Australian Competition & Consumer Commission v Top Snack Foods Pty Ltd

[1996] FCA 1084

IN THE FEDERAL COURT OF AUSTRALIA  )
  )
NEW SOUTH WALES DISTRICT REGISTRY  )     No NG 782 of 1996
  )
GENERAL DIVISION                  )

BETWEEN:AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

Applicant

AND:TOP SNACK FOODS PTY LIMITED

Respondent

GEORGE MANERA

Second Respondent

NICHOLAS KRITHARAS

Third Respondent

SELINA MANERA

Fourth Respondent

CORAM:    HILL J
PLACE:    SYDNEY
DATED:    4 NOVEMBER 1996

REASONS FOR JUDGMENT

Before the Court are two motions.  The first is a motion by the Australian Competition and Consumer Commission ("ACCC"), seeking interim interlocutory relief by way of injunction, restraining the respondents from selling or granting licences or rights of distribution of certain products, and making certain representations, or from aiding or abetting, as the case may be, that conduct.  The second is an application by the respondents to strike out the present proceedings on the basis that they are, inter alia, an abuse of process.
THE APPLICATION FOR INTERLOCUTORY RELIEF
         In support of the application for interlocutory relief, the ACCC relied upon affidavit evidence from Mrs Stevens and from Mr Besnard.  It is unnecessary to deal in detail with that evidence.  Suffice it to say that each of Mrs Stevens and Mr Besnard responded to an advertisement published in a newspaper to the effect that there was available for purchase distributorships in respect of various snack food products.  The advertisement referred to three different plans, each involving different earning levels.

The distributorship involved the franchisee packing various snack foods into boxes which were then to be delivered to sites at specified areas where, on an honours basis, people could take their selected snack food from the box and pay the appropriate amount or, on some occasions at least fill, in an "IOU" for the amount.  The franchisee would then collect the money and re-top the boxes.

Franchises for these distributorships were offered for sale.  An area involving 100 clients, for example, attracted a licence fee of $20,000; 200 clients a licence fee of $35,000; 400 clients a licence fee of $60,000.

The franchisor, presumably for the licence fee, was responsible for the siting of the boxes; supervising the accounting and other recording information and selling the confectionary or snacks to the franchisee who was obliged to pay for them.

Each of Mrs Stevens and Mr Besnard allege that, in the course of negotiations to purchase a distributorship or franchise from the first respondent, various representations were made.  These representations included, among other things, representations as to earnings for each snack box; representations as to the time it would take to make these earnings and representations as to the maximum quantity of losses that might arise through theft, dishonesty or rodents and the like.

Each of Mrs Stevens and Mr Besnard claim to have suffered loss as a result of entering into the distributorship agreements and it is alleged that the representations to which reference has been made were conduct which was misleading and deceptive, and in breach of the provisions of s52, as well as s59, of the Trade Practices Act (1974) (Cth) ("the Act"), with or without the benefit of s51A, in respect of representations as to future matters.

The application for interlocutory relief is not contested, on the basis that the evidence adduced by the ACCC, if correct, would justify a conclusion that conduct had been engaged in which was misleading and deceptive.  Affidavit evidence was adduced on behalf of the respondents largely to deal with a quite different matter which goes not merely to the question of interlocutory relief but also to the question of whether the proceedings should be regarded as an abuse of process.

The substance of the affidavit evidence of Mr Kritharas, read on behalf of the respondents, was that the ACCC had, at least so far as the respondents were concerned, commenced its investigations around May of this year, as illustrated by a letter dated 17 May 1996 from the ACCC to Mr Manera, a director of the first respondent.  In that letter, the ACCC referred to complaints it said it had received (there is some detail of those complaints) and sought a response from the first respondent to the allegations against it.  The ACCC requested a response by Friday 24 May 1996.

The first respondent, in correspondence, requested an extension of time because, it was said, there was inadequate time to deal with the issues.  That attracted a response that a reply should be forthcoming by Wednesday 29 May.  On Tuesday 28 May, the first respondent, in a long letter, sought information such as, for example the source of each representation, and made certain comments really in the way of argument or denial of the making of the representations.  The ACCC replied to that letter and so the
correspondence continued with claim and counter-claim on both sides.

