Delahunt v Swim Loops
[2018] VSC 269
•23 April 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2018 1441
| TODD PETER DELAHUNT and JENELLE KATHRYN DELAHUNT | Plaintiffs |
| v | |
| SWIM LOOPS PTY LTD (ACN 160 532 490) | Defendant |
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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 a Notice of Dispute issued by the Franchisees under cl 26 of the Franchise Deed and pursuant to s 40 of the Franchising Code of Conduct (‘the Code’). [1]
[1]Notice of Dispute, 17 April 2018; Affidavit of Massimo Petterlin, 18 April 2018, (Petterlin Affidavit), Exhibit ‘MP-8’.
Summary of Facts
The Franchise Business
On 2 December 2015, the Franchisees entered into a Franchise Deed (‘the Franchise Deed’) with the Franchisor.[2] The Franchise Deed enabled the Franchisees to operate a business, utilising the Franchisor’s capital in exchange for royalties and advertising fees, for the provision of swimming lessons for children.
[2]Affidavit of Todd Peter Delahunt, 18 April 2018, (First Delahunt Affidavit) [3] and Exhibit ‘TPD–1’.
On 23 February 2016, the Franchisees entered into a License Deed (‘the License Deed’) with the Franchisor.[3] The License Deed allowed the Franchisees to occupy the premises at 49 Radford Road, Reservoir for the purpose of operating the swimming school business contemplated in the Franchise Deed.
[3]Ibid [3] and Exhibit ‘TPD–2’.
On 18 September 2016, the Franchisees paid $138,000 to the Franchisor and opened the franchise.[4]
[4]Ibid [5].
Defects and Outstanding Fees
From November 2016, the Franchisees began to identify a number of plant and equipment issues with the premises.[5] The issues include an alleged failure by the Franchisor to complete fit out works, the incorrect calculation of royalties and advertising fees, planning permit issues and a defective water heater. The first plaintiff (Mr Delahunt) deposes that the Franchisees’ claims against the Franchisor in this regard total approximately $49,531.17.[6]
[5]Affidavit of Todd Peter Delahunt, 22 April 2018, (Second Delahunt Affidavit), [4].
[6]Ibid [5].
On 29 November 2017, the Franchisor wrote to the Franchisees to draw attention to ‘royalty and marketing fund contributions’ which it claimed were overdue.[7] The Franchisor’s email stated that it was ‘not aware of any disputes or reason for non-payment’.[8] In response, by return email on 29 November 2017, the Franchisees referred to the Franchisor having been put on notice as to the issues outlined above.[9] The Franchisor, however, denied being aware of any ‘unresolved issues’ by its communication of 30 November 2017.[10]
[7]Affidavit of Ruth Dennis, 20 April 2018, (Dennis Affidavit) Exhibit ‘RD-1’.
[8]Ibid.
[9]Ibid; refer Reasons, [10].
[10]Ibid.
On 1 December 2017, the Franchisees pointed to five specific issues which had been ‘tabled’ with the Franchisor.[11] On 12 December 2017, the Franchisor wrote back claiming that ‘under the terms of your franchise deed, you are not entitled to withhold payment of royalties for any reason’.[12]
[11]Ibid.
[12]Ibid.
On 20 December 2017, the Franchisees wrote to the Franchisor, via an email drafted by their accountant, proposing to set-off amounts owed by the Franchisor in respect of the issues identified above against the royalties and advertising fees, with a view to ‘moving forward with the business’.[13] Mr Delahunt emphasises that his accountant provided ‘professional advice’ that the Franchisees should not to pay the Franchisor as doing so would be ‘accepting their errors’.[14] Instead, on Mr Delahunt’s evidence, the accountant advised that the Franchisees were entitled to and should set-off the amounts the Franchisor owed to the Franchisees against any amounts which were owed to the Franchisor.[15] Such advice was said to have been received from the accountant ‘[o]n or about 29 November 2017’.[16] This was acknowledged by the Franchisor in its email of 21 December 2017.[17]
[13]Second Delahunt Affidavit, [6(c)]; Dennis Affidavit, Exhibit ‘RD-1’.
[14]Ibid [8] and [9].
[15]Ibid.
[16]Ibid [9].
[17]Dennis Affidavit, Exhibit ‘RD–4’.
On 14 March 2018, the Franchisees received a document headed Notice to Remedy Breach (‘the Notice to Remedy’).[18] The Notice to Remedy was purportedly issued pursuant to cl 19 of the Franchise Deed. The Notice to Remedy demanded the Franchisees pay the Franchisor $30,735.63 within 28 days for outstanding royalty and advertising fees, although in subsequent correspondence, the Franchisor incorrectly referred to a 21 day notice period.[19]
[18]First Delahunt Affidavit [8] and Exhibit ‘TPD–4’; Petterlin Affidavit, [2] and Exhibit ‘MP–1’.
[19]Petterlin Affidavit, Exhibit MP–6.
The Franchisees emphasise that the covering letter to the Notice to Remedy indicated that the Franchisor ‘might terminate the franchisee should the franchisee fail to remedy the breach’.[20] The Notice to Remedy itself however, somewhat inconsistently, stated:
Take notice that the Franchisor intend to exercise (without prejudice to any of their other rights) their rights to, among other things, terminate the Franchise Deed in circumstances where you do not comply with the demands made herein within the timeframes nominated above.[21]
[20]Plaintiffs’ Submissions, 22 April 2018, [5]; Affidavit of Massimo Petterlin, Exhibit ‘MP–1’; Second Delahunt Affidavit, [12].
[21]First Delahunt Affidavit, Exhibit ‘TPD–8’.
On 20 March 2017, G&M Lawyers, retained by the Franchisees, requested documentation from the Franchisees for the provision of advice in relation to the Notice to Remedy.[22] Between 21 March and 3 April 2018, the solicitor for the Franchisees, Mr Petterlin, was hospitalised following surgery and was absent from the office.[23]
[22]First Delahunt Affidavit, [9].
[23]Petterlin Affidavit, [4]; Plaintiffs’ Submissions, 22 April 2018, [6].
The Notice to Remedy expired on 11 April 2018. On that same day by email Mr Petterlin advised the Franchisees of his hospitalisation; [24] and called the Franchisor requesting a short extension of time in which to respond to the Notice to Remedy.[25] The email itself stated:
Whilst generally being aware of a history of correspondence exchanged between our respective clients regarding this franchise, we have not had the opportunity of obtaining detailed instructions from our clients as Max Petterlin of our office was away on sick leave from 21 March to 3 April 2018. We would therefore be grateful if you could please agree to extend the timeframe nominated in the Notice to Wednesday 2 May 2018.[26]
[24]First Delahunt Affidavit, [11].
[25]Petterlin Affidavit, [5].
[26]Petterlin Affidavit, Exhibit MP–2.
In her affidavit sworn 20 April 2018, Ms Ruth Dennis, in-house counsel for the Franchisor, deposes:
On or about 11 April 2018, Ian Campbell said to me that he considered that the Plaintiffs had been give more than sufficient time to deal with the Notice to Remedy. As such, he refused the request for an extension of time, particularly in light of the no setoff provisions of the Franchise Deed and the License Deed.[27]
[27]Dennis Affidavit [31].
