Hard Rock Ltd and Hard Rock Cafe International-v-HRCKY Ltd 28-May-2015

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Companies – reasons in respect of application by the defendant to amend answer and counterclaim (implied terms).

[2015]JRC117

28 May 2015

Before :		Advocate Matthew John Thompson, Master of the Royal Court.
Between	Hard Rock Limited		First Plaintiff
And	Hard Rock Café International (STP) Inc		Second Plaintiff
And	HRCKY Limited (a company incorporated in the British Virgin Islands)		Defendant

Advocate J. D. Garrood for the Plaintiffs.

Advocate N. M. Sanders for the Defendant.

CONTENTS OF THE JUDGMENT

		Paras
1.	Introduction	1-3
2.	The application to amend – applicable to legal principles	4
3.	The amendments sought	5
4.	Implied terms	6-9
5.	The non-obstruction duty	10-15
6.	Royalty fees	16
7.	Loyalty programme	17
8.	Dol/Misrepresentation/Breach of Contractual Warranty	18-27
9.	The position of Island Taste Limited	28-36
10.	Conclusion	37

judgment

the master:

Introduction

1. This judgment represents my detailed reasons in respect of an application by the defendant to amend its answer and counterclaim.

2. The application follows on from my decision in the same matter reported at Hard Rock Ltd and Hard Rock Café International Inc-v-HRCKY Ltd [2013] JRC 244B where I granted summary judgment in respect of the plaintiffs’ claim that a franchise agreement and a related memorabilia lease had been terminated lawfully, but refusing to strike out parts of the defendant’s counterclaim.

3. Subsequent to my earlier judgment, the plaintiffs’ claim has been resolved. The only remaining proceeding is therefore the defendant’s counterclaim. In effect the defendant has become the plaintiff and has conduct of the remainder of the action. The detailed background to the claim and counterclaim is set out at paragraphs 3 to 8 of my earlier decision which I adopt. To the extent necessary I will refer to specific provisions of the franchise agreement (as defined at paragraph 6 of my earlier judgment) between the plaintiff and the first defendant.

The Application to amend - applicable legal principles

4. There was no dispute between counsel in respect of the applicable legal principles. Rule 6/12(1) of the Royal Court Rules 2004, as amended, (“the Rules”) allows a plaintiff to apply to amend his or her claim and the power to amend under this Rule is a discretionary one. The applicable legal principles on an application to amend were summarised by me in MacFirbhisigh (Ching) v CI Trustees and Executors Ltd [2014] 1 JLR 244 at paragraphs 27-30. I was also referred to Stancliffe Todd & Hodgson v Charlton [1985-86] JLR N-4a which recorded that the general rule was that the court would allow all such amendments as were necessary to enable it to determine the real issues in dispute, provided that no party to the action would thereby be unavoidably prejudiced, as long as the amendments show an arguable claim i.e. one that is not capable of being struck out. This is also not a late application to amend where a different approach is taken.

The amendments sought

5. The amendments sought by Advocate Sanders for the defendant were as follows:-

(i) To contend that the duty of good faith I had permitted might be argued as an implied term was also a contractual duty;

(ii) To argue that there was a contractual duty upon the plaintiffs not to act or operate the franchise agreement so as to make the purpose of the venture as envisaged by the parties impossible of performance. This was described as a non-obstruction duty.

(iii) To argue that the matters pleaded at paragraphs 19 to 20 of the order of justice (discussed at paragraph 85 to 87 of my earlier judgment) were also in breach of a contractual duty and the non-obstruction duty.

(iv) To contend that a failure by the first plaintiff to reduce royalty rates was a breach of the implied term of good faith, a breach of a contractual duty and in the alternative a breach of the non-obstruction duty.

(v) To argue that the obligation on the defendant to pay for a loyalty programme was a breach of the same duties.

(vi) To allege that the defendant was persuaded to enter into the franchise agreement on the basis of dol, misrepresentation, breach of a contractual warranty, and to argue that losses suffered by a sister company, Island Taste Limited, could be claimed by the defendant.

