Bayside Financial Coaching Pty Ltd v Destiny Financial Solutions Pty Ltd
[2013] FCCA 1328
•13 September 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
| BAYSIDE FINANCIAL COACHING PTY LTD & ANOR v DESTINY FINANCIAL SOLUTIONS PTY LTD & ORS | [2013] FCCA 1328 |
| Catchwords: CONSUMER LAW – Trade practices – misleading and deceptive conduct – application for interlocutory injunction – whether prima facie case – whether balance of convenience favours the granting of an injunction – damages – adequate remedy – dismissal of application. |
| Legislation: Trade Practices Act 1974 (Cth), ss.52, 87 |
| ASX Operations Pty Ltd v Pont Data Aust Pty Ltd(No.2)(1991) 100 ALR 125 Brilliant Lighting (Aust) Pty Ltd v Baillieu[2004] VSC 248 Bullock v Federated Furnishing Trades Society of Australia(No.1) (1985) 5 FCR 464 George McGregor Auto Service Pty Ltd v Caltex Oil (Australia) Pty Ltd (1980) 51 FLR 458 Pakenham Upper Fruit Co Ltd v Crosby (1924) 35 CLR 386 Socasen Pty Ltd v Caltex Australia Petroleum Pty Ltd [2007] FCA 997 Western Mail Securities Pty Ltd v Forrest Plaza Developments Pty Ltd & Anor [1987] FCA 11 |
| First Applicant: | BAYSIDE FINANCIAL COACHING PTY LTD (ACN 123 842 455) |
| Second Applicant: | LOUISE LUCAS |
| First Respondent: | DESTINY FINANCIAL SOLUTIONS PTY LTD (ACN 073 558 488) |
| Second Respondent: | REUBEN FRANCIS LOMAS |
| Third Respondent: | MARGARET LOMAS |
| File Number: | MLG 1086 of 2012 |
| Judgment of: | Judge Hartnett |
| Hearing date: | 22 August 2013 |
| Orders made: | 23 August 2013 |
| Delivered at: | Melbourne |
| Delivered on: | 13 September 2013 |
REPRESENTATION
| Queens Counsel for the Applicants: | Mr Perry |
| Solicitors for the Applicants: | Turner Freeman Lawyers |
| Counsel for the Respondents: | Mr Craig |
| Solicitors for the Respondents: | Norton Rose Fulbright |
THE COURT ORDERS THAT:
The First and Second Applicants’ application for an interlocutory injunction as contained in Amended Application filed 31 July 2013 is dismissed.
The costs of this application are reserved.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 1086 of 2012
| BAYSIDE FINANCIAL COACHING PTY LTD (ACN 123 842 455) |
First Applicant
| LOUISE LUCAS |
Second Applicant
And
| DESTINY FINANCIAL SOLUTIONS PTY LTD (ACN 073 558 488) |
First Respondent
| REUBEN FRANCIS LOMAS |
Second Respondent
| MARGARET LOMAS |
Third Respondent
REASONS FOR JUDGMENT
The First Respondent operates a business of providing property investment financial advice (including strategies, tools and programs) and a mortgage broking business throughout Australia, both directly through company-owned stores (of which there are currently two such stores) and through five franchise stores, trading as Destiny Financial Solutions. The Second and Third Respondents are the directors and founders of the First Respondent.
The First Applicant was at the time of the application for interlocutory injunction the then franchisee of a Destiny Financial Solutions store operating from Fitzroy North in Victoria, and was also the former franchisee of a Destiny Financial Solutions store previously operating from Highett (referred to as Bayside) in Victoria, but which ceased to operate in about mid-2012. The Second Applicant is the director of the First Applicant.
The applicants filed an interlocutory injunction application seeking:-
“…that until the trial of this matter that the First Respondent be restrained from taking any step to prevent the First Applicant continuing to operate the Destiny Fitzroy franchised business pursuant to the terms of the Franchise Agreement dated 3 July 2009.”
