings with one another, waiver by estoppel is the more flexible doctrine."

37.      If it had been necessary to consider Advocate Sanders' submission, I would have required further argument on the difference between election and estoppel and whether the letter of 11^th June, 2013, was an election or an estoppel. 

38.      As a matter of law, I would have also required further submission on whether the principles referred to in Kosmar form part of Jersey law.  In Sutton v Insurance Corporation C.I. Ltd [2011] JLR 80 Deputy Bailiff, W J Bailhache, stated as follows:-

"The difficulty with applying this principle of estoppel by convention is that it derives from a law of contract which is not our own.  It may well have been necessary to develop the doctrine of common law estoppel, or estoppel by convention, having regard to gaps which were identified in the English Law of Contract.  One needs to be satisfied that the same gaps exist in the Jersey Law of Contract before one could justify the introduction of similar principles into our law."

39.      Advocate Sanders' argument also brings into play the scope of the doctrine of renunciation referred in Fort Regent Development Committee v Regency Suite Discotheque & Restaurant Limited [1990] JLR 228 in evaluating the principles to which he referred.  It is not appropriate on a summary judgment application to resolve these matters of law. 

40.      Had it been necessary to do so and to construe the letter of 11^th June, 2013, and assuming that the principles in Kosmar do form part of the law of Jersey, I am not persuaded that the letter of 11^th June, 2013, amounts to an arguable case that the first plaintiff chose between inconsistent remedies.  Rather the first plaintiff had the right to either give five days' notice to cure a defect and then terminate if the defect was not cured, or to terminate the contract on the basis of sums being outstanding for than more than sixty days.  These were not inconsistent remedies.  They were two different routes available to the first plaintiff to terminate the franchise agreement for breach of contract. 

41.      However, the issue whether the letter of 11^th June, 2013, created an estoppel (if days had meant business days) would have required a trial.  A trial is not required, however, because I have found that the reference to days in the letter of 11^th June meant actual days and not business days.  The effect of any statement in the letter of 11^th June that the franchise agreement would not be terminated for five days, assuming that statement does amount to an estoppel, still came to an end on 16^th June, 2013.  It was therefore suspensory only and so, even if there was an arguable estoppel, does not assist the defendant. 

2. Was anything owing at the termination date?

42.      Although I have found that the plaintiff was entitled to serve a termination notice on 17^th June, 2013, I still have to be satisfied that monies due from the defendant had been outstanding for more than 60 days. 

43.      In support of its application for summary judgment, there was exhibited to Mr Beacham's affidavit a statement dated 20^th November, 2013.  This statement set out the amount of continuing fees i.e. royalties and marketing fees claimed.  Those fees were based on invoices also exhibited to Mr Beacham's affidavit. 

44.      At paragraph 17(3) of his affidavit, in response to wording on the statement which states "royalty amounts are only an estimated based on the sales reported", Mr Beacham explained:-

"The royalties are calculated as a percentage of the sales proceeds from the franchise establishment.  The endorsement does not mean that these are estimated amounts rather it states that the royalties demanded are based on the sales reported by the franchisee, in this case the defendant.  The actual sales figures are not known to the first plaintiff and the first plaintiff as franchisor cannot speak to the veracity of those sales figures."

45.      It is right to observe at this juncture that the amounts claimed by Mr Beacham in his affidavit and in the statement issued in November 2013 to which I have referred go beyond the amount claimed in the order of justice.  The amount said to be owed in the order of justice is $96,065.61.  It is not clear to me how this figure has been arrived at.  It is a slightly higher figure than the gross amounts due according to the 20^th November statement (ignoring interest) to the end of June 2013.  The order of justice does not in the alternative claim damages.  In light of my observations that the amount claimed in the affidavit goes beyond the amount claimed in the order of justice, Mr Pallot applied sur le champ to amend his order of justice to claim damages.  As it was clear from Mr Beacham's affidavit that he was seeking summary judgment for the amounts now said to be due, I do not consider that any prejudice arises to the defendant by allowing the plaintiffs to amend their order of Justice in the manner applied for and I so order.  Allowing the amendment to the relief claimed does not require any additional evidence in response or change the nature of the arguments advanced by both parties.  It has always been clear from the statement exhibited to Mr Beacham's affidavit that the plaintiffs are seeking summary judgment in the sum of $121,613.55 plus accrued interest of $11,356.07under the franchise agreement and smaller sums under the memorabilia lease. 

