Dalecoast Pty Ltd v Guardian International Pty Ltd - [1999] WASC 11

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: DALECOAST PTY LTD -v- GUARDIAN INTERNATIONAL PTY LTD [1999] WASC 11

CORAM: WHEELER J

HEARD: 22 APRIL 1999

DELIVERED : 22 APRIL 1999

PUBLISHED : 24 MAY 1999

FILE NO/S: CIV 1100 of 1999

BETWEEN: DALECOAST PTY LTD
Plaintiff
AND
GUARDIAN INTERNATIONAL PTY LTD
Defendant

Catchwords:

Injunctions - Application for interlocutory injunction - Serious questions to be tried - Balance of convenience - Effect of other disputes between the parties - Turns on own facts

Legislation:

Nil

Result:

Application allowed

Representation:

Counsel:

Plaintiff: Mr J C Giles
Defendant: Mr S G Leslie

Solicitors:

Plaintiff: Solomon Brothers
Defendant: Wilson & Atkinson

Case(s) referred to in judgment(s):

Evans Marshall and Co Ltd v Bertola SA (1973) 1 WLR 349
Suttor v Gundowda Pty Ltd (1950) 81 CLR 418

Case(s) also cited:

American Cyanamid Co v Ethicon Ltd [1975] AC 396
Appleton Papers Inc v Tomasetti Paper Pty Ltd [1983] 3 NSWLR 208
Australian Coarse Grains Pool Pty Ltd v Barclay Board of Queensland (1983) 46 ALR 398
Ballantyne v Phillott (1961) 105 CLR 379
Beltech Corporation Ltd v Wyborn (1988) 92 FLR 283
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Brown v Jam Factory Pty Ltd (1991) 53 FLR 340
Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148
China National Foreign Trade Transportation Corporation v Evlogia Shipping Co SA [1979] 1 WLR 1018
Commissioner of Railways (NSW) v Agallano (1955) 92 CLR 390
Cooper Brookes (Wollongong) Pty Ltd v FCT (1981) 147 CLR 297
FCT v Murry (1998) 155 ALR 67
Fejo v Northern Territory of Australia (1998) 156 ALR 721
Financings Ltd v Baldock [1963] 2 QB 104
FL Schuler AG v Wickman Tools [1974] AC 235
Gange v Sullivan (1966) 116 CLR 418
Havenbah Pty Ltd v Butterfield (1974) 133 CLR 449
Hospital Benefit Fund of Western Australia Inc v Minister for Housing and Community Services (1992) 111 ALR 1
IW v The City of Perth (1997) 191 CLR 1
J C Williamson Ltd v Lukey & Mullholland (1931) 45 CLR 282
James Hardie & Co Ltd v Seltsam Pty Ltd (1998) 159 ALR 268
Khoury v GIO of NSW (1984) 165 CLR 622
Lee v M (a minor) [1994] 2 AC 424
Liverpool City Council v Irwin [1977] AC 239
London & Blackwall Railway Co v Cross (1886) 31 Ch D 354
MacAlister v R (1990) 169 CLR 324
Mardorf Peach Co Ltd v Attica Sea Carriers Corporation of Liberia [1977] AC 851
Margaronis Navigation Agency Ltd v Henry W Peabody & Co of London Ltd [1965] 2 QB 430
Murphy v Lush (1986) 65 ALR 651
New Zealand Shipping Company Ltd v Societe Des Ateliers Chantiers De France [1919] AC 1
Parkinson v Barclays Bank Ltd [1951] 1 KB 368
Patrick Stevedores Operations (No 2) Pty Ltd v Maritime Union of Australia (No 3) (1998) 153 ALR 643
Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235
Phelps v Western Mining Corporation Ltd (1978) 33 FLR 327
Project Blue Inc v Australian Broadcasting Authority (1998) 153 SLR 490
Sanderson Motors (Sales) Pty Ltd v Yorkstar Motors Pty Ltd [1983] 1 NSWLR 513

