Basset Holdings Pty Ltd v Pascale - [2010] SADC 23

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
BASSET HOLDINGS PTY LTD & ANOR v PASCALE & ORS
[2010] SADC 23
Reasons for Decision of His Honour Judge Barrett
26 February 2010
TRADE AND COMMERCE - TRADE PRACTICES AND RELATED MATTERS - ENFORCEMENT AND REMEDIES - INJUNCTIONS - MANDATORY INJUNCTIONS
Plaintiffs seek mandatory injunctions against former franchisees and a third party to restrain them from rebadging and continuing to operate a coffee shop business. Plaintiffs also seek assignment of the lease of the cafe which has been executed by the third party.
Held: Cannot make orders against third party who is not bound by restraint clauses of Franchise Agreement. Balance of convenience does not favour making orders against former franchisees.

TRADE AND COMMERCE - TRADE PRACTICES ACT 1974 (CTH) AND RELATED LEGISLATION - CONSUMER PROTECTION - MISLEADING OR DECEPTIVE CONDUCT OR FALSE REPRESENTATIONS - PARTICULAR CASES - CONTRACTS GENERALLY
Plaintiffs allege conduct by all three defendants likely to mislead or deceive contrary to s 52 of the Trade Practices Act.
Held: Third defendant has not been engaged in such conduct although first defendant has done so by silence. Balance of convenience does not favour making order against first and second defendants.
Trade Practices Act 1974; Fair Trading Act 1987; Real Property Act 1886, referred to.
ABC v O'Neill (2006) 227 CLR 57; Thompson v Palmer (1933) 49 CLR 502; Re Arbitration between Stewardson Stubbs & Collett Pty Ltd and Bankstown Municipal Council [1965] NSWR 1671; Snook v London and West Riding Investments Ltd (1967) 2 QB 786; Sharrment v Official Trustee (1988) 82 ALR 530; Scott v Commissioner of Taxation (Cth) (No 2) (1966) 40 ALJR 265; Yorke v Lucas (1985) 158 CLR 661, considered.

BASSET HOLDINGS PTY LTD & ANOR v PASCALE & ORS
[2010] SADC 23

This is an application for an interlocutory injunction by the plaintiffs who are the franchisors of the coffee shops called “Bean Bar”. The first plaintiff is the owner or franchisor. The second plaintiff is the leasing arm of the business. It was proposed by Mr Basset, the principal of both plaintiff companies, that the second plaintiff would become the lessee of the premises at the expiry of the Franchise Agreement.
The first two defendants operated one of the coffee shops at 99 Gawler Place, Adelaide. This shop is described by the plaintiff as the flagship shop. The second defendant is the company which operated the Gawler place shop as franchisee pursuant to a franchise agreement dated 11 November 2004. That agreement terminated on 30 November 2009. The first defendant, Mr John Pascale, is the guarantor of the second defendant company. Mr John Pascale ran the shop with his wife, Cheryl Pascale. Their son, Ross Pascale, is the principal of the third defendant company. The third defendant purports now to operate the Gawler place shop under the name Piazza 99. The third defendant is the lessee of the premises from the owner, Motor Trading Corporation.
Except when necessary to do otherwise I will refer to Mr Basset as the plaintiff and to the three members of the Pascale family as the defendants.
Plaintiff’s case
The plaintiff asserts that the defendants have stolen his interest in the business at 99 Gawler Place. They have taken control of the premises and they have done so using the resources of the plaintiff’s business for their own purposes. They have largely rebadged the shop but the plaintiff says that this is a superficial change to what is essentially a Bean Bar coffee shop. The plaintiff says the business is really run by Mr and Mrs Pascale. Their son’s company, which purports to run the business, is a sham. The defendants’ behaviour is in contravention of the first two defendants’ franchise agreement with the plaintiff and in particular with the restraint of trade provisions therein.
The plaintiff alleges that the taking over of the business began in a covert way in March 2009 when, unbeknown to him, Mr Ross Pascale’s company became the lessee of the shop in the place of Mr John Pascale’s company. The plaintiff did not learn of this substitution until September 2009 when he began discussions with Mr John Pascale about the renewal of the franchise agreement which was due to expire on 30 November 2009. Mr Pascale declined to renew the franchise agreement. Then the plaintiff discovered that the third defendant held the lease. The son was not a party to the franchise agreement and might not be expected to be bound by the restraint of trade clauses in the agreement.
Orders sought
Because the orders originally sought included a now unrelated issue, I will reproduce the orders or declarations sought in the Minutes of Order filed on 8 January 2010. The orders sought are preceded by the customary plaintiff’s undertaking.
THE COURT ORDERS (or declares) that:
1     Until the trial of this action the defendants and each of them (whether by themselves or by their agents or employees) be and are hereby restrained from opening for business or continuing to trade the business of an espresso bar or café or any similar business in competition with the plaintiffs in any location within 1 kilometre surrounding the Gawler Place Business Development Zone as defined in the map attached to the Franchise Agreement.
2     That the third defendant forthwith execute an assignment of the lease of the premises being Shop G.3A and Shop G.3B on GP 359 of 2004 being portion of the Building erected on the land comprised in Certificate of Title Volume 5158 Folio 667 at 99 Gawler Place, Adelaide (the Bean Bar premises from Motor Accident Commission as lessor and itself as lessee to the second plaintiff, LTO Registration Number L11191199.
3     That the second defendant execute a form of transfer or cancellation of the Registered Business Name ‘Bean Bar – Gawler Place Adelaide’ No.SA BN04420809.
4     That the defendants be and are hereby permanently restrained from using or disclosing the Confidential Information of the first plaintiff identified in the affidavit of Ronald Basset sworn 26 November 2009.
5     That the defendants deliver up to the first plaintiff any of the first plaintiff’s intellectual property, including electronic copies, which are in their possession, custody or control which originated from the first plaintiff or the first plaintiff’s predecessor Bean Bar Franchising Pty Ltd or which otherwise record Confidential Information belonging to the first plaintiff.
6     That the defendants and each of them be and are hereby restrained until further order from contacting (whether in writing, by telephone or in person) any person whose name appears on the first plaintiff’s Confidential supplier list for the purpose of obtaining supplies to solicit business in competition with the plaintiffs.
7     That the first and second defendant execute such documents and do all things required to be done to transfer all telephone numbers and facsimile numbers used at the Bean Bar premises to the first plaintiff.
8     That the second defendant deliver to the first plaintiff all lists of clients of the Bean Bar Business and databases containing customer information.
9     Should the defendants or any of them refuse or fail for 3 business days to execute any document required to be executed to give effect to these orders the Registrar or other officer of the District Court is authorised and directed to execute such document on behalf of the defendants.
10     That the defendants pay the plaintiffs’ costs of and incidental to the application dated 26 November 2009.
Defendants’ case
The defendants’ case is somewhat technical. Many of the facts asserted by the plaintiff are not disputed. While somewhat technical, the defendants claim that they have done no legal wrong, that they are legally entitled to do what they have done. Furthermore the plaintiff is not legally entitled to obtain the interlocutory relief he seeks. They assert legal flaws in the plaintiff’s case. They say:
The plaintiff is not party to the franchise agreement with the first and second defendants. There was no legal assignment to the plaintiff of the rights of an earlier franchisor (“the privity argument”).
