Australian Institute (Vic and Tas) Pty Ltd v Australian Institute of Fitness (NSW) Pty Ltd
[2016] VSC 362
•17 June 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2016 001111
| AUSTRALIAN INSTITUTE (VIC & TAS) PTY LTD (ACN 092 728 937) | Plaintiff |
| v | |
| AUSTRALIAN INSTITUTE OF FITNESS (NSW) PTY LTD (ACN 082 557 346) & OTHERS (According to the Schedule) | Defendant |
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JUDGE: | VICKERY J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 14 June 2016 |
DATE OF JUDGMENT: | 17 June 2016 |
CASE MAY BE CITED AS: | Australian Institute (Vic & Tas) Pty Ltd v Australian Institute of Fitness (NSW) Pty Ltd & Ors |
MEDIUM NEUTRAL CITATION: | [2016] VSC 362 |
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INTERLOCUTORY INJUNCTION – Injunction refused – No triable issue – No irreparable harm – Balance of convenience does not favour grant of injunction – Orders made to protect the position of third party students pending hearing and determination of the trial or further order.
CONTRACT – Offer stipulated method by which the offer could be accepted by the conduct of the offeree – Test to determine assent objective – Assent to an offer resulting in a binding contract may be inferred from the context – Conduct of offeree explicable by its contractual obligations to third parties – No assent resulting in a binding contract.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Osborne QC with Mr J Tomlinson | B2B Lawyers |
| For the 1st – 4th Defendants | Mr C Juebner with Mr R Yezerski | Yeldham Price O’Brien Lusk |
| For the 5th Defendant | Mr C Shaw | Watson Mangioni |
HIS HONOUR:
This is a claim by the Plaintiff, Australian Institute (Vic & Tas) Pty Ltd (ACN 092 728 937) (the ‘Plaintiff’), for an interlocutory injunction pursuant to its summons issued 1 June 2016. The summons is directed to the First to Fourth Defendants (the ‘First to Fourth Defendants’) and to the Fifth Defendant, Australian Institute of Fitness Pty Ltd (‘AIF National’ or the ‘Institute’).
AIF National was incorporated on 13 September 2001. The Institute is a major provider of education and training services in the fitness industry in Australia.
The First to Fourth Defendants, along with the Plaintiff, are the shareholders of AIF National each holding an equal fifth share and with each having an appointed director of the company. They hold their interests in the Institute through a shareholders’ agreement which was entered into on 24 July 2001 (the ‘Shareholders’ Agreement’) which was subsequently varied in writing on 7 May 2010 (the ‘Varied Shareholders’ Agreement’). The parties to the Shareholders’ Agreement and the Varied Shareholders’ Agreement at all material times have been the First to Fourth Defendants, along with the Plaintiff. AIF National was never a party to the Shareholders’ Agreement or the Varied Shareholders’ Agreement.
The Plaintiff, initially by itself from 2001 to late 2010 or early 2011, provided education and fitness training accreditation services to the public under the name ‘Australian Institute of Fitness’ in the States of Victoria and Tasmania.
Subsequently, since about late 2010 or early 2011, the Plaintiff has provided these services by a nominee, the Australian Institute of Fitness (Vic & Tas) Pty Ltd (ACN 112 916 944) (‘AIF VicTas’). This was documented on 17 December 2010 when AIF National entered into a Regional Licencing Agreement (the ‘VicTas RLA Licence’) licensing AIF VicTas, as the nominee of the Plaintiff, to provide fitness education and accreditation services in Victoria and Tasmania under the name ‘Australian Institute of Fitness’.
The First to Fourth Defendants, by themselves or their nominees, at all material times have provided and continue to provide education and fitness training accreditation services under the name ‘Australian Institute of Fitness’ respectively in New South Wales, Western Australia, Queensland and South Australia/Northern Territory. They conduct these businesses in their respective territories pursuant to individual regional licensing agreements granted by the Institute to each of these shareholders, either directly or to a shareholder’s nominee, on terms similar to, although not identical to, the VicTas RLA Licence
The application for an interlocutory injunction is made in this proceeding where the Plaintiff claims, as against the First to Fourth Defendants, specific performance of the Shareholders’ Agreement. The Plaintiff also seeks a declaration that the Fifth Defendant, AIF National, is obliged to grant a licence to it (or its nominee) which will enable the Plaintiff to continue to exclusively provide fitness education and accreditation services using the name ‘Australian Institute of Fitness’ in the States of Victoria and Tasmania.
Although the Plaintiff’s summons claimed interlocutory injunctive relief from the Fifth Defendant AIF National, in the course of the application the Plaintiff pursued its application against only the First to Fourth Defendants. It seeks orders in effect that, upon appropriate undertakings, and until determination of this proceeding or further order, the First to Fourth Defendants be restrained (and restrained from causing the Fifth Defendant) from restricting, interfering with, preventing or terminating the Plaintiff from providing its services and using the intellectual property of AIF National and a telephone number in the course of providing its services. Similar orders are sought against the First to Fourth Defendants in respect of the Plaintiff’s nominee, AIF VicTas, relating to it providing its services.
Central to this application for an interlocutory injunction is the construction of the Shareholders’ Agreement as varied by the Varied Shareholders’ Agreement.
Mr Robert Hornsey
Robert Hornsey (‘Mr Hornsey’) is a director of the Plaintiff and AIF VicTas.
Mr Hornsey is also a director of Australian Careers Institute Pty Ltd (‘ACI’) (a registered training organisation operating in Victoria, New South Wales and Queensland) and Sage Institute of Fitness Pty Ltd (‘Sage’).
Shareholders Agreement
On 24 July 2001, the Plaintiff entered into the written Shareholders’ Agreement with the First to Fourth Defendants. The Institute was not a party to the Shareholders’ Agreement.