Implied terms

6. The starting point for analysing the amendments is the nature of an implied term under Jersey law. These were considered by Sir Philip Bailhache, Bailiff in Grove and Briscoe v Baker [2005] JLR 348. Paragraph 15 of Grove cited Pothier’s rules for interpretation of contracts (Pothier Traite des Obligations Vol 1 para 95 at 88-89 (1821 Edition)). The court then considered the Court of Appeal decision in Sibley v Berry [1992] JLR N 4 and went on to conclude at paragraph 17 as follows:-

“This then is the hurdle to be overcome come by a contracting party who seeks to persuade the court that a term should be implied into a contract. It must be shown either that the term is customarily included in contracts of the kind in question, or that it is necessary to imply the term in order to ensure that the contract is not futile, inefficacious or absurd.”

7. Both counsel agreed that further analysis of when terms may be implied into a contract was to be found in the decision of the Privy Council in Attorney General of Belize v Belize Telecom Limited [2009] 1 WLR 1988 at paragraphs 16 to 27. The observations of Lord Hoffmann were conveniently summarised by Lord Justice Aikens in Thomas Crema v Cenkos Securities Plc [2010] EWCA Civ 1444 as follows:-

“37. In the Belize case, the Privy Council was dealing with the question of how a court should decide whether a term is to be implied into the Articles of Association of Belize Telecommunications Ltd. But, in giving the advice of the Board, Lord Hoffmann made it clear that the principles he set out were applicable to all types of written instrument, including contracts wholly in writing and statutes. However, in my view the principles stated by Lord Hoffmann at [16]-[18] of the Board's advice are equally relevant to contracts that are partly oral and partly in writing and also those that are wholly oral, with any necessary modifications to suit specific cases.

38. The principles are: (1) A court cannot improve the instrument it has to construe to make it fairer or more reasonable. It is concerned only to discover what the instrument means. (2) The meaning is that which the instrument would convey to the legal anthropomorphism called “the reasonable person”, or the “reasonable addressee”. That “person” will have all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed. The objective meaning of the instrument is what is conventionally called the intention of “the parties” or the intention of whoever is the deemed author of the instrument. (3) The question of implication of terms only arises when the instrument does not expressly provide for what is to happen when some particular (often unforeseen) event occurs. (4) The default position is that nothing is to be implied in the instrument. In that case, if that particular event has caused loss, then the loss lies where it falls. (5) However, if the “reasonable addressee” would understand the instrument, against the other terms and the relevant background, to mean something more, i.e. that something is to happen in that particular event which is not expressly dealt with in the instrument's terms, then it is said that the court implies a term as to what will happen if the event in question occurs. (5) Nevertheless, that process does not add another term to the instrument; it only spells out what the instrument means. It is an exercise in the construction of the instrument as a whole. In the case of all written instruments, this obviously means that term is there from the outset, i.e. from the moment the contract was agreed, or the Articles of Association were adopted or the statute was passed into law.”

8. I regard the Belize case as summarised in Crema cited above as simply expanding upon and amplifying the quotation of Sir Philip Bailhache in Grove v Baker also set out above. I do not consider there is anything inconsistent between the observations of Lord Hoffmann and Lord Justice Aikens and the observations of Sir Philip Bailhache which would prevent me from having regard to the Belize decision on applications to amend and therefore I propose to do so.