Even if the plaintiff is party to the franchise agreement, the plaintiff himself has committed a repudiatory breach of the agreement, which repudiation has been accepted by the defendants (the “repudiation argument”).
The plaintiff has in any event no enforceable contractual rights against the third defendant which is not a party to the agreement. The third defendant is now genuinely running the business. The defendants deny the plaintiff’s allegations that the operation is a sham, such that the Court can grant the plaintiff interlocutory relief against all three defendants (the “sham argument”).
The Franchise Agreement does not operate to restrain the third defendant from running the business. Mr Ross Pascale’s company is not a party to the agreement and the restraint provisions of the franchise agreement do not apply to him (the “third defendant not bound argument”).
The restraint provisions of the Franchise Agreement are unreasonable in their scope and unenforceable against anyone (the “unreasonable restraint argument”).
The defendants argue that the plaintiff is not entitled to seek Court ordered assignment of the lease of the premises from the third defendant. Such an order would be a final order, not an interlocutory order. There is no legal sense in which the plaintiff can obtain the proprietary right in the lease (the “indefeasibility argument”).
The defendants submit that the plaintiff is unable to make out a claim for relief under the Trade Practices Act or the Fair Trading Act (TPA claim (the “Trade Practices Act argument”).
The Status Quo
The café at 99 Gawler Place has been largely “rebadged” so that most if not all of the Bean Bar insignia have been removed. Mr and Mrs Pascale and their son, Mr Ross Pascale, work in the shop. The son’s company, the third defendant, is the lessee of the premises. The third defendant appears to be running the business in the sense that it purports to hire the staff and carry out other functions associated with running the business.
Issues for determination
The parties have helpfully produced a joint document setting out the issues for determination in this application. I reproduce it with only minor alterations.
A.    Is there an arguable case that:
1.(i)    The first plaintiff is a party to the Franchise Agreement. There has been a valid assignment to the first plaintiff of the rights and duties under clause 36.1 of the agreement.
(ii)If the assignment is in equity only, the old partner need not be made a party to the action.
2.(i)    The first plaintiff has not committed a repudiatory breach of the Franchise Agreement.
(ii)Even if it has, the first and second defendants nevertheless continue to be bound by the restraint provisions of the agreement.
3.Interlocutory restraining orders may be made:
(i)Because the restraint in clause 29.2(a) of the Franchise Agreement is lawful.
(ii)Including, as against the third defendant, because the terms of the Franchise Agreement apply to it because its purported conduct of the Piazza 99 business is a sham.
4.    The orders that may be made for assignment are that the third defendant execute an assignment of the lease to the second plaintiff based on:
(i)The conduct of all the defendants is a conspiracy.
(ii)The conduct of the Third defendant constitutes the tort of inducing a breach of contract by the first and second defendants.
(iii)The conduct of the defendants regarding the new lease constitutes misleading or deceptive conduct by all of them and the Court has power pursuant to s 87 of the Trade Practices Act.
B.    The balance of convenience favours the granting of injunctions in the form of:
(i)    Restraint.
(ii)     Assignment.
The Legal Test
The principles to be applied in determining applications for interlocutory injunctions are explained by Gummow and Hayne JJ in ABC v O’Neill (2006) 227 CLR 57 at [65]:
The relevant principles in Australia are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd (83). This Court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the Court addresses itself to two main inquiries and continued (84):
“The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief … The second inquiry is … whether the inconvenience of injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted.”
By using the phrase “prima facie case”, their Honours did not mean that the plaintiff must show that it is more probably than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. That this was the sense in which the Court was referring to the notion of a prima facie case is apparent from an observation to that effect made by Kitto J in the course of argument (85). With reference to the first inquiry, the Court continued, in a statement of central importance for this appeal (86):
“How strong the probability needs to be depends, no doubt, upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks.”
Discussion of issues
It is convenient to discuss the issues by reference first to what are alleged to be flaws in the plaintiff’s case. If any of the alleged flaws are legally sound the plaintiff’s case may fail. If none of the flaws has any legal basis it will still be a question of whether the plaintiff should obtain the relief he seeks. That may be a separate question. I will therefore deal with the flaws asserted by the defendants in the order that each was argued. I will relate the discussion of the alleged flaws to the identified issues in the case and to the narrative of the relevant events in the history of the matter.
The Privity Argument (Issue A1(i))
The defendants assert that there was never a valid assignment to the first plaintiff of the rights of an earlier franchisor. Accordingly there is no privity of contract between the first plaintiff and the first and second defendants in the Franchise Agreement. The plaintiff seeks to enforce what he says are his rights under that agreement. His claim is a contractual one. The defendants say he has no contractual rights to enforce.
The Franchise Agreement was entered into on 11 November 2004 by Bean Bar Franchising Pty Ltd (not a party to the proceedings) as franchisor and John Pascale (first defendant) and his company Anros Pty Ltd (second defendant).[1] The agreement was to operate from 1 December 2004 for 5 years. That period would expire on 30 November 2009. There was a right of renewal for a further 5 years.
[1] see Schedule 1 of Franchise Agreement, Tab 2.
The franchisor sold its interest in the Franchise Agreement twice, once in July 2006 and again in March 2007. The defendants do not dispute that the first sale operated to effect a valid assignment of the vendor’s interest in the franchise agreement to the purchaser. There was a Share Asset and Sale Agreement executed on 7 July 2006.[2] Clause 9.1.1 of that agreement explicitly dealt with the assignment, including assignment of liabilities. The purchaser was a partnership comprising Bean Bar Holdings Pty Ltd (first plaintiff) and a company called Ianmath Pty Ltd (not a party to the proceedings).
[2] Exhibit FMS-5 to affidavit of Fiona Margaret Stevens sworn on 15 December 2009.
Assignments by the franchisor are governed by Clause 36.1 of the Franchise Agreement. That clause reads:
The Franchisor may assign this agreement or any right arising out of this agreement to any company, party or other legal entity that agrees to assume all of the Franchisor’s obligations under this agreement, by giving 14 days notice to the Franchisee.
The franchisor did not give the 14 days notice of the assignment to the franchisee as required by that clause. It gave ex post facto notice by a letter dated 28 December 2006 advising of the assignment on 7 July 2006. It was not suggested that the failure to give advance notice of the assignment rendered the assignment ineffective.
In March 2007 there was a sale of the partnership franchisor’s interest to Basset Holdings Pty Ltd solely. The defendants challenge the effectiveness of the sale to transfer the rights and obligations of the Franchise Agreement to the purchasers. They assert that there was no instrument effecting the transfer such as that which effected the transfer in July 2006. In particular they argue that the first plaintiff purchaser never agreed with the vendor partnership to assume the obligations of the franchise agreement. Unlike benefits, obligations cannot be unilaterally assigned. The assignee must agree to abide by them. The defendants submit that while there might have been a valid dissolution of the partnership, and a valid sale of the assets, those transactions do not operate to assign the obligations of the franchisors.[3]
[3] Lindley and Banks on Partnership 17th ed [18.52] and [19.03].