The respondents opposed the making of the interlocutory order sought. The main purpose of the applicants seeking to obtain the injunction, was to relieve them of the obligation to comply with clauses 25 and 26 of the Destiny Financial Solutions Franchise Agreement Fitzroy (‘Franchise Agreement’) entered into between the First Applicant and the First Respondent and in relation to which the Second Applicant was a guarantor, which was due to come to an end on 25 August 2013, some few days after the hearing of the application. Those clauses are stated to continue in operation after the end date of the Franchise Agreement. Those clauses are as follows:-
“25. PROTECTION OF DESTINY’S GOODWILL
25.1 Restraints reasonable
The Franchisee and the Guarantor
(1) Destiny has considerable and recognised goodwill in the Marks, Image and System and the conduct of businesses using the Marks, Image and System;
(2) Destiny should be entitled to protect that goodwill for its own benefit and the benefit of Destiny and all Destiny Franchisees, by restricting the Franchisee’s ability to damage that goodwill by competing with Destiny or any Destiny Franchisee;
(3) all the restraints imposed upon the Franchisee under clause 25.2 are fair and reasonable and are no greater than are reasonably necessary to protect this goodwill.
25.2 Franchisee must not compete
The Franchisee and the Guarantor (if any) jointly and severally agree with Destiny that neither the Franchisee nor any Guarantor will, during the Restraint Period directly or indirectly do any of the following things:
(1) within the restraint Area engage or be concerned or interested in any business that:
(a) supplies products or services the same as or similar to those at any time supplied in the Business; or
(b) could be reasonably regarded as a market competitor of Destiny or any Destiny Financial Solutions Branch; or
(2) canvass or solicit with a view to supplying any product or service to any person who the Franchisee provided Branch Services in the 12 months before the end of the Franchise;
(3) canvass or solicit with a view to supplying any product or service the same as or similar to those at any time supplied in the conduct of the Business, to any person who is or has been in the 12 months before the end of the Franchise a Client of Destiny; or
(4) employ or engage any person who is or has been in the 12 months before the end of the Franchise employed by Destiny, the Franchisee or any other Destiny Franchisee, without first obtaining Destiny’s written consent.
25.3 Restraint applies to conduct in any capacity
The agreement by the Franchisee and the Guarantor in clause 25.2 applies to any of them acting:
(1) either alone or in partnership or association with another person;
(2) as principal, agent, representative, director, officer or employee;
(3) as member, shareholder, debenture holder, noteholder or holder of any other security;
(4) as trustee of or as a consultant or adviser to any person; or
(5) in any other capacity.
25.4 Separate restraint agreements
Clauses 25.2 and 25.3 have effect as comprising each of the separate provisions which result from each combination of a capacity referred to in clause 25.3 and a category of conduct referred to in clause 25.2. Each of these separate provisions operates concurrently and independently. If any separate provision is unenforceable, illegal or void that provision is severed and the other separate provisions remain in force.
25.5 Acceptable conduct
Nothing in this clause prevents the Franchisee or any Guarantor from:
(1) owning less than 5%, by value, of securities in a listed corporation; or
(2) engaging or being concerned or interested in the Business in accordance with this Agreement.
25.6 Manager and key employees
The Franchisee must ensure that the Manager and any of its consultants and employees nominated by Destiny enter into service or employment contracts in a form approved by Destiny which contain a similar reasonable restraint as imposed on the Franchisee and Guarantor pursuant to this clause 25.
25.7 Definitions
For the purpose of this clause 25:
(1) Restraint Area means the area within:
(a) the Marketing Region;
(b) a 5 kilometre radius of the premises of any Destiny Financial Solutions Branch; and
(c) a 15 kilometre radius of Premises; and
(2) Restraint Period means the period from the beginning of the Franchise until 36 months after the end of the Franchise or, should the Franchisee assign the Franchise, 36 months after the Franchisee assigns the Franchise.