The contractual duty

9. The test to which I have referred is firstly of assistance in relation to the defendant’s application that it wishes to plead a contractual duty in addition to an implied term. However, as is noted in Crema “The question of implication of terms only arises when the instrument does not expressly provide for what is to happen when some particular (often unforeseen) event occurs”. In other words terms either have to be express or implied. The desire to plead “a contractual duty” simply begs the question as to whether this is a reference to an express term or an implied term. If there is an express term which a party wishes to rely on, the express term should be pleaded. If there is an implied term then the test I have referred to needs to be considered to decide whether the pleading of an implied term should be allowed to stand, having regard to the legal basis upon which amendments are allowed. In my judgment, the words “a contractual duty” added nothing to the existing pleading since it was neither a reference to an express term or an implied term. Accordingly, I refused to allow the amendments to insert the words “a contractual duty” in paragraphs 2, 19, 22 and 23 of the draft annexed to the summons. I also would have deleted these words from paragraph 21, had I allowed paragraph 21 to survive, which I did not. I address paragraph 21 later in this judgment.

The non-obstruction duty

10. Advocate Sanders contended that there was a duty upon the plaintiffs not to act or operate the franchise agreement so as to make the purpose of the venture as envisaged by the parties, namely the making of a profit impossible of performance which was defined as a non-obstruction duty. He referred me to the decision of Stirling v Maitland [1864] 5 B & S 840. The passage relied upon by Advocate Sanders in Stirling in relation to this duty is as follows:-

“I look on the law to be that, if a party enters into an arrangement which can only take effect by the continuance of a certain existing state of circumstances, there is implied engagement on his part that he shall do nothing of his own motion to put an end to the state of circumstances under which only arrangement can be operative.”

11. Advocate Garrood referred me to the more recent decision of Judge Mark Raeside QC in Al-Waddan Hotel Limited v Man Enterprise SAL (Offshore) [2014] EWHC 4796 (TCC).

12. The Al-Waddan decision related to a contractual dispute. The particular issue was whether or not the arbitrator had jurisdiction to continue with an arbitration between the parties. The alleged lack of jurisdiction was based on whether a notice of decision of an engineer was a binding condition precedent. One issue the court had to deal with was the basis upon which terms could be implied because the contract did not contain express terms to appoint a new engineer. Paragraphs 31, 32 and 33 are as follows:-

“31 I now turn to other matters one would imply into this contract in the usual way. As this contract does not have provision, as it used to have, in terms of appointing a new Engineer, one has to have regard for what would happen in the event in the future that such Engineer is no longer appointed or has ceased to exist for reasons that we will come to on the facts of this case. It is, in my judgment, trite law that either as a matter of cooperation or as a matter of prevention of performance of the contract, certain terms would readily be implied. If one needs authority for that, one can go back to Mackay v Dick [1881] 6 AC 251 at p.263. I quote: “where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect”. The line of authorities that follow on from that include the decision of Roberts v Bury Commissioners [1870] supra and Panamena v Frederick Leyland [1947] AC supra .

32 So far as the converse of this arrangement is concerned, it is often called the prevention of performance. Again the matters go back to trite law, as far back as Stirling v Maitland (1864) 5 B & S 840 , at 852. I quote: “ … if a party enters into an arrangement which can only take effect by the continuance of a certain existing set of circumstances, there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances, under which alone the arrangement can be operative”. Again a long line of authority for this back to Holme v Guppy (1838) 3 M. & W. 387 and such cases again as Mackay v Dick, Roberts v Bury and the long line of authority which I will not cite but they are extremely well known.

33 The learned editors of Keating on Building Contracts 9th edition provide a good summary of the concept of such implied terms. They see these implied terms as essentially a cooperation matter. I now quote from para.3.046: “The negative aspect of the same principle [that is cooperation of course] is that the employer should not interfere with the proper performance by the certifier of the duties imposed upon him by the contract. If to the employer's knowledge the architect persists in applying the contract wrongly in regard to those matters where the architect must act fairly between the parties, he must dismiss him and appoint another”. That cites the well-known case of Panamena v Leyland to which I have just referred . So far as the general principles are concerned, it refers to Perini v Commonwealth of Australia [1969] 12 BLR 82 ; the well-known decision of Minster Trust Ltd v Traps Tractors [1954] 1 WLR 963 , p.975, and again Panamena , supra . Further down the page they say this at para.3.047: “The implied term of co-operation extends to those things which the architect must do to enable the contractor to carry out the work and the employer is liable for any breach of this duty by the architect. If instructions, nominations, information, plans or details are required, they must be supplied at reasonable times”. Again reference to those quotes are, once more, to Panamena v Leyland supra and Roberts v Bury supra.”