The plaintiff produced an Agreement for the Sale of Shares and Dissolution of Partnership relating to the sale in 2007.[4] The agreement was never signed. Clause 3.3 of that agreement reads:
The purchaser acknowledges that it is the holder of the remaining 50 shares of the 100 issued shares in the company and as such the purchaser has full information concerning the company and its business and financial operations and in purchasing the shares the purchaser assumes full ownership of the company together with the benefit of its assets and the burden of its liabilities including any liabilities for taxes. (emphasis added)
[4] Exhibit FMS10 to affidavit of Fiona Margaret Stevens sworn on 11 January 2010.
That clause is not as explicit as the assignment clause in the 2006 agreement. However it is possible to read the clause as transferring both the benefits and the obligations of the franchisor under the franchise agreement. While the agreement was never signed both parties appear to have abided by its terms. As had happened with the 2006 sale the plaintiff did not give the franchisees notice in advance of the purported assignment. As with the earlier sale the plaintiff sent the franchisees a letter after the event (29 June 2007) advising them that the assignment had occurred on 29 March 2007. The plaintiff rendered tax invoices to the first two defendants for the franchise fees and the defendants paid them. I assume that the payments were made to the plaintiff from sometime in mid 2007 until at least mid 2009.
The plaintiff asserts that the defendants are estopped by convention from denying that the plaintiff is the assignee of all of the partnerships rights pursuant to the Franchise Agreement (including the right to sue). His invoices were paid by the defendants. The defendants gave notice of dispute to the first plaintiff when they sought to invoke the arbitration provisions of the Franchise Agreement. I reject this last submission. As the defendants submit, it can hardly be said that the defendants’ actions or inactions have lead to the plaintiff failing to effect its assignment if in fact it has so failed. Some action on the part of the defendants, apart from now challenging the assignment, must lead to the plaintiff putting himself in a detrimental position.[5] All the defendants have done is to raise what might be regarded as a technical objection to the plaintiff’s ability to sue.
[5] Thompson v Palmer (1933) 49 CLR 502 at 547.

Mr Basset in paragraph 4 of his affidavit of 26 November 2009 has said that the plaintiff is the sole owner of “the Bean Bar system”. I do not think his assertion bears on the validity of the assignment.
The plaintiff has sought to bolster its case by Mr Basset indicating in his affidavit of 12 January 2010 that he will vary the partnership dissolution agreement or enter a collateral agreement to remedy any alleged deficiency in the impugned assignment. In the same affidavit there is annexed a letter from Mr Mattheson dated 11 January 2010 saying that Ianmath will do the same.
The defendants acknowledge that as between the former partners, Ianmath and Basset Holdings, the latter has acquired rights. However they assert that, as a matter of law, the benefit of the contract has not been passed from the partnership to the first plaintiff so that the first plaintiff alone may sue on the franchise agreement. The defendants also acknowledge that the deficiency may be resolved procedurally by Ianmath being joined as a plaintiff.[6] That step has not been taken. However, on an interlocutory application, it would not be appropriate to refuse relief because a procedural step has not been taken.
[6] Starke QC, Sedden & Ellinghaus, Cheshire and Fifoot's Law of Contracts 5th ed at [8.27].
While I recognise the potential deficiencies in the purported assignment of the rights and obligations under the Franchise Agreement from the partnership vendor to the first plaintiff, I think there is an arguable case that there has been a valid assignment. I think that it is arguable that the Agreement for the Sale of Shares and Dissolution of Partnership may be sufficient for that purpose. Further I think that it is arguable that by paying the plaintiff’s invoices for the franchise fees there may be said to be an estoppel. The answer to the question posed in Issue A1(i) is therefore “Yes”.
The Repudiation Argument (Issue A2(i))
I take up the narrative of events that bear on the dispute. The sale of the franchise from the partnership to the first plaintiff occurred in March 2007. As I have said the first and second defendants paid the franchise fee to the first plaintiff. Disharmony arose between the parties. It is not clear when that occurred nor how it occurred. There was some disputation after the lease of the premises expired in September 2008. I will need to return to that topic in more detail later.
The Franchise Agreement did not expire until 30 November 2009. In August 2009 the plaintiff sought to find out if the defendants proposed to take up their option to renew the agreement for a further 5 years. The defendants indicated by letter of 9 September 2009 (Tab 11) that they did not wish to exercise the option. The following day the plaintiff’s solicitors acknowledged receipt of the defendants’ letter and invited the defendants to discuss a convenient time for vacating the premises before the expiration of the agreement (Tab 12). The plaintiff gave notice that he would seek to assume the franchisee’s lease over the premises. (In fact it is not clear that the franchisees did have a lease over the premises.) The plaintiff’s belief was based on several factors. Clause 3.1 of the Fourth Schedule of the Franchise Agreement provided that the franchisor could assume the lessee’s interest under the lease if the Franchise Agreement was terminated. Evidence of the correspondence between the parties in March 2009 suggests that the plaintiff had reason to believe that the second defendant was the lessee. In that correspondence the plaintiff had insisted that the Schedule 4 terms be included in the lease. All but one of the letters passing between the parties and the landlord suggested that the Schedule 4 conditions would be included in the lease. However a close analysis of the correspondence should have alerted the plaintiff to the possibility that neither the first nor the second defendant would be the new lessee. One piece of correspondence from the landlords made it clear that the Schedule 4 conditions were not going to be included in the lease. The plaintiff submitted the inclusion of the Schedule 4 conditions was the only way that the franchisor could secure the premises in the event of the Franchise Agreement coming to an end. Arguably the only way for the franchisor to control the business was to ensure that the franchisees were the lessees.
In the event of the termination of the Franchise Agreement, Clause 3.1 of the Fourth Schedule of the agreement (if it had been included in the lease agreement) would give the franchisor the right to resume the premises. The terms of Schedule 4 required the franchisee to include the Schedule in any lease.
By August 2009, it is clear that the second defendant was not the lessee. Mr John Pascale’s son, Mr Ross Pascale had incorporated ACN (the third defendant) and that company was the lessee. Furthermore the Schedule 4 provisions were not included in the lease. The plaintiff says he learned this from the landlord on 21 September 2009 (Tab 12). Responding, no doubt, to what he saw as a deception by all three defendants, the plaintiff gave the second defendant notice to remedy the breach of the Franchise Agreement. On Tuesday 27 October 2009 he served a notice on the first two defendants to remedy the breach of the agreement (Tab 13). Clause 6.1 of the notice specified the time within which the defendants should remedy the breach:
6.The franchisee is required to remedy the breaches set out in Clause 1 by doing all the following:
6.1 Providing to the franchisor within five business days of receipt of this notice a executed copy of the current lease entered into between the relevant landlord of the premises and the franchisee; or alternatively
6.2 Providing by open correspondence to the franchisor a statement indicating in detail the inclusion of all relevant terms set out in Schedule 4 within the current lease and the relevant landlord’s consent to the same.