On or about 11 April 2018 Mr Petterlin was advised that advice would be sought from the ‘Director’ of the Franchisor, and that a response to the request would be delivered later that afternoon.[28] The Franchisor did not respond to this request. Nor did it respond to a follow-up call on 12 April 2018 by Mr Petterlin.[29]
[28]Ibid.
[29]Ibid [6].
The Franchisees submit that their solicitors’ communications of 11 April 2018 requesting an extension of the time within which they were required to respond to the Notice to Remedy was prior to expiration of the Notice to Remedy, that is before 12.00pm on 11 Aril 2018.[30]
[30]Plaintiffs’ Submissions, 22 April 2018. [5].
The Franchisor emphasises that the request was made on the expiration date at 3:27pm,[31] after ‘the Franchisee has had fair and ample opportunity to address the Notice to Remedy within the timeframe provided’.[32]
[31]Affidavit of Ruth Dennis, 20 April 2018, [28]; Petterlin Affidavit, Exhibit ‘MP–2’.
[32]Petterlin Affidavit, Exhibit ‘MP–6’.
On 13 April 2018, after telephoning the Franchisor, Mr Petterlin was told that neither the representatives of the Franchisor with whom he had been dealing were available to speak to him. By email later that day, the Franchisor communicated its rejection of a request by the Franchisees for a short extension of time to the Franchisees’ solicitor.[33] On that same day, Mr Petterlin wrote to the Franchisor to request that no action be taken until he had an opportunity to obtain instructions from his clients and respond.[34]
[33]First Delahunt Affidavit [12]; Petterlin Affidavit, [7] and Exhibit ‘MP–3’.
[34]Petterlin Affidavit, [8] and Exhibit ‘MP–4’.
On 16 April 2018, Mr Delahunt met with the Franchisees’ solicitor and sent a letter to the Franchisor offering to pay $32,739.15 by electronic transfer. That sum exceeded the full amount demanded in the Notice to Remedy dated 14 March 2018.[35] This followed two unsuccessful attempts by Mr Petterlin to contact the Franchisor.[36] The Franchisor did not respond to the offer of 16 April 2018 by the Franchisees to make immediate payment to remediate the alleged financial breaches referred to in the Notice to Remedy.[37]
[35]First Delahunt Affidavit [13]; Petterlin Affidavit, [9] and Exhibit ‘MP–5’.
[36]Petterlin Affidavit, [9].
[37]First Delahunt Affidavit, [14].
Termination of the Franchise Deed and License Deed
On 17 April 2018, Mr Petterlin received a letter from the Franchisor claiming, inter alia, that the Franchisees ‘did not remedy the breach nor make any attempts to contact the Franchisor to discuss or remedy the breach’; that ‘it was not until about twenty-eight (28) days after the Franchisor originally issued its Notice that we received any contact from [Mr Petterlin’s] office’; and that the ‘Franchisor reserves its rights’.[38]
[38]Petterlin Affidavit, Exhibit ‘MP–6’.
On the same day, at 12:39pm, the Franchisees received a Notice of Termination of Franchise Deed and License Deed via email.[39] Seven minutes later, at 12:46pm, three persons acting for the Franchisor attended the Business and directed the second plaintiff (Ms Delahunt) to leave those premises immediately.[40] A little after that time Mr Delahunt attended the premises and witnessed a locksmith changing the locks.[41] Mr Delahunt’s evidence was that the Franchisees were not given any notice between service of the Notice of Termination and the Franchisor taking possession of the premises.[42]
[39]First Delahunt Affidavit, [15] and Exhibit ‘TPD–8’.
[40]Ibid [16].
[41]Ibid [17].
[42]Second Delahunt Affidavit, [39].
On 17 April 2018, the Franchisees issued a Notice of Dispute pursuant to cl 26 of the Franchise Deed and s 40 of the Code referring identified issues to mediation.[43]
[43]First Delahunt Affidavit, [18].
In-house counsel for the Franchisor, Ms Ruth Dennis, deposes to the receipt of this Notice of Dispute as being the ‘first occasion when the Franchisees raised any dispute in relation to the calculation of the franchise fees and the amount of the invoices issued by Swim Loops’, the Franchisor. However, Ms Delahunt adds that the Franchisees had claimed that they had a set-off in respect of fees, relating to the alleged defects outlined above.[44]
[44]Dennis Affidavit, [41]–[43].
Mr Delahunt’s evidence[45] contradicts Ms Dennis’ evidence in the above respect. Mr Delahunt’s evidence is that, by way of example, the Franchisees had on 10 January 2017 sent a spreadsheet by email to the Franchisor identifying alleged ‘double counting’ in an invoice forming part of the money demanded by the Notice to Remedy of 14 March 2018.[46]
[45]Second Delahunt Affidavit, [23], [24].
[46]Ibid [24] and Exhibits ‘TPD–13’ and ‘TPD–14’.
Actions Since Repossession
The Franchisees were locked out of the premises at which the Business was operated on and from 17 April 2018. Ms Dennis of the Franchisor deposes that the following actions have been taken since this time:[47]
[47]Dennis Affidavit, [44].
(a) the Franchisees’ access to ‘Dita’, an external training platform used within the franchise network, was revoked;
(b) the Franchisees’ access to SwimBiz, JUMP! Intranet, and site-specific Facebook and email accounts was revoked;
(c) swimming classes scheduled for the afternoon of 17 April 2018 at the premises were cancelled;
(d) insurance, telephone and electricity arrangements were adjusted for the Franchisor’s occupation of the premises;
(e) Sharyn Loller, a franchisee in training with qualifications in First Aid, CPR and Child Related Employment Screening, was installed in a position at the premises assisting to cover the manager’s role.
Between 17 and 18 April 2018, Ms Dennis also deposes that the Franchisor attempted to enter into new employment contracts with existing employees.[48] On Ms Dennis’ evidence, one employee signed and returned the new contract and ancillary documentation on 18 April 2018.[49] Of the six recorded staff, four have not returned employment contracts to the Franchisor.[50] One staff member who initially signed resigned her position on 21 April 2018.[51] The other, Ms Dennis states she believes, is engaged on a casual basis for one shift per week.[52]
[48]Ibid [45].
[49]Ibid [45(c)].
[50]Ibid [45].
[51]Second Delahunt Affidavit [48].
[52]Ibid [48].
Between 17 and 18 April 2018, Ms Dennis also deposes that thirty five swimming lessons were cancelled due to the ongoing disruptions in the Business.[53]
[53]Affidavit of Ruth Dennis , 20 April 2018, [46].
Course of the Application
The Franchisees’ Summons of 18 April 2018[54] was called on, on 19 April 2018 and was part heard at the end of the hearing day. At the conclusion of part heard argument on 19 April 2018, the following interim orders were made:[55]
[54]Summons, 18 April 2018, [1].
[55]Orders, 19 April 2018.
1.By 12.00pm on Friday 20 April 2018, the defendant provide full monthly extracts of the ‘SwimBiz’ database in relation to gross sales of the ‘Jump! Swim Schools” trading at 49 Radford Road Reservoir, up until 15 March 2018.
2.By 5.00pm on Friday 20 April 2018, the defendant file and serve its responsive material to the plaintiffs’ application.
3.By 4.00pm on Sunday 22 April 2018, via email, the plaintiffs file any reply material in response to the defendant’s responsive material.