Without wishing to in any way be judgmental, the tone of the correspondence was hardly conducive to friendly negotiation between the parties.  Suffice it to say that allegations were made and denied.  Particularly, ACCC denied that it adopted a biased approach, denied that the issues were vague and unfounded and ultimately came to the view that it should commence proceedings against the respondents.

The present proceedings were commenced and served upon the respondents on or around 4 October 1996.  By a letter of the same day, the solicitors for the respondents indicated that they had been instructed without admission of liability to undertake that the respondents would not engage in the conduct sought to be restrained in the proceedings in relation to distribution operations conducted by them or any similar distribution operation.  They say, and indeed it seems to be the case, that they have ceased advertising for sale distributorships and that no distributorship has in fact been sold since the beginning of this year, although the correspondence indicates that negotiations at least continued for the sale of one distributorship through into August.  Those negotiations apparently were unsuccessful.

Also put into evidence through Mr Kritharas' affidavit is a suggestion that damage that has been done to the business of the first respondent as a result of the inquiries that have been undertaken by the ACCC, particularly interviews which the ACCC has conducted with persons who have entered into distributorship arrangements with the first respondent.

The submission on behalf of the first respondents, so far as the granting of interlocutory relief is concerned, is in essence that they have given an undertaking, they have stopped selling and stopped advertising so that it could not be said that there was any risk of repetition of the conduct complained of, assuming, which they deny, that that conduct was in fact in breach of the Act.

Counsel in particular referred me to the decision of Cooper J in Trade Practices Commission v Gold Coast Property Sales Pty Limited (1984) 49 FCR 442 where his Honour in the circumstances of that case refused interim injunctive relief on the basis that the applicant for such relief had not shown a reasonable risk that the offending conduct would be repeated. His Honour did so, even though his Honour accepted that at a hearing on the merits injunctive relief might be granted notwithstanding the absence of a likelihood of repetition.

The ACCC for its part says that it does not want to be bound to accept an inter parties undertaking of the type given.  It is conceded that, if an undertaking had been given to the Court in that form or an injunction in that form had been granted, the ACCC would be completely protected.  However, it says that all that has happened is that it has been given an undertaking inter parties and this of itself should not satisfy me that the misleading conduct might not be repeated.

It is clear law that an applicant for interlocutory relief on an interim basis must satisfy the Court that the granting of such relief is necessary or appropriate in all the circumstances.  Where an inter parties undertaking is proffered but not accepted, a court might still find the case an appropriate one to grant interlocutory relief if it was satisfied that there was some evidence suggesting that the undertaking was one that could not be relied upon.  For example, if the evidence here had indicated that, notwithstanding the giving of that undertaking, there had been continued advertising and sale, then obviously the mere offer and rejection of that undertaking would not have precluded the granting of interim relief.

However, counsel for the ACCC was unable to point to any evidence before me that could be relied upon as satisfying me that the granting of interlocutory relief in the present case was necessary or appropriate, having regard to the giving of the undertaking.  Nothing in the evidence indicates to me that there is any reasonable risk of the respondents continuing to engage in conduct which is misleading or deceptive in connection with the sale of distributorship franchises for snack food products.  In these circumstances the application for interlocutory relief is refused.  I shall deal later compendiously with the issue of costs.

THE STRIKE-OUT APPLICATION
         The motion brought by the respondents is put on two bases, one relevant only to the first respondent and the other relevant to all four respondents.  I shall deal with that relevant to the first respondent first.

It was submitted that the evidence as presently filed, that being evidence in support only of the interlocutory relief, did not, even if accepted, disclose a cause of action against the fourth respondent whose participation it was said was only in siting boxes either as replacement sites or new sites for new franchises.