The notice was served on Tuesday 27 October 2009. It is common ground that that day does not count for the computation of five business days. The five days do not include the weekend. They expired on Tuesday 3 November. It is common ground that the defendant was effectively incapable of remedying the breach. The current lease was not between the landlord and the franchisee. It was between the landlord and the third defendant. Further the Schedule 4 conditions had not been included in the lease. The plaintiff prepared a Notice of Termination (Tab 14) dated 3 November 2009 and his solicitor wrote a letter (Tab 18) of the same date indicating that the plaintiff intended to terminate the Franchise Agreement at 5pm on that day.
In his affidavit of 9 December 2009 the plaintiff says that he attempted unsuccessfully to fax the letter and Notice to the defendants and their solicitors Cowell Clark shortly after 5pm. He was however successful in faxing the documents to their previous solicitors, Messrs Piper Alderman at approximately 5.22pm. A further attempt to fax Messrs Cowell Clark at approximately 5.25pm was also successful. The defendants have not disputed these assertions.
The defendants submit that the termination documents were served before the expiry of the five days fixed by the plaintiff’s notice in which to remedy the breach. The five days did not expire until midnight on 3 November. Notwithstanding that the defendants were effectively unable to remedy the breach of the Franchise Agreement, and that the Notice of Termination reached their solicitors after 5pm on the final day, they submit that the termination is premature. The remedy time did not expire until midnight on 3 November. As a consequence, the termination is itself a repudiatory breach of the Franchise Agreement. The defendants accepted the repudiatory breach as a termination of the agreement.
The defendants cite authority in support of their contention. Mr Roberts referred to the case of in Re Arbitration between Stewardson Stubbs & Collett Pty Ltd and Bankstown Municipal Council [1965] NSWR 1671. In that case Moffitt J held that the Notice to Remedy posted on the last day of the remedy period did not comply with the remedy notice. The remedy notice would seek to become effective if the recipient “shall continue such default for 14 days…” (at 1676). A similar finding was made by Collins J in Eriksson v Whalley [1971] NSWLR 397. In that case (at p 94) His Honour was referred to a passage in Halsburys Laws of England 3^rd ed, vol 37 at 401:
When a period is fixed before the expiration of which an act may not be done, the person for whose benefit the delay is prescribed has the benefit of the entire period and accordingly in computing it, the day from which it runs as well as the day on which it expires must be excluded and the act cannot be done before the midnight of that day. (at 401)
Mr Ross-Smith argued that the service of the notice did not really occur until 4 November. The notice had not reach defendants’ solicitors until after what might be regarded as “office hours”, so the defendants were effectively given 5 clear days in which to remedy the breach. The cases cited by the defendants do not assist in the determination of that precise question. However they were not cases that bore on repudiation of contracts. They were concerned with the question of the point of expiry of a notice. Certainly in that respect the cases are pertinent. The question is whether, looking at the matter objectively, it can be said that the plaintiff has committed a repudiatory breach of the Franchise Agreement by issuing his notice when he did? More precisely, is it arguable he did not?
Mr Roberts referred to Cheshire and Fifoot’s, Law and Contract 8^th Aust ed, [21.11] and following. There is a passage at the end of that paragraph for which various authorities are cited in the footnote. The proposition is:
Terminating a contract without justification amounts to repudiation, entitling the other party to accept the termination of the contract and or to sue for damages.
One of the authorities cited in support of that proposition is McRae v Bolaro Pty Ltd [2000] VSCA 72. In that case the vendor was seeking to have his Contract For Sale and Purchase performed. He issued a Notice of Rescission in an attempt to force the performance of the contract. His notice was defective. The Full Court held that, despite the invalidity of the notice of termination, it did not constitute repudiation [30].
In my view it is arguable that the plaintiff’s purported termination of the Franchise Agreement was not unjustified, even if it was strictly a few hours premature. The first and second defendants had effectively prevented him from assuming the lease upon the expiration of the Franchise Agreement. The third defendant, with whom the plaintiff had no contractual relationship, held the lease. While the evidence suggests that the plaintiff should have been alert to that possibility, it does appear that he did not know that the third defendant was the lessee. Nothing in the correspondence would have explicitly told him that that was so. However, one piece of correspondence would have told him that the Fourth Schedule provisions were not going to be incorporated in the new lease. Nevertheless it appears that it was a surprise to him that he was not going to be able to assume the lease to protect the business upon the termination of the Franchise Agreement. That termination was foreshadowed by the franchisees electing not to take up their option for a further term. In these circumstances I think it is arguable that the plaintiff did not commit a repudiatory breach when he issued his notice. Although it was a futile effort, he, like the successful vendor in McRae v Bolaro was seeking to have his contract performed. The answer to the question posed in Issue A2(i) is therefore “Yes”.
Issue A2(ii)
The further question posed in the second issue identified by the parties is whether the first two defendants continued to be bound by the restraint provisions even if the plaintiff has committed a repudiatory breach.
It is necessary first to identify the restraint provisions and determine whether they are arguably lawful. That is really Issue A3(i), but if the restraint clauses are not reasonable then several other issues are determined against the plaintiff.
The restraint provisions are contained in clause 29 of the Agreement. Prohibited activities are set out in clause 29.2 as follows:
The franchisee undertakes to the franchisor that the prohibited persons[7] will not:
a)     engage in a business or an activity that is:
(i)    a café or espresso bar;
(ii)    any business that involves the supply or provision of any of the products or services authorised for sale in the Bean Bar business; or
(iii)   the same or similar to that of the franchisee’s business or the franchisor’s business or any material part of it; or
(iv)   in competition with the franchisee’s business or the franchisor’s business or any material part of it.
[7]    "prohibited persons" is defined in clause 29.1
Clauses 29.3 and 29.4 relate respectively to the duration of the prohibition and the geographical application of the prohibition. Schedule 6 provides for the specific election of the prohibitions. The duration of the prohibition is one year and the activities are prohibited within one kilometre of the premises.
The defendants challenged the reasonableness of some of the prohibited activities and to the one kilometre geographic application.
The defendants submit that Clause 29.2(a)(ii) is too wide in its application. They suggest for example that condition would prevent them from selling coffee or sandwiches in a café at the Royal Adelaide Hospital. In my view it would be possible to read that clause more narrowly so as to proscribe only “products or services” of a fairly specific type which are for sale in the Bean Bar business. I will not spend time articulating further how such a clause may be read down, but it is arguable that the clause is not unreasonable. Equally I think that a geographical area of 1 kilometre from the Gawler Place premises might be regarded as reasonable notwithstanding that it would cover much of the city’s square mile. The plaintiff alleges that the defendants have been offering for sale products identical to products sold in Bean Bar establishments. I appreciate that the lawfulness of the restraint is determined by the terms of the restraint clause, not by the facts of the case.
I find that the restraint clause is arguably reasonable, including the activities prohibited and the temporal and geographical aspects.
Do the defendants remain bound by the restraint clauses if the plaintiff has committed a repudiatory breach? The plaintiff submits that the contract remains in force until the moment of termination. This is to be distinguished from a contract which is void ab initio. Rights accrued under the contract continue to be enforceable. Those rights may include rights to receive performance of contractual obligations. The plaintiff referred to Contract Law in Australia 5^th ed by Carter, Peden and Tolhurst at 32-04 pp 742-3 where the learned authors cite Dixon J in McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457. At pp 742-3 His Honour said:
When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected. When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored, so far as may be, to the position they occupied before the contract was made. But when a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach.