4.By 9.00pm on Sunday 22 April 2018, via email, the parties file and serve their submissions.
5.The plaintiffs’ Summons is otherwise adjourned to Monday 23 April at 10.30am.
6.The parties’ costs are reserved.
The Franchisees were also ordered to file and serve a Statement of Claim by 12.00pm on Friday 20 April 2018.[56]
[56]Order, 20 April 2018.
Considerations
The terms of the Franchise Deed include:
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions
Advertising Fee means, for each Accounting Month, an amount equal to the percentage specified in Item 8 of Schedule 1 multiplied by the Gross Sales Revenue for that Accounting Month.
Royalty Fee means, for each Accounting Month, an amount equal to the percentage specified in Item 7 of Schedule 1 multiplied by the Gross Sales Revenue for that Accounting Month.
3.FEES
3.1Initial Franchise Fee
Upon executing this Deed the Franchisee must pay to the Franchisor the Initial Franchise Fee. Except as otherwise provided in this Deed the Initial Franchise Fee is non-refundable.
3.2Fitout Fee
Upon executing this Deed the Franchisee must pay to the Franchisor the Fitout Fee. Except as otherwise provided in this Deed the Fitout Fee is non-refundable.
3.3Royalty Fee
On the Business Day following the end of each Accounting Month, the Franchisee must pay to the Franchisor the Royalty Fee. The Royalty Fee is non-refundable.
3.4Advertising Fee
On the Business Day following the end of each Accounting Month, the Franchisee must pay to the Franchisor the Advertising Fee. The Advertising Fee is non-refundable.
5.PREMISES AND FITOUT
5.1Location of Premises
The Franchisee acknowledges that it has been consulted in connection with the selection of the Premises and that the Franchisor makes no representation or warranty as to the suitability or otherwise of the Premises for the conduct of the Franchisee’s Business.
5.3Fitout Plans
As soon as practicable after entry into the Lease, the Franchisor will prepare the Plans in consultation with the Franchisee and submit them to any applicable planning authority. Any application, lodgement or submission fees payable to any relevant planning authority must be paid by the Franchisee.
5.4Fitout Works
As soon as practicable after approval of the Plans, the Franchisor will at its cost and expense:
(a)conduct and complete the Fitout Works;
(a)paint, colour and decorate the premises to comply with the Corporate Image;
(b)erect and display signage on the Premises; and
(c)ensure that the Fitout Works, and any other activities contemplated by this clause, are conducted in accordance with any applicable statutory requirements in the State.
19.2Immediate Termination
The Franchisor shall be entitled to terminate this Deed immediately upon delivery of written notice of termination to the Franchisee if:
19.3 Termination after Notice to Cure
(a) The Franchisor may terminate this Deed where:
(i)the Franchisee has breached a term of this Deed;
(ii)the Franchisor has given the Franchisee notice of:
(A)the breach;
(B)the Franchisor’s intention to terminate this Deed because of the breach unless the Franchisee remedies the breach within a reasonable time;
(C)the action the Franchisor requires the Franchisee to take to remedy the breach; and
(D)(at the Franchisor’s option) the reasonable time in which the Franchisee must rectify the breach, and
(iii)the Franchisee fails to remedy he breach within a reasonable time.
19.4 Notice of Termination
Any termination by the Franchisor will be without prejudice to any other right or remedy the Franchisor may have in law or in equity against the Franchisee PROVIDED THAT the Franchisor must exercise the powers herein granted in a reasonable manner having regard to all the circumstances and PROVIDED FURTHER THAT if the Franchisor does not elect to exercise its right to terminate this Deed and the Franchise pursuant to clauses 19.2 or 19.3 such inaction will not be deemed to constitute a consent to such act or omission on the part of the Franchisee. Any notice of termination given by the Franchisor pursuant to clause 19.2 or clause 19.3 will be fully effective and this Deed and the Franchise will thereby be terminated notwithstanding that the Franchisee may have ceased engaging, or may not at the time of such notice be engaged in any of the acts which give rise to such notice.
19.5 Breaches being Repudiation
Each act or omission by the Franchisee referred to in clauses 19.2 and 19.3 will be deemed a repudiation of this Deed. In addition to any entitlement of the Franchisor to terminate this Deed (subject to compliance with clause 19.2 and 19.3 as applicable) the Franchisor may recover from the Franchisee all monies in arrears and all damages suffered by the Franchisor as a result of the termination of this Deed and such damages shall include:
26. FRANCHISING CODE OF CONDUCT
26.1 Parties Adherence to Code
The Franchisor and the Franchisee agree to comply in all respects with the Code of Conduct. In particular, the Franchisor agrees to deliver a copy of the Franchisor’s Disclosure Document and a copy of the Code of Conduct to the Franchisee:
(a)within 14 days of receipt of notice of the Franchisee’s intention to renew the Term; and
(b)at any other time (but no more than once a year) within 14 days of the Franchisee’s written request.
26. Dispute Resolution Procedure
(a)If a dispute arises out of or relates to this Deed (including any dispute as to breach or termination of the Deed) a party to the Deed may not commence any court or arbitration proceedings relating to the dispute (except where the party seeks urgent interlocutory relief) before adopting the dispute resolution procedures specified in Part 4 of the Code of Conduct.
(b)The complainant will set out in writing to the respondent the nature of the dispute, the outcome required by the complainant and what action the complainant thinks will settle the dispute.
(c)The parties agree to comply in good faith with those dispute resolution procedures.
(d)Nothing in this clause affects the right of a party to take legal proceedings under this Deed in relation to events giving rise to the immediate termination of this Deed where those events are clearly specified in this Deed and there is no legitimate dispute as to the interpretation of their meaning or factors giving rise to such events. In particular, this clause does not affect the right of any party to seek injunctive relief where this is necessary to prevent irreparable damage to the party making the application or to the System.
Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (the Code )
The Franchisor and the Franchisee agreed to comply in all respects with the Code. The Code provides in relevant parts:
Division 3—Obligation to act in good faith
6 Obligation to act in good faith
Obligation to act in good faith
(1)Each party to a franchise agreement must act towards another party with good faith, within the meaning of the unwritten law from time to time, in respect of any matter arising under or in relation to:
(a)the agreement; and
(b)this code.
This is the obligation to act in good faith.
Civil penalty: 300 penalty units.
(2)The obligation to act in good faith also applies to a person who proposes to become a party to a franchise agreement in respect of:
(a)any dealing or dispute relating to the proposed agreement; and
(b)the negotiation of the proposed agreement; and
(c)this code.
Matters to which a court may have regard
(3)Without limiting the matters to which a court may have regard for the purpose of determining whether a party to a franchise agreement has contravened subclause (1), the court may have regard to:
(a)whether the party acted honestly and not arbitrarily; and
(b)whether the party cooperated to achieve the purposes of the agreement.
Franchise agreement cannot limit or exclude the obligation
(4)A franchise agreement must not contain a clause that limits or excludes the obligation to act in good faith, and if it does, the clause is of no effect.
Other actions may be taken consistently with the obligation
(6)To avoid doubt, the obligation to act in good faith does not prevent a party to a franchise agreement, or a person who proposes to become such a party, from acting in his, her or its legitimate commercial interests.
27 Termination—breach by franchisee
(1)This clause applies if:
(a)a franchisee breaches a franchise agreement; and
(b)the franchisor proposes to terminate the franchise agreement.