46.      The first plaintiff in submission made a number of additional points.  Firstly it relied upon Mr Doyle's email of 7^th June, 2013, where he admitted there were cash flow problems.  While Mr Doyle raised the question of overpaid royalties on memorabilia, his email stated that the overpaid amount "would go a long way to reducing our royalty debt".  In other words, as at 7^th June, 2013, the plaintiffs say that Mr Doyle accepted that there was a debt due even after overpayment of royalties for memorabilia.  I agree this is a natural reading of the words used.  Mr Doyle's affidavit did not address the statements made in his email of 7^th June. 

47.      The plaintiff further relies on Mr Doyle's email of 17^th June, 2013, where he acknowledged that he may owe substantially less than $44,000 if the plaintiff were to confirm that it had overcharged the defendant by approximately $25,000.  Mr Beacham stated in his email of 18June, 2013, at paragraph 2 "even by your own admission, the amount that you falsely believed you overpaid was far short of what you were required to pay to cure your financial default for royalties".  In other words the first plaintiff says, on any view, additional sums were due to the first plaintiff from the defendant which the defendant was not paying and that the defendant knew that such sums were due through Mr Doyle.  The first plaintiff further contends that while Mr Doyle in his affidavit now challenges the basis upon which the statements were calculated, he did not do so in June 2013. 

48.      The first plaintiff further points out that there was also no attempt to offer any payment or tender any payment by the defendant in June 2013 or since. 

49.      The defendant in response to the plaintiffs' arguments contends that it was not clear in June 2013 what was due to the plaintiffs and it is not clear now.  The defendant was critical of the lack of particularity contained in the order of justice.  The defendant stated it was not clear how the figure claimed by the plaintiff in the order of justice has been calculated.  I agree that the order of justice is not clear as set out above. 

50.      However, Mr Doyle in his affidavit does not address paragraph 17(3) of the evidence of Mr Beacham which I have referred to at paragraph 44 above.  Mr Doyle does not in his evidence dispute that the royalties demanded in June 2013 were based on sales figures reported by the franchisee.  He simply says that it was not clear to him on what basis the plaintiffs calculate what they say is owed.  Yet he does not deny that the defendant supplied figures to the plaintiffs as averred in Mr Beacham's affidavit at paragraph 17(3) and does not address the defendant's obligations under Clause 12(B) of the franchise agreement already referred to. Clause 12(B) requires the defendant among other things to provide monthly financial statements within ten days following the end of each calendar month. 

51.      Mr Doyle in his affidavit at paragraph 9 does state that none of the invoices exhibited were previously served on the defendant.  He also states that no statements had been received since June 2013.  This is a factual issue I cannot resolve.  However it does not matter because it is clear from Mr Doyle's email of 17^th June, 2013, and the implicit admission in his affidavit that Mr Doyle did receive the statement attached to the letter of 11^th June, 2013.  Other than in respect of a claim for overcharging for memorabilia Mr Doyle, in June 2013, did not otherwise challenges the figure in the statement he received at that time. 

52.      At paragraph 11 of his affidavit Mr Doyle states "it is not clear to me on what basis the plaintiffs calculate what they say is owed."  In support of this statement he relies on schedules produced by his accountant, Mr Pereira, and exhibited to Mr Doyle's affidavit.  This evidence means that there are at least arguable discrepancies between the figures claimed by the plaintiffs and the figures produced by Mr Pereira.  On this application I am unable to resolve those differences. 

53.      The amounts outstanding for February and March 2013 in the statement sent on 11^th June, 2013, which Mr Doyle admits receiving, totalled $44,988.04.  On Mr Pereira's evidence the combined total due for those two months is in the sum of $41,513.13 (i.e. $21,313.17 for February 2013 and/or $19,617.96 for March 2013).  All figures were in United States Dollars. 

54.      I have referred to these sums because in the correspondence in June 2013 from Mr Doyle to which I have referred, in particular Mr Doyle's email of 17^th June, 2013, he formulates the claim for overpayments under the memorabilia lease as being in the sum of $25,000.  The evidence he has produced in support of this application indicates, assuming Mr Doyle is right that in June 2013 he had been overcharged by $25,000 (and the plaintiffs for this application have accepted that $22,000 is due), then he was also aware in June 2013 that a further sum in excess of $19,000 was due. 