The defendants respond by submitting that there is nothing in the Franchise Agreement that would indicate that the restraint terms should continue to bind the defendants in the breach of a repudiatory breach by the plaintiffs. While I think that it is correct that no clause specifically provides for the continued performance by the defendants of the restraint clauses following a breach, clause 31.3 may have that effect. It reads:
Termination not to affect rights
Termination of this agreement does not affect any accrued rights or remedies a party may have.
Mr Roberts referred to Cheshire and Fifoot’s, Law of Contract 8^th Aust ed at [21.34] pp 957-8 where examples are given of the types of contract terms which continue to operate after a breach. He says the examples are instructive. They do not include restraint clauses. That may be so, but in my view such clauses can be seen as accrued rights and clause 31.3 might arguably operate to continue their enforceability even in the face of repudiatory breach on the part of the plaintiff.
The plaintiff submits that restraint clauses are in a special category. Once they have been held to be reasonable then if there is an arguable breach then the Court will grant an injunction.[8]
[8] Fellowes v Fisher (1975) 3 WLR 195; Office Overload v Gunn [1977] FSR 39.
I conclude that there is an arguable case that the restraint clauses in the Franchise Agreement are reasonable and enforceable against the first and second defendants even in the event of a repudiatory breach by the plaintiff. The answer to the questions posed in Issues A2(i) and (ii) and 3(i) is “yes”. That finding does not however necessarily apply to the third defendant. Enforceability against that party stands to be considered separately.
The Sham Argument and the Third Party Not Bound Argument (Issue 3(ii))
The plaintiff submits that it can obtain interlocutory relief against the third defendant even though that company is not a party to the Franchise Agreement. He says he can do so because the purported operation of the business by the third defendant is a sham. The Court can look behind Mr Ross Pascale’s company to expose the sham. It can “lift the corporate veil”. It can expose the reality that it is really the first and second defendants who are operating the business. In that way interlocutory relief can be granted against the third defendant. It will be necessary to identify precisely what transactions are said to be a sham.
Mr Ross-Smith submitted that the sham came about as follows. As already recounted, in March 2009 the parties were discussing what was going to happen to the lease. For reasons not made clear to me there was some disharmony between the individuals concerned. The original lease was between the landlord and Arthur Hall Pty Ltd. It expired in September 2008. It is not at all clear who the lessee was after that. The franchisees continued to operate from the premises in Gawler place but there was no new written lease. It was not clear what discussions were going on between the parties from September 2008 to March 2009. The uncertainty about who was the lessee is borne out by the Notice to Quit which the landlords issued on 20 February 2009.[9] The Notice was issued to Arthur H Hall Pty Ltd, the first and second defendants, Mrs Cheryl Pascale and the second plaintiff. The landlord was plainly not sure who was the lessee. The Notice required vacant possession on 20 March 2009.
[9] Affidavit of Grant Kingsley Feary sworn on 3 Febuary 2010, Exhibit "GKF2".

There was a great deal of written and telephone exchange between the solicitors for the plaintiffs, the defendants and the landlords leading up to 20 March. Neither Mr Ross Pascale or the third defendant is mentioned in any of the communications put before the Court. There appears to have been some competition between the plaintiff and the first and second defendants for the lease. At one stage the plaintiff was seeking the lease for himself and was offering to pay more for it than the defendants were offering. For present purposes I will not recite the various communications but I will summarise the outcome.
On 20 March the landlord wrote to the defendant’s solicitors agreeing to permit the franchisees (the first and second defendants) to remain in the premises. It did so on the understanding that it would enter into a lease with “John and Cheryl Pascale and/or nominee”. A draft lease dated 3 March 2009 had been signed on behalf of John and Cheryl Pascale and the lessee had been described as above. What the landlord’s letter discloses, for the first time, is that the landlord is not willing to have the Schedule 4 conditions included in the lease.[10]
[10] Affidavit of Grant Kingsley Feary sworn on 3 February 2010 (Exhibit "GKF2" at p 83).
In an email dated 23 March 2009[11] the landlord’s solicitors still appear uncertain as to who exactly will be the lessee. In their letter they assume it is Anros Pty Ltd but they seek clarification. No correspondence shows what happened after that, but on 27 March 2009, the third defendant was incorporated and the third defendant became the lessee from that date pursuant to a lease agreement executed in May.
[11] Affidavit of Grant Kingsley Feary sworn on 3 February 2010 (Exhibit "GKF2" at p 86).
0n 30 November 2009, the day the Franchise Agreement expired, the third defendant registered the business name Piazza 99.[12] Some changes to the premises were made. Those changes removed references to Bean Bar. The changes began to be undertaken from 24 November 2009.[13]
[12] Affidavit of Ross Pascale sworn on 7 January 2010 (Exhibit "RP2").
[13] Affidavit of Ross Pascale sworn on 7 January 2010.
The third defendant was incorporated and Mr Ross Pascale is the sole director. The plaintiff submits that the third defendant’s operation of the business is a sham. It is not really that company which operates the business. It is Mr and Mrs Pascale. They are the people observed by the plaintiff and his agents to be in the café each day. In an exchange between the plaintiff and Cheryl Pascale at the café on 25 November 2009, Mrs Pascale is alleged to have said:
Stop taking photographs. You are scaring the customers. You terminated us three weeks ago – remember that. You have no idea of what we have up our sleeves.[14]
[14] Affidavit of Mr Ronald S Basset sworn on 26 November 2009 at [25].
Of course by then the plaintiff had learned that the third defendant was the lessee of the premises. That is no doubt what had lead him to give his Notice to Remedy Breach on 27 October and the Notice of Termination on 3 November 2009.
The plaintiff submits because the third defendant’s purported interest in the business is a sham each interest can be treated as that of the first and second defendants. Where the transfer of an asset is regarded as a sham it is treated as that of the transferor. Mr Ross-Smith referred to the English case of Snook v London and West Riding Investments Ltd (1967) 2 QB 786. At page 802 Lord Diplock said:
… But one thing I think is clear in legal principles, morality and the authorities that for acts or documents to be a sham with whatever legal consequences follow from this, all the parties thereto must have a common intention that acts or documents are not to create legal rights and obligations which they give the appearance of creating.
He went on to refer to the leading Australian case of Sharrment v Official Trustee (1988) 82 ALR 530. At page 537 Justice Lockhart said:
… A sham is therefore for the purposes of Australian Law something that is intended to be mistaken for something else or that is not really what it purports to be. It is a spurious invitation, a counterfeit, a disguise or false front. It is not genuine or true but something which is false or deceptive.
Mr Roberts submitted that those cases do not lead to the granting of relief against the third defendant in this case. In fact the cases highlight why relief cannot be granted. Referring to Sharrment, Mr Roberts pointed out that the Federal Court upheld the validity of transfers of property notwithstanding that their purpose was to put monies beyond the reach of the Official Trustee. Whatever might be the propriety or purpose of those transfers they were found to be genuine. He also submitted that specific documents or transactions have to be identified as a sham. It will not suffice to describe conduct generally as a sham. In my view that submission is correct.