(2)The franchisor must:
(a)give to the franchisee reasonable notice, in writing, that the franchisor proposes to terminate the franchise agreement because of the breach; and
(b)tell the franchisee what the franchisor requires to be done to remedy the breach; and
(c)allow the franchisee a reasonable time to remedy the breach.
Civil penalty: 300 penalty units.
Interlocutory Injunctions
A mandatory interlocutory injunction of the nature sought requires the identification of a serious issue to be tried; the likely success of that serious issue at trial, assessed as at the interlocutory hearing, and, evaluated with regard to the strength of the applicant’s cause of action, a balance of convenience in relation to the effect of the order proposed favouring the proposed order.
In Samsung Electronics Co Limited v Apple Inc,[57] a Full Court of the Federal Court of Australia stated:
In Lenah Game Meats,[58] a majority of the High Court held that, where an interlocutory injunction is sought (inter alia) in respect of private rights, it is necessary to identify the legal or equitable rights which are to be determined at the trial and in respect of which the final relief is sought. As Gleeson CJ said at [15] (p 218):
If the respondent cannot show a sufficient colour of right of the kind sought to be vindicated by final relief, the foundation of the claim for interlocutory relief disappears.
[57][2011] FCAFC 156.
[58]ABC v Lenah Game Meats Pty Ltd (2001) 208 CLR 199.
In Bradto Pty Ltd v State of Victoria,[59] the Supreme Court of Victoria Court of Appeal stated:
[59](2006) 15 VR 65.
33.In our view, it is desirable that a single test be applied in all cases where an interlocutory injunction is sought. There is nothing in the body of authority to which we have referred, nor any consideration of principle, which requires a special test to be applied to one sub-category of such injunction applications, namely, those where mandatory relief is sought. On the contrary, as pointed out convincingly by Hoffman, J in Films Rover,[60] the grant of a mandatory interlocutory injunction may be justified in a particular case notwithstanding that the court does not feel the requisite "high degree of assurance".
34.As Lord Woolf, M.R. said in Broadmoor Special Health Authority v Robinson,[61] adopting the words of Lord Cooke in TV3 Network Ltd v Eveready New Zealand Ltd:[62]
The remedy of injunction should be available whenever required by justice.[63]
35.In our view, the flexibility and adaptability of the remedy of injunction as an instrument of justice will be best served by the adoption of the Hoffman approach. That is, whether the relief sought is prohibitory or mandatory, the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been ‘wrong’, in the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial.[64]
[60]Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670.
[61](2000) 2 All ER 727 at 732.
[62][1993] 3 NZLR 435 at 438.
[63]Cited by Gillard J in Hartleys Limited v Martin [2002] VSC 301, [30].
[64]Ibid [33]-[35].
In summary, to obtain the injunctive relief they seek, the Franchisees must demonstrate:[65]
[65]Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, [19], [65]-[72].
(a) the existence of a serious issue or issues in dispute;
(b) a sufficient likelihood of success at trial in respect of one or more of those issues, evaluated on the material available at the time of the application;[66]
[66]Ibid [65].
(c) as part of the evaluation of such sufficiency, the required likelihood of success at trial may be informed by the relative extent to which the balance of convenience favours the grant of the injunction sought;
(d) the applicant will suffer injury for which damages would not be an adequate remedy;[67] and
(e) the balance of convenience favours the grant of the injunction.
[67]In Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, Gleeson and Crennan J characterised this as a separate consideration from consideration of the balance of convenience [19]. But other courts have considered it when assessing the balance of convenience.
Particular Facts and Circumstances Supporting a Sufficiently Arguable Case
As at 17 April 2018, the Franchisor was aware of the Franchisees’ belief they could set-off their claims against the royalty and advertising fees asserted by the franchisor payable from time to time.[68]
[68]Dennis Affidavit, [15] and [31].
It appears the Franchisees’ Accountant had advised the Franchisees could set-off their claims in this way.[69] It was not until at the earliest about 14 March 2018 that the Franchisees were apparently disabused of this belief.[70]
[69]Second Delahunt Affidavit, [8] and [9].
[70]On 14 March 2018, the Franchisees received the ‘Notice to Remedy Breach’, refer to Exhibit ‘TPD-4’ to the First Delahunt Affidavit.
Before the end of the period specified in the Notice to Remedy, the Franchisees, through their solicitor, had explained that their legal adviser had been ill and unavailable, that they required his advice, and that they needed a short extension of time within which to address the Notice to Remedy.
By 16 April 2018, the Franchisees had offered an immediate cash payment in excess of the sum asserted by the Franchisor as the amount in issue.
Under covering letter dated 14 March 2018, the Franchisor issued the Notice to Remedy pursuant to cl 19 of the Franchise Deed demanding payment in the sum of $30,735.63; and further demanded that that sum be paid by the Franchisees on or before Wednesday 11 April 2018. The Franchisor’s letter dated 14 March 2018 under cover of which the Notice to Remedy breach of Franchisees and Licensees Covenants was served stated that:
Unless you comply with the requirement set out in the enclosed Notice, the Franchisor and Licensor may take immediate steps to (among other things):
(a)terminate your franchise and licence and re-enter the business premises …
The Franchisor’s letter of 14 March 2018 also stated:
Where you have any difficulty in complying with our requirements within the timeframes nominated in the enclosed Notice, you must immediately contact us to discuss that difficulty.
The Notice to Remedy was couched in less equivocal terms, it stated that:
Take notice that the Franchisor intend to exercise (without prejudice to any of their other rights) their rights to, among other things, terminate the Franchise Deed in circumstances where you do not comply with the demands made herein within the timeframes nominated above.[71]
[71]First Delahunt Affidavit, Exhibit ‘TPD–8’.
In summary, it can be observed that the Notice of Remedy of 14 March 2018:
(a) specified an amount due and payable which was in error;
(b) attached a series of invoices spanning from November 2016 to February 2018 some of which are arguably in error in that they were for an incorrect amount;[72]
(c) notified 28 days within which the Franchisor’s were to rectify the breach, whereas the Franchisor’s letter covering service of that Notice specified 21 days within which the breach was to be remedied.[73]
[72]First Delahunt Affidavit, Exhibit ‘TPD–4’ and Exhibit ‘TPD–5’.
[73]See First Delahunt Affidavit, Exhibit ‘TPD-4’ (Notice) and Petterlin Affidavit, Exhibit ‘MP-6’ (Covering Letter).
Prior to the expiry of the Notice to Remedy at midnight on 11 April 2018, the Franchisor’s solicitor, Massimo Petterlin, communicated with the Franchisor explaining that he had been absent on sick leave from 21 March to 3 April 2018. Because they did not have an opportunity to provide detailed instructions and obtain advice in relation to the Notice to Remedy of 14 March 2018, the Franchisees sought an extension of time in relation to the Notice to Remedy to Wednesday 2 May 2018.
By email dated 13 April 2018 to the Franchisor, the solicitor for the Franchisees also foreshadowed that he was meeting with his clients on 18 April 2018 to seek instructions and provide advice and, in the circumstances, requested that the Franchisor take no action in relation to the Notice to Remedy of 14 March 2018 until such time as the Franchisees’ solicitors responded to that Notice. Mr Petterlin informed the Franchisor that he anticipated the response would be provided no later than 20 April 2018.