55.      As matters stand now, and giving credit to the defendant for the arguments he has raised about quantum through Mr Pereira, the best case the defendant can advance still means that, as at 17^th June, 2013, there was a sum due to the plaintiffs of at least $16,000 (i.e. $41513.13-$25,000).  In my judgment there was in June 2013 and there remains now no defence to payment of this sum. 

56.      It is right to acknowledge that the plaintiffs, in June 2013, were seeking payment of all continuing fees for the first two months of 2013 in the sum of $44,988.04.  The plaintiffs should have given credit for the overpayment much earlier than they did.  The concession was only made in the affidavit filed in support of the application for summary judgment.  While that is regrettable, and may have contributed to the franchise agreement being terminated rather than the parties reaching an agreement, it does not alter the fact that at least $16,000 was owed and no payment or offer of payment was made in June 2013.  The first Plaintiff was therefore within its rights to terminate the franchise agreement because at least $16,000 had been owed to the first plaintiff for more than 60 days.  Had the defendant tendered payment of this sum I might have reached a different view on this application but it did not. 

57.      I should also deal with paragraph 12 of Mr Doyle's affidavit where he asserts that the statements exhibited at paragraph 144 and 145 to Mr Beacham's affidavit do not corresponded to the invoices exhibited.  I do not understand this assertion.  By way of illustration the royalties figure of $1727.92 for February 2013 royalties at page 144 of exhibit MB1 equates to the total figures for food and beverage and merchandise sales converted into Unite States Dollars at page 178 of exhibit MB1 i.e. the sum of $4844.75 plus $12,363.17.  The marketing contribution of 1% for February 2013 is the same figure at page 144 and page 178.  The statement made by Mr Doyle at paragraph 12 of his affidavit is not therefore correct. 

3. The effect of an implied term

58.      Paragraph 2 of the answer pleads an implied term that "the parties would cooperate with each other in good faith in order to promote the values and purposes expressed or implicit in the franchise agreement."

59.      For the purposes of this application I accept it is arguable that an obligation of good faith on both sides can form part of the understanding of the parties in contracts governed by Jersey law.  However, it is not appropriate to determine that question on a summary judgment application without full argument on the point (of the remarks in Sutton at paragraph 16).  It is not therefore appropriate for me to consider whether the observations of Mr Justice Leggatt in Yam Seng P.T.E. Limited v International Trade Corporation Limited [2013] EWHC 111 should form part of the law of Jersey. 

60.      However, although the legal issue raised by Advocate Sanders is arguable, this legal issue does not assist him in relation to the application of Clause 14(A)(2) of the franchise agreement and the termination by the first plaintiff of the franchise agreement in reliance on Clause 14(A)(2). 

61.      I say this because in my judgment the express terms of Clause 14(A)(2) are clear.  The franchise agreement can be terminated either if payment is not made within five actual days where notice is given or immediately if monies due for over 60 days have not been paid. 

62.      There is no need to imply any term to this clause in accordance with the principles recognised under Jersey law (see for example Sibley v Berry [1992] JLR N 4 and Grove v Baker [2005] JLR 348).  There was no argument before me that the implied term pleaded is customarily included in franchise agreements.  It was also not argued that it was necessary to imply the term in order to ensure that Clause 14(A)(2) was not futile, inefficacious or obscure.  Accordingly, the reliance of an implied term argument is not one that I am satisfied amounts to a defence to the first plaintiff's claim that the franchise agreement has been terminated. 

Quantum

63.      Given I am satisfied that the first plaintiff lawfully terminated the franchise agreement and there is no defence to this claim, it is necessary for me to consider what amount might be due from the defendant to the first plaintiff, firstly, under the franchise agreement and secondly, under the memorabilia lease.  I refer to the memorabilia lease because it was common ground between the parties that, if the franchise agreement was lawfully terminated, then the memorabilia lease was also lawfully terminated.  All figures referred to are in United States Dollars. 

64.      The order of justice claims $96,065.61 as being the sum due to the first plaintiff as continuing fees and the sum of $8,517.20 in respect of fees due under the memorabilia lease to the second plaintiff. 

65.      I have already referred at paragraph 45 of this judgment to the lack of particularity in the order of justice to explain how the figure of $96,065.61 is arrived at.  However, I also indicated at paragraph 45 that I was satisfied that the first plaintiff was seeking summary judgment for breach of the franchise agreement in the sum of $121,613.55 plus accrued interest of $1,356.07. 

