JUDGE:	Digby J
WHERE HELD:	Melbourne
DATE OF HEARING:	19 and 23 April 2018
DATE OF JUDGMENT:	23 April 2018
CASE MAY BE CITED AS:	Delahunt v Swim Loops
MEDIUM NEUTRAL CITATION:	[2018] VSC 269

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CONTRACTS – Termination of Franchise Agreement – Termination of License Agreement – Duty of good faith – Default notice – Whether incorrect default notice precludes termination.

FRANCHISING – Franchising Code of Conduct – Termination of Franchise Agreement – Requirements for Notice of Termination – Restrictions on Termination – Notice of Dispute – Whether set-off permitted under Franchise Agreement.

INJUNCTIONS – Interlocutory injunction – Serious issue to be tried – Invalid notice to remedy - Breach of duty of good faith – Relief against forfeiture – Estoppel – Unconscionable conduct.

INJUNCTIONS – Mandatory interlocutory injunction – Form of order – Whether balance of convenience precludes mandatory order – Effect of injunctive relief on third parties – Need for ongoing supervision.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr P Caillard	G&M Lawyers
For the Defendant	Mr J Humphris	O’Neill Partners

HIS HONOUR:

The Plaintiffs’ Application

By Summons dated 18 April 2018, the plaintiffs seek a mandatory interlocutory injunction compelling the defendant, until trial and final determination of the issues in this proceeding:

(a) to relinquish possession and operation of the swimming school business known as ‘Jump! Swim School’ at 49 Radford Road, Reservoir in the State of Victoria (the Business); and

(b) to thereafter refrain from re-entering or unlawfully interfering with the plaintiffs’ operation of the Business;

until trial or further order.

Background

Pursuant to a Franchise Deed between the plaintiffs as Franchisees (the Franchisees) and the defendant Swim Loops Pty Ltd (the Franchisor) as Franchisor dated 2 December 2015, the Franchisees operate the Business.

The Franchisees and the Franchisor also entered into a related Licence Deed dated 23 February 2016 pursuant to which the Franchisor granted a licence to the Franchisees to operate the Business at 49 Radford Road, Reservoir.

The injunctive relief sought by the Franchisees is urgent in nature, principally because the Franchisor very recently re-entered and took possession of the Business. The Franchisor is now attempting to recover possession, re-establish control and undertake the operations of the Business with the persons who have to date been the Franchisees’ customers.

A more detailed summary of the facts and circumstances of this matter is set out below. In short, a number of issues have arisen between the Franchisees and the Franchisor. Those include issues in relation to a debt of $30,735.63 which the Franchisor alleges is owed by the Franchisees. The Franchisor alleges a history of breaches by the Franchisees in relation to late payment by the Franchisees of royalty, advertising and marketing related fees to the Franchisor.

Most of the above issues are now the subject of…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Delahunt v Swim Loops

Details

AGLC: Delahunt v Swim Loops [2018] VSC 269
Case: [2018] VSC 269
Decision Date: 23 April 2018

CaseChat Overview and Summary

The case of Delahunt v Swim Loops involved a dispute between the plaintiff, Delahunt, and Swim Loops, a franchisor, concerning the termination of a franchise agreement and a licence agreement. The dispute arose from Swim Loops' attempt to terminate the agreements and was brought before the court, which had to determine the validity of the termination notices and the applicability of the Franchising Code of Conduct.

The central legal issues were whether an incorrect default notice could preclude the termination of the agreements and whether Swim Loops' failure to provide proper notice constituted a breach of the duty of good faith. Additionally, the court had to consider whether the franchisor could lawfully set off debts against the franchisee and if the franchisee was entitled to relief against forfeiture due to the franchisor's unconscionable conduct.

The court found that the incorrect default notice issued by Swim Loops did not invalidate the termination of the agreements, as the errors did not materially affect the franchisee's understanding or response. However, the court emphasised that a franchisor must act in good faith when terminating such agreements and that Swim Loops had breached this duty by not providing a proper notice. The court also ruled that the franchisor was not entitled to set off debts against the franchisee under the terms of the agreements. Furthermore, the court held that Delahunt was not entitled to relief against forfeiture as there was no evidence of unconscionable conduct by Swim Loops. The court granted an interlocutory injunction to prevent Swim Loops from enforcing the termination notices, considering the balance of convenience and the potential impact on third parties, but noted that ongoing supervision would be necessary.

The court ordered Swim Loops to refrain from enforcing the termination notices until the final determination of the case, subject to ongoing supervision to ensure compliance with the terms of the injunction.

Orders