On 16 April 2018, the Franchisees, via its solicitors, communicated that:
Upon receipt from you of written confirmation that the Notice to Remedy Breach dated 14 April 2018 will be remedied, our client will electronically transfer the sum of $32,739.95 into your client’s account on that same day. This amount includes marketing and royalty fees for March 2018.
Without further communication of any type, on 17 April 2018 the Franchisor served a Notice of Termination of the Franchise pursuant to cl 19.3(a)(ii) of the Franchise Deed and simultaneously attended the ‘Jump! Swim School’ premises at Reservoir, changed the locks, re-entered and excluded the Franchisees.[74]
[74]Petterlin Affidavit, Exhibit ‘MP-7’.
The affidavit material relied upon in this application by the Franchisor, clarified by Ms Dennis’ affidavit, establishes that the Franchisor had by 11 April 2018 taken the view that the Franchisees had been given more than sufficient time to deal with the Notice to Remedy and that the Franchisees request for an extension of time, ‘particularly in light of the no set-off provisions of the Franchise Deed and Licence Deed’, should be refused.[75]
[75]Dennis Affidavit, [31].
Specifically, Ms Dennis deposes that Ian Campbell, Managing Director of the Franchisor, had ‘no faith that the payment would actually be made’ as promised in the Franchisees’ facsimile dated 16 April 2018.[76]
[76]Ibid [37(2)].
Parties’ Submissions – Serious Questions to be Tried – Franchise Deed
Breach of Obligation of Good Faith
The principal basis upon which the Franchisees submitted there was a serious question to be tried concerned an alleged breach of the Franchisor’s obligation of good faith. The Franchisees correctly refer to the importation of an obligation of good faith binding both the Franchisees and the Franchisor pursuant to the Franchise Deed and the Code provisions earlier identified.
An obligation of ‘good faith’ is an obligation to act honestly and with a fidelity to the bargain; not to act to undermine the bargain entered; and an obligation to act reasonably and with fair dealing having regard to the interests of the parties and the provisions, aims and purposes of the contract, objectively ascertained.[77] However, in my view, such obligations do not ordinarily require the interests of a contracting party to be subordinated to those of the other.[78]
[77]Paciocco v Australian and New Zealand Banking Group Ltd (2015) 236 FCR 199, [288]-[289].
[78]Ibid [289].
In determining whether a party has failed to act in good faith, the Court may have regard to the matters referred to in clause 6(3) of the Code.[79]
[79]Clause 6(6) of the Code makes it clear that a party is not acting in bad faith in pursuing its legitimate commercial interests.
Serious Questions to be Tried
The Franchisee’s submissions concerning the Franchise Deed proceed on the basis that the termination of the Franchisor was ineffective.
In response, the Franchisor submits that termination was effective because the Notice to Remedy dated 14 March 2018 was ‘materially correct’. The Franchisor also submits that it is not essential to the validity of such a notice that it correctly state the amount of debt, provided the debtor is given a reasonably opportunity to comply with the demand, informed by the debtor’s knowledge, lack of knowledge and means of ascertaining the amount due.[80]
[80]Defendant’s Submissions, 22 April 2018, [19]; Bunbury Foods Pty Ltd v National Bank of Australasia (1984) 153 CLR 491, [503]-[504].
In support of this submission, the Franchisor referred to the decision of the High Court of Australia (‘the High Court’) in Bunbury Foods Pty Ltd v National Bank of Australasia.[81] The passage of the judgment on which the Franchisor relies is as follows:
It is of some materiality to note that it is not essential to the validity of a notice calling up a debt that it correctly states the amount of the debt. Even a notice given to the mortgagor by the mortgagee as a condition precedent of a power of sale is not rendered invalid because it demands payment of more than is due.[82]
[81](1984) 153 CLR 491.
[82]Ibid 503–04.
This passage may afford some assistance to the Franchisor. However, against this submission, at least three points can be made.
The first is that the passage cited has been taken out of the context of the judgment. The ratio in Bunbury concerned the need to accord protection to debtors through the requirement a debtor be given a reasonable opportunity to pay before it can be said that the debtor failed to comply with the demand,[83] and the need to ensure that creditors could call up a debt as a matter of urgency, but still provide reasonable notice, where there are, for example, accounting complications.[84]
[83]Ibid 502-03.
[84]Ibid 503.
In my view, the point sought to be supported by the Franchisor here, namely, that the validity of a notice calling up a debt is unaffected by stating an incorrect amount, is therefore obiter dicta in Bunbury.
The second point is that the statement in Bunbury relied on by the Franchisor is one of generic application.[85]
[85]Whild v GE Mortgage Solutions Pty Ltd [2012] VSC 212 [46] (Croft J); Equuscorp Pty Ltd v Olsen [2004] VSC 454 (Balmford J).
In this case, both parties accept that the Franchise Deed and the License Deed were subject to, inter alia, the Code. Of particular relevance to the Franchisees’ pleading is cl 27 in the Code, which covers the circumstances in which a franchise agreement can be terminated on the basis of a franchisee’s breach.[86] It is also apposite to observe that cl 19 of the Franchise Deed defines the bases for termination and the procedural requirements for effecting a termination.[87]
[86]Competition and Consumer (Industry Codes–Franchising) Regulation 2014, cl 27.
[87]Second Delahunt Affidavit, Exhibit ‘TPD–1’.
In my view, the requirements of the Code to which the parties have subscribed, as well as the specific terms of the Franchise Deed, are sufficient in this instance to displace the application of the generic statement in Bunbury relied on by the Franchisor.
The third point is that the Franchisor’s reliance on the above passage from Bunbury does not answer the Franchisees’ assertions as to the validity of the Notice to Remedy. The Bunbury principle preserves a default notice notwithstanding an immaterial error which does not, in substance, alter the nature of the debtor’s obligations.
In this case, however, the thrust of the Franchisees’ pleading is to impugn the Franchisor’s conduct in issuing the Notice, the validity of the Notice and all subsequent action taken in reliance on the Notice.[88]
[88]Plaintiffs’ Submissions, 22 April 2018, [12].
On the Franchisee’s submission, the incorrect statement on the Notice, coupled with the Franchisor’s strict insistence on compliance with the Notice, fails to precisely indicate to the Franchisees what must be done to assuage their default. This is put as one manifestation of the Franchisor’s failure to perform its obligations in good faith.
For the above reasons, and in addition for the reasons referred to in paragraph [73] below in relation to the non-conformities of the Notice to Remedy, I consider that the Franchisees advance an arguable case that the Franchisor’s conduct breached the agreement, was ineffective to found termination, therefore could not found re-entry.
In addition to its submissions as to the validity of the Notice to Remedy, the Franchisor also asserts that the Franchisees did not dispute the sum demanded in the Notice to Remedy until after the Franchisor terminated the Franchise Deed and Licence Deed.
I do not however accept that the Franchisees had not in substance disputed the sum which was ultimately demanded in the Notice to Remedy. It is clear from Ms Dennis’ affidavit sworn 20 April 2014,[89] that before the expiration of the period for compliance stated in the Notice to Remedy, Mr Campbell, Managing Director of the Franchisor, knew of a subsisting dispute in relation to the amount demanded by the Franchisor. This arose from earlier asserted arguments by the Franchisees that they were entitled to set-off amounts against the sums asserted as owing by the Franchisor.