66.      In relation to the memorabilia lease the amount sought, by reference to the affidavit of Mr Beacham is $17,014.16 plus interest charges of $744.37, making a total of $17,758.53. 

67.      Against these sums, by reference to paragraph 19 of the affidavit of Mr Beacham credit is given for $20,844 because the monthly fee due under the memorabilia lease was not reduced from $2,282 to $1,703 between October 2008 and October 2011. 

68.      I have already referred in part to the calculations of Mr Pereira at paragraph 52 of this judgment in relation to the outstanding continuing fees/royalty invoices for January and February 2013 which were raised in February and March 2013. 

69.      The statement at page 108 to the exhibit to Mr Doyle's affidavit then deals with continuing fees for the following three months i.e. fees due for the months of March, April and May 2013 which led to invoices being issued in April, May and June 2013.  On Mr Pereira's calculations the principal sum due is $79,117.24 compared with the plaintiff's claim (excluding interest) of $86,923.74 for continuing fees and $8,507.08 for the memorabilia lease thus producing a difference of $16,259.21.  This is a reduction of 17% on the amount claimed by the plaintiffs for the period January to May 2013. 

70.      In respect of the fees claimed for June to October 2013, the plaintiffs' evidence is that the balance due is $43,197.28.  If Mr Pereira's arguments are correct in relation to the period from January to May, while he has not considered the fees claimed for the period for June to October, I nevertheless consider it appropriate to give the same benefit of the doubt to the defendant that, on average, the fees for this latter period are higher by the same percentage as is disputed for January to May.  In other words, the claim for June to October should also be reduced by 17% which produces a figure of $35,853.74. 

71.      Finally from the sum of $115,024.98 there should be deducted the counterclaim for overpayment of the memorabilia lease.  Although the plaintiffs conceded that $20,804 is due, the defendant asserts that $25,000 is due.  Again giving the defendant the benefit of the doubt, it is appropriate to deduct the amount the defendant seeks to set off which leaves a balance in round terms of $90,000. 

72.      I consider there is no defence to a claim for $90,000.  I consider there is an arguable defence for the balance which is therefore a matter for trial. 

73.      The above figures represent principal sums due only.  In respect of interest, the interest rate charged is 1.5% per month if the fees are not paid in accordance with the terms of the franchise agreement.  I was concerned that such interest rates might be penal or excessive. 

74.      The question of the Royal Court's approach to interest rates was reviewed extensively in Doorstop Ltd v Gillman & Anor [2012] JRC 199.  The approach is summarised at paragraphs 45 to 51 as follows:-

"45. What then are the principles upon which the Royal Court is likely to review carefully a claim for interest, even in undefended cases?  We add the latter qualification because the Court, when giving judgment, is not exercising an administrative or rubber stamping function which gives effect to the plaintiff's claim.  In all cases, the Court is exercising a level of supervision over that claim, and if it appears to be unconscionable to give judgment, whether the claim is defended or not, it is right that the Court should refuse to give judgment. 

46. As with other contractual matters, the first principle is that la convention fait la loi des parties.  The fact that a party has agreed to pay interest at a particular rate is always likely to be a highly significant factor.  Especially in relation to prejudgment contractual interest, it will often be the most significant factor.  However it is not a conclusive factor for the reasons given above. 

47. The second principle is that what is moderate or reasonable will vary according to the circumstances of each loan, including (but not exclusively):-

(i) The level of risk for the lender;

(ii) The prospect of gain for the borrower;

(iii) Market rates and practice generally;

(iv) The sophistication of the parties to the loan;

(v) The strength of the relative bargaining positions of the parties. 

48. All factors will be assessed having regard to the circumstances as they existed at the time of the loan, because the Court is looking at whether the agreed interest rate is moderate and reasonable at that time. 

49. We recognise that there is a spectrum of market rates in relation to particular types of borrowing.  It will sometimes be the case that an agreed contractual rate will generally be at risk of failing to be enforceable where it falls outside that spectrum, and where the lender is unable to justify the higher agreed rate as being fair in all the circumstances of the case.  One circumstance where, for example, it may be open to a lender to justify a higher rate of interest is where the loan is made to enable the borrower to indulge in a highly speculative exercise which, if successful, would generate a very substantial return for the borrower (a "grosse adventure").  In such a case, the level of risk for the lender and the prospect of gain for the borrower may justify the higher rate of interest.  Nonetheless, market practice cannot be determinative by itself of what is reasonable or moderate. 

