Bonds Real Estate Sales Pty Ltd v Ray White (Vic) Pty Ltd
[2005] VSC 221
•24 June 2005
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMON LAW DIVISION
No. 6400 of 2005
| BONDS REAL ESTATE SALES PTY LTD | Plaintiff |
| v | |
| RAY WHITE (VIC) PTY LTD | Defendant |
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JUDGE: | SMITH J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 14 June 2005 | |
DATE OF JUDGMENT: | 24 June 2005 | |
CASE MAY BE CITED AS: | Bonds Real Estate Sales v Ray White | |
MEDIUM NEUTRAL CITATION: | [2005] VSC 221 | |
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Contract – real estate agency – franchise agreement – termination – injunction sought to restrain termination.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr. M. Osborne | Baldwins |
| For the Defendant | Mr. P. Santamaria S.C. and Mr. J. Moore | Minter Ellison |
HIS HONOUR:
Since about 1995 the plaintiff has carried on business as a franchisee of the defendant, trading under the name “Ray White Doncaster.” The franchise agreement was renegotiated and an agreement entered into on 20 February 2004 which in terms commenced from 1 December 2003. It included the following term:
“1.1The franchisor hereby grants the franchisee, a franchise or licence to operate on the premises described in item no. 6 of Schedule 1 (‘the Premises’), a real estate business (‘the Franchise Business’) incorporating the name, mark and logo “Ray White” in accordance with the terms and conditions and restrictions hereinafter set forth, from the date specified in item number 5 in Schedule 1 until the earlier of -
(a)The expiration of 5 (five) years from the date specified in item number 5 in Schedule 1; or
(b)The franchisor becoming aware of any conduct on the part of those people listed in item No. 13 of Schedule 1, occurring at any time, in the past or the future (whether or not in relation to the conduct of the Franchise Business) by the person specified in item No. 13 of Schedule 1, which is detrimental to the name, goodwill, reputation or interest of the Franchisee, Franchisor, the Ray White Group or the Ray White name including, but not limited to, the prosecution or conviction of any of the persons listed in item No. 13 in Schedule 1 of any offence whether criminal or regulatory in nature.”
The persons listed in item 13 of Schedule 1 included Bonds Real Estate Sales Pty Ltd and John Michael Talia, Susan Ann Talia and Danielle Talia. John and Susan Talia are the parents of Danielle Talia and are employed by the franchisee in, respectively, sales and property management. In November 2003, Danielle Talia became the new principal of the plaintiff very shortly after an article appeared in the Herald Sun about a VCAT proceeding that resulted in John Talia’s agent representative’s licence being suspended and him being fined. The subject matter of the proceeding related to the purchase at an undervalue of a property by Mr Talia and his wife. It was as a result of that incident that when the franchise agreement was renegotiated, clause 1.1(b) was required by the defendant.
In July or August 2004, Mr Shore, the CEO of the defendant, spoke with Mr Talia about rumours of a police investigation into a transaction in which a property had been sold to a company, Thordane Pty Ltd. Susan Talia was the sole director and shareholder of that company. Mr Talia told Mr Shore that he had done nothing wrong and that Ray White had nothing to worry about.
In April the following year, Mr Shore received a further telephone call from the police stating that Talia would almost certainly be charged in relation to that transaction. On 27 April 2005, Mr Shore and Brian White met with John Talia at the plaintiff’s premises. Their accounts differ somewhat in detail, but both maintain that it was put twice to John Talia that he had purchased a property on the firm’s Rent Roll at below market value and that he did not contest those facts. Rather, he wanted to explain his actions. The plaintiff has not filed an affidavit in these proceedings sworn by John Talia.
Following that meeting, a letter was prepared and sent to the plaintiff in the following terms.
“I confirm our meeting of 27 April 2005 and advise due to Clause 1.1(b) of your current franchise agreement I hereby terminate the franchise between Ray White (Victoria) Pty Ltd and Bond’s Real Estate Sales Pty Ltd.
John Talia’s confirmation of the following sequence of events, resulting in a pending investigation, causes us to terminate the Agreement:-
1.A property at Burwood was managed by your company as managing agent;
2.Your family purchased that property; and
3.That property was acquired well below market value.