While regretting the ambiguity of the word “sham” Lockhart J[15] said that the word had been considered in many cases and he cited a discussion of its meaning by Windeyer J in Scott v Commissioner of Taxation (Cth) (No 2) (1966) 40 ALJR 265. Windeyer J’s discussion included this pertinent passage:
… The difficult and debatable philosophic question of the meaning and relationship of reality substance and form are for the purposes of our law generally resolved by asking “Did the parties who entered into the ostensible transaction mean it to be, and in fact use it as, merely a disguise, a façade, a sham, a fake front – all the words have been metaphorically used – to conceal their real transaction…
[15] at p 543.
Lockhart J also cited Snook as having a similar effect.
I apply these principles to the facts of this case. The sham is said by the plaintiff to be that Mr and Mrs Pascale and perhaps their company, Anros Pty Ltd, are really running the business. They are the former franchisees. They have conspired with their son to set up an arrangement whereby they can run the business as they see fit from Gawler place, secure in the knowledge that the plaintiff cannot do anything about it. Even if the restraint clauses in the Franchise Agreement are enforceable against them, the restraint clauses cannot be enforced against their son or his company because neither of them was party to the Agreement. The arrangement between the defendants secures the premises for the parents because, behind the plaintiff’s back, they arranged for the newly formed company (the third defendant) to become the lessee. That company’s lease with the landlord does not give the plaintiff any rights to secure a lease. The Schedule 4 conditions have not been included.
I refrain from commenting on the propriety of that course of action partly because its propriety is irrelevant and partly because I do not know all the nuances of the dealings between the parties. It must also be acknowledged that whilst the plaintiff did not know that the third defendant had become the lessee until September 2009, there was correspondence that could have alerted him at least to the possibility that his franchisees may not become the lessee. The fact remains however that the lease is no false document. The third defendant is in fact the lessee. Further there is no suggestion that the third defendant is not a properly incorporated company. Neither is there any suggestion that the company did not run the business after the Franchise Agreement expired on 30 November 2009.
Mr Ross Pascale was an employee of his parents when the first and second defendants ran the business under the Franchise Agreement. There is no dispute that he continues to work in the café. However secretive all three defendants may have been about the above arrangement, there is in my view no sham in the sense discussed in the authorities. It is not arguable that any document or transaction is a sham. In my view the behaviour of all three defendants is not arguably a sham which would empower me to make any order against any of the defendants. The documents and the transactions referred to are, on their face, genuine.
Mr Roberts submits that the third defendant is not bound by the terms of the Franchise Agreement because he is not a prohibited person, that is, he is not one of the persons or bodies prohibited by clause 29.1 from taking part in the prohibited activities referred to in clause 29.2. “Prohibited persons” is defined to mean:
(a)     the franchisee
(b)    the Principal
(c)     a related body corporate or associate of the franchisee, and
(d)   the franchisee’s directors, share holders, nominated operator and key employees.
The only one of those prohibited persons or bodies which requires any detailed argument is (c). Mr Roberts submitted that a related body corporate is defined under the Corporations Act as either a holding company or a subsidiary company. The third defendant does not fit any of those descriptions. An associate of the franchisee does not come within the definition provisions of s 10 to s 17 of the Corporations Act. In my view that submission is correct.
In those circumstances the answer to the question posed by Issue A3(ii) is “No”.
Claims in Tort and the Trade Practices Act Argument (Issues A4 (i), (ii), (iii))
The plaintiff submits that there can be a Court ordered assignment of the lease from the third defendant to the second plaintiff because:
1.     The conduct of all the defendants is a conspiracy, or
2.     The conduct of the third defendant amounts to the tort of inducing a breach of the Franchise Agreement by the first and second defendant, or
3.     The conduct of the defendants regarding the third defendant’s lease is misleading and deceptive conduct under the Trade Practices Act and accordingly the Court has wide powers under s 87 to remedy any loss suffered, including granting interlocutory relief.
Mr Ross-Smith tendered a letter from the landlord indicating that it would abide by any Court order changing the lessee.
Before dealing with the three submissions just identified I will deal with the submission of Mr Roberts that, irrespective of those issues, the Court has no power in interlocutory proceedings to make an order for the assignment of a proprietary right such as a right under a lease. Section 69 of the Real Property Act constitutes indefeasibility of title, subject to exceptions not relevant to these proceedings except perhaps fraud.
Mr Ross-Smith submitted that the assignment of the lease to the second plaintiff would not create indefeasibility of title as there could be a reassignment to the third defendant if the trial Court found it appropriate. I do not presently see why a Court would be powerless to transfer a proprietary interest, even at an interlocutory stage, but the basis for such an exercise of power would be a finding, by reason of the commission of a tort, that the tortfeaser could be seen to be holding the proprietary interest in trust for the party wronged. In this case the plaintiff alleges the defendants have committed two torts – conspiracy and/or inducement to breach a contract. In addition the plaintiff seeks a remedy under the Trade Practices Act. For present purposes I will assume that there is power to do that which the plaintiff asks. If it is not possible to order the assignment of a proprietary interest in the lease, there may be power to order that the third defendant enter into a sublease. Whether that power should be exercised is the subject of the discussion following.
Conspiracy (Issue A4(i))
I turn first to the tort of conspiracy. I put aside corporate entities. The plaintiff alleges that Mr and Mrs Pascale have conspired with their son from at least March 2009 to take over the plaintiff’s business. The components of the conspiracy seemed to be these: The parents would not renew the Franchise Agreement when it expired on 30 November 2009. They would secure their right to continue to occupy the premises by installing their son as the lessee. They would then ensure that there was no reversion of the lease to the plaintiff. They would ensure that the Schedule 4 conditions were not included in their son’s lease. They would free themselves from any ongoing obligation to abide by the restraint provisions of the Agreement by having their son run the business. To demonstrate a conspiracy, Mr Ross Pascale would have to be shown to be a party to these arrangements. It would not matter who was the instigator.
There does appear to have been disharmony between the plaintiff and the defendants in the period leading up to 20 March 2009 when the landlord’s Notice to Quit the premises was to become effective. In addition, relations between the landlord and both the plaintiffs and the defendants do not always seem to have been harmonious. However on 20 March the landlords agreed to enter a Lease Agreement with Mr and Mrs Pascale “and/or nominee”. It is true that the Pascales have avoided any mention of their son or any company which he might incorporate becoming the lessee. None of the correspondence refers explicitly to the son or his company. The reference in the correspondence copied to the plaintiff’s solicitors to “and/or nominee” should certainly have alerted the plaintiff to some uncertainty about who exactly was going to become the lessee, but he might well have assumed it would be the first or second defendant. On 23 March even the landlord thought it would be the second defendant.