By cl 9 of the Shareholders’ Agreement, each shareholder acknowledged and agreed to provisions that would govern the basic relationship between the Institute and all shareholders, being the Plaintiff and the First to Fourth defendants. Clause 9 provided:
(1)The company [being the Institute] shall promote and advance the interests of the shareholders as leading education and training businesses in the fitness industry in their respective territories and that the company will act as the national body to advance the interests of the shareholders.
(2)Each shareholder warrants that it is a leading provider of education and training services for the fitness industry in its territory and that it will during the course of this agreement continue to provide such services in its said territory in accordance with the highest accepted standards in the industry.
(3)Each shareholder shall, change its name to Australian Institute of Fitness Pty Ltd with a designation including its territory.
(4)In the course of carrying out its business in its territory each shareholder shall promote its affiliation with the company and the name Australian Institute of Fitness and/or AIF and in particular (without limiting the generality of the foregoing) and shall promote any certificate issued by the company as a premier qualification in the industry and shall promote Australian Institute of Fitness certification as an ongoing measure of competency in the industry and shall support and utilise in-house training systems created by the company and shall not do anything or fail to do anything that brings the name of the company or the Australian Institute of Fitness into disrepute or any way damages the goodwill of the company or value or standing thereof.
Variation of Shareholders’ Agreement
The Shareholders’ Agreement was varied by the Plaintiff and the First to Fourth Defendants by a written variation dated 7 June 2010 which was executed by the parties on 4 June 2010 (the ‘Varied Shareholders’ Agreement’). The Institute was not a party to the variation.
The principal effect of the Varied Shareholders’ Agreement was to add a further clause to the Shareholders’ Agreement. The recitals and the operative part of the Varied Shareholders’ Agreement relevantly provided:
Background:
AThe parties are shareholders in Australian Institute of Fitness Pty Ltd (ACN 098 156 471) (company) are parties to a shareholders agreement dated 24 July 2001 (shareholders agreement)
BThe parties wish to amend the shareholders agreement on the terms set out in this deed.
Operative part:
1. Variation of shareholders agreement
1.1The shareholders agreement is varied by adding the following clause.
“29
A shareholder must at all times be the appointed licensee of the company in the shareholder’s designated territory, subject to any valid nomination pursuant to this clause.
A shareholder may, with the consent of the company (which consent must not be unreasonably confused), nominate a nominee to undertake its rights, duties, obligations and responsibilities under the terms of any licence agreement with the company and in respect of the provision of physical fitness in the shareholders designated territory as required under the terms of this Agreement.
The nominee for the purposes of this clause 29 must at all times have the same corporate structure as the shareholder in that it has:
-the same directors as the shareholder;
-the same shareholders in identical shareholdings to the shareholder.
The nominee of the shareholder must execute a licence agreement with the company in the place of the shareholder failing which the consent of the company to that nomination is deemed to be validly refused.”
…
1.6 In all other respects the shareholders agreement is unaltered.
Registered Training Organisation Requirements
The National Vocational Education and Training Regulator Act 2011 (Cth) (the ‘Act’) is an Act of the Commonwealth designed to provide for national consistency in the regulation of vocational education and training. It aims to achieve this by regulating organisations in Australia using, amongst other methods, a standards-based quality framework.[1]
[1]National Vocational Education and Training Regulator Act 2011 (Cth), s 2A.
Pursuant to s 185 of the Act the responsible Minister may, by a legislative instrument known as Standards for Registered Training Organisations, make standards for registered training organisations.
Further, pursuant to s 186 of the Act the responsible Minister may, by a legislative instrument known as the Fit and Proper Person Requirements, make requirements for assessing whether a person, including a Registered Training Organisation (‘RTO’), is a fit and proper person.
The responsible Minister, on 20 October 2014, made standards and requirements under both ss 185 and 186 of the Act by an instrument called the Standards for Registered Training Organisations (RTOs) 2015 (Cth). These replaced the standards introduced in 2012,[2] and were prescribed to commence operation at various times in early 2015.
[2] Standards for NVR Registered Training Organisations 2012 (Cth).
‘Standard 2’ of the Standards for Registered Training Organisations (RTOs) 2015 (Cth) noted that the relevant Registered Training Organisation RTO is ultimately responsible for ensuring quality training and assessment within their organisation and scope of registration, regardless of any third party arrangements where training and/or assessment is delivered on their behalf. This is prescribed to include the circumstance where the RTO subcontracts the delivery of services to a third party and also where the third party further subcontracts the delivery of services. In these cases the RTO is required to have a written agreement with any party that delivers services on its behalf. ‘Standard 2’ provided in this respect that:
To be compliant with Standard 2 the RTO must meet the following:
…
2.3The RTO ensures that where services are provided on its behalf by a third party the provision of those services is the subject of a written agreement.
2.4The RTO has sufficient strategies and resources to systematically monitor any services delivered on its behalf, and uses these to ensure that the services delivered comply with these standards at all times.
As a condition of registration of an RTO, it is required to comply with the Standards for Registered Training Organisations (RTOs) 2015 (Cth) pursuant to s 22(1) of the Act. Section 117 of the Act makes it an offence carrying a pecuniary penalty to provide or offer to provide a course to which the Act applies when the person is not a registered training organisation.
As evidenced by a Deed Poll dated 9 June 2016 executed by the Plaintiff and AIF VicTas (to which I shall return), the VicTas RLA licence came to an end on 27 May 2016. From this date there has been no written agreement in place between AIF National as the RTO and the third party which is delivering services, namely AIF VicTas.
The Shareholders’ Agreement did not provide any means for AIF National to comply with cls 2.3 and 2.4 of Standard 2 of the Standards for Registered Training Organisations (RTOs) 2015 (Cth) because AIF National is not a party to it, and in any event, this agreement set no standards to be complied with by the service provider which could be enforced by AIF National.
