Case Study: Burger King vs. Hungry Jack's - Contractual Disputes

This case study analyzes the Burger King Corporation v. Hungry Jack’s Pty Limited case, focusing on the NSW Court of Appeal's decision regarding the implication of good faith and reasonableness in a commercial contract. The case involves a franchise dispute where Hungry Jack's, the largest franchisee in Australia, was accused of breaching its contract with Burger King. The court examined whether implied terms of good faith and reasonableness existed within the development agreement between the two companies. The analysis considers relevant theories, such as Classical and Neo-Classical contract theory, to assess the consistency of the court's decision. The study also compares this case with Starlink International Group Pty Ltd v. Coles Supermarkets Australia Pty Ltd to further explore the implications of implied terms and express termination clauses. The case discusses the validity of shorter and longer notice terminations and the damages awarded to Hungry Jack's. The document also provides an overview of the franchise agreements and the issues raised on appeal by Burger King. The critical analysis evaluates the court's findings on the implied obligation of good faith and its consistency with express termination clauses.

Critical Case Comment

Table of Contents
INTRODUCTION...........................................................................................................................1
Case Study.......................................................................................................................................1
Critical Analysis...............................................................................................................................3
REFERENCES................................................................................................................................5

INTRODUCTION
In a contractual agreement, when parties are negotiating a contract, then they generally
hope to achieve a certainty as obligation. It provides them knowledge about how to exercise their
rights and reach to the consequences in case if contract is breached. The case of Burger King
Corporation v/s Hungry Jack’s Pty Limited (2001) 69 NSWLR 558, presented an opportunity to
analyse the NSW Court's decisions of Appeal, to imply a term of good faith. The appellant
(Burger King) here, is a franchisor of second largest food chain after McDonald's in the world.
While the respondent (Hungry Jack), is largest and sole franchisee in Australia, has used its own
name for franchising its stores instead of Burger King after signed a contract for a term of 15
years. An action here is taken by franchisee (appellant) against its franchisor (respondent) for the
latter’s alleged wrongful termination of the agreement that both are signed with breach of certain
terms. These terms were successful at initial period and substantial damages were also awarded
to it. The appellant appealed against the trial judge’s findings as to both its contractual liability
and the quantification of damages. With this regard, amongst various issues raised on the given
appeal was the existence as well as scope of implied provisions of good faith and reasonableness
in a commercial contract.
Hereby, NSW Court of Appeal has found an implied term of good faith and reasonableness
on certain clause. This article is going to consider some relevant theories as Classical Contract
Theory, Neo-Classical and more, to identify if decision taken by court is consistent or not. For
this purpose, some arguments have been made to provides better support to given question i.e.
whether decision of court implied a term of good faith or not.
Case Study
Both Burger King Corporation and Hungry Jack’s Pty Ltd. conducts, worldwide, a
franchised fast food system. Hereby, Burger King is considered as the second largest fast food
chains in the world. It has near about 9,000 restaurants that runs worldwide via uniform franchise
system. Along with this, it also operates a small proportion of restaurants by itself as well. While
Hungry Jack is the first solo franchisee of Australia and mad first formal franchise agreement
with Burger King Corporation in the year 1 June 1973, however, till that period there were nearly
14 restaurants already operating under its name by using the Burger King Corporation system
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and trademarks. This franchise agreement was permitted the continued operation of the system
under the Hungry Jack’s banner, which was required for each store opened by Hungry Jack’s Pty
Ltd. The third party i.e. Shell Oil Company (Shell) was initially a contract party to the
proceedings because it is alleged by Hungry Jack’s Pty Ltd. As a result of this dealings between
Burger King Corporation and Shell was to set up the outlets of within Shell service stations to
Hungry Jack’s, exclusion. Hereby, Burger King Corporation has breached its fiduciary duty with
Hungry Jack’s Pty Ltd., which remains an issue on Burger King’s appeal to the extent which
contends that there was no fiduciary duty was owed under such circumstances. This would have
shown that it was in breach if there was such a duty.
The franchise agreements hereby, within both parties were for a term of 15 years, which was
exceed by five years more with provision of one renewal of same and become the term of 20
years. In 1990, after many years of disputes, both Burger King and Hungry Jack had entered into
four agreements. This includes the Settlement Agreement, Registered User’s Agreement,
Development Agreement and Service Agreement. These were made together with the individual
franchise agreements, where in respect of each of the stores of Hungry Jack’s were governed the
contractual relationship of the parties with development rights in Australia.
Introduction to issues on Appeal
Burger King Corporation (BKC) has made an appeal from a decision of Rolfe J, under
