Barooga Projects (Management) Pty Ltd v Flag International Ltd

[1998] QCA 253

IN THE COURT OF APPEAL	[1998] QCA 253
SUPREME COURT OF QUEENSLAND

Appeal No.11491 of 1997

Brisbane

[Barooga Projects (Management) P/L v Flag Int. Ltd]

BETWEEN:

BAROOGA PROJECTS (MANAGEMENT) PTY LTD (ACN 055 654 987)

(Plaintiff)	Appellant
AND:

FLAG INTERNATIONAL LIMITED (ACN 004 588 756)

(Defendant)	Respondent
Pincus JA McPherson JA Mackenzie J

Judgment delivered 4 September 1998

Judgment of the Court

APPEAL DISMISSED WITH COSTS.

CATCHWORDS: LICENCE AGREEMENT - interim injunction - construction of the licence agreement - whether a licensee could have affiliations with other licensed motels.

Rules of The Supreme Court O.57 r.2
Butt v McDonald (1896) 7 QLJ 68
Secured Income Real Estate (Aust) Pty Ltd v. St Martin's Investments Pty Ltd (1979) 144
CLR 597
Hospital Products Ltd v. United States Surgical Corporation (1984) 156 CLR 41

Fitzgerald v. F.J. Leonhardt Pty Ltd (1997) 143 ALR 569

Counsel:  Mr P.A. Keane Q.C. with him Mr R.N. Traves for the appellant

Mr A.J. Morris Q.C. for the respondent

Solicitors:  Blanch Enders & Associates for the appellant

Doyles - Construction Lawyers for the respondent

Hearing Date:  20 August 1998

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No.11491 of 1997

Brisbane

Before Pincus JA
McPherson JA

Mackenzie J

[Barooga Projects (Management) P/L v Flag Int Ltd]

BETWEEN:

BAROOGA PROJECTS (MANAGEMENT) PTY LTD (ACN 055 654 987)

(Plaintiff)	Appellant
AND:

FLAG INTERNATIONAL LIMITED (ACN 004 588 756)

(Defendant) Respondent

REASONS FOR JUDGMENT - THE COURT

Judgment delivered 4 September 1998

1   This appeal concerns the construction of a licence agreement between the appellant

and the respondent under which the appellant became entitled to operate its motel, Centrepoint granted an interim injunction restraining the respondent from granting the licence.
Motor Inn Rockhampton, as a Flag Motel. When the respondent advised of its intention to licence

2   On 24 November 1997 when a motion for an injunction restraining the respondent

from granting the licence until trial or further order was heard it was common ground that judgment in the action pursuant to O.57 r.2 should be given. A judge of the Trial Division gave judgment in favour of the respondent. The appellant appeals against this decision.

3   There was evidence that the Club Crocodile Motel Rockhampton was one of six

properties providing accommodation services owned and operated by a publicly listed company the Flag name in other locations along the Queensland coast. There was also evidence that at the time of the commencement of proceedings about 25 per cent of all properties licensed by Flag were owned by persons who owned more than one property. The two largest multiple ownerships involved 26 and 12 properties respectively. Multiple owners had been licensed since well before the appellant's motel had become a Flag member.

4   Nevertheless the appellant's argument was based on the proposition that it was

incompatible with its licence agreement to grant a Flag licence to an operator which used another
brand or group name as well as Flag, since such operator would not be operating within the
"System" referred to in the licence agreement. Recitals to the agreement assert, as much in the

language of marketing as of the law, that the respondent has developed a process (the "System") for the provision of accommodation facilities including lodging, provision of food and other services of a uniformly high standard and for the management of such facilities. The distinguishing characteristics

of the System are said to include the distinctive trade mark, uniform standards, specifications and
procedures for the operation of accommodation facilities, management procedures, advertising and
promotional programmes and the computerised instant reservation system. It is also recited that the
licensor has established nationally and internationally a reputation and goodwill with the general
public for the supply of high quality accommodation facilities and efficient courteous service pursuant
to the System.

5   A recital also states that the parties intend the accommodation facilities to be

provided by the licensee to integrate with all other accommodation facilities to be provided by other
licensees under similar agreements to form a consistent international system of accommodation
facilities. The licensee acknowledges that the success of the System and the continued goodwill of
the public towards the trademark is dependent upon the continued exemplary reputation of each and
every accommodation facility operated in accordance with the System. There is an
acknowledgement by the licensee of the importance to the entire System of full and faithful
adherence to the terms of the agreement.

6   The "System" is also defined in part 14 of the agreement albeit with little greater

precision. The term is there defined as meaning the plan, procedure, process or system of providing for the general public accommodation facilities including lodging, provision of food and refreshments and other services of high standard and for the management of such accommodation facilities.
"Characteristics" of the System include, without being limited to them, various forms of intellectual property, the provision of efficient, courteous and clean methods of operation of accommodation facilities and the operation of distinctive restaurants, the instant reservation system and the Licensee
Operating Guide.