Regional Licencing Agreement
On 17 December 2010, in accordance with the Varied Shareholders’ Agreement the Plaintiff nominated AIF VicTas as its licensee under the VicTas RLA Licence with AIF National to provide fitness education and accreditation services in Victoria and Tasmania under the name ‘Australian Institute of Fitness’. The nomination was approved by AIF National on or about 10 December 2010 and consented to by the First to Fourth Defendants on or about 3 February 2011.
The First to Fourth Defendants provided substantially the same services as AIF VicTas in their respective territories pursuant to regional licensing agreements on substantially similar terms to those of the VicTas RLA Licence.
On or about 15 October 2013, the First to Fourth Defendants each entered into written variations of their respective regional licensing agreements on identical terms. I infer it is likely that AIF VicTas also entered into a variation of its VicTas RLA Licence on similar terms, although for the purposes of the present application, nothing turns on this question. All this was done, no doubt, in compliance with the RTO requirements earlier described.
As pleaded by the Plaintiff in its Statement of Claim, the VicTas RLA Licence was entered into by AIF National VicTas as the Plaintiff’s nominee under clause 29 of the Varied Shareholders’ Agreement.
The VicTas RLA Licence was expressed to commence on 7 May 2010 and had a termination date of 6 May 2015. Further, pursuant to cl 4.3 a period of ‘run-off’ was provided for, in this case being a period of up to 90 days from the date of termination by which time the licensee was required to cease to provide its services under the licence as a licensee of the Institute, cease to use the intellectual property of the Institute and take other specified steps to effect an orderly cessation of the licence.
In late 2015 and early 2016, AIF National and AIF VicTas, in an exchange of letters, agreed that the termination date of the VicTas RLA Licence be extended to 27 January 2016.
In the period between 7 May 2010 and 27 January 2016 the services which had previously been provided by the Plaintiff were provided by the Plaintiff’s nominee, AIF VicTas pursuant to the VicTas RLA Licence.
Proceedings in the Supreme Court of New South Wales
In late 2013 to 2015, disputes arose between AIF National and AIF VicTas regarding the validity of resolutions varying the manner of calculation of licence fees.
AIF National commenced proceedings in the Supreme Court of New South Wales (“NSWSC”) against:
(a)AIF VicTas seeking to recover licence fees allegedly due to AIF National (NSWSC proceeding number 2014/85141) (the ‘Licence Fee Proceeding’); and
(b)Mr Hornsey and his companies ACI and Sage, and against AIF VicTas relating to the activities of Sage (NSWSC proceeding number 2014/2999981) (the ‘Sage Proceeding’).
The Plaintiff also commenced proceedings in the NSWSC against the First to Fourth Defendants and AIF National, alleging that the affairs of AIF National have been conducted oppressively (NSWSC proceeding number 2014/300068) (the ‘Oppression Proceeding’).
The three sets of proceedings (the Licence Fee Proceeding, the Sage Proceeding and the Oppression Proceeding) were heard together by Sacker J (the ‘NSWSC Proceedings’).
On 6 November 2015, his Honour handed down judgment in the NSWSC Proceedings, and on 9 and 16 December 2015 made orders arising from his judgement, the principal effect of which was as follows:
(a)AIF National obtained judgment against AIF VicTas in the Licence Fee Proceeding;
(b)AIF National obtained some but not all of the relief identified in the originating process filed by it in the Sage Proceeding; and
(c) The Plaintiff was unsuccessful in the Oppression Proceeding.
Orders as to costs have been made in the NSWSC Proceedings against the Plaintiff in substantial sums. The Plaintiff has been ordered to pay $343,675.00 to AIF National and $707,433.00 to the First to Fourth Defendants.
ACI, Sage and Mr Hornsey have appealed the judgment and orders in the Sage Proceeding.
Conduct Since 15 February 2016
On 15 February 2016, the Plaintiff sent written confirmation by email (the ‘15 February email’) to AIF National of its readiness, willingness and ability (upon the expiry of the 90 days from the termination date of the VicTas RLA Licence) to:
(a) comply with its obligations as shareholder under the Shareholders’ Agreement;
(b) provide fitness education and accreditation services within the territory of Victoria and Tasmania; and
(c) promote and advance the name ‘Australian Institute of Fitness’ in providing fitness education and accreditation services in accordance with its obligations under the Shareholders Agreement.
Further, by the 15 February email the Plaintiff:
(a) stated that it reserved its right (pursuant to cl 29 of the Varied Shareholders’ Agreement) to nominate a licensee under any new Regional Licensing Agreement that might be proposed by AIF National;
(b) requested that terms of any license agreement be proposed; and
(c) invited AIF National to enter into discussions regarding a transition of the provision of fitness education and accreditation services in the Plaintiff’s territory from AIF VicTas to a nominee of the Plaintiff.
On 29 February 2016, the First to Fourth Defendants authorised AIF National’s CEO, Dyanne Ward, to respond to the Plaintiff’s 15 February email both on behalf of AIF National and on behalf of the Board of Directors of AIF National. By this response the First to Fourth Defendants and AIF National in effect confirmed the VicTas RLA Licence was in a period of ‘run-off’ as contemplated by cl 4.3 of the VicTas RLA Licence, which period was to expire on 27 May 2016 and asserted that AIF National, acting through its board made up of shareholder representatives, had no obligations to the Plaintiff under the Shareholders’ Agreement (including as varied). Further, AIF National required the Plaintiff to take up its request directly with the other shareholders.
On 4 March 2016, the Plaintiff requested the First to Fourth Defendants to confirm they would direct their nominee directors to authorise the granting of a licence agreement to the Plaintiff or its nominee.