26 CONFIDENTIAL INFORMATION
26.1 Information derived from and owned by Destiny
(1) The Franchisee acknowledges that its knowledge of the operation, promotion and organisation of the Business, the System and the Network including products and services, marketing information, know how and technology is entirely derived from the Confidential Information.
(2) The Guarantor acknowledges that it may, due to its relationship with Destiny, gain knowledge of the Confidential Information.
(3) The Franchisee and the Guarantor acknowledge and agree that the Confidential Information:
(a) is provided or has been obtained under an obligation of strict confidence to Destiny; and
(b) comprises trade secrets of Destiny and is Destiny’s property, even if part of it has been developed by the Franchisee.
26.2 Franchisee must keep Confidential Information secret
The Franchisee and the Guarantor must not:
(1) before or after the end of the Franchise disclose any Confidential Information to any person other than to employees of the Franchisee to the extent necessary for the conduct of the Business; and
(2) after the end of the Franchise or after an assignment of the Franchise by the Franchisee, use any part of the Confidential Information.
26.3 Manager, directors, shareholders, agents, consultants, and employees must maintain confidentiality
The Franchisee must:
(1) ensure that the Manager, the Franchisee’s directors and shareholders and all agents, consultants and employees who will receive or who will have access to Confidential Information, sign a confidentiality deed in a form approved by Destiny before they receive or are granted access to any of the Confidential Information by which the Manager, directors, shareholders, agents, consultants and employees are bound to maintain confidentiality in respect of the Confidential Information in the same manner and to the same extent as the Franchisee is bound by this Agreement;
(2) use its best endeavours to cause its Manager and all of its directors, shareholders, agents, consultants and employees who receive or have access to Confidential Information to observe all the Franchisee’s obligations and undertakings contained in this clause 26;
(3) provide to Destiny a copy of the confidentiality deed signed by the relevant person before giving that person access to Confidential Information; and
(4) implement property systems and procedures as may be necessary and as are required by Destiny to maintain the confidentiality of the Confidential Information.”
On 23 August 2013, the application of the applicants was dismissed by Order of the Court. These reasons support the making of that Order.
In these proceedings, and as set out in the Amended Statement of Claim filed 31 July 2013, the applicants make various claims against the respondents in relation to the negotiation of, entry into and performance of franchise agreements for the Destiny Financial Solutions Bayside and Fitzroy franchises. Those claims include that the respondents made representations to the Second Applicant which were misleading and deceptive or likely to mislead and deceive and thus engaged in conduct prohibited by s.52 of the Trade Practices Act 1974 (Cth) (‘the Act’). The applicants claim that contrary to the representations made, the Bayside franchise business was valueless at the time of the signing of its relevant franchise agreement on or about 1 April 2007, and thereafter that it was operated by the First Applicant at a financial loss, and with the unpaid labour of the Second Applicant. Further, the applicants claim that the Fitzroy franchise business achieved lower than expected profits for the financial years ended 30 June 2010, 30 June 2011 and 30 June 2012. Further, those claims include that there was a lack of support provided by the respondents to the applicants in a specific sense, and that such lack of support falsified prior representations made by the respondents as pleaded in the Statement of Claim.
The relevant principles to be considered by the Court in this interlocutory injunction application appear in the judgment of Branson J in Socasen Pty Ltd v Caltex Australia Petroleum Pty Ltd [2007] FCA 997 at paragraphs 10 and 11:-
“[10] Section 80(1) of the TPA authorises the Court, where it is satisfied that a person has engaged, or proposes to engage, in conduct in contravention of s 51AC, to grant an injunction on such terms as it determines to be appropriate. Section 80(2) authorises the grant of an interim injunction pending determination of an application under subs (1). Although it may be open to debate whether Socasen has as yet made an application under s 80(1) of the TPA, I am willing to proceed on the assumption that it has, or alternatively, that it could readily do so.