7   The appellant is understandably concerned that if a competitor with links to other

similarly named accommodation facilities which are part of a group commences to operate under the Flag badge in Rockhampton the appellant's business may be detrimentally affected if potential customers who have stayed in other places at Club Crocodile establishments book with the Club Crocodile Motel in Rockhampton rather than the Centrepoint Motor Inn. The only specific
evidence relating to the mode of operation of Club Crocodile in a way which may reinforce that
concern is that Club Crocodile operates a separate corporate accumulator programme under which rewards, albeit modest, may be obtained by people who stay repeatedly at Club Crocodile facilities. The contents of the Licensee Operating Guide are not in evidence and there is no evidence that
anything done by Club Crocodile would be contrary to the guide. There is no evidence that each
licensee's agreement is precisely identical to the others. Indeed there is a handwritten addition to the
appellant's.

8   The appellant's arguments are, firstly, that as a matter of construction the agreement

precludes the granting of a licence to a person who operates under another name as well as using the Flag insignia and the System. Alternatively, it was submitted that there was an implied term that the respondent would not grant a licence to a person who would use another group name as well as the Flag identification.

9   The appellant's arguments were based on an analysis of the recitals and clauses of

the agreement, particularly 2.1, 2.2 and 9.2 and the definition of "System" in cl.14.1. Clause 2.1 is
an acknowledgement by the licensee that the licence is a non-exclusive licence to operate
accommodation facilities in accordance with the System and that it does not preclude the licensor
granting additional licenses to operate in accordance with the System. Clause 2.2 declares there is
no territorial exclusivity and reserves the licensor's right, subject to restrictions which need not be
analysed for present purposes, to use and authorise third parties to use the System inside or outside
the territory (Rockhampton, in the case of the subject agreement). Clause 9.2 binds the licensee not
to obtain during the lifetime of the current directory of Flag facilities, membership of, or a licence or
other authority to operate as part of any chain of accommodation facilities that operates in
competition with the licensor.

10   The appellant's argument based on analysis of the agreement is that a grant to

operate in accordance with the System is intended to be comprehensive and exclusive. Carrying on business under two distinguishing brands is inconsistent with the System which is distinguished by the use of Flag insignia alone. The reservation in cl.2.2 of the right to grant a licence in accordance with the System is to be construed as an agreement not to grant a licence to operate otherwise than in
accordance with the System. The System comprehends all operations of the facility rather than
permitting operations which are distinct from the System. It is intended to ensure that other
competitive licensees do not have the advantage of using two brands.

11   It was submitted that the effect of cl.9.2 was to bind the licensee not to seek a new

group affiliation immediately upon ceasing to be a Flag licensee and that it was therefore improbable
that the agreement contemplated that double branding during the currency of the licence agreement
was permitted. The argument is narrowly focused and depends upon the proposition that it is an
essential feature of the System that licensees must not have any affiliation with other licensees. When
pressed counsel for the appellant conceded that it was a consequence of his argument that even
facilities operated in different towns by a single natural person could not be licensed without
contravening the agreement.

12   In our opinion the construction of the agreement upon which the appellant relies

cannot be sustained. The references to operating in accordance with the System cannot be forced into a form which prevents the granting of a licence to anyone who has some kind of affiliation with other motels which are licensed by the respondent. Not the least of the appellant's difficulties in
maintaining the interpretation contended for is the amorphous nature of what one obtains when one becomes entitled to operate under the System. Most of the System is concerned with standards of operation rather than anything tangible. The only tangible things are the use of the various forms of identification, access to the booking system and the access to the operating manual. If the intention had been to prohibit any sub-groupings within the Flag group by reason of common ownership or operation it would have been very easy to have said so explicitly. That was not done and reasons of

commercial efficacy would seem to be consistent with its absence. 13 In all of the

circumstances we are satisfied that the argument of the appellant as to the construction of the
agreement fails.

14   The argument in support of implying a term prohibiting the respondent from entering

into a licence agreement with an accommodation provider which is in common ownership with which was not available to the appellant. Granting a licence in those circumstances would injure the appellant's right to receive the benefit to which it was entitled under its agreement with the respondent. This derogation from its rights was impermissible.
facilities using a similar name relies on the proposition that the appellant's agreement with the
respondent entitles it to use the System in common with and on the same basis as other licencees.

15   The principle relied on was said to derive from the statement in Butt v McDonald

(1896) 7 QLJ 68,71, as follows:-
"It is a general rule applicable to every contract that each party agrees, by implication, to do all such
things as are necessary on his part to enable the other party to have the benefit of the contract."

16   The principle has been applied frequently since. (e.g. Secured Income Real Estate

(Aust) Pty Ltd v St. Martin's Investments Pty Ltd (1979) 144 CLR 597, 607; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 138; Fitzgerald v F.J. Leonhardt Pty Ltd (1997) 143 ALR 569, 570). It is not necessary to consider in detail the limits of

application of the principle to this case, since counsel for the appellant observed in his submissions,
correctly in our view, that it was debateable whether this argument and his argument as to the
construction point were different, since the point was essentially that consideration of the recitals and
the contractual provisions relied on led to the conclusion that the intention of the parties, or
necessary implication, required the agreement to be construed in the manner contended for by the
appellant. In our opinion, the reasons for finding that the construction point fails are equally
compelling against implication of the term contended for and that argument also fails.

17    The appeal is dismissed with costs.