On 5 April 2016, the First to Fourth Defendants refused the Plaintiff’s request, and in turn requested that the Plaintiff provide the details of any nominee and make a proposal as to the terms of any licence agreement. The First to Fourth Defendants nevertheless required that any proposal would require the Plaintiff to assume any outstanding liabilities of the previous licensee and to provide bank and personal guarantees in respect of the nominee licensee’s obligations to AIF National. They also said that AIF National would not grant a licence if there was outstanding litigation between AIF National and Mr Hornsey, Sage and ACI.
On 8 April 2016, the Plaintiff informed the First to Fourth Defendants of its intended nominee and requested their approval. The Plaintiff proposed that the terms of any licence agreement be on identical terms as the licence agreements entered into by the First to Fourth Defendants and to that end requested copies of executed licence agreements.
In April and May 2016, the solicitors acting for the First to Fourth Defendants wrote to the Plaintiff enclosing a copy of a licence agreement purportedly entered into by the Second Defendant with AIF National in December 2015 (the ‘the 2015 RLA’) and advising that AIF National would consider an interim licencing agreement with the Plaintiff on the same terms (the ‘Interim RLA’). They further advised that the Interim RLA:
(a)was to be for an interim period, expiring on 21 May 2017 (being the estimated date of judgment in the Sage Appeal);
(b)required the Plaintiff to guarantee any debts or liabilities of AIF VicTas including costs orders in favour of AIF National in the NSWSC proceedings; and
(c)was terminable by AIF National if the Plaintiff did not meet any obligation or pay any debts due to AIF National, did not meet performance criteria set by AIF National, or otherwise without cause, by notice from AIF National if its board (by a 75 per cent majority) chose to do so.
The Plaintiff was further advised that if AIF National terminated the proposed Interim RLA, the Plaintiff would be in breach of the Shareholders Agreement (as varied) and, under the terms of the proposed Interim RLA, the other shareholders would be entitled to provide the services in Victoria.
Issue of Proceeding
On 26 May 2016, the Plaintiff issued the present proceeding.
The Statement of Claim pleads various terms of the Shareholders’ Agreement and alleges breaches of those terms (both express and implied) by various items of conduct on the part of the First to Fourth Defendants. By way of summary, the pleaded case as to these alleged breaches of the Shareholders’ Agreement is pleaded to be conduct that:
(a) is not conduct which is just and faithful in dealing with the Plaintiff;
(b)is not good faith conduct using best endeavours to ensure that AIF National facilitates the granting of licences for the provision of fitness and training accreditation services in accordance with the terms of the Shareholders Agreement;
(c)constitutes a failure to make all approvals or decisions necessary to ensure AIF National promotes and advances the Plaintiff’s interests in providing fitness education accreditation services in its territory using the name ‘Australian Institute of Fitness’;
(d)constitutes a failure to ensure that AIF National facilitates the granting of a license to the Plaintiff or its nominee by which the Plaintiff (by itself or by nominee) is to provide fitness education and accreditation services under the name ‘Australian Institute of Fitness’ in its territory;
(e)constitutes a failure to act in good faith and fairly towards the Plaintiff and to do all such things to enable the Plaintiff to have the benefit of the Shareholders’ Agreement.
The Statement of Claim then pleads that the Plaintiff is, and remains, ready willing and able to perform its obligations under the Shareholders’ Agreement and, further and without limiting the generality thereof, is willing to procure that its nominee (if any is nominated) enters into a licence agreement with AIF National on the terms of the RLA [the regional licence agreement] as varied in October 2013.
The substantive relief claimed by the Plaintiff in the proceeding is -
A.An order that the First to Fourth Defendants specifically perform and carry into execution the Shareholders’ Agreement in so far as it remains unperformed by the First to Fourth Defendants.
B.A declaration that the Fifth Defendant is obliged to grant a license to the Plaintiff, or its nominee (in accordance with cl 29 of the Shareholders’ Agreement), for the Plaintiff to exclusively provide fitness education and accreditation services using the name ‘Australian Institute of Fitness’ in the States of Victoria and Tasmania on the terms set out in the RLA as varied in October 2013.
C.A declaration that the Fifth Defendant has unreasonably refused to consent to the nomination of the Plaintiff’s nominee.
Termination of Plaintiff’s Regional Licence Agreement
The VicTas RLA Licence provided pursuant to cl 4.3 that, upon termination, the licensee, in this case the Plaintiff’s nominee AIF VicTas, was required within 90 days to cease providing services and cease using AIF National’s intellectual property and the name ‘Australian Institute of Fitness’. The licensee was also required to provide AIF National with a complete list of students and effect a transfer of AIF National’s information and documentation.
In particular, the VicTas RLA Licence relevantly provided by cl 4.3 that in the event that the VicTas RLA Licence was terminated the licensee was required, within 90 days of the termination date, inter alia, to:
(a) Cease providing services as a licensee under the VicTas RLA Licence;
(b) Cease using the AIF National’s intellectual property as defined;
(c)Change its name so as to avoid confusion with the name ‘Australian institute of fitness’;
(d) Provide AIF National with a complete database of past and present students;
(e)Co-operate in good faith with AIF National to effect a transfer of AIF National’s information and documentation created as part of the licensee performing the services and to enable uninterrupted provision of services formerly provided by the licensee.
By letter dated 27 May 2016 AIF National notified the Plaintiff and its nominee AIF VicTas of the termination of the VicTas RLA Licence and that as a result, the Plaintiff’s nominee would ‘thereby cease to be a licensee of the Institute’ and ‘it will no longer [to] be entitled to exercise any rights or to provide and services under the RLA’. The letter said:
As you know, the Regional Licensing Agreement dated 17 December 2010 (the RLA) comes to an end this evening. Unfortunately, at that time, Australian Institute of Fitness (Vic & Tas) Pty Limited (AIFVT) [the Plaintiff’s nominee] will thereby cease to be a licensee of the Institute, and it will no longer to be entitled to exercise any rights or to provide any services under the RLA.