13. Advocate Garrood did not dispute that, in principle, a term could be implied either requiring parties to do what was necessary for parties to do something they had agreed to do, or, conversely, that parties to a contract should not do anything to prevent the continuance of a certain set of circumstances upon which performance of the contract depended.

14. Advocate Garrood’s real objection was that performance of the franchise agreement did not require something to be done to operate or that it could only take effect on the continuance of a certain existing set of circumstances. The desire to make a profit, while obviously a commercial objective for both parties, was not required for the terms of the franchise agreement to be performed.

15. In my judgment, Advocate Garrood is correct. The set of circumstances set out in the draft amended order of justice, namely the making of a profit is not the continuance of a certain circumstances to allow arrangement to take effect. The arrangement here was a franchise agreement. The making of a profit is not necessary for the franchise agreement to operate. Rather, it is an objective of the parties to the franchise agreement. Of course, both parties desire to make money from the arrangement. That is not the same thing however as there being a necessity for a particular state of affairs to continue for the contract to be performed. In Stirling v Maitland, the defendant company could not transfer its business voluntarily when arrangements have been made to run the business so as to repay a loan to the plaintiff. In Al-Waddan Hotel Limited v Man Enterprise SAL (Offshore) case, the refusal by the plaintiff to appoint a replacement engineer and the alleged ineffectiveness of the arbitration agreement, was the plaintiff acting to put an end to a set of circumstances under which the contract was to be operate, namely an agreement to arbitrate. This is not the case here. The franchise agreement can operate whether or not it turns out to be profitable as the parties hoped. As I observed at paragraph 87 of my first judgment, “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”. As no specific matter was pleaded or identified which required either the plaintiffs to cooperate or not to prevent performance, I refused to allow the defendant to plead a non-obstruction duty by reference to the making of a profit. The proposed amendments at paragraphs 2, 19, 20, 22 and 23 were therefore refused. In relation to paragraphs 19 and 20 of the existing answer, which complain that requests to reduce portion sizes of food or to vary opening hours is breach of an implied term of good faith, the failure to agree did not prevent performance of the contract. This failure may have prevented the defendant from making a profit but it did not prevent the plaintiff from operating the franchise agreement. But for striking out paragraph 21, I also would have refused the reference to a breach of a non-obstruction duty in that proposed paragraph.

Royalty fees

16. The defendant wished to amend its answer and counterclaim to complain that the first plaintiff refused to reduce the royalty fees the defendant was required to pay pursuant to the franchise agreement. It was suggested that this refusal was a breach of the implied duty of good faith and was also a breach of the non-obstruction duty. The obligations to pay royalty fees were contained in the franchise agreement at Clause 4(B) (1) and (2) and required the defendant to pay 5% of gross receipts from sales of all food and beverage and 10% of gross receipts from sales of all merchandise. This was clearly an express term of the contract. The franchise agreement, as the contract between the parties, was therefore clear on its face as to what royalty fees were payable and the plaintiffs were fully entitled to refuse to agree to vary the same. Given the clear express terms, no question of implication of terms can arise. The position of royalties is also different from the complaints in paragraph 19 and 20, because the latter complaints relate to contents of underlying policies. While the defendant had to adhere to the manuals, I was satisfied in my previous judgment and remain satisfied that the operation of manuals and what is in those manuals and how they might be varied can be subject to an implied term of good faith. By contrast it is not possible to imply a term to reduce royalty payments where a party has expressly agreed to make those royalty payments. That is part of the bargain that the defendant entered into and the commercial risk it chose to carry.

