$28,000 to council in franchise case

Press, 22 October 1983, Page 4

$28,000 to council in franchise case

In a dispute over the letting of the bar and restaurant concessions at Christchurch Airport, the Christchurch City Council has been awarded $28,015 and costs against Restaurant Horizon, Ltd, in a reserved judgment given by Mr Justice Roper in the High Court at Christchurch.

The action was heard on October 17 and 18. Messrs J. G. Fogarty and M. Leggat appeared for the council and Messrs C. B. Atkinson and R. Bensley for the company.

By deeds of March 31, 1977, and October 16, 1978, the council granted the company licences to run concessions at the airport, said his Honour. The 1977 deed related to the airport bar, and the 1978 one to the restaurant.

Each licence was from October 1, 1975, to September 30, 1980.' Restaurant Horizon had run the concessions for the 10 years preceding October 1, 1975. The licences provided for payment to the council of a specified annual fee or a sum equal to a percentage of gross annual receipts, whichever was the greater.

In the action, the council claimed $28,015 for unpaid licence fees with interest. That claim was undisputed

and the hearing was limited to Restaurant Horizon’s counter-claim. The counter-claim was based on an allegation that after a breach by the council of the provisions of the licence, it agreed to extend their terms beyond September 30, 1980, but had failed to do so.

It was alleged that Restaurant Horizon had suffered loss of profits of $74,242. The counter-claim was for that sum, or a lesser amount as the Court deemed reasonable. The counter-claim arose from a clause in each deed which stated, that at least six months before the expiry’ of the term, the council “shall either negotiate a renewal of the licence with the licensee or submit a new licence for sale by public tender.” Although the council was satisfied with the services provided by Restaurant Horizon, the council resolved at a meeting in November, 1979, that the bar and restaurant licences would be advertised for public tender. The successful tenderer was to take over the concessions at the expiry of Restaurant Horizon’s term, his Honour said. It seemed that the decision to call tenders instead

of negotiating a renewal with Restaurant Horizon resulted from enquiries made to the council by other interested parties and a desire to “test the market.”

Restaurant Horizon was not told of the council’s decision and eventually a letter was sent to it by one of the company’s directors, Mrs S. L. McGill, stating 1 that the licence was due to expire on September 30, 1980, and pointing out the council’s obligations. Mr R. C. Buchanan, who was then the council’s airport director, replied on April 11 advising of the council’s November resolution and apologising for not communicating the information sooner.

That letter stated that if the firm was embarrassed by the council not giving formal notice of its decision at least six months before, it was happy to extend the licence for an agreed period to make up for the deficiency.

It was accepted by Mr Fogarty that the council was in breach of the terms of the clause in each licence.

On April 30 there was a meeting attended by Mr Buchanan, Councillors M. Clark and R. Bamford, on

behalf of the council, Mesdames McGill and Quinn, directors of Restaurant Horizon, and Mr Teague, a chartered accountant and secretary of the company. There was a good deal of confusion as to the purpose of the meeting, how and why it was arranged, and what was discussed at it. It was an informal meeting and no minutes were taken.

Mr Teague first sought an extension of the licences for nine months and left the meeting confident that the council members had agreed to take the matter back to the full council or its utilities committee with the recommendation that the licences be extended for six months.

He also thought that tenders were not to be called until the matter was resolved. In the result no recommendation was put to the council. Restaurant Horizon’s tender was not accepted and it vacated the bar and restaurant on October 13, 1980, so that it did receive an additional 12 days trading, which Mr Fogarty calculated as being worth $5OOO in profit. There was no doubt that the parties were at cross purposes after the meeting of April 30. The council representatives believed

that a few days extension was in contemplation and Mr Teague thought that they would support and recommend an extension of six months.

“I am unable to say how this confusion arose, but I am satisfied that all who attended the meeting and gave evidence made an honest endeavour to recall events as they believed them to be,” said his Honour.

There were complaints by Mr Atkinson of the council’s failure to come to grips with the extension issue, but it seemed that there was an explanation for the council’s inaction — the council and company were on different wavelengths. On July 23, Restaurant Horizon was informed that its tender had not been successful and on August 1, Mr Teague had sent a long letter to Mr Buchanan which stated that the avenues open to the company were: to continue to occupy the premises until the matter was resolved by Arbitration or the High Court or both; or if the lease was terminated on September 30, 1980, the company might have action for damages against the council for loss of profits.

“I am aware that Ballins

Industries, Ltd, have now withdrawn their offer to take over the food concession and the matter of the council's discussions with Messrs Butterfield Sansom will also have to be resolved,” Mr Teague said in the letter.

Commenting on the letter, his Honour said that the council’s failure to comply with the clause gave the company no automatic right of renewal. The letter of April 11 did not contain an unconditional undertaking to extend the term. It was no offer to extend the term, if the company felt it had been disadvantaged.

On the evidence he did not accept that there was an agreement at the meeting of April 30 to extend the term or that the matter was to be referred to the full council.

His Honour concluded that the counter-claim had no merit. Its legal basis was suspect and the facts did not support it. The company had obtained the benefit of 12 extra days trading which more than compensated for any default on the council’s part.

There would be judgment on the claim for $28,015 with costs of $650. On the counter-claim, there was judgment for the council and costs of $lOOO, he said.