A draft Deed of Interim License Agreement (an Interim License) was provided to us this morning by the solicitors for the Institute’s shareholders (other than Australian Institute (Vic & Tas) Pty Limited (AIFVT)), with the permission of your solicitors (who had apparently provided the draft to them yesterday evening). However, that Interim License is not acceptable to the Institute.
In Kim Weir’s letter of 24 May 2016, we indicated to you that, in the absence of other agreement, the Institute would nevertheless be willing, subject to contract, to assist AIFVT to fulfil its teach-out obligations to its existing students and we said that, if that was of interest to AIFVT, the institute would propose suitable terms. Robert Hornsey’s email reply of 25 May 2016 indicated that AIFVT has that interest.
Attached are the terms which the Institute offers to AIFVT so that it can teach out its existing students. Please note the manner in which these terms will be considered to have been accepted.
As you will understand, this is an interim arrangement only, to ensure that AIFVT’s students can be taught out in an orderly manner. Nothing in this letter should be construed as a concession that AIFVT is or would be an appropriate licensee. In this regard, but without limitation, I note that AIFVT’s licence fees for March and April (totalling $118,824.20, plus interest) are overdue, and that AIFVT’s licence fees for May (a further $59,412.10) will be overdue if not paid by 31 May. That should, of course, be rectified.
Further, nothing in this letter should be construed as a concession that AIVT has or may have any of the rights that it now asserts in the recently commenced Victorian Supreme Court Proceedings.
As noted previously, on 9 June 2016 both the Plaintiff and AIF VicTas each executed a further Deed Poll (the ‘Further Deed Poll’) in two separate documents but in the same terms. In the Further Deed Poll both the Plaintiff and AIF VicTas acknowledged that the VicTas RLA Licence, which commenced on 17 December 2010, had come to an end on 27 May 2016.
Issue of Summons
On 1 June 2016, the Plaintiff issued the summons which is presently before the Court. The summons was directed to all Defendants, including the Fifth Defendant, AIF National.
The substantive relief sought in the summons was:
1. The Defendants and each of them be restrained until the trial of this proceeding or further order, from restricting, interfering with, preventing or terminating:
(a)the Plaintiff, by itself or by its nominee, Australian Institute of Fitness (Vic & Tas) Pty Ltd (AIF Vic/Tas), from providing the following services (the Services) in Victoria or Tasmania:
(i)fitness education accreditation services in Victoria and Tasmania under the name ‘Australian Institute of Fitness’;
(ii) the services described in clause 9(2) of the Shareholders Agreement [as defined] in the Victorian and Tasmanian Territory;
(iii) the services as defined in the Regional Licensing Agreement between the Plaintiff’s nominee, AIF VicTas, and the Fifth Defendant, dated 17 December 2010 (the RLA);
(b)the use by the Plaintiff or its nominee AIF VicTas and the access of the Plaintiff or its nominee to the Fifth Defendant’s intellectual property as recorded in Schedule 1 to the RLA, for the purposes of providing the Services described in 1(a) above;
(c) the use by the Plaintiff or its nominee of the telephone number 1300 669 669 in the course of providing the Services described in 1(a) above;
2.The Defendants and each of them be restrained until the trial of this proceeding or further order, from appointing any party, who is not the plaintiff or its nominee under clause 29 of the Shareholders’ Agreement, from providing the Services in Victoria or Tasmania.
The application for the interlocutory injunctions was founded on causes of action arising from alleged breaches of the Shareholders’ Agreement.
As observed earlier, during the course of the hearing, the applications were not pursued against the Fifth Defendant, AIF National, because it was never a party to the Shareholders’ Agreement. Accordingly, there was no cause of action open to be pursued directly against the Fifth Defendant which could found an interlocutory injunction. Rather, the applications were re-framed and directed to the First to Fourth Defendants, who were each shareholders of AIF National and accordingly appointed directors to the board of the Institute to safeguard their interests. The applications were advanced on the basis that the First to Fourth Defendants should be restrained from causing the Fifth Defendant from engaging in the conduct complained of.
Principles for the Grant of an Interlocutory Injunction
The relevant ‘organising principles’ as to exercise of the power to order interlocutory injunctive relief are well settled and may be summarised as follows.
First, is there a serious question to be tried? This requirement goes both to power and discretion. It is understood as a test of ‘sufficient likelihood of success’ as to the applicant’s entitlement to relief, such as to justify the preservation of the status quo pending determination of the entitlement at trial.
Second, will the applicant suffer irreparable injury for which damages will not be adequate compensation unless an injunction is granted?
Third, has the applicant shown that the balance of convenience or justice favours the granting of an injunction? In this respect:[3]
the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been “wrong”, in the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial.
Whether a Serious Issue to be Tried Founded on the Shareholders’ Agreement
[3]Bradto Pty Ltd v State of Victoria (2006) 15 VR 65, 73 [35].
The Plaintiff rests its case upon rights which it says it has under the Shareholders’ Agreement. This is said to found its entitlement, not only to ultimate relief, but also for the interlocutory injunctions claimed in the present application.
Clause 9 of the Shareholders’ Agreement, absent the variation described below, may be open to a construction which would give rise to an enforceable entitlement in a shareholder party to provide fitness education and accreditation services in its designated territory of Australia under the name ‘Australian Institute of Fitness’.
However, the Shareholders’ Agreement was varied in a critical respect by the Varied Shareholders’ Agreement dated 7 June 2010. This was executed by all shareholders of the Institute, including the Plaintiff, for their mutual benefit.