[89]Dennis Affidavit, [31].
The Franchisor also argues that the Franchisees identify no arguable case in relation to a breach of good faith or co-operation.
Conclusions
In the circumstances of this matter outlined above, and bearing in mind the above provisions of the Franchise Deed, the incorporated provisions of the Code, and the attendant obligations of good faith, I consider that a number of serious issues arise to be tried in this proceeding. These issues include:
(a) the Franchisor’s arguable breach of cl 19.3(a)(ii)(C) of the Franchise Deed, which arguably requires that the Franchisor’s Notice to Remedy pursuant to that clause specify precisely the sum required to be paid by the Franchisee to remedy a breach;
(b) the Franchisor’s arguable non-compliance with cl 19.3(a)(iii) of the Franchise Deed, which arguably provides that as a requirement of the Notice to Remedy, and before the Notice to Remedy can be actioned pursuant to cl 19.4, the Franchisee must fail to remedy the breach specified in the Notice within a reasonable time;
(c) the Franchisor’s arguably wrongful termination of the Franchise Deed, because of its:
(i) arguable failures in (a) and (b) above;
(i) failure to provide the Franchisees a reasonable time to remedy the alleged breaches pursuant to cls 19.3(a)(iii) and 27(2)(c) of the Code;
(ii) non-compliance with the Code dispute resolution procedure as provided for in cl 26 of the Franchise Deed;
(d) the arguable violations of the provisions of the Code, and the Franchise Deed itself, requiring good faith co-operation and conduct which is not arbitrary in light of the parties’ understanding on 17 April 2018 that the Franchisees disputed their right to set-off the moneys which the Franchisor claimed were owing; the Franchisees’ request for time to seek legal assistance; and the unequivocal offer by the Franchisees on 16 April 2018 to immediately cure all alleged breaches by paying the sum of $32,729.95;
(e) the Franchisees’ arguable position that although the fixing of what the Franchisor regards as a reasonable time within which the Franchisee must rectify the breach, as provided for in cl 19.3(a)(iii), the question of whether the Franchisee has remedied the breach ‘within a reasonable time’, is to be determined separately in all the circumstances including by reference to the Franchisor’s reasonable opinion pursuant to cl 19.3(a)(ii)(D) of the Franchise Deed;
(f) the Franchisees’ arguable position that the reasonable time referred to in cls 19.3(a) and 19.3(b) of the Franchise Deed (which will be no longer than thirty days) applies only to the reasonable time referred to in cl 19.3(a)(ii)(D), and not a reasonable time as referred to in cl 19.3(a)(iii) of the Franchise Deed.
In summary, there are serious issues to be tried in relation to whether the Franchisor was entitled to terminate the Franchise Deed and Licence Deed on 17 April 2018 and on that basis re-enter the premises and take over the Business.
Serious Questions to be Tried – Unconscionable Conduct
The Franchisees also argue that they have a sufficient prospect of success in a claim to relief from forfeiture in respect of both the Franchise Deed and the Licence Deed. They submit that the Franchisor’s termination and re-entry will result in the forfeiture of proprietary interests in a way which is, in the circumstances unconscionable, even if termination of the two Deeds was otherwise effective at law.
On a similar basis, the Franchisees argue that the Franchisor’s purported termination of the Franchise Deed and the Licensee Deed was ‘unconscionable’ conduct, both in equity and in contravention of ss 20 and 21 of the Australian Consumer Law.
In response, the Franchisor also argues that there is no evidence to show that the Franchisees acted unconscionably, in connection with the Australian Consumer Law or otherwise. For similar reasons the Franchisor also rejects the Franchisees’ claim for relief against forfeiture.
I observe that if the termination was valid, the Franchisees could obtain relief against forfeiture if there was evidence the Franchisor lulled the Franchisees into their breach.[90] In the exercise of its equitable jurisdiction to grant relief against forfeiture, the Court would usually consider whether the Franchisees were affected by fraud, accident, mistake or surprise and whether the conduct of the Franchisor, in some significant respect, caused or contributed to the breach that enlivens the right to terminate.[91] The High Court has observed that those considerations, adopted from the judgment of Lord Wilberforce in Shiloh Spinners Ltd v Harding,[92] are ‘in a broad sense the circumstances making it inequitable’ to exercise a right of termination.[93]
[90]Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315, [31].
[91]Ibid [58].
[92][1973] AC 691, 723.
[93]Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315, [58].
The Franchisees also referred to the decision of the High Court in Commercial Bank of Australia Ltd v Amadio (‘Amadio’).[94] In that case, Mason J (agreeing with Deane J) held that relief from unconscionable conduct can be granted where unconscientious ‘advantage is taken of an innocent party who, though not deprived of an independent and voluntary will, is unable to make a worthwhile judgment as to what is in his best interest’.[95]
[94](1983) 151 CLR 447.
[95]Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, 461.
In my view, the Franchisees have adduced no evidence in this case to show that relief against forfeiture, as the doctrine was explained in Tanwar Enterprises Pty Ltd v Cauchi,[96] should restrict the Franchisor’s right of termination. Nothing suggests that Franchisor has acted inequitably. Even if there was a ‘mistake’ on the part of the Franchisees with respect to the proposed set-off, it cannot be said that the Franchisor’s conduct caused, in any sufficiently significant respect, the Franchisee’s breach of contract.
[96](2003) 217 CLR 315.
I am not satisfied that the Franchisees can advance an arguable case based on unconscionable conduct of the kind recognised in Amadio, including for the following reasons:
(a) The relief awarded in Amadio is of no assistance to the Franchisees. Counsel for the Franchisees, Mr Caillard, submitted that the Franchisor’s refusal to provide a short extension of time, and decision thereafter to terminate the agreement, amounted to unconscionable conduct.[97] However, the Amadio equity seeks relief from the legal effects of a transaction formed by exploitation of a special disadvantage. In this respect, it is a ground for setting aside a transaction. That is neither sought nor available in the present case.
[97]T98.11–23.
(b) Further, in any event, the Franchisees are not at a relevant ‘special disadvantage vis-à-vis the Franchisors. While the circumstances in which a ‘special disadvantage’ will be recognised are not closed, the defining characteristic is an individual’s inability to make appropriate decisions in his or her own interest.[98] That is a high threshold. In Kakavas v Crown Melbourne Ltd,[99] the High Court rejected that a compulsive gambler was at a ‘special disadvantage’ vis-à-vis a casino.[100] Here, the Franchisees have, among other things, challenged the Franchisor’s calculation of outstanding fees on their own initiative; and have sought professional legal and accounting advice. Mr Calliard’s submission that the Franchisees, as ‘Mum and Dad investors’, were at a special disadvantage vis-à-vis the Franchisor should, I consider, be rejected.[101]
[98]Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, 462.
[99](2013) 250 CLR 392.
[100]Ibid [28].
[101]T98.11–23.
(c) In addition, and in any event, the Amadio principle also requires ‘exploitation’ of the relevant special disadvantage. The term ‘exploitation’ connotes a sense of victimisation. In Kakavas, the High Court stated:
Equitable intervention to deprive a party of the benefit of its bargain on the basis that it was procured by unfair exploitation of the weakness of the other party requires proof of a predatory state of mind.[102]
In my view, the Franchisees have not proven that the Franchisor’s state of mind was ‘predatory’. The Amadio equity is not engaged by mere inadvertence or indifference to the circumstances of another.