[11] The discretion under s 80(2) to grant an interim injunction is conferred in wide terms. In this regard it is analogous to the discretion vested in the Court by s 838 of the Workplace Relations Act 1996 (Cth). It is therefore appropriate to note the following observations of the Full Court in CPSU, The Community and Public Sector Union v Commonwealth of Australia (2006) 157 IR 470 at 473 at [14]-[18]:
14 The Court's discretion under s 838 of the WR Act to grant an interim injunction is conferred in wide terms. Nonetheless, the discretion must be exercised judicially; that is, 'not arbitrarily, capriciously or so as to frustrate the legislative intent' ( Oshlack v Richmond River Council (1998) 193 CLR 72 per Gaudron and Gummow JJ at [22]). Additionally, as the discretionary power to grant interlocutory injunctions has a long history, the discretion is to be exercised according to established principles (Australian Broadcasting Corporation v Lenah Game Meats Pty Limited (2001) 208 CLR 199 per Gleeson CJ at [10]).
15 It is well established that a proper purpose of an interlocutory injunction is to maintain the status quo until the rights of the parties can be determined at final hearing ( ABC v Lenah Game Meats per Gleeson CJ at [9]-[10]).
16 The principles governing the grant or refusal of interlocutory injunctions have recently been confirmed in Australian Broadcasting Corporation v O'Neill (2006) 229 ALR 457 ('O'Neill'). Gleeson CJ and Crennan J at [19] observed:
... in all applications for an interlocutory injunction, a court will ask whether the plaintiff has shown that there is a serious question to be tried as to the plaintiff's entitlement to relief, has shown that the plaintiff is likely to suffer injury for which damages will not be an adequate remedy, and has shown that the balance of convenience favours the granting of an injunction. These are the organising principles, to be applied having regard to the nature and circumstances of the case, under which issues of justice and convenience are addressed. We agree with the explanation of these organising principles in the reasons of Gummow and Hayne JJ, and their reiteration that the doctrine of the court established in Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618] should be folIowed.' (footnotes omitted)
17 In O'Neill Gummow and Hayne JJ at [65] stated:
The relevant principles in Australia are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd. This Court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the court addresses itself to two main inquiries, and continued:
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 or 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 probable 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 ... With reference to the first inquiry, the court continued, in a statement of central importance for this appeal:
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.
(footnotes omitted)
18 At [70] Gummow and Hayne JJ make clear that they (like Gleeson CJ and Crennan J) have no objection to the use of the phrase 'serious question' if it is understood as conveying the notion that the seriousness of the question depends on the considerations emphasised in Beecham Group Limited v Bristol Laboratories Pty Ltd At [71] their Honours emphasise that the governing consideration is that the requisite strength of the probability of ultimate success depends upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory order sought.'”
The two “legs” of the test on an application for an interlocutory application are not to be considered in isolation. As Woodward J held (with whom Sweeny J agreed) in Bullock v Federated Furnishing Trades Society of Australia (No.1) (1985) 5 FCR 464 at paragraph 472:-
“Thus an apparently strong claim may lead a court more readily to grant an injunction when the balance of convenience is fairly even. A more doubtful claim (which nevertheless raises "a serious question to be tried") may still attract interlocutory relief if there is a marked balance of convenience in favour of it.”
Consideration
The applicants argued that in the order sought by them, they merely sought to maintain the status quo. By doing so, it was argued the relief sought pursuant to s.87 of the Act such that the First Applicant be allowed to continue to run a business in the nature of that carried on under the Franchise Agreement, would not be rendered nugatory should the applicants be successful at trial.