We require you to remove from the business premises all “Ray White” signage, and cease to use or display all “Ray White” colours, signs and symbols, names, marks and logos from all stationery and signs effective immediately.
We acknowledge your membership of the group over many years and we very much regret this action has been necessary.
Yours faithfully
RAY WHITE (VICTORIA) PTY. LTD.”
The plaintiff seeks an interlocutory injunction to restrain the defendants from proceeding with the termination of the franchise agreement. It has advanced a number of arguments as to why the purported Notice of Termination was ineffective. It argues that, at the very least, there are serious questions to be tried on that issue. It argues further that damages would not be a satisfactory remedy in all the circumstances and that the balance of convenience otherwise favours the grant of injunctive relief.
The arguments as to the effectiveness of the purported termination fall into several categories.
·Construction issues are raised as to whether clause 1.1(b) did apply in the circumstances that occurred. In particular it was submitted that what the clause required was that there be conduct on the part of all the persons listed in the Schedule.
·It was further submitted that the conduct has to be identified with precision and that this had not occurred.
·Counsel also submitted that the conduct had to be shown to be detrimental to the name, goodwill, reputation or interest of the franchisee/franchisor, the Ray White Group or the Ray White name. He submitted that there was no evidence of relevant detriment – in the sense that a detriment would not occur until there had been publicity.
·It was argued that the clause, if it came into effect, came into effect originally in July or August of 2004 when the issue of the Thordane transaction was first advised to the defendant. Counsel submitted that the defendant did nothing and continued to do nothing so that so far as the Thordane transaction was concerned it had waived any rights that it enjoyed under clause 1.1(b).
·The plaintiff also relied upon arguments based upon provisions of the Trade Practices Act 1974. In particular, it argued that the giving of the notice in May of this year was contrary to s.51AD Trade Practices Act 1974. Counsel argued that the result of this section was that the defendant had to comply with the Code applicable to franchise agreements and had failed to do so because under the Code, reasonable written notice is required where a franchisor wishes to terminate the agreement in accordance with the agreement but before it expires and without the consent of the franchisee. It will be argued for the plaintiff that if contravention is established, the Court could declare under s.87 of the Act that the giving of the letter was void and of no effect. The other provision relied upon is s.51AC of the Trade Practices Act. It is argued that the circumstances give rise to the question whether termination in those circumstances is unconscionable within the meaning of the section.
I proceed on the basis that there is a serious question to be tried and, although I have significant reservations, that the plaintiff has reasonable prospects of success.
It is necessary then to consider matters relevant to the balance of convenience that would flow depending upon whether the relief sought was granted or not. The first matter to consider is the extent to which damages would supply an adequate remedy to the plaintiff if the plaintiff makes out its case. For the plaintiff it was argued that while out of pocket expenses flowing from the termination would be compensable, there would be elements of damage that were of a more nebulous kind and would not be compensable. It referred to:
(a)loss of reputation;
(b)commissions that might otherwise have been earned;
(c)the cost of notifying and dealing with vendors;
(d)loss of future listings;
(e)sales prices for vendor’s properties that may be less than would otherwise occur because they are no longer marketed under Ray White brands; and
(f)business loss by the appointment of a new franchisee in the area.
Leaving aside the question of loss of reputation of the plaintiff itself, something I consider to be unlikely,[1] and assuming that the defendant will, as indicated by its counsel, undertake to allow the existing sales contracts to continue under the Ray White brand, the remaining items listed comprise particulars of the likely areas in which loss could be suffered in the event of termination of the franchise agreement and can be considered in the assessment of damages. The task of establishing those damages will not be easy. There will no doubt be plenty of scope for argument about the causes of loss of listings, loss of commissions and any business loss in the event of a new Ray White franchisee in the area. Nonetheless, there will be data available from its own records, discoverable records and from market information that is generally available. I am not persuaded that damages would be an inadequate remedy.
[1]It will be the reputation of Ray White rather than the plaintiff that will be at risk.