The critical factor for the plaintiff however was the inclusion in any lease of the Schedule 4 conditions which gave him the right to assume the lease at the expiration of the agreement, which, in March, was still some 8 months away. The correspondence suggests that right up to 19 March the defendants were not trying to have the Schedule 4 conditions excluded from any lease. Their solicitors were indicating their willingness to have those conditions included. The plaintiff was insistent on the inclusion of the conditions and the defendants were agreeing to have them included. The defendants were asking the landlord to include the Schedule 4 conditions. Ultimately it appears to be the landlord who makes it clear to the defendants in this letter of 20 March that the Schedule 4 conditions will not be included in the lease. The exclusion of the Schedule 4 conditions deprives the plaintiff of his security over the premises at the expiration of the Franchise Agreement.
In those circumstances I do not think that there is a prima facie case that the defendants have been involved in a conspiracy of the sort alleged by the plaintiffs and of the sort necessary to empower the Court to make an order that the third defendant assign the lease to the plaintiffs. The answer to the question posed in Issue A4(i) is therefore “No”.
Issue A4(ii)
The above conclusion goes some way to answering the question of whether there is an arguable case that the third defendant induced the first and second defendants to breach their contract with the plaintiff. Really the issue is “Did Mr Ross Pascale induce his parents to breach the Agreement?”. The short answer to that question is that there is no evidence of such an inducement. Nor is there any evidence from which an inducement might be inferred. That is notwithstanding that the defendants called no evidence. While Mr Ross Pascale and his parents must be taken to have known at some stage in March that his company would become the lessee, there is no evidence suggesting that the son induced his parents to embark upon that course. Insofar as his parents breached the Agreement (in particular the restraint provisions) there is nothing to suggest that their son induced them to do so. The answer to this question is “No”.
The Trade Practices Act Argument (Issue A4(iii))
Counsel for the plaintiff first raised the Trade Practices Act claim in his reply to the address of counsel for the defendants. Mr Roberts objected to a new claim being raised at that stage. I adjourned the application to enable both counsel to address me on whether the plaintiff should be permitted to amend his claim to include the Trade Practices Act argument. Over the defendant’s opposition, I allowed the amendment. I gave the defendant time in which to prepare documentary evidence. Before the resumed hearing the affidavit of Grant Kinglsey Feary date 3 February 2010, together with its annexures, was filed.
The plaintiff submits that there is a representation that constitutes misleading and deceptive conduct within the meaning of s 87 of the Trade Practices Act. Mr Ross-Smith was pressed to identify specifically the offending misrepresentation. He did so (T345-6). He identified the representation as that made by the three members of the Pascale family and Anros Pty Ltd that if the lease was taken up by a nominee of Mr and Mrs Pascale the lease would contain the Schedule 4 conditions. The importance of the Schedule 4 conditions to the plaintiff has already been discussed. The corollary of the above is the franchisees would be the lessee.
The plaintiff submitted that the representation may be made expressly or by conduct. Alternatively there could be deception by silence on the part of all three of the Pascales.
Two emails annexed to Mr Feary’s affidavit identify when the defendants told the landlord who the lessee would be. In its email to the defendants’ solicitors on 23 March 2009 (annexure GKF p 86) the landlord seeks clarification of the name of the lessee. The landlord says it assumes it will be Anros Pty Ltd. In its email to the solicitors on 26 March (annexure GKF p 87) the landlord notes that the lessee will be a nominee of Anros Pty Ltd. The name of the nominee is not mentioned. There is no suggestion that these two emails were communicated to the plaintiff.
The third defendant was incorporated on 27 March 2009. It entered a lease agreement in May 2009 operative from 27 March. The defendants can hardly deny that there was a degree of secrecy about this conduct, perhaps even a degree of subterfuge, but nowhere does it say that the first or second defendant or Mrs Pascale will be the lessee. The plaintiff does not assert any representation by any one of the defendants other than that appearing in the correspondence already discussed. There is no evidence from which an inferred representation can be deduced. That is so notwithstanding that the defendants called no evidence. These comments concern the suggested representation that it would be the first or second defendant who would be the lessee. A fortiori in respect of the representation that the Schedule 4 conditions would be included. The letter of the landlord to the defendants of 20 March 2009 expressly says that, so far as the landlord is concerned, those conditions will not be in the lease that they are proposing to enter with the defendants. That letter was copied to the plaintiff’s solicitor.
True it is that all correspondence from the defendants before that, be it with the plaintiffs, or with the landlord, indicates that the defendants would incorporate the Schedule 4 conditions. It is also true that after 20 March there is no correspondence to the plaintiff nor any copied to the plaintiff which notifies him that the Schedule 4 conditions have not been included. He might well complain that he was lulled into a false sense of security. He might well have assumed that his rights to assume the lease at the end of the agreement were protected. But that is not sufficient to make out misleading or deceptive conduct under s 52 giving rise to relief under s 87 of the Trade Practices Act.
What of the claim of deceit based upon the defendants’ silence? Silence may amount to conduct proscribed by s 52 but it arises only when there is an obligation to speak on the part of the person who remains silent. The obligation to disclose was discussed by then Professor Paul Finn in an article entitled Good faith and non disclosure. That article is contained in the text Disclosure obligations in business relationships edited by Tina Cochburn and Leanne Wiseman. At [1.6] Professor Finn suggests that there is a “graduated liability scheme” for disclosure. The obligation to disclose is at its lowest where there is a relationship at arm’s length between strangers. The obligation is higher when one party reasonably places reliance on the words and actions of another and where there is an assumed responsibility. The obligation is at its highest where there are recognised fiduciary relationships. The authors cite Professor Finn’s analysis that disclosure obligations are determined by the reasonable, or objectively determined, expectations of the parties. I respectfully accept that analysis.

The position of the first and second defendant may be different from that of the third defendant. There cannot in my view be an obligation on the third defendant to disclose the facts to the plaintiff. The third defendant had no relationship whatever with the plaintiff. The first and second defendant were franchisees of the plaintiff. The agreement does not require any such disclosure. However I think that it is at least arguable that the defendants were in a sufficiently close relationship, that, looked at objectively, there was an obligation to disclose both that the third defendant (who was not a party to the Franchise Agreement) was now the proposed lessee and that the Schedule 4 provisions were not going to be included in the lease. The position is complicated however by the correspondence between the landlord and the defendants’ solicitors up to and including 20 March which I have already referred to. The defendants might be expected to know that that correspondence was copied to the plaintiff’s solicitors. Might it not be the case that the defendants had their duty of disclosure discharged for them by their solicitors copying the correspondence to the plaintiff’s solicitors? With the supposed knowledge of that correspondence the plaintiff would realise that the Schedule 4 conditions were not going to be included in the lease and he should have been alerted to the possibility that the lessee might not be the first or second defendant. It may however be arguable that the first and second defendants should not have remained silent to the extent that they appear to have done. Their silence might arguably amount to misleading and deceptive conduct.
However a remedy against the first and second defendant will not avail the plaintiff unless an order can be made against the third defendant. The third defendant is the present lessee and the third defendant is ostensibly running the business. The mechanism by which the third defendant might possibly be the subject of an order is provided for in ss 87 and 75B of the Trade Practices Act. Section 87 provides:
… the Court may … make such order or orders as it thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention… (emphasis added)
Section 75B(1) of the Act provide as follows:
(1) A reference in this Part to a person involved in a contravention of a provision of … shall be read as a reference to a person who:
(a) …
(b) …
(c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or
(d) has conspired with others to effect the contravention.