By this means cl 29 was introduced into the Shareholders’ Agreement. Clause 29, which is reproduced at [15] of these reasons, provided in mandatory terms that a shareholder must at all times be the appointed licensee of AIF National in the shareholder’s designated territory, subject to any valid nomination pursuant to the clause. Relevantly, it further provided that a shareholder may, with the consent of AIF National, nominate a nominee to undertake its rights, duties, obligations and responsibilities under the terms of any licence agreement with it. It also stated that the nominee of the shareholder must execute a licence agreement with AIF National in the place of the shareholder failing which the consent of the Institute to that nomination is deemed to be validly refused.
The necessity for an operative written licence being in place between AIF National and the ultimate provider of the services, at all material times has been of critical importance to the Institute, and ultimately all of its shareholders within the group. The Institute requires a written licence to be in place in order for it to fulfil its registered training organisation obligations under the National Vocational Education and Training Regulator Act 2011 (Cth) and comply with the Standards for Registered Training Organisations (RTOs) 2015 (Cth) as previously described.
Without an operative written licence being in place, AIF National risks being a non-compliant training organisation which in turn jeopardises its registration under the Act and potentially exposes itself to penalty if it continues to provide its services without the statutory registration. RTO status for the Institute is also important for it to be eligible for certain government funding schemes.
It is in this commercial context that I construe the Shareholders’ Agreement.
Clause 29, in my opinion, gave rise to an essential condition pursuant to which the parties agreed to continue with their business arrangement. The essential condition had the following effect: in the absence of any shareholder or its nominee having a valid and operative written licence in place with the Institute, that shareholder ceased to have any entitlement to provide fitness education and accreditation services in any territory of Australia under the name ‘Australian Institute of Fitness’, save for an arguably implied exception that, in the event of the termination of any operative written licence, the licensee must continue to operate in its relevant territory for the limited purpose of enabling the licensee to fulfil its contractual obligations to existing students who were enrolled in courses offered by it prior to the licence coming to an end to enable those students to complete their courses of study.
However, what cl 29 of the Shareholders’ Agreement did not do was to give any entitlement for a shareholder to be granted a new licence on termination of an earlier licence. Clause 29 failed to specify or provide any mechanism for determining the terms of any new licence to be granted at the end of its term. For example, no facility was provided for a licensee to exercise an option to renew its licence at the end of its term on particular terms or conditions. Rather, the grant of any new licence under the Shareholders’ Agreement is left to a consensual process in which the parties seeking to enter into a licence, one with the other, must negotiate and agree upon all the terms of the bargain before a binding licence with contractual force in compliance with cl 29 of the Shareholders’ Agreement comes into existence.
In these circumstances I am satisfied that there is no serious question to be tried in relation to the interlocutory relief claimed in paragraph 1 of the Plaintiff’s summons (as appropriately re-framed to be directed only to the First to Fourth Defendants). In particular neither the Plaintiff or its nominee have any rights under the Shareholders’ Agreement which could establish a cause of action to support any such injunction claimed, save for the implied exception as described above in relation to the provision of teach out services, as to which there is, in my opinion, a serious issue to be tried.
Balance of Convenience
The Plaintiff relies principally on the fact that its nominee has a large number of students enrolled in courses which are presently underway, and stands to be immediately precluded from carrying out services and using the intellectual property to ‘teach out’ its courses to existing students. This is claimed to cause substantial financial loss to the Plaintiff, and will give rise to immediate and irreparable damage to its brand.
However, given the orders which will be made below, appropriate ‘teach out’ arrangements can be put in place to protect the position of existing students of the Plaintiff and its nominee, AIF VicTas.
‘Teach Out’ Arrangements for Existing Students
All parties accept that AIF VicTas should continue to operate in the territories of Victoria and Tasmania to enable it to fulfil its existing contractual obligations to existing students who were currently enrolled in courses offered by it after the VicTas RLA Licence came to an end to enable those students to complete their courses of study (the ‘Teach Out Services’). The parties differ as to the terms on which the Teach Out Services should be provided. Two alternative regimes are contended for.
The Plaintiff submits that teaching out should be undertaken pursuant to the terms of the VicTas RLA Licence, being the Regional Licensing Agreement dated 17 December 2010.
The Fifth Defendant, AIF National, on the other hand contends that provision of the Teach Out Services should be provided pursuant to a new contract proposed with the Plaintiff’s nominee, which it says has been accepted in the following circumstances.
A deed poll and draft contract was attached to the AIF National letter of 27 May 2016. The purpose of the deed poll and draft contract was to provide an offer to the Plaintiff to accommodate and provide for existing students of the Plaintiff who were currently enrolled in courses offered by the Plaintiff after the VicTas RLA Licence came to an end, to enable those students to complete their courses. The Teach Out Services were those offered in an attached draft contract.
The Deed Poll was executed by AIF National and dated 27 May 2016. It provided in recitals as follows:
DEED POLL
Whereas:
A.The Institute appointed AIFVT [the Plaintiff’s nominee] as its licensee to provide certain services in Victoria and Tasmania on its behalf on the terms of a Regional Licensing Agreement dated 17 December 2010 (the RLA).
B. The RLA comes to an end on 27 May 2016.
C.AIFVT [the Plaintiff’s nominee] has offered to teach out existing students who are enrolled in courses offered by AIFVT on behalf of the Institute after the RLA comes to an end.
D.The Institute has agreed to appoint AIFVT [the Plaintiff’s nominee] to teach out those students on the terms of the attached Contract to Provide Teach Out Services.
The Deed Poll attached a form of contract called a ‘Contract to Provide Teach Out Services’. This included amongst other terms a new fee structure sought by AIF National from the Plaintiff.
The VicTas RLA Licence provided as to fees, by cl 6.1, that ‘The Licensee must pay to the Institute the fees during the term as set out in schedule 2’. Schedule 2 then provided for the fees payable to the Institute as: Licence fees $15,000.00 per month; Marketing and promotion fees 1.6 per cent of the income for the month; and Product development fee $3,000.00 per month.