As to other possible prejudice to the plaintiff if the termination of the franchise goes ahead, plainly the plaintiff can continue to trade as a real estate agent, although not under the name of Ray White, but in its own name. It will not be prevented from continuing with its business. It has been put for the plaintiff that the employees will be prejudiced because there is every prospect that with the loss of the Ray White franchise their earnings will be effected, and they cannot sue for damages. As counsel for the plaintiff properly conceded, however, one cannot assume that if the plaintiff recovered compensation for lost business opportunities, it would not do the right thing by its employees and allow them to share appropriately in the damages received.
As to the issue of prejudice to innocent third parties if the injunction is refused, the defendant has indicated its preparedness to undertake to the court to implement appropriate arrangements which would enable the plaintiff to continue to sell under the Ray White name those properties in respect of which it has been engaged as the franchisee of Ray White. So far as rental properties are concerned, the defendant has conceded that there is nothing to prevent the plaintiff from inviting client landlords to transfer the management of their properties to the plaintiff in the plaintiff’s own name.
As to prejudice to the defendant if injunction were to be granted, counsel for the plaintiff submitted that there would be none. Counsel referred to the fact that no steps were taken to terminate the agreement between August 2004 and April 2005. Counsel also submitted that there was no prejudice during that period. I accept, however, that in the period August 2004 until April 2005, the defendant was proceeding on the basis that it accepted Mr Talia’s assurances that there were no problems relating to the Thordane transaction. In addition, the transaction did not become public knowledge.
Counsel also submitted that from 27 April 2005 onwards, the defendant again did not take steps to determine the agreement. Referring to these periods and the continuation of the franchise, counsel submitted that it should be possible for the franchise to continue without prejudice to the defendant. Counsel submitted that if the continuation was detrimental to the Ray White network, the defendant would have acted earlier.
Since the writing of the termination letter on 27 April 2005, the defendant has, in correspondence passing between solicitors, maintained the position that the franchise is at an end. The plaintiff through its solicitors by letter dated 2 May 2005, sought further time to respond on the basis that the partner responsible for the matter was on leave until 15 June 2005 and sought the continuation of the franchise pending the reply. It also sought continued access to the Ray White computer system. On 9 May 2005, Mr White, on behalf of the defendant, responded refusing to give more time. He confirmed the position of the defendant that the franchise relationship had been discontinued, but indicated a preparedness to discuss issues needed to ease any issues with their clients and that that discussion could take place immediately. In addition, he advised that monthly returns of sales performance were no longer required as the franchise had been cancelled and that all forward financial commitments had ceased with the letter of 27 April 2005. By letter dated 9 May 2005, the solicitors for the plaintiff responded in detail to the termination letter disputing the entitlement to terminate and the facts on which the termination had been allegedly based. The letter demanded the immediate reinstatement of the franchise by close of business on Tuesday, 10 May 2005, the affording of an opportunity with natural justice to investigate the issues, payment of damages sustained by the plaintiff as a result of the termination and payment of the plaintiff’s costs. The letter concluded:
“In the event that the above action is not taken by close of business Tuesday, 10 May 2005, we are instructed to take whatever legal steps are available to our client including attending the Supreme Court of Victoria seeking an injunction and orders that all Ray White services be reinstated to our client until further order of the Court…..”
On 24 May 2005, the solicitors acting for the defendant responded to the correspondence from the plaintiff’s solicitors including a detailed response as to the facts of the matter. On 1 June 2005, the plaintiffs issued their writ.
In my view, the defendant had done what it could, absent the co-operation of the plaintiff. It was maintaining the termination was lawful. The plaintiff was maintaining that it was not. The defendant sought an agreed outcome. The plaintiff has chosen to seek an injunction directed to a continuation of the franchise arrangements. In the circumstances, it is difficult to draw any conclusions from the conduct of the defendant as to whether the continuation of the franchise in that period was detrimental to the Ray White network. In any event, whether it is possible for the franchise to continue without prejudice to the defendant depends very much upon the view one forms as to whether it can any longer trust the plaintiff.