In support of the argument that what was sought was a maintenance of the status quo, Queens Counsel for the applicants relied upon the decision in George McGregor Auto Service Pty Ltd v Caltex Oil (Australia) Pty Ltd (1980) 51 FLR 458. That matter involved an application to injunct the termination of a lease in circumstances where that lease had a further term of in excess of some two years to run. The Court held, that to maintain the status quo, performance of the lease arrangement was to continue. The facts of this case were that on or about 3 July 2009, the First Applicant entered into the Franchise Agreement with the First Respondent. That agreement was due to expire in June 2013. For reasons which are not relevant here, the parties acknowledge that the end date of the Franchise Agreement became 25 August 2013. This ending of the Franchise Agreement was known by the parties from 25 February 2013. The interlocutory application sought to compel the First Respondent to remain a party to an agreement with the First Applicant and to continue to provide franchisor services under a contract which was to shortly thereafter lawfully and unambiguously end. Counsel for the respondents, in arguing that such an order was beyond the power of the Court referred the Court to the decision of French J (as his Honour then was) in Western Mail Securities Pty Ltd v Forrest Plaza Developments Pty Ltd & Anor [1987] FCA 11, wherein His Honour said:
“A real question arises as to the power of the court to make an order of the kind [extending the settlement date of an option]…. The argument is that an interim variation of the term of the contract is possible under s.23 of the Federal Court Act, having regard to the nature of the final relief that the court may award under s.87. I must express serious reservations about the propriety of effecting, as it were, a holding position by varying the terms of the contract to extend time limits prescribed by it. [emphasis added]”
It is not necessary for this Court to here determine whether the making of the order sought is beyond the power of the Court. In the exercise of the Court’s discretion for the reasons stated below, and being persuaded by the above expression of French J (as His Honour then was), the Court determines that the First Respondent should not be compelled to continue to perform a Franchise Agreement that has come to an end.
Specific performance of the contract beyond 25 August 2013 is not available to the applicants as the Franchise Agreement is at its end. As was said in Pakenham Upper Fruit Co Ltd v Crosby (1924) 35 CLR 386 at page 391:-
“This agreement, as I have pointed out, is of such a nature that it cannot be specifically enforced, and the application for an injunction is in effect an application for the specific enforcement of the agreement. I think the rule to be applied in such a case is correctly stated in Kerr on Injunctions, 5th ed., at p.476, as follows: “If an agreement affirmative in form is of such a nature that it cannot be specifically enforced, and the application for an injunction is in effect and spirit an application for a decree for specific performance, the Court will not import a negative quality into the agreement, but will leave the plaintiff to his remedy by damages.”
There is no pleaded basis as to why damages would not be an adequate remedy. In the present case, if the applicants are ultimately successful in establishing that the First Applicant ought be entitled to operate a competing business without owing the respondents any confidentiality or restraint obligations, the lost profit during the period over which the First Applicant was not competing can be readily quantified, particularly by using (as a starting point) the performance of the Fitzroy franchise over the past four years.
I turn next to a consideration of the two “legs” of the test referred to earlier in these reasons. When looking to the first limb, Counsel for the respondents argued that the Court was required to determine the matter not on a prima facie case of “serious issue to be tried” basis, but on the basis that there is a “likelihood” of the applicants in this proceeding succeeding. In support of that submission, the Court was referred to Brilliant Lighting (Aust) Pty Ltd v Baillieu[2004] VSC 248 wherein Hollingworth J said at paragraph 7:-
“[7] Whilst the test of "serious question to be tried" is not a particularly onerous one, in a case such as this the party moving for the injunction faces a higher test. The reason for that is conveniently set out in the judgment of Gillard J in Hartleys Ltd v Martin [[2002] VSC 301]. That case was similar to this case in certain respects. There was a three month restraint of trade clause in that case seeking to restrain former brokers and analysts from engaging in competition with their former employer. I quote from paras 32 and following of that judgment.
However, there are exceptions to the general rule [in relation to serious or substantial question to be decided], and depending upon the circumstances, a party claiming an interlocutory injunction may have to establish something more than the fact that there is a serious question to be tried in the principal proceeding. By way of example, where a party seeks a mandatory interlocutory injunction or seeks, in effect, final relief at the interlocutory stage.
In those circumstances the court is bound to consider something more than a serious question to be tried.
Where the most likely outcome is that if the granting of relief on an interlocutory application will have the practical effect of putting an end to the proceeding because the plaintiff will obtain all that he seeks, then the general rule is that this court should consider the likelihood of the plaintiff succeeding in his proceeding.”