The new term included as cl 6 of the Contract to Provide Teach Out Services did not include payment of fees for marketing and promotion or product development. The licence fee remained $15,000.00 per month plus GST and provided for payment terms in the following form:
6. Fees
The Contractor must pay to the Institute fees of $15,000 plus GST per calendar month during the Term. The Institute must issue the Contractor with a tax invoice for those fees. The Contractor must pay those fees by the later of the day 5 Business Days after the date on which it receives the relevant tax invoice, or the 1st day of the relevant calendar month, by direct debit into the Institute’s nominated bank account.
The payment regime provided by the Contract to Provide Teach Out Services was more advantageous to the licensee than that provided by the VicTas RLA Licence, and reflected the position that the licensee was permitted to provide a more limited service which operated within a limited time frame.
Neither the Deed Poll nor the proposed Contract to Provide Teach Out Services were expressly accepted by the Plaintiff or its nominee by notice. Mr Hornsey did not object to the fee regime, but stated in his affidavit filed on its behalf dated 31 May 2016 that the AIF National ‘… proposed terms of a Deed Poll’ and a ‘“Contract to Provide Teach Out Services” [which] defines “Services” in a way that I consider is more limited than that as contemplated in the Shareholders’ Agreement’.
However, the Deed Poll provided two alternative means for the offer made by AIF National to be accepted. It provided by cl 4 that:
4. The Offer will be accepted either:
(a)by AIF giving written notice to the Institute by 4.00 pm on 30 May 2016 (Sydney time) that it accepts the Offer; or
(b)by AIFVT [the Plaintiff’s nominee] continuing to provide Services to the Students after 4.00 pm on 30 May 2016 (Sydney time).
The Deed Poll was provided to the Plaintiff and its nominee on the last day of the Regional Licensing Agreement being in place, namely on 27 May 2016. It provided that its terms would be accepted by the nominee continuing to provide the Teach Out Services after 4.00 pm on 30 May 2016. It is apparent that the Plaintiff’s nominee, AIF Vic Tas, has continued to provide the Teach Out Services after the stipulated time.
However, the conduct of AIF VicTas, in continuing to provide the Teach Out Services after the time stipulated by AIF National in cl 4(b) of its Deed Poll, is explicable on a different basis. AIF VicTas was contractually bound to its existing students to provide its services, a fact I infer was well known to AIF National. Although an offeror may specify and insist on a particular mode of acceptance and indeed by mandatory language can provide that its offer can only be accepted in a particular way, in this case actual agreement between the two parties, AIF National and AIF VicTas, cannot be inferred by the conduct of AIF VicTas in providing services that it was contractually bound to its students to provide in any event.
Assent to an offer resulting in a binding contract may be inferred from the circumstances of the dealings between the parties, which include the terms of the offer made and any stipulation as to the mode of acceptance provided in the offer. As stated by Kirby P in Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd:[4]
The circumstances in which assent may be inferred, although never specifically stated, vary with the infinite variety of facts, which come before the courts in disputed contractual cases.
[4](1988) 14 NSWLR 523, 528.
McHugh JA said in the same case:[5]
The ultimate issue is whether a reasonable bystander would regard the conduct of the offeree, including his silence, as signalling to the offeror that his offer has been accepted.
[5]Ibid, 535.
Ipp AJA expressed the concept in the following terms in Brambles Holdings Ltd v Bathurst City Council:[6]
The question is one of fact and its determination depends on an examination of the facts said to give rise to an acceptance, seen in their context.
[6]53 NSWLR 153, 195 [162].
A reasonable bystander could not in my estimation arrive at a conclusion that the offer of AIF National made in this case was unconditionally assented to by AIF VicTas in the circumstances. AIF VicTas by its conduct could not be taken to have signalled to AIF National that it assented to being contractually bound by AIF National’s offer. The conduct of AIF VicTas as the offeree in continuing to teach out its existing students is explicable by the necessity for it to fulfil the contractual obligations owed to its students as third parties
For this reason, I do not accept that the terms of the Deed Poll and the accompanying Contract to Provide Teach Out Services resulted in a binding agreement which presently governs the teaching out arrangements between AIF National and AIF VicTas.
As earlier observed, on 9 June 2016 both the Plaintiff and AIF VicTas each executed the Further Deed Poll in two documents which were in the same terms. Mr Hornsey swore in his affidavit dated 9 June 2016 that: ‘It has always been the intention of AIF VicTas to honour its teaching out obligations to existing students under the terms of the enrolment contracts it has entered into with students’.
The apparent purpose of the Further Deed Poll was to enable the Plaintiff and its nominee to continue to provide the delivery of courses, assessments, and the issuing of qualifications for fitness, business and massage for the existing students, namely those enrolled with the Plaintiff or its nominee up to and including the termination date, being 27 May 2016. This arrangement is to continue until the last student enrolled (up to 27 May 2016) ceases to be enrolled or otherwise by written agreement between the Plaintiff and AIF National.
Pursuant to the Further Deed Poll the Plaintiff and AIF VicTas both agreed to be bound by and perform their obligations on the terms of the Regional Licensing Agreement dated 17 December 2010 (the ‘17 December 2010 RLA’). This arrangement, however, was not accepted by AIF National.
By a letter dated 10 June 2016 from Watson Mangioni to B2B Lawyers, the Institute offered an undertaking to allow AIF VicTas to teach out its existing students. The Institute submitted that the Court should accept its undertaking, rather than make the orders sought by the Plaintiff in relation to the teaching out of students, essentially because the Deed Poll and accompanying contract that it prepared for the Nominee is a binding contract governing the teaching out of existing students as at 27 May 2016.