50. We add that inter institutional lending, although theoretically subject to the same legal rules, is very likely to lead to a reluctance on the part of the Court to intervene - on the basis that the parties to such lending are sophisticated business people, operating in a regulated world, where market practice will be a good indicator of what is moderate and reasonable. 

51. For the avoidance of doubt, we do not share the view that, in today's world, money is not a commodity like most other commodities.  Accordingly, one can contract about money, just as one can contract about wine or jewellery or other goods.  The rationale behind the 1971 Law and its successor in 1996 is that money is a commodity with a value, hence a jurisdiction conferred by statute to award interest on a debt which does not otherwise carry interest.  Nonetheless, in our view lenders, including institutional lenders, do have a responsibility towards those who want to borrow money.  An urgent need for funds can make a person vulnerable and vulnerable people may be inclined to agree terms which reasonable people would not agree - no longer can one say that such persons are the best judges of what is in their own interests.  Responsible lenders will not lend to those who will obviously not be able to make repayment or upon terms that offend the rules against usury.  It is with this in mind that the Court does not - indeed cannot - ignore the customary law of this Island which requires the Court not to enforce the contract to the extent that an interest rate is immoderate or unreasonable.  The question for us today is how to develop the customary law in such a way as is appropriate for 2012."

75.      On the facts of Doorstop the Royal Court held that the contractually agreed interest rate of 12% would be allowed but disallowed a claim for interest at 2% per month as being a penalty and excessive. 

76.      In reviewing the interest rate claimed by the plaintiffs, I have taken into account that this is a rate specified in a contract which is a highly significant factor.  Equally the agreement is not a loan but a franchise agreement.  The franchisor has not therefore parted with money; rather the franchisor is claiming interest on fees due from the franchisee.  Given that under the terms of the franchise agreement, if any monies are not paid for sixty days then the franchisor is entitled to terminate the agreement, the level of risk for the franchise is relatively low.  In that regard the defendant through Mr Doyle deposed that the franchisor had received some $8 million over the lifetime of the franchise agreement. 

77.      There is no evidence before me about market rates of interest for franchise agreements.  Similarly I have no evidence as to the sophistication of the parties to the franchise agreement.  However I have formed the view that I can have regard to the fact Hard Rock Café franchise is extremely well-known and is international in nature.  The franchisor is therefore highly likely to be sophisticated.  Equally, given the amounts of royalties paid by the franchisee referred to in Mr Doyle's affidavit, the franchisee also appears to be sophisticated.  

78.      In relation to the strength of the relative bargaining positions of the parties, it is the franchisor and the Hard Rock Café Group that have the value of the brand Hard Rock Café.  The terms of the franchise agreement clearly favour the franchisor in that they place significant restrictions on how the defendant may operate the franchise.  That is not uncommon in agreements of this kind.  In my view it does, however, mean that it is the plaintiffs who have a strong bargaining position.  If a party in any jurisdiction, such as the defendant in Cayman, wishes to operate a Hard Rock Café franchise agreement the reality is likely to be that they have little choice but to agree to the terms proposed. 

79.      Having taken the above factors into account, in my view it is arguable that a rate of 1.5% per month payable if continuing fees are not paid when due is penal and is excessive.  In reaching this view I have also taken into account the fact that interest rates have been at very low levels for some time.  Adopting the approach taken in Doorstop v Gillman, I consider a rate of 12% per year as being one that is not excessive.  I am prepared to allow interest to be awarded at this rate, leaving over for trial whether any higher rate is justifiable. 

80.      In relation to the calculation of the interest I direct the first plaintiff to calculate what is due, on the basis of a rate of 12% per annum, from the date the relevant invoice fell due for payment.  This interest rate is applicable until the issue of the proceedings because the plaintiff only then seeks an interest rate of 2% per annum.  These figures should be provided to the defendant. 

81.      In terms of interest on the sum of $90,000 which I have found is unarguable, the plaintiff should calculate interest at 12% from 17^th June, 2013, to the issue of the order of justice on 14^th August, 2013.  Interest after 14^th August, 2013, should be calculated at the court rate until payment. 

The Strike Out Application

82.      The legal principles on a strike out application are well known.  In summary, I can only strike out a pleading or part of a pleading where it is plain and obvious to do so and where no reasonable cause of action arises on the assumption that the matters referred to in the relevant pleading are true. 