Loyalty programme

17. In paragraph 22 of the proposed amended order of justice, the plaintiff complained about being required to participate in a loyalty programme that would impose significant fees on the defendant by virtue of the plaintiffs allegedly threatening to refuse to support the defendant and by telling the defendant that it was the only franchisee that did not agree to the loyalty programme. While under the franchise agreement, the franchisee had to cooperate with promotion programmes (see Section 8c), I consider it is arguable, that the matters complained of in relation the loyalty programme can give rise to a claim in damages if found to be in breach of the implied duty of good faith. However, for the reasons already given, a claim for breach of the non-obstruction duty for refusing to amend or vary a loyalty programme is not arguable.

Dol/Misrepresentation/Breach of contractual warranty

18. At paragraphs 25 (A) to 25 (H) of the draft amended order of justice the defendant set out claims in dol, misrepresentation and breach of contractual warranty. The essence of the claims were that the defendant was told it would make a profit at a rate of between 15% to 30% per year. The defendant alleged that the plaintiffs knew that very few locations were profitable, that where a franchise had high outgoings, such as applied in the Cayman Islands, and that the franchise agreement would be unprofitable if run in accordance with the plaintiffs’ business manual. Had the defendant known these matters, it would never have entered into the franchise agreement or borrowed monies to invest.

19. No objection was taken to the amendments based on dol or deliberate or reckless misrepresentations. It was also accepted that to the extent the pleading raised a claim of dol par reticence this was arguable, having been applied by the Royal Court in Sutton v Insurance Corporation of the Channel Islands [2011] JLR 80 at paragraph 48, notwithstanding reservations expressed by Birt, Bailiff in Toothill v HSBC Bank Plc [2008] JLR 77 at paragraphs 22 and 45.

20. Where objection was taken was firstly in reliance on the alleged effect of exclusion clauses found in the franchise agreement and whether they extended to acts of dol or not and secondly in respect of any misrepresentations or breaches of warranty that were neither dishonest, reckless or were not said to be made in bad faith. I will deal with each of these in turn.

21. The relevant provisions relied upon in respect of these arguments are found in section 18 of the franchise agreement at parts (F), (G) and (K) which are as follows:-

“(F) Waivers. No Failure by any party hereto to 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 therefor, shall constitute a waiver or any such breach or Agreement, term, or condition of this Agreement, and not 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.

(G) No Warranties or Guarantees. Franchisor makes no warranties or guarantees upon which Franchisee may rely, and assumes no liability or obligation to Franchisee, by providing any waiver, approval ,consent or suggestion to Franchisee in connection with this Agreement, or by reason of any delay, or denial of any request therefor. Franchisee, in executing this Agreement, has not relied upon any representation or warranty or Franchisor that the business operations to be conducted at the Restaurant will be successful, or that any specific level of profit will be achieved.

(K) Entire Agreement. This Agreement, the documents referred to herein, and the attachments hereto, if any, constitute the entire, full and complete Agreement between Franchisor and Franchisee concerning the subject matter hereof, and supersede all prior agreements, no other representations having induced Franchisee to execute this Agreement. No representations, inducements, promises, or agreements, oral or otherwise, not embodied in this Agreement (as defined in the preceding sentence) or attached hereto (unless of subsequent date) were made by either party, and none shall be of any force or effect with reference to this Agreement or otherwise. Except as otherwise provided in this Agreement, no amendment, change, or variance from this Agreement shall be binding on either party unless mutually agreed to by the parties and executed by their authorised officers or agents in writing.”

22. In Lydan Developments Limited v Medens (Jersey) Limited [1992] JLR 135, Le Marquand, Judicial Greffier, having considered the case of United Dominions Corp. (C.I.) Ltd v Pinglaux (née Lecomte) [1969] J.J. 1123 stated at page 142 as follows:-

“There seems to me to be a number of possibilities as to the current law of the Island of Jersey which are as follows:-

1. The law of Jersey may still be represented by the United Dominions case (3).

2. The law of Jersey may have moved with the law of England towards the test of a question of construction, depending upon the intention of the parties. This test simply asks the question as to whether the defects in the vehicle are so serious that they cannot have been intended by the parties to be exempted by virtue of the appropriate clause.