However, having rejected the submission that a binding contract for teaching out arose, and given the present stalemate where the parties are unable to agree on the terms of the teach out arrangements, it becomes necessary to make an order to protect the parties and the rights of the existing students to be provided with ‘teach out’ services pending the hearing and determination of the trial.
Conclusion and Orders
The Plaintiff’s application that until the determination of this proceeding, or further order, the First to Fourth Defendants be restrained (and restrained from causing the Fifth Defendant, AIF National) from restricting, interfering with, preventing or terminating the Plaintiff from providing its services and using the intellectual property of AIF National and a telephone number in the course of providing its services, is refused.
Similar orders are sought against the First to Fourth Defendants in respect of the Plaintiff’s nominee AIF VicTas relating to it providing its services, which are also refused.
The applications for interlocutory injunctions as claimed in paragraph 1 of the summons (as appropriately re-framed to be directed to the First to Fourth Defendants) are refused on the grounds that no triable issue has been demonstrated founded upon the Shareholders’ Agreement, and it has not been demonstrated that irreparable harm will be caused to the Plaintiff which is not capable of being remedied by an award of damages, should the matter proceed to trial. Further, given the ‘teaching out’ orders which I will make to preserve the position of the third party students, to ensure that the courses in which they are presently enrolled with the Plaintiff’s nominee are completed, the balance of convenience does not favour the grant of an interlocutory injunction.
However, in April and May 2016, the solicitors acting for the First to Fourth Defendants wrote to the Plaintiff advising that if AIF National terminated its proposed Interim RLA, the Plaintiff would be in breach of the Shareholders Agreement (as varied) and, under the terms of the proposed Interim RLA, the other shareholders would be entitled to provide the services in Victoria.
This conduct is sufficient to amount to a threat that, in the events that have happened, AIF National may seek to appoint another or others of its shareholders or other persons to provide services in Victoria, and possibly Tasmania. To do so would give rise to a clearly triable issue arising from a breach of cl 9(1) or the Shareholders’ Agreement and may well cause irreparable damage to the Plaintiff by in effect barring it from re-entry into the market in the territory of Victoria and Tasmania in the event that it is able to negotiate a new Regional Licence Agreement with AIF National for it or its nominee to provide services in this territory. The balance of convenience calls for an interlocutory injunction to be imposed to prevent this occurring, pending a hearing and determination of the trial or further order. Accordingly, the Plaintiff has made out a case that there is serious question to be tried in relation to the interlocutory relief claimed in paragraph 2 of the Plaintiff’s summons (as appropriately re-framed to be directed only to the First to Fourth Defendants).
However, I will accept in lieu of making any such order, undertakings in an appropriate form from the Defendants to achieve the objective of maintaining the status quo in the territory of Victoria and Tasmania pending the hearing and determination of the trial.
I propose to make the following orders upon appropriate undertakings being given by the Plaintiff and its nominee, AIF VicTas, as to damages:
1.The application of the Plaintiff by paragraph 1 of its summons dated 1 June 2016 for an interlocutory injunction is dismissed.
2.In the event that the Defendants and each of them do not provide an undertaking in an appropriate form to preserve the status quo in relation to the provision of services in Victoria and Tasmania, the application of the Plaintiff by paragraph 2 of its summons dated 1 June 2016 for an interlocutory injunction is granted, with the result that the Defendants and each of them are restrained until determination of the trial of this proceeding by judgment or further order from appointing any party, who is not the Plaintiff or its nominee under clause 29 of the Shareholders’ Agreement from providing services in Victoria or Tasmania.
3.Until determination of the trial of the proceeding by judgment or further order, the Plaintiff by its nominee, the Australian Institute of Fitness (Vic & Tas) Pty Ltd (ACN 112 916 944) (‘AIF VicTas’), is to continue to provide ‘teaching out’ services in the territories of Victoria and Tasmania to enable AIF VicTas to fulfil its present contractual obligations to existing students who were enrolled in courses offered by it prior to its licence with the Fifth Defendant coming to an end on 27 May 2016 to enable those students to complete their courses of study (the ‘Teach Out Services’).
4.The Teach Out Services are to be provided in accordance with the licence in writing granted by the Fifth Defendant to AIF VicTas as it was prior to its termination on 27 May 2016, save with the following adaptations, and the licence is to be read down accordingly (the ‘Teach Out Licence’):
(a) AIF VicTas as the Licensee under the Teach Out Licence shall only deliver courses, make assessments and issue qualifications in fitness, business and massage and provide the Teach Out Services in Victoria and Tasmania (the ‘Territory’) to existing students who were enrolled in courses offered by it prior to its licence with the Fifth Defendant coming to an end on 27 May 2016 (the ‘Existing Students’) to enable those students to complete their courses of study;
(b) The Fifth Defendant appoints AIF VicTas as its Licensee on the terms of the Teach Out Licence which shall commence on 27 May 2016 and be terminated upon determination of the trial of the proceeding by judgment or further order;
(c) The fees payable by AIF VicTas to the Fifth Defendant, commensurate with the limited service it is permitted to provide within the limited time frame, and consistently with the offer made by the Institute by letter dated 27 May 2016 enclosing the draft ‘Contract to Provide Teach Out Services’ which provided an indication of what would constitute a reasonable fee structure in the circumstances, are limited to $15,000.00 per month plus GST;
(d) Neither the Plaintiff or its nominee AIF VicTas or any person or agent of the Plaintiff or AIF VicTas are permitted to offer services other than the Teach Out Services within the Territory or to offer any services to persons other than the Existing Students;
(e) The Teach Out Licence may not be changed, extended, expanded or modified in any way except in writing executed by the Institute and the Plaintiff and by AIF VicTas or by leave of the Court.
5. There will be liberty to apply.
6.On an adjourned date I will hear the parties on any matter arising from the form of the proposed orders, the giving of any necessary undertakings and the costs of the summons.
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