83.      In relation to paragraphs 6-10 and 14 of the order of justice, given that I have found that there is no defence to the plaintiffs' claims, it also follows that paragraphs 6-10 and 14 should be struck out and I so order.  It is right that I deal specifically with paragraph 7(d).  In relation to this allegation the matters pleaded occurred after the franchise agreement had been terminated lawfully as I have found.  The plaintiffs were therefore entitled to instruct suppliers not to provide supplies to the defendant. 

84.      In relation to the counterclaim, there is a distinction between the allegation at paragraph 18 and paragraphs 19-21.  Paragraph 18 should be struck out for the same reasons that paragraph 7d should be struck out.  It also follows that the claim for loss and damages at paragraph 22(a) should also be struck out. 

85.      In relation to paragraphs 19-21 however, I am satisfied that these paragraphs should remain.  As I have noted at paragraph 59 above, it is arguable that the implied term pleaded might form part of the franchise agreement albeit not in relation to Clause 14(A)(2).  In particular I am satisfied it is arguable that the implied term may be relevant to the operation of the franchise agreement and the matters pleaded at paragraphs 19-21.  These are questions of fact which would require the court to understand the "open and shared values and behaviour" of the parties (see Yam Seng P.T.E. Limited case at paragraph 134). 

86.      While accepting that there is an arguable counterclaim, I also have to consider the nature of the counterclaim by reference to the relevant passages of the White Book referred to at paragraph 11-16 above.  In this case I do not consider that the counterclaim arises out of grounds of defence.  It is not a counterclaim that raises arguments that the franchise agreement has not been terminated properly.  Equally it is not right to characterise the counterclaim as arising out of a quite separate and distinct transaction.  I consider the counterclaim trial does arise out of the franchise agreement and how it was operated while in force and therefore seeks monies due for breach of contract against the sums that are otherwise due under the franchise agreement. 

87.      I also have to consider whether I should grant unconditional leave to defend or conditional leave to defend in respect of the counterclaim.  In relation to this counterclaim I note the following:-

(i)        There is very little particularity in the answer of the matters referred to at paragraphs 19 and 20;

(ii)       In respect of the matters pleaded at paragraph 21, it is difficult to understand why the first plaintiff is responsible for employees recruited by the defendant who are dismissed for dishonesty or incompetence.  The obligation under the franchise agreement appears to be for the defendant to have individuals with appropriate experience.  The franchise agreement does not define that it is for the first plaintiff to select those individuals;

(iii)       As I have noted above, franchise agreements, by their express terms, often are specific as to the steps a franchisee may take and place significant obligations on a franchisee.  This might mean that this franchise agreement simply turned out to be nothing more than a bad bargain for the franchisee having regard to the economic situation in Cayman at the time of the matters complained of. 

(iv)      Mr Doyle's affidavit, although making an assertion at paragraph 24 that the plaintiff were looking to engineer a default (which is not pleaded), does not otherwise produce any evidence in support of the defendant's counterclaim.  The only evidence is of a significant breakdown in relations and ill-tempered exchanges once the first plaintiff had terminated the franchise agreement on 17^th June, 2013;

(v)       It is also right to weigh in the balance that for the whole of 2013 the defendant did not make any offer of payment of any fees due. 

88.      In my judgment having regards to the factors I have listed, I am left with a real doubt about the strength of the counterclaim which does not condescend upon particulars.  Set against my finding that $90,000 is at least is due to the plaintiffs, if the defendant wishes to pursue its counterclaim it must do so on condition of paying into court the sum of $90,000 plus interest calculated at paragraph 81 above within 28 days. 

89.      Advocate Sanders did suggest during the course of his submissions that I did not have power to issue a declaratory judgment.  Co-incidentally this issue also arose in another summary judgment application entitled Vautier v Manning Court file 2012/294 which I was considering at the same time as this application.  In Vautier v Manning, I referred to the Royal Court decision of Re X [2002] JLR 259 which sets out when the Royal Court may issue a declaratory judgment.  I further construed that Rule 7(2) of the Royal Court Rules to include a power to make a declaratory judgment as long as the circumstances warranted a declaration by reference to the Royal Court's approach taken in Re X.  The judgment will be published shortly.  For the same reasons I therefore conclude that I have power to make a declaratory judgment in the context of a summary judgment application. 