3. The position is complicated by the fact that in England the change of legislation has meant that consumers no longer need to be protected in the same way by the common law. However, as this aspect of the matter is a question of law I must ask myself to what extent the law of Jersey is clear and unarguable.

In my view, the position of the United Dominions case (3) is no longer clearly unarguable. However, it appears to me to be clear and unarguable that the law of Jersey is at the very least that the applicability of an exemption clause is a question of construction, depending on the intention of the parties. The law of Jersey may well be much stronger than that in the case of a consumer or a party who is not transacting on an equal basis but it is not my function in relation to an application under r.6A/1 to do other than state that the law is certainly at the very least that the applicability of an exemption clause is a question of construction, depending on the intention of the parties.”

23. In FoodCo UK LLP (t/a Muffin Break) & Ors v Henry Boot Developments Limited [2010] EWHC 358 in relation to a clause similar to the clauses in the franchise agreement at paragraphs 163 to 167, Mr Justice Lewison stated as follows:-

“163 Each of the claimants entered into an agreement for lease. For convenience I repeat the relevant clause:

“This Agreement constitutes the entire agreement between the parties hereto and the Tenant acknowledges that it is entering into this Agreement on the basis of the terms hereof and not in reliance upon any representation or warranty whatsoever whether written or oral expressed or implied made by or on behalf of [Henry Boot] (save for written replies given by [Henry Boot's] solicitors to the enquiries raised by the Tenant's solicitors)”

164 Depending on the timing of entry into the agreement for lease Henry Boot is sometimes described as “Owner and Developer” and sometimes as “Landlord”; but the substance of the clause is not affected. I have already referred to the variation in the clause in Game Grid's agreement; but nothing turns on that.

165 There are two components to this clause: the entire agreement clause and the non-reliance clause. Each has different effect and legal consequences. The purpose of an “entire agreement” clause is to denude what would otherwise constitute a collateral warranty of legal effect: Inntrepreneur Pub Co v East Crown Ltd [2000] 2 Lloyd's Rep 611 , 614. No doubt for that reason at the start of his closing address Mr Matthias abandoned the pleaded case that the representations took effect as contractual warranties.

166 The second component of the clause is the non-reliance clause. Precisely what statements are covered by a non-reliance clause is a question of construction of the clause. But this is subject to the important principles that, as a matter of public policy, a contracting party cannot exclude liability for his own fraud; and that if he wishes to exclude liability for the fraud of his agent he must do so in clear and unmistakable terms on the face of the contract: HIH Casualty & General Insurance Ltd v Chase Manhattan Bank [2003] 2 Lloyd's Rep 61 . The clause in the present case contains no clear words acknowledging non-reliance on fraudulent misrepresentations.

167 In my judgment, therefore, the clause covers innocent and negligent misrepresentations, but not fraudulent ones.”

24. It is clear from the Foodco v Henry Boot decision that an entire agreement clause excludes a claim for a breach of representations said to be contractual warranties. In my judgment the position here is no different and therefore I struck out those parts of paragraph 25 (e) which sought to plead representations as a contractual warranty. Such a pleading cannot stand in face of the entire agreement clause at Clause 18(K) set out above.

25. In relation to the allegations of dol including the deliberate or reckless withholding of information and acting in bad faith, I do not consider that these are excluded by the latter part of clause 18 (G) of the franchise agreement. Clause 18 (G) does not on its face necessarily exclude liability for fraud or dishonesty. I consider that such an exclusion would have to extend expressly to claims of dol, acting in bad faith or statements made deliberately or recklessly which it was intended the defendant should rely on to enable me to refuse the amendment now sought. Clause 18(G) does not do so. I therefore consider it is arguable as a matter of Jersey law that it should do so to exclude acts of fraud or dishonesty, as is the position in England and Wales.

