Burger King Corporation V Hungry Jack's - Background To The Case

Background To The Case

Hungry Jack's became the Australian franchisee of Burger King in 1971, and by 1996 it was the largest franchisee outside the United States, operating 150 restaurants directly and a further 18 through third-party franchisees. From the 1980s onwards, Burger King had increased its interest in the operations of Hungry Jack's, leading to a number of disputes which prompted alterations to the franchise agreements in 1986, 1989, and again late in 1990 with the completion of four new agreements relating to different aspects of Hungry Jack's activities.

One of these four agreements was the Development Agreement, clause 2.1 of which required Hungry Jack's to open four new stores each year in Western Australia, South Australia and Queensland either directly or through third-party franchisees. Additionally, clause 4.1 made the opening of any new restaurants subject to Burger King's operational and financial approval.

Several more disputes arose between the parties in the early 1990s, revolving around Burger King's desire to enter the Australian market directly. In 1992 Burger King considered buying out Hungry Jack's and its stores, either itself, through a third party or through a joint venture, but Hungry Jack's rejected these proposals. In 1993 Burger King commenced negotiations with Shell to open Burger King outlets in some of Shell's service stations — initially including but later excluding Hungry Jack's from the discussions — which culminated in the opening of seven outlets from 1995. During this time a senior Hungry Jack's executive was leaking secret information to Burger King about Hungry Jack's internal operations, and advising Burger King of methods it might employ to force Hungry Jack's to sell out its business to Burger King.

The disputes came to a head in 1995, when Burger King withdrew all approval for third-party franchisees, and stopped granting financial or operating approval to proposed new stores, which meant that Hungry Jack's was unable to open four restaurants per year, as required by clause 2.1 of the Development Agreement. Furthermore, in 1996, a number of stores' franchise agreements expired, and while Burger King renegotiated the agreements, the new agreements made future renewals subject to Burger King's approval, rather than providing for a right to renew; following this, Burger King announced that it would not renew any of these store franchises once they expired.

In November 1996, Burger King purported to terminate the agreement between itself and Hungry Jacks, on the basis that Hungry Jack's had not opened the required number of stores. Hungry Jack's then sued Burger King, alleging that Burger King had no right to terminate the agreement, and also challenging the validity of the new extension agreements. Hungry Jack's was successful at trial, the trial judge finding that there had been breaches of contract and breaches of fiduciary duty on Burger King's part, and awarding Hungry Jack's nearly $AU 71 million in damages. Burger King appealed the decision.