Dorissa Pty Ltd v Schwob's Swiss Pty Ltd
[1998] FCA 398
•17 APRIL 1998
FEDERAL COURT OF AUSTRALIA
INTERLOCUTORY INJUNCTIONS - application for injunction to prevent termination of franchise agreement - whether a serious issue to be tried that there was a concluded agreement for sale of business - whether balance of convenience in favour of granting injunction - whether ex parte injunction should be discharged for failure to disclose fully and properly to the court all relevant and material circumstances - material non‑disclosure.
Tate Access Floors Inc v Boswell [1991] Ch 512 - followed
Brink’s Mat Ltd v Elcombe [1988] 1 WLR 1350 - followed
Dart Industries Inc v David Bryar & Associates Pty Ltd (1997) 38 IPR 389 - followed
Re Printing and Kindred Industries Union; Ex parte Nationwide news Pty Ltd (t/as Cumberland Newspaper Group) (1994) 122 ALR 303 - applied
Bullock v Federated Furnishing Trades Society of Australasia (1985) 5 FCR 464 - applied
DORISSA PTY LTD v SCHWOB’S SWISS PTY LTD & ORS
VG 146 of 1998
GOLDBERG J
MELBOURNE
17 APRIL 1998
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VG 146 of 1998
BETWEEN:
DORISSA PTY LTD
(ACN 005 619 394)
ApplicantAND:
SCHWOB'S SWISS PTY LTD
(ACN 005 432 799)
First RespondentSCHWOB'S SWISS (FRANCHISING) PTY LTD
(ACN 006 475 458)
Second RespondentREX DEUTSCHER
Third RespondentCARLO LACOTA
Fourth RespondentJUDGE:
GOLDBERG J
DATE OF ORDER:
17 APRIL 1998
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
UPON the applicant by its counsel and Mr Bernard Bommarito and Mrs Danielle Bommarito by their counsel undertaking to pay to any party adversely affected by the undertakings given by the firstnamed and secondnamed respondents hereunder referred to such compensation (if any) as the Court thinks just, in such manner as the Court directs.
AND UPON
(a)the Firstnamed and secondnamed respondents by their counsel undertaking that they will not whether by themselves or by their servants or agents or howsoever otherwise terminate the franchise agreement dated 1 June 1990 being exhibit GZ5 to the affidavit of George Adrian Zolis sworn 9 April 1998 and otherwise act upon the notice of default being exhibit GZ9 to the said affidavit.
(b)The firstnamed respondent by its counsel undertaking that it will not whether by itself or by its servants or agents or howsoever otherwise enter into or attempt to take possession of the premises situated at 70 King Street, Melbourne the subject matter of the sublease referred to in exhibit GZ6 to the affidavit of George Adrian Zolis sworn 9 April 1998,
pending the final hearing and determination of the proceeding herein or further order.
The final hearing of this proceeding be fixed for 6 and 7 May 1998.
The trial be by affidavit.
The applicant have leave to file and serve an amended application and an amended statement of claim by 4.00pm on 21 April 1998.
The respondents file and serve their defence and any cross‑claim by 4.00pm on 24 April 1998 and that the respondents have leave to join Bernard Bommarito and Danielle Bommarito as cross‑respondents to any such cross‑claim.
The applicant and cross‑respondents file and serve any reply and defence to any cross‑claim by 4.00pm on 30 April 1998.
There be mutual discovery by 4.00pm on 27 April 1998 and that inspection be given of such discovered documents by 4.00pm on 1 May 1998.
The applicant and cross‑respondents file and serve any further affidavits upon which they wish to rely by 4.00pm on 24 April 1998.
The respondents file and serve any further affidavits upon which they wish to rely by 4.00pm on 1 May 1998.
The applicant and cross‑respondents file and serve any affidavits upon which they wish to rely in reply by 4.00pm on 4 May 1998.
Any objections to admissibility of any parts of any affidavits are to be filed and exchanged by 4.00pm on 1 May 1998 and any responses to any such objections are to be filed and exchanged by 4.00pm on 5 May 1998.
The parties file and exchange their contentions of fact and law by 4.00pm on 5 May 1998.
The applicant, in consultation with the other parties, compile an indexed and paginated court book containing current pleadings and particulars, affidavits and a copy of documents that any party will seek to tender at the hearing. Three copies of the book are to be filed by 4.00pm on 5 May 1998.