26. However, I consider that clause 18(G) is broad enough to cover innocent and negligent misrepresentations. This is because any representation or warranty is excluded. That must mean any misrepresentation made innocently or negligently even if it is arguable it does not extend to misrepresentations made deliberately, recklessly, in bad faith or which amount to dol.

27. In light of this decision, I directed that clause 25(E) be redrafted to exclude claims for breach of contractual warranty and innocent or negligent misrepresentation. I also required the allegation of a failure to provide material facts to the defendant in paragraph 25(H) to be pleaded as a failure that was deliberate or reckless.

The position of Island Taste Limited

28. The amendments in respect of Island Taste Limited were put on two alternative bases by Advocate Sanders.

29. The first of these was that in practice it was known to the plaintiffs that Island Taste would operate the business in the Cayman Islands. In particular, it was asserted that the plaintiffs knew that their royalties were based on receipts of Island Taste Limited and the royalties were paid directly from Island Taste Limited’s bank account. The first basis of the claim was therefore that any loss suffered as a result of any breach of any implied term or acts of dol would fall on Island Taste Limited, but in law the defendant was entitled to claim for the losses of Island Taste Limited.

30. Alternatively, Advocate Sanders relied on an assignment from Island Taste Limited made on 27^th February, 2015, pursuant to an order of the Grand Court of Cayman Islands, notice of which had been given to the plaintiffs.

31. In relation to the first ground advanced by Advocate Sanders, he relied on Linden Gardens Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85. The headnote at paragraph 2 provides as follows:-

“2. That, since the development in the second case was, to the knowledge of the parties, likely to be occupied or purchased by third parties, damage to a subsequent owner was foreseeable; that in view of the specific contractual provision that rights of action were not assignable without the defendants' consent, the parties could properly be treated as having entered into the contract on the basis that the first plaintiffs would be entitled to enforce against the defendants contractual rights on behalf of those third parties who would suffer from defective performance of the contract but were unable to acquire rights under it; and that, accordingly, the first plaintiffs were entitled to substantial damages for any breaches of the contract by the defendants.”

At page 114G, Lord Browne-Wilkinson, who gave the leading judgement, stated:-

“In my judgment the present case falls within the rationale of the exceptions to the general rule that a plaintiff can only recover damages for his own loss. The contract was for a large development of property which, to the knowledge of both Corporation and McAlpine, was going to be occupied, and possibly purchased, by third parties and not by Corporation itself. Therefore it could be foreseen that damage caused by a breach would cause loss to a later owner and not merely to the original contracting party, Corporation. As in contracts for the carriage of goods by land, there would be no automatic vesting in the occupier or owners of the property for the time being who sustained the loss of any right of suit against McAlpine. On the contrary, McAlpine had specifically contracted that the rights of action under the building contract could not without McAlpine's consent be transferred to third parties who became owners or occupiers and might suffer loss. In such a case, it seems to me proper, as in the case of the carriage of goods by land, to treat the parties as having entered into the contract on the footing that Corporation would be entitled to enforce contractual rights for the benefit of those who suffered from defective performance but who, under the terms of the contract, could not acquire any right to hold McAlpine liable for breach. It is truly a case in which the rule provides "a remedy where no other would be available to a person sustaining loss which under a rational legal system ought to be compensated by the person who has caused it."

32. The point was put more strongly by Mr Justice Mann in Pegasus Management v Ernst & Young [2012] EWHC 738 (Ch) as follows:-

“16. I do not find this approach appealing. The calculation in damages is a practical exercise in which the courts try to find the real loss in the real world, without resorting to metaphysics. The starting point is the classic statement in Livingstone v Raywards (1880) LR 5 App Cas 25 at p 39 (per Lord Blackburn):

“where any injury is to be compensated by damages, in settling the sum of money to be given for reparation of damages you should as nearly as possible get at that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation.”