The Court does not consider however that there need be more at this juncture, and on these facts, than a serious question to be tried. There is a probability that at trial the applicants will succeed. The practical consequences likely to flow however if the injunction were to be granted are highly prejudicial to the respondents, who could suffer irreparable harm; in particular given the lateness of the application. The balance of convenience does not favour the applicants. In reliance on the unequivocal end of the Franchise Agreement, and in the absence of any interlocutory application for some five months, significant steps have been taken by the respondents to transition the Destiny Financial Solutions Fitzroy business to new premises in West Melbourne. Substantial commitments and substantial costs to third parties have been incurred in the process of transitioning the business from Fitzroy (Affidavit of the Second Respondent sworn 19 August 2013 at paragraph 10). Premises have been leased and staff have been hired (Affidavit of the Second Respondent sworn 19 August 2013 at paragraph 35 and 36). Two or three employees would have their employment terminated if the interlocutory order were granted (Affidavit of the Second Respondent sworn 19 August 2013 at paragraph 40). Whilst the Third Respondent deposes that “two employees of the Bayside business will have their employment terminated”, those employees have had six months notice of the cessation of the franchise (Affidavit of the Second Respondent sworn 19 August 2013 at paragraph 41). The respondents entering into binding heads of agreement and signing a formal lease for the lease of premises in West Melbourne, did not occur in response to the applicants interlocutory application. On 22 February 2013, the Second Respondent wrote to the Second Applicant enquiring of her whether the First Applicant intended to continue to occupy the leased premises in Fitzroy North after the expiration of the Franchise Agreement, or whether it intended to offer to transfer to the First Respondent the current lease agreement. The expiry date at that time of the Franchise Agreement was 1 June 2013. Following the extension of the Franchise Agreement to 25 August 2013, the Second Applicant was again written to (and on 4 June 2013) by the Second Respondent, and the same advice was sought from her as to whether there was to be any transfer of the current lease arrangement after 25 August 2013. The Second Applicant declined the respondents offer to take over the lease of the Fitzroy North premises, a lease operative until August 2016. This lease had been obtained by the applicants at a time when the Franchise Agreement provided for a conclusion date of 1 June 2013. The period of this lease provides no valid reason to grant the injunction sought. The respondents then sought out other rental premises from which to operate the First Respondent’s business after 25 August 2013. Significant steps were taken, and substantial costs and legal obligations incurred by the respondents. The Second Applicant was informed of the finalising of new premises for Destiny Financial Solutions in Melbourne to commence operation after 25 August 2013. The Second Respondent’s evidence is that the new premises has been set up on the basis that there would be an existing income stream from the time of opening the branch and a large existing client base to which ongoing professional and finance services could be provided.
The respondents argued that a granting of the interlocutory injunction, entitling the applicants to continue to deal with clients and confidential information of the First Respondent in breach of clauses 25 and 26 of the Franchise Agreement, and despite its lawful cessation would be an action incapable of being undone. Would this be a reasonable result as between the parties? The Court determines it would not. As was said in ASX Operations Pty Ltd v Pont Data Aust Pty Ltd (No.2) (1991) 100 ALR 125:-
“No doubt, in a case such as the present, the court has power under s 87 to vary the contract in question, even as to matters of price payable thereunder. Nevertheless, the court must be slow to impose upon the parties a regime which could not represent a bargain they would have struck between them.”
The Second Respondent’s very clear evidence (as set out in paragraph 12 of his Affidavit sworn 12 August 2013) is that:-
“Clauses 25 and 26 of the Destiny franchisee agreements are fundamental to the protection of the information built up by Destiny (for the benefit of present and future franchisees), the goodwill of the business and its continuing viability. Destiny would not have entered into an agreement which entitled a franchisee to freely use confidential information and compete immediately after expiry of the franchise.”
The application for interlocutory injunction sought should not be acceded to.
I certify that the preceding eighteen (18) paragraphs are a true copy of the reasons for judgment of Judge Hartnett
Associate:
Date: 13 September 2013
0
7
2