Conclusion

90.      In conclusion I find as follows:-

(i)        I am satisfied that the franchise agreement was terminated lawfully by the first plaintiff and I issue a declaration accordingly;

(ii)       I am further satisfied that as a consequence the memorabilia lease was also lawfully terminated and again I declare accordingly;

(iii)      I am further satisfied that the sum of $90,000 is due from the defendant to the plaintiffs and I give judgment for this sum;

(iv)      The balance claimed by the plaintiffs including interest in excess of 12% per year is a matter for trial;

(v)       The matters pleaded at paragraphs 6-10, 14, 18, and 22(a) of the answer and counterclaim should be struck out;

(vi)      I am not prepared to strike out paragraphs 19-21 and 22(b) and (c) of the counterclaim;

(vii)     If the defendant wishes to pursue its counterclaim it must pay into court the sum of US $90,000 together with interest as I have ordered it should be calculated within 28 days;

(viii)    Enforcement of the judgment for US$90,000 is stayed for 28 days to allow the payment into Court to be made;

(ix)      If monies are paid into Court within 28 days pursuant to paragraph 7 enforcement of the judgment of US$90,000 is stayed until trial or further order. 

Costs

91.      In relation to the costs of the application following submission when I handed down the judgment, Advocate Pallot sought the costs of the action and the application on the standard basis. 

92.      Advocate Sanders referred me to the approach taken in the 'White Book' at paragraphs 14/7/11 and 14/7/13 which deals with the position where judgment has been given for part only of the claim and where also orders have been made for conditional leave to defend.  In this case I have given judgment for part only of the claim and the leave I gave to defend the balance was conditional upon part of the debt being paid into Court. 

93.      It is clear from the extracts in the White Book to which I was referred that in relation to the costs of the action these are to be left to be dealt with when the balance of the claim is determined.  I agree that this is the approach should also be adopted in Jersey.

94.      The extract from the White Book also makes it clear that the costs of the application should be generally be dealt with.  I was not therefore persuaded by Advocate Sanders to leave over the costs of the application until trial or to order costs in the cause. 

95.      In relation to the costs of the application, the plaintiff has broadly been successful.  In terms of the amount it was seeking after giving credit for past overpayments on the memorabilia lease it was seeking $120,000 plus interest.  I allowed it to recover $90,000.  In broad terms therefore the plaintiff has recovered on its applications 75% of the amounts claimed. 

96.      The Defendant has however persuaded me to grant conditional leave to defend. 

97.      At the outset of his application I also noted that the two applications brought by the plaintiff were connected.  In my judgment and in the exercise of the discretion vested in me in relation to questions of costs, I consider the defendant should pay 75% of the plaintiff's costs of the application as a fair reflexion of the outcome of my decision and I so order. 

98.      I was also asked by Advocate Sanders to stay the obligation to make any payment into Court until initially either the time for filing an appeal has lapsed or alternatively until any such appeal was determined if an appeal was pursued.  It was said that such an order would not make any difference to the plaintiffs because any appeal was a complete rehearing before the Royal Court and therefore if the appeal was unsuccessful the plaintiffs would be in a no worse position. 

99.      In my judgment, the right approach to take is that the defendant should be required to pay monies into Court as I have ordered, in order to pursue this matter.  If the defendant choses to appeal and is successful then the monies paid into Court at that stage can be paid out and returned to the defendant.  The defendant will then be no worse off.  I have reached this view because I have not received any evidence from the defendant to show that it is unable to pay the sums I have ordered to be awarded into Court.  I therefore refuse a stay. 

Authorities

Royal Court Rules 2004.

Corefocus Consultancy Limited v Cronk [2013] JRC 194.

Supreme Court 1999 Edition ("the White Book").

Kosmar Villa Holidays Plc v Trustees of Syndicate 1243 [2008] EWCA 147.

Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850.

Sutton v Insurance Corporation C.I. Ltd [2011] JLR 80.

Fort Regent Development Committee v Regency Suite Discotheque & Restaurant Limited [1990] JLR 228.

Yam Seng P.T.E. Limited v International Trade Corporation Limited [2013] EWHC 111.

Sibley v Berry [1992] JLR N 4.

Grove v Baker [2005] JLR 348.

Doorstop Ltd v Gillman & Anor [2012] JRC 199.

Re X [2002] JLR 259.