[102]Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 [161].
‘Unconscionable conduct’ may extend to conduct in the enforcement of an agreement when actioned under the Australian Consumer Law.[103] Section 243 contains a suite of remedies that is not limited to the recession of a tainted transaction. However, that distinction was not addressed at any length in the Franchisees’ submissions. Moreover, unconscionable conduct under the Australian Consumer Law requires a ‘high level of moral obloquy’.[104] For the reasons I have outlined above, I do not consider such a high threshold is satisfied in the circumstances of this case.
[103]SG Corones, The Australian Consumer Law (Thomson Reuters, 2nd ed, 2013) 192–93.
[104]Attorney General of New South Wales v World Best Holdings Ltd (2005) 63 NSWLR 557, 583.
Nor am I satisfied, as also asserted in the Franchisees’ oral submissions, that any arguable serious issue arises on the basis of estoppel based the Franchisor’s conduct or otherwise.
Balance of Convenience
The consideration of the balance of convenience requires the Court to weigh, in the circumstances of the case, the competing implications of granting or declining to grant the injunction sought, together with consideration as to which outcome on the grant of injunctive relief will result in the lesser risk and will render the more just result in all the circumstances.
The inconvenience or injury which the Franchisees would likely suffer if the injunction were refused, and the Franchisees ultimately succeed, must outweigh the inconvenience or injury which the Franchisor would be likely to suffer if the injunction were granted and the Franchisor is ultimately found to be successful.[105]
[105]Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, [65], [71].
As to the interrelated considerations as to the strength of the Franchisees’ case, in JTA Le Roux Pty Ltd v Lawson, Edelman J made the following observations:
[21]As Kiefel J explained in 1995, the classification of an injunction as “mandatory” should not automatically attract a requirement that the court should have further confidence in the correctness of the order. The line between an order which requires something to be done and an order which prohibits something from being done can sometimes be fine. Gummow J further explained in Businessworld Computers Pty Ltd v Australian Telecommunications Commission1\ that mandatory interlocutory injunctions are more likely to issue when the order requires a defendant to revert to a course of conduct which was pursued before the occurrence of the acts or omissions which provoked the litigation, such that the risk of injustice is diminished.
…
[23]In some, perhaps many, cases where an interlocutory mandatory order is sought, considerations involving the balance of convenience will include the extent to which the order intrudes upon the liberty of the respondent. Another relevant consideration may be whether a defendant who has raised a triable issue will be deprived, by a mandatory order, of a full hearing of the issue if the effect of that mandatory order is final determination of the proceedings. But these matters can, and should, be assessed as part of the balance of convenience.[106]
[106]JTA Le Roux Pty Ltd (as trustee for the FLR Family Trust) v Lawson (No. 2) [2013] WASC 373, [21]–[23] (citations omitted).
In Bradto Pty Ltd v State of Victoria,[107] the Court rejected the ‘high degree of assurance’ test[108] which imposed a higher standard for the grant of a mandatory inunction.[109] Instead, the Court considered that it should take whatever course appears to carry the lower risk of injustice.[110]
[107](2006) 15 VR 65.
[108]See Queensland v Australian Telecommunications Commission [1985] HCA 25.
[109](2006) 15 VR 65, [33].
[110]Ibid [35].
It has also observed that the fact that the relief sought is mandatory may tilt the balance of convenience in the respondent’s favour.[111]
[111]W Hoy Pty Ltd v W.T.H. Pty Ltd [2018] FCA 310, [6].
The parties accept that the same tests apply irrespective of whether the injunction sought is prohibitory or mandatory, but recognise that the effect of a mandatory order may affect the necessary balance of convenience.
Franchisee – Balance of Convenience
The Franchisees identify the following prejudice. The Franchisees contend that:
Business Prejudice
(a) The Franchisees have developed goodwill by operating the Business and participating in the local community for over a year. They point out that the students learning to swim, principally under the instruction of Ms Delahunt, are under six years old.[112] The Franchisees assert that trust and rapport which has developed as part of the relationship between the instructors and their students, and which the parents also repose in the Franchisees, personally, for the supervision of their children around water, will be eroded the longer the Franchisees are not able to operate the Business;
[112]First Delahunt Affidavit, [19].
(b) The Franchisees say that the immediate, unexplained and unpublicised absence of the Franchisees from the Business has the potential to destroy its goodwill, and they contend that to refuse injunctive relief and thereby prevent the ongoing usual operation of the Business could irreparably lower goodwill and profitability.
Personal Financial Prejudice
(c) The Franchisees paid $138,000 to the franchisor upon opening the swimming school.[113] The Franchisees depose that the Business is financed through a loan secured over the family home in which they raise two young children (ages 1 and 3). The Franchisees also depose that at 6 April 2018, there was a balance of $94,058.50 outstanding on the loan and, to service the loan, the Franchisees pay $1,073.05 a fortnight.[114] In addition, the Franchisees have a loan to finance the UV system which purifies pool water, on which there is an outstanding balance of $2,100.[115]
[113]Ibid [5].
[114]Ibid [21].
[115]Ibid [23].
(d) The Franchisees also argue that they have offered to immediately pay the Franchisor all sums claimed by the Franchisor as outstanding under the Franchise Agreement,[116] whereas to prevent the Franchisees from running the Business before trial would have crippling personal financial consequences on the Franchisees because it would terminate their income.
[116]Plaintiffs’ Submissions, 22 April 2018, [47].
Personal Reputational Damage
(e) The Franchisees are active and have profiles in the local community.[117] Some of the swimming school students attend the same day care as the Franchisees’ children.[118] The absence of the Franchisees from the swimming school, amidst the spectre of litigation will, the Franchisees depose, damage their reputation in the community.
Customers
(f) The Franchisees depose that some students of the swim school have special needs with which Ms Delahunt is familiar.[119] However, the Franchisor has indicated that Ms Delahunt will not be permitted continue teaching these students, or participate a transition between herself and a new instructor, because she will not be permitted to participate in the Business.[120] The Franchisees depose that the introduction of a replacement instructor at the behest of the franchisor, who is not at present familiar with the students, is unlikely to be of assistance in the students’ development. To restore the Franchisees to the Business until trial, and enable the Franchisees to operate the Business as usual, would be consistent with the expectations of its customers and the provision of effective instruction for students.
[117]First Delahunt Affidavit, [22].
[118]Ibid [22].
[119]Plaintiffs’ Submissions, 22 April 2018, [45]; First Delahunt Affidavit [5].
[120]Ibid [45].
Employees
(g) The Franchisees have deposed that there are ordinarily six staff members at the swim school. Mr Delahunt also deposes that staff have contacted him distressed and concerned about the future of their employment.[121] The evidence at this point is that after taking control of the Business, the Franchisor attempted to make adjustments to the roster reflecting an unfamiliarity with employee availabilities;[122] unsuccessfully enter into new employment agreements;[123] and demote one of the Franchisees’ employees.[124] In his affidavit, Mr Delahunt observes that the ad hoc arrangements implemented by the Franchisor are insufficient.[125] On the other hand if the injunction sought by the Franchisees was issued, evidence put on by the Delahunts states that the previous six staff members are prepared to promptly resume work for the Franchisees.