WHEELER J: This is an application for an interlocutory injunction seeking to restrain the defendant from terminating two franchise agreements. The agreements which are relevantly identical in form gave the plaintiff the right to use anti-graffiti products in defined areas, to use a trade name and various logos and symbols. By the agreements the defendant agreed to supply the plaintiff with products and to provide training and accounting services, among others.
In issue particularly is cl 17.2 of those agreements which provides:
"Notwithstanding anything herein mentioned, the franchisor shall be entitled to terminate this agreement by notice in writing to the franchisee if within any period of 6 months during the term the franchisee does not purchase an average of 200 litres of product per month over such 6-month period."
It is upon that provision that the defendant relies. It appears that for two overlapping 6-month periods the plaintiff purchased in total just under an average of 400 litres of product per month. There is no evidence that any purchase was specifically assigned either by the plaintiff or the defendant to either of the two agreements. Apportioning the amount purchased equally, the defendant seeks to terminate both.
The plaintiff raises a number of issues. I deal with them briefly as the defendant concedes a serious question to be tried arises, although the defendant asserts that the plaintiff's case is not strong and that that weakness is relevant to the balance of convenience.
First, the plaintiff argues that cl 17.2 has two effects, in that it both creates a promissory contractual term to the effect that the plaintiff will purchase 200 litres on average per month and creates the remedy for breach of that term. In my view, it is by no means clear that this is so. However, if it is so, s 51AD of the Trade Practices Act requires the defendant to comply with cl 21 of the Franchising Code of Conduct if it seeks to terminate on the basis of breach, which would involve giving the plaintiff the opportunity to remedy its breach. It is common ground that cl 21 has not been complied with.
Second, the plaintiff says that its failure to purchase is caused by the defendant's failure to supply the product during some periods and, based upon the principle enunciated in Suttor v Gundowda Pty Ltd(1950) 81 CLR 418, the defendant cannot rely upon what is effectively its own breach in order to terminate the contract.
In order to understand this argument, it is necessary to refer to further details of the factual dispute between the parties. It arises in part from the terms of the agreements by which "the product" is defined as meaning "the product or products as at the date hereof sold by the franchisor for the removal of or protection against graffiti under the style or trade name of 'Guardian', together with any future developments of such product effected by the franchisor during the term". In relation to the product, the franchise agreement recites inter alia:
"A.The franchisor has caused to be developed and is the supplier in Australia of a range of products for the removal of or protection against graffiti known as 'Guardian'
and
B.The franchisor is engaged in the business of the sale of the product and providing services of the application of the product for protection against and removal of graffiti from buildings and other structures and places and has thereby created substantial goodwill and high repute in connection therewith."
It appears that the plaintiff believed that the product was one manufactured by and available only from the defendant. At some time it appears the plaintiff became aware that the product, as it originally was at the time of entry into the agreement, was manufactured by a third party. Again at some time the plaintiff began purchasing some of its requirements direct from the third party.
These events gave rise to a dispute between the parties which is the subject of other proceedings. As I understand it, the plaintiff is in other proceedings suing the defendant for what it claims is misleading and deceptive conduct, as well as raising other issues, and the plaintiff has obtained, in still other proceedings, an interlocutory injunction restraining the defendant from acting upon a notice of termination which predates the one in issue here and which is founded upon different provisions of the franchise agreement.
At some time the defendant produced what it says is a modified and enhanced version of the product. The plaintiff however, says that it is an altogether different and inferior product. The plaintiff attempted on a number of occasions to order the original product, while the defendant would supply only the new product. The position is further complicated by the fact that the plaintiff has now obtained from the third party the exclusive licence to supply the original product in Western Australia, so that if the plaintiff is correct in its understanding of the term "the product" its orders to the defendant can be met only by the defendant first obtaining the product from the plaintiff.
It can be seen that the question of whether there has been a failure to supply by the defendant depends upon the resolution of a number of complex issues.
Third, the plaintiff says that, there having been no apportionment by either party of any order, save for what appears to be a unilateral apportioning equally between the two agreements made by the defendant at about the time of its notice of termination, the defendant is not in a position to say that the shortfall is attributable to either or both of the agreements.
Fourthly and fifthly, the plaintiff raises a de minimis point, relying upon the very small amount by which its purchases fall short of that set out in cl 17.2, and raises what it says are certain defects in the notices.
Plainly there are serious questions to be tried, although I would agree with the defendant's submissions that in relation to the interpretation of cl 17.2, upon which the plaintiff appears primarily to rely, the plaintiff faces some difficulty in making good its argument.
Turning to the balance of convenience, it seems to be common ground that the question is whether, even if common law damages are available and would constitute a remedy, it is just in all the circumstances that the plaintiff should be confined to that remedy. Both parties in this respect cited Evans Marshall and Co Ltd v BertolaSA (1973) 1 WLR 349 at 379.
The plaintiff asserts that, as in Evans Marshall (supra), damages here will be difficult to assess, particularly as the contracts in question here have an indefinite term and because issues of goodwill arise.
The defendant submits that the calculation of the plaintiff's damages would be a relatively straightforward exercise of valuation of the business assisted by expert evidence. However it says that if an injunction is granted it will lose the opportunity to replace the plaintiff, with whom it is in dispute and who has performed at most a bare minimum of its obligations to the defendant, with a diligent and conscientious franchisee who will act pursuant to the spirit of the agreements and that its loss will, therefore, not be susceptible of ready calculation.
The problem with the defendant's argument is that it seems to me that issues of valuation in each case are sufficiently similar for it to be likely that either both losses can readily be valued or that neither can. It seems to me that in each case some reasonable assessment of damages could be made but that there are difficulties of quantification which must be acknowledged. I should further note that the defendant's assertion regarding the spirit of the franchise agreements depends upon acceptance of the defendant's version of the disputed facts.
The defendant further submits that there is doubt about whether the plaintiff will be able to make good its undertaking as to damages and that to grant the injunction would involve the court in constant supervision of the contract. As to the second proposition, an element of constant supervision in simply restraining the defendant from acting upon its notice of termination would not, in my view, be required in this case.
As to the former proposition, it was not strongly pressed. The material proffered in support of it was that which was placed before Master Sanderson in one of the other actions in support of an application for security for costs. The learned Master found that there was insufficient evidence of the plaintiff's inability to meet a costs order in reasons published on 7 April 1999. The Library number of the reasons is 990168. Although the legal principles involved are somewhat different, I would respectfully agree with the Master's analysis of the factual materials.
In my view there are serious questions to be tried. The balance of convenience is relatively even. However this matter is part of a wider and more complex dispute, and I am conscious that refusal to grant an injunction in this case may render parts at least of those other proceedings to which I have referred practically futile. For that reason, and because of the uncertainties, (although not in my view the impossibility) involved in the calculation of the plaintiff's damages, I have formed the view that the balance of convenience narrowly favours the grant of an interlocutory injunction.