What must be demonstrated is that the third defendant knowingly participated in the conduct, aware of all the relevant facts comprising the misconduct. Mr Roberts referred to Yorke v Lucas (1985) 158 CLR 661 where the High Court held that for s 75B to apply to a person it must be shown that the person intentionally aided, abetted counselled or procured the contravention to form the necessary intent. The person must have knowledge of essential matters which make up the contravention even if he does not know that those matters do actually amount to a contravention.
Mr Ross-Smith submitted that the requisite knowledge could be inferred against the third defendant because of the familial relationship between Mr Ross Pascale and his parents. He knew of course that his company was the lessee of the premises. He must be shown to have known of the contravention at the time of the impugned conduct by his parents, that is from about 20 March to 26 March 2009. In the circumstances I do not think that that submission is tenable. It is one thing to suspect that he might have known but another to draw an inference that he did.
The tentative answer then to the questions posed by Issue A4(iii) is “Yes” but only in respect of the first and second defendants.
I say tentative because Mr Roberts made three further submissions in opposition to the relief sought under the Trade Practices Act.
The first point (identified in the transcript as the fourth point) is that s 87 is only available for final and not interlocutory relief. That is so, he submitted, because the language of s 87 suggests a positive finding, something that only the trial Court can do. In support of that proposition he cited Competition Law in Australia by SG Corones. In paragraph [18.125] the learned author said of s 87(1):
It confers wide powers on the Court to make orders ancillary to proceedings for other remedies in cases involving a contravention in part IV. Section 87(1) does not confer a separate cause of action in relation to a contravention of part IV. It is only available where proceedings have been instituted for other relief under ss 80 or 82 and the finding of a contravention is a necessary condition to the exercise of the power under s 87(1). Relief under s 87(1) is ancillary to a primary cause of action.
It is correct that in interlocutory proceedings the Court is not making findings as such. It is determining whether there is an arguable case for the principal relief and that the balance of convenience favours injunctive relief until the trial Court can finally determine the matter. Nevertheless it seems to me that, while the legislation speaks in terms suggestive of final relief, this section might arguably not be read so as to exclude the provisional relief offered by the interlocutory mechanisms available to the Court.
Second Mr Roberts submitted that it would be impermissible for the Court to assign the lease to the plaintiff without there being any payment proffered by the plaintiff. Clause 31.1 (j) of the Franchise Agreement refers to the assignment of the lease “for market value”. Again it seems to me that argument overlooks the provisional nature of the interlocutory relief. If the trial Court were to confirm the assignment to the plaintiff of the lease then consideration would have to be given to the plaintiff paying for that assignment. In my view it cannot have been anticipated that interlocutory relief would only be available upon payment.
The final point made by the defendant is that the transfer of the lease would forever defeat the defendants’ right. I have already dealt with that issue. If there is no power to order the assignment of the lease, there may arguably be power to order the parties to enter a sublease.
Therefore the answer to the question posed by Issue A4(iii) is “Yes” but only in respect of the first and second defendants. There is no arguable remedy available to the plaintiff under the Trade Practices Act against the third defendant. In practical terms orders against the first and second defendants only would be pointless. The balance of convenience would not seem to favour the making of orders that would have very limited effect.
Balance of Convenience (Issue B)
I turn to the question of the balance of convenience. The first question is whether the balance of convenience favours the granting of orders restraining the defendants from operating the business and the second question is whether there should be an order assigning the lease from the third defendant to the second plaintiff. An alternative to the assignment of the lease would be an order directing a sub-lease between the third defendant and the second plaintiff.
The plaintiff’s case is the defendants have stolen his business. They are operating independently of the franchise. While they are replicating many of the products and services of a Bean Bar franchise café they have largely rebadged the premises as Piazza 99. The Gawler Place premises was one of the early cafes in the Bean Bar organisations and it is described by the plaintiff as the “flag ship” cafe. The plaintiff says it is necessary to retrieve the business in the short term because first, it will be practically impossible to prove damages. It will be hard to determine the consequences for the rest of the Bean Bar enterprise (or for the plaintiff) of the loss of the Gawler Place business for the time it will take to receive a judgment in the case. It will be difficult to determine whether customers have gone elsewhere, and if they have gone elsewhere, whether they would ever return to patronise a re-established Bean Bar café.
The defendants’ response is that the only income the plaintiff receives from the business is the franchise fee. That is readily determined. However that argument overlooks the possibility of the plaintiff being unable to charge the same franchise fee if the value of the business has in some way been diminished.
It is necessary to say something about the timetable relating to these proceedings. The plaintiff promptly commenced his proceedings after he learned that he was not able to resume the lease at the end of the Franchise Agreement on 30 November 2009. The hearing was delayed by no fault of either party until 11 January 2010. The delay between the plaintiff’s closing address on 13 January and the close of submissions on Trade Practices Act point on 5 February was caused by the plaintiff raising the Trade Practices point for the first time on 13 January. The defendants have now been operating the business for over 2 months.
I have answered “yes” to questions 1 and 2 in the list of issues for determination. I think it is arguable that the first plaintiff is a party to the Franchise Agreement and is able to sue under it. I have found that it is arguable that the first plaintiff has not committed a repudiatory breach of the agreement, but even if it has, the first and second defendants may continue to be bound by the restraint provisions of the agreement (those provisions being reasonable and lawful).
I have found that relief may not be given against the first and second defendants pursuant to the Trade Practices Act by reason of conspiracy although relief may be given under the third ground alleged by reason of their silence. However I found that relief under the Trade Practices Act may not be granted against the third defendant on any of the three grounds alleged. I found that it is not arguable that the third defendant has been party to any transactions that can be described as a sham. I have assumed that the Court does have the power on an interlocutory basis to either transfer the lease from the third defendant to the second plaintiff if the third defendant had breached the Trade Practices Act but I have found it unarguable that it has breached the Act. Alternatively I have assumed that the third defendant could be ordered to execute a sublease to the second defendant if it breached the Trade Practices Act. Because I do not think that it is arguable that the third defendant has breached the Act I conclude I cannot make orders by way of mandatory injunction affecting the third defendant.
I cannot, as the plaintiff has asked me to do, make orders that would remove the third defendant as the lessee of the premises. I cannot make orders requiring the defendant to comply with the restraint clauses of the Franchise Agreement.
While the resolution of the issues discussed above would notionally enable the Court to make orders against the first and second defendants, the effectiveness of those orders would be minimal. The order might for example injunct those defendants from any involvement in the business at Gawler Place. The second defendant company appears however to have nothing now to do with the business. An order could for example be made excluding Mr Pascale, the first plaintiff, from working at the Café. That would not affect his wife working there nor his son who is the principal of the third defendant.
Having regard to largely ineffective orders the Court could make against the first and second defendants, the balance of convenience does not, in my view, favour the granting of injunctions in the form or restraint (Issue B(i)). I do not think that the Court can grant an injunction in the form of assignment (Issue B(ii)).
Conclusion
I dismiss the application by the plaintiffs.
I will hear the parties as to costs.