Counsel for the plaintiff also submitted that there will be no prejudice unless and until Mr Talia is charged and adverse publicity occurs. The argument overlooks the reality that civil proceedings have been commenced by the executor of the estate of the person from whom Thordane purchased the property. Those proceedings have been issued and are in the public domain. Thus, adverse publicity may occur through that source at any time. Further, the very fact that the plaintiff has brought these proceedings has placed in the public domain the various allegations relating to Mr Talia and the plaintiff. Thus, while prejudice from adverse publicity is yet to occur, the risk of prejudicial publicity is very real.
But there is a more significant issue of prejudice that is raised by the defendant. The defendant submits that a continuing relationship between franchisor and franchisee requires each to have a degree of trust and confidence in the other, and that where there is a loss of such trust and confidence, the relationship cannot operate satisfactorily.[2]
[2]Citing Garry Rogers Motors (Australia) Pty Ltd v Subaru (Aust) Pty Ltd (1999) FCA 903, at para [46];
K & S Freighters Pty Ltd v Linfox Transport (Aust) Pty Ltd (1999) FCA 1325.
Counsel submitted that on any view of the facts there is no doubt that Ray White has lost confidence and trust in John Talia, and as a consequence the plaintiff, and for that reason has terminated the relationship. Counsel submitted that in the circumstances it did not act unconscionably in doing so.
To assess this argument, it is necessary to refer in more detail to the relevant circumstances of the transaction which has given rise to the concern of the defendant. It concerned the purchase of a property in East Burwood. At the time of the sale, the vendor was in a retirement village and the property was sold under Power of Attorney held by one Stella Corretto. The property was being managed by the plaintiff. The property was not sold on the open market. Rather it was sold by private sale to Thordane Pty Ltd, a company in which the sole director and shareholder was Susan Talia, the wife of John Talia. Ms Corretto was provided with a letter not a valuation from a Mr Torrelli, a real estate agent, dated 1 June 2002, which asserted that “the property should sell in the $135,000 - $155,000 price range in the current market.” Mr Torrelli was a former business colleague of John Talia, having worked with him in the plaintiff. Danielle Talia deposed that John Talia told her that he did not know that Mr Torelli had given an “assessment as to value.” John Talia has not, however, deposed to these matters himself. A contract note was prepared by Loocorp Pty Ltd, a real estate agent on behalf of the vendor. The purchase price was $150,000. The contract note was not signed by Mrs Talia, but was signed by John Talia. The relevant contact at Loocorp Pty Ltd was Mr Vince Loccisano. Mr Loccisano had acted in the past as Mr Talia’s auctioneer and they were good friends.
The vendor died on 2 June 2003. The executor appointed to her estate investigated the sale and requested the office of Ray White at Camberwell Road, East Hawthorn, to prepare a valuation of the property as at 1 July 2002, the date of sale. A certified practicing valuer was engaged. He examined comparable sales and expressed the opinion that the market value of the property at the date of sale was $300,000. These circumstances were such as to warrant grave concern on the part of the defendant as to whether it could continue to trust the plaintiff to avoid damaging its reputation while John Talia was involved as an agent.
As noted above, when Mr Shore and Mr White met with Mr Talia on 27 April 2005, the specific matters were put to him. As noted above, it is clear that on the critical question of whether Mr Talia had been involved in the purchase of a property of a client at a price significantly under market value, Mr Talia did not contest those facts but wanted to explain his actions. His conduct further justified a lack of trust.
I suggest that it is also significant that the party alleging the wrong and seeking an injunction, has sought to dispute the circumstances said to justify termination by relying on the evidence of Danielle Talia, and has not filed any affidavit material sworn by Mr John Talia. This only strengthens the case for accepting the evidence given for the defendant and the inference of impropriety. Further, the plaintiff seeks to have a relationship of trust continue but it is not prepared to be frank and direct about the very circumstances that have given rise to the difficulties of the plaintiff.
The point has been reached where the parties should not be required to continue to operate under the franchise agreement. The balance of convenience plainly favours termination of the franchise. The termination should be allowed to proceed subject to appropriate undertakings to cover the “working out” arrangements in relation, in particular, to existing vendor clients of the plaintiff.
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