[121]First Delahunt Affidavit, [20].
[122]Affidavit of Rhonda Heffernan, 20 April 2018, [5]–[6].
[123]Second Delahunt Affidavit, [47]–[48].
[124]Affidavit of Deonie Tracey Shevlin, 20 April 2018, [2].
[125]Second Delahunt Affidavit, [45].
The Franchisees also submit that the current status of employment in relation to those persons employed by the Franchisees at the time of re-entry is, in essence, that the vast majority have not agreed to be engaged by the Franchisor. The Franchisees thereby point out that the on-going operation of the swim school business is precarious and likely to detrimentally impact upon the body of customers which were, until recently, been served by the Franchisees.
In their submissions, the Franchisees also emphasise the apparent imbalance between a contested debt in the order of $30,000 (which the Franchisees have offered to pay in total to the Franchisor), set-off against the loss and continuing damage to the Franchisees, their employees and customers, if the Franchisor is permitted to maintain its re-entry and continue occupation of the premises and operation of the swimming school business in relation to the Franchisees’ many former customers.
The Franchisees also contend that the Franchisor continues to have access to the ‘SwimBiz’ website which provides the platform for, it appears, most of the accounting and organisational aspects of the swim school; to the Franchisees’ insurance policy in respect of the swim school remains in place and to other key services necessary for the swim school are also operating.
The Franchisees point out that the Manager, recently arranged to manage the Business by the Franchisor, has not been shown to have been engaged on any permanent or long term basis and to date very few swimming classes have been cancelled.
Franchisor – Balance of Convenience
The Franchisor argues that the balance of convenience favours refusing the relief sought by the Franchisees.
The Franchisor submits that damages are in these circumstances an adequate remedy and that the Franchisees have not shown any irreparable harm will ensue if injunctive relief is not granted.
The Franchisor also observes it has the experience, expertise and resources to properly operate the franchise and its commercial interests depend on preserving the goodwill and reputation of the Business.
The Franchisor also argues that the Franchisees have acted with unreasonable delay.
I am far from persuaded as to the Franchisor’s argument that the Franchisees have acted with unreasonable delay.
The Franchisees by email dated 11 April 2018 sought extra time in which to obtain legal advice and respond to the Franchisor’s Notice dated 14 March 2018; the Franchisees’ solicitor communicated to the Franchisor on 13 April 2018 that he was meeting with his clients to seek instructions and provide advice and again sought time within which to do so, foreshadowing a response to the Franchisor within a week. On 16 April 2018, the Franchisees offered in excess of the sum which the Franchisor asserted was owing under the Notice to Remedy Breach and offered to make that payment by electronic transfer of $32,729.95. However, on 17 April 2018, the Franchisor purported to terminate the Franchise. On 19 April 2018, the Franchisees issued processes in this court seeking to restrain the Franchisor. In these circumstances I reject the Franchisor’s submission that the Franchisees acted with unreasonable delay. I consider that in the above circumstances the Franchisees moved reasonably expeditiously for relief.
The Franchisor also points to the uncertain effects of the order sought by the Franchisees in relation to the staff compared to the steps which the Franchisor has taken to minimise impact and disruption to the customers of the swim school business.
The Franchisor argues that the injunction sought will compel it to continue a business relationship with the Franchisees despite an irreparable breakdown in trust and confidence between the parties.
On these aspects, I accept the evidence of the Franchisees in relation to the swim school staff. In particular, I observe the great majority of the Franchisees’ staff have not agreed to work for the Franchisor and will therefore not have their continuing employment disrupted by an order of type sought by the Franchisees. Similarly I am persuaded, for the reasons which I have outlined, that there will be significantly less disruption and distress to both the staff foreshadowed to be re-employed by the Franchisees and to the customers of the swim school business, as a result of the Franchisees being returned to the Business until trial.
Furthermore, I do not accept the assertion that there has been an irreparable breakdown of the relationship between the Franchisees and the Franchisor. This was expressly contradicted by the Franchisees. In my view, the combination of the Franchisees considering that they can continue to carry on a business relationship with the Franchisor, coupled with the Franchisees’ offer to pay all and more than the money asserted by the Franchisor as owing under the Franchise Deed, persuades me that the commercial relationship between the Franchisor and the Franchisees has not irretrievably broken down and also, in my view, results in there being no likely harm to the Franchisor were the orders sought by the Franchisees to be made.
Conclusions – Balance of Convenience
The Franchisor’s re-entry and attempt to continue the Franchisees’ swimming tuition business is causing, and if not stopped will continue to cause, disruption and negative consequences for swim school instructors and also the Business’ customers, many of whom have paid, or have been paid for, in advance, and many of whom are children.
In the present circumstances, if action is taken quickly the Franchisees will be able to immediately return the Business to ‘business as usual’ stemming disruption and distress to these staff and pupils.
Prompt reinstatement of the status quo ante will also substantially obviate the potentially severe financial consequences of the re-entry to the Franchisees, whereas given the Franchisees’ offer to hold safe the whole of the sum which the Franchisor seeks at present, the orders sought by the Franchisees will have an inconsequential financial effect on the Franchisor.
I also accept the Franchisees evidence as to the likely negative effect on their young children, if the status quo is not restored immediately.
For the above reasons, including those I have outlined as to why damages will not be an adequate alternative remedy for the Franchisees, I consider that the balance of convenience in this case decisively favours the Franchisees.
In short, if relief is not ordered reinstating the Franchisees, the likely consequences include the foreshadowed ongoing and substantial disruption, loss and damage to their business and family, the distress, likely detriment to the swim school employees formerly employed by them, and the inconvenience and reduced amenity in relation to the Business’ customer base with associated damage to the goodwill of the swim school.
Given my conclusions in relation to the balance of convenience in this matter and the arguable merits of the serious issues to be tried to which I have referred, I consider the Franchisees enjoy a sufficient prospect of success and can demonstrate a balance of convenience in their favour such as to justify the issue of the mandatory interlocutory injunction sought in this case.
Orders
Accordingly:
upon the plaintiffs by their Counsel undertaking to abide by any order the Court may make as to damages in case the Court shall hereinafter be of the opinion that the defendant shall have sustained any, by reason of this order, which the plaintiffs ought to pay, and
paragraph [3] is made by consent and with no finding that the amount of $30,753.63, or any other amount, is payable by the plaintiffs,
I order that:
1.From 7.00pm on 24 April 2018, the defendant by itself, or its servants or agents or otherwise is ordered to:
(a)cease conducting the business of the plaintiffs known as “Jump! Swim School” at 49 Radford Road, Reservoir;
(b)cease possession of the premises at 49 Radford Road, Reservoir;
(c)hand the plaintiffs possession of the premises and equipment at 49 Radford Road, Reservoir; and
(d)not otherwise physically interfere in the plaintiffs’ business.
2.Until determination of this proceeding or further order, the defendant is restrained from treating the franchise deed and licence deed that were executed by the parties as being terminated in reliance on, or in respect of, the defaults alleged in the defendant’s notice to remedy breach dated 14 March 2018.
3.On or before 27 April 2018 the plaintiffs pay to the defendant the sum of $30,735.63, being the amount demanded in the notice to remedy breach dated 14 March 2018.
4.The costs of the parties are reserved.
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