Over the decades since then the courts have not slavishly applied that as if it answered every question. It has been applied with an appropriate degree of realism and fairness, to the real world. As Lord Haldane LC said in British Westinghouse v Underground Electric Railways [1912] AC 673:-

“The quantum of damages is a question of fact, and the only guidance the law can give is to lay down general principles which afford at times but scanty assistance.”

It is only on a slavish application of remorseless logic combined with a certain degree of metaphysics that Mr Salzedo can get home on the first of his prongs. That is not an appropriate approach. The second applies remorseless logic alone, which again is not appropriate. It also appears contrary to a reasonable perception of justice. If one assumes for the moment that loss was caused to Pegasus, its disposal of its assets did not avoid that loss; nor did it make it good. It suffered a loss because its assets were less than they ought to have been. Why does that loss not still exist after it has disposed of the assets that were not worth as much as they ought to have been? I accept that that way of looking at the matter means that the focus has switched from the test to the concept of loss, but loss lies at the heart of a damages claim. “

At paragraph 30 he concluded:-

“30.These extensive citations demonstrate the following:-

(a) The courts have not applied the sort of remorseless logic, or appeal to metaphysics, that I have referred to above.

(b) On the contrary, the courts have sought to apply the law as to causation of loss in a manner which reflects justice and reality, in particular where the application of pure logic would, unfairly, lead to the “disappearance” of a loss which would, absent an assignment, have been plainly recoverable.

(c) Where a wrong has been committed in relation to property, and loss is capable of arising as a result, the fact of an assignment whether gratuitous ( GUS ), for part value ( GUS again) or for full value ( Linden Gardens and Offer-Hoar ) does not mean that it thenceforth has to be acknowledged that the assignor no longer can be said to have suffered loss. Whatever the metaphysician may say, the law says that the loss flowing can and should still be treated as a loss of the assignor which the assignee can recover. Black holes are to be (as all black holes should be) avoided where possible.”

33. Advocate Garrood contended that these cases related to contracts for the purchase of property and could not apply to the on-going operation of franchise agreements. In my judgment such an argument is complex and is a matter for trial. It is an argument that is not capable of being struck out. Accordingly, I allowed these amendments.

34. In relation to the alternative argument concerning the assignment, the relevant provisions of the deed of assignment are as follows:-

“(1) Island Taste Limited (“the company”) has carried on business at 19 North Church Street, Georgetown, Grand Cayman at least the year 2000 and traded with Hard Rock International Company Incorporated, United States and Hard Rock Limited Company Incorporated in the States of Jersey Channel Islands on terms similar to those set out in a franchise agreement dated 11th June, 1999, between Hard Rock Limited and HRCKY Limited, then known as Anakin Holdings Limited on terms similar to those set out in schedule to the franchise agreements (“the contract”).

(2) The company has claimed for substantial damages, the breach of the contract by Hard Rock International and Hard Rock Limited (“the claims”). The claims were then assigned to the defendant.”

35. Advocate Garrood’s objection to this was firstly, by reference to clause 16(B) of the franchise agreement that the franchisee could not assign without the approval of the franchisor. Advocate Sanders objected to this submission on the basis this was an assignment to the franchisee not by the franchisee and so was not caught by Clause 16(B). I accepted this submission.

36. Advocate Garrood’s second objection was that there was no contractual agreement between Island Taste Limited and the first plaintiff because no assignment of the franchise agreement had in fact happened and no waiver could be relied upon. The position was governed by clause 18(F) relating to waivers. Advocate Sanders contended that the plaintiffs were not entitled to challenge the validity of the assignment from Island Taste Limited to the franchisor to assert there was no loss, where the plaintiffs had in practice allowed Island Taste Limited to operate the franchise agreement. This was not a waiver and, if anything, was an estoppel, which was outside Section 18(F). Again in my judgment this is a matter that it is not appropriate to resolve on an application to amend or that can be struck out and is a matter for trial. Accordingly, subject to the defendant modifying paragraph 29 so that the amended answer and counterclaim is consistent with the wording of the assignment set out in this judgment, I allowed the amendment by the defendant to rely on the assignment.