Honour of this person, damages are awarded in the sum of $70,845,428 to HJPL (Hungry Jack’s
Pty Ltd) for wrongful termination of BKC’s 1990 agreement that grant this company a non-
exclusive right for developing as well as being franchised for operating Burger King’s
Restaurants within Australia, under the brand name of “Hungry Jack’s”. In this regard, some of
the issues on given appeal made by BKC have been referred to in passing –
 Validity of Shorter Notice Termination i.e. if HJPL under its construction was in breach
of obligation for developing restaurants as per clause 2.1 of Development Agreement.in
this regard, it was necessary for Burger King to give thirty-day notice according to
pursuant of 15.2 clause of respective agreement, to cure any breach before the notice of
termination.
 If there is any implied terms of reasonableness and good faith in Development
Agreement, then under such condition, there was a breach of implied terms of co-
operation, which was not disputed due to BKC can be conducted in – withholding
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financial disapproval, operational approval or imposing the third party i.e. Shell Oil
Company freeze on Hungry Jack via refusing to permit to recruit any third franchisee.
 Validity of Longer Notice Termination
 Damages where HJPL is entitled to delay in opening the restaurants under owned name,
for loss of opportunity in case of introducing third party as a franchisee, for
cannibalisation claims etc…
Critical Analysis
In Burger King Corporation (BKC) v/s Hungry Jack’s Pty Ltd (HJPL) the NSW Court of
Appeal has found an implied term of good faith and reasonableness on the basis of certain
clauses given under Development Agreement and other three agreements. This was set a
question that set out the procedural framework to give approval of franchises of Hungry Jack by
Burger King. This would contain an extraordinary range with respect to detailed considerations
that if such kind of implied obligation exist then BKC has to bring to an end with valuable rights
for the slightest of breaches, that HJPL had as per the signed agreement. In this regard, BKC has
charged to pay $70,845,428 to Hungry Jack’s Pty Ltd due to wrongful termination of 1990
agreement. Therefore, BKC has made an appeal against this implied obligation.
To analyse if the implied obligation of reasonableness and good faith is inconsistent with the
express termination clause, another case is taken. It is based on Starlink International Group Pty
Ltd v/s Coles Super-markets Australia Pty Ltd, under this case a special condition is concerned
in an agreement that provide right to Coles to terminate its agreement at any time without giving
reason to Starlink a 45-days prior written notice. Justice has found under this case that general
provisions also contained some clauses that are permitting termination to one party with written
notice if other party was not remedied a material breach within 14 days of receiving notice of it.
So, termination with 30 days’ notice by Coles if, Starlink has failed to perform as per accordance
of signed agreement, which include a dispute resolution process also. The appellant (Starlink)
has argued that a term which requires Optus to act as per good faith towards them for exercising
their right to terminate. Along with this, pursuant to that clause it has been analyzed that the
implied term was not implied due to inconsistency with some provisions of the agreement. It
 the termination clause, that expressly entitled with Optus to terminate any agreement at
any time for any reason in an absolute discretion. This would indicate that the exclusion
of such constraint on Optus of the contended type.
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 Similarly, another clause of the agreement that expressly excluded implied and all terms
of good faith be implied into the agreement.
Thus, it has been concluded that in both Starlink v/s Coles and Burger King and Hungry Jack
implied terms of good faith were found to be inconsistent with express termination clauses. It has
clearly permitted the termination for a reason as well as with some limited restrictions, where in
both cases, the only restriction was the period of written notice required.
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REFERENCES
Books and Journals
Abdullah, N., F. Kari, and Ismail N. Nawang. "Incorporating the concept of good faith in
Australian contract law: Implication or construction." Pertanika Journal of Social
Sciences and Humanities 23.11 (2015): 119-128.
Atwell, Courtenay, and Jenny Buchan. "The franchise fulcrum: The legal System's contributions
to research about power and control in business format franchising." Journal of
Marketing Channels 21.3 (2014): 180-195.
Duncan, William D. Joint ventures law in Australia. Federation Press, 2012.
Thorpe, David, et al. Sports law. Oxford University Press, 2013.
Goldberger, Jeffrey. "Fetters on the exercise of unilateral contractual powers and
discretions." Commercial Law Quarterly: The Journal of the Commercial Law
Association of Australia 29.2 (2015): 16.
Goldberger, Jeffrey. "Australian contract law: A case law update." Commercial Law Quarterly:
The Journal of the Commercial Law Association of Australia 26.4 (2012): 8.
Edelman, James, and Elise Bant. Unjust enrichment. Bloomsbury Publishing, 2016.
Freedland, Mark, et al., eds. The contract of employment. Oxford University Press, 2016.
Bogg, Alan, and Mark Freedland, eds. The contract of employment. Oxford University Press,
2016.
Goldberger, Jeffrey. "Contract law in the cases: 2013 in review." Commercial Law Quarterly:
The Journal of the Commercial Law Association of Australia 28.2 (2014): 12.
Online
Good faith: what role does it play when exercising an express right to terminate a contract?
2013. [Online] Available Through:
<https://www.claytonutz.com/knowledge/2013/may/good-faith-what-role-does-it-play-
when-exercising-an-express-right-to-terminate-a-contract>
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