There is no suggestion in the evidence filed, to date at least, that the fourth respondent has made any representation that was relied upon by any person whose evidence has yet been filed.  At the outset of the proceedings I asked counsel for the ACCC whether the whole of the evidence intended to be filed in respect of the case against the fourth respondent had been filed.  In what appears to be a misunderstanding, I was told that it had.  However, it now seems that that is not the case and that further evidence might be filed.  In that circumstance it is impossible at this stage to deal with what in essence would be a separate issue for trial, namely whether a case against the fourth respondent has been made out at all.  I would therefore not strike out the proceedings against the fourth respondent when further evidence may establish a case against her.  The case has not yet reached the stage where all of the evidence has been filed.

The other basis for strike out was somewhat more complicated.  First, it is said that the ACCC had not, prior to commencing proceedings, sought undertakings from the respondents.  This of course is so, although it must be also said that a considerable amount of correspondence had taken place before proceedings were commenced.

Then it is said that there were various ways in which the ACCC and the respondents might have agreed to deal with the proceedings.  For example, the ACCC might have accepted the inter parties undertakings or other steps may have been taken in the form of negotiations between the parties.  So it is said negotiations were offered on a "without prejudice" basis to the ACCC, but the ACCC refused that course.  Parenthetically it may be said the ACCC is entitled to refuse to conduct negotiations, although whether it is wise to do so no doubt could be a matter of argument in a particular case.  However, that is not a matter which is justiciable before this Court.

So it is said that once an undertaking has been give inter parties there can be no real reason not only why interlocutory relief should be granted but also why final relief by way of injunction should be granted.

At this stage it should be noted that the proceedings as originally framed sought:

(1)an injunction against the respondents;

(2)a declaration that the respondents engaged in misleading and deceptive conduct; and

(3)reimbursement of the expenditure of the ACCC in conducting its investigations as well as an order directing the first respondent to join the Franchisee Franchise Association.

The proceedings as originally framed may alter, as a result of another application also before me today, to amend the application and statement of claim to permit the ACCC to seek compensation on behalf of other franchisees said to have
suffered loss.  I shall deal with that particular application later.

It is settled law that, in proceedings for final relief, the Court may grant an injunction restraining repetition of conduct in breach of the Act, notwithstanding that the evidence does not suggest that there will be a repetition of such conduct.  The matter is dealt with in some detail in the judgment of the Full Court in ICI Operations Limited v Trade Practices Commission (1992) 38 FCR 248. In that case Lockhart J referred to s80 of the Act authorising, inter alia, injunctive relief as being essentially a public interest provision.  His Honour said (at 255):

"The public nature of the injunctive powers conferred upon the court by s.80 is exemplified also by the provision in subs(1) as to the persons who may seek an injunction.  This right is conferred upon the Minister, the Commission or `any other person' ...".

It may be noted statutorily that the Act makes it clear that injunctive relief may be granted, even where it may appear that the person against whom the injunction is made will not continue to engage in conduct of the kind impugned; see s80(4)(a) of the Act.

The application should thus not be struck out merely because interlocutory injunctive relief has been refused, nor should it be struck out because an undertaking inter partes has been proffered or negotiations refused.

I would give leave to file an amended statement of claim and allow any amendments to the application which are necessary as a result of the amendments to the statement of claim.

There arises then the question of costs.

As I have already foreshadowed in the course of argument that the order for costs should be dealt with as follows:

1. As to the application for interlocutory relief the ACCC should pay the respondent's costs, other than the costs of today.

1. As to the application to strike out, the respondent should pay the ACCC's costs, other than the costs of today.

1. As to the application for leave to file an amended statement of claim, the applicants should pay the costs, if any, thrown away, excluding the costs of today.

2. So far as the costs of today are concerned, the proper order in my view should be that there be no order as to today's costs.

I certify that this and the
preceding eleven (11) pages
are a true copy of the Reasons
for Judgment herein of his Honour
Justice Hill.

Associate:

Date: 

Counsel and Solicitors      I Faulkner instructed by

for Applicant:              the Australian Government Solicitors

Counsel and Solicitors      N Francey instructed by

for Respondent:             Snelgrove & Partners

Date of Hearing:            4 November 1996

Date Judgment Delivered:         4 November 1996