The parties file and exchange chronologies by 4.00pm on 5 May 1998.
Liberty is reserved to all parties to apply for such further or other orders and directions as they may be advised.
The costs of the application and hearing for interlocutory relief be reserved.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VG 146 of 1998
BETWEEN:
DORISSA PTY LTD
(ACN 005 619 394)
ApplicantAND:
SCHWOB'S SWISS PTY LTD
(ACN 005 432 799)
First RespondentSCHWOB'S SWISS (FRANCHISING) PTY LTD
(ACN 006 475 458)
Second RespondentREX DEUTSCHER
Third RespondentCARLO LACOTA
Fourth Respondent
JUDGE:
GOLDBERG J
DATE:
17 APRIL 1998
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
Introduction and Background
The applicant applies for an interlocutory injunction to restrain the corporate respondents from terminating a franchise agreement relating to a Schwob’s Swiss sandwich store situated at 68‑70 King Street, Melbourne and from taking possession of those premises.
The applicant is the sub‑lessee of the premises situated at 68‑70 King Street, Melbourne at which it conducts the business of a Schwob’s Swiss sandwich store. The first respondent is the owner of the intellectual property rights to the Schwob’s Swiss name and it occasionally operates a Schwob’s Swiss store. The second respondent enters into, maintains and services franchising agreements with franchisees in relation to Schwob’s Swiss sandwich stores. The third and fourth respondents are directors of the first and second respondents.
The first respondent established a Schwob’s Swiss sandwich store at 68‑70 King Street, Melbourne in 1985 and it leased those premises from the owners St Martins Victoria Pty Ltd and Grollo Australia Pty Ltd. In May 1990, the first respondent sold the Schwob’s Swiss business situated at 68‑70 King Street, Melbourne (“the business”) to the applicant for $800,000 and on 1 June 1990 the second respondent entered into a franchise agreement with the applicant in relation to that business. On 6 February 1992, the applicant entered into a sub‑lease of the premises with the first respondent and the head lessors. That sub‑lease expired on 31 July 1997 but the sale agreement envisaged a further sub‑lease being granted for six years from 1 August 1997. The grant of that further sub‑lease was to put to one side by the parties because of negotiations between them in the latter part of 1997 to which I shall refer. In late 1996, the applicant wanted to sell the business and sought the assistance of the Schwob’s Swiss companies to do so. The business was put on the market for sale in early 1997 and advertisements were placed in newspapers offering the business for sale.
In its statement of claim the applicant raises two causes of action. One seeks specific performance of an agreement by the third and fourth respondents to purchase the business. Related to that cause of action an injunction is sought in respect of a notice of termination of the franchise agreement. The other cause of action arises out of an entitlement of the applicant under the agreement whereby it purchased the business to a first right of refusal in respect of obtaining a franchise for a Schwob’s Swiss sandwich store business within a defined geographical area of its present premises. The first respondent wished to establish a Schwob’s Swiss business at 140 King Street, Melbourne and it sought a waiver from the applicant of its contractual rights in relation to the establishment and running of that store. The applicant signed a contractual waiver on 25 February 1997 and says that that waiver was obtained by misleading and deceptive conduct, which was aided and abetted by the third and fourth respondents. Damages are sought in respect of this conduct. This cause of action is not relevant to the application for interlocutory injunctive relief and counsel for the applicant did not seek in any substantive way to support the application for interlocutory injunctive relief by reference to this cause of action.
The applicant says that on 3 September 1997 it entered into an agreement with the third and fourth respondents to sell the applicant’s business for $300,000 and that the third and fourth respondents have reneged on the agreement and refused to complete it. The respondents say that negotiations in relation to the purchase of the applicant’s business commenced in August 1997 and continued until February 1998 but no concluded agreement was reached during that period. The respondents say they made an offer on 3 September 1997 which was not accepted and was superseded by subsequent offers which were not accepted.
The applicant’s case
The applicant says an agreement was concluded on 3 September 1997 but on the next day, the third and fourth respondents went back on the agreement and sought to re‑negotiate the transaction. The applicant says it was compelled to enter into the re‑negotiations although it continued to maintain that it had entered into a concluded agreement on 3 September 1997.
Part of the agreement on which the applicant relies is a term that after the agreement was entered into, franchise fees otherwise payable under the franchise agreement would not be paid, but would be deducted from the amount otherwise due to the applicant on settlement of the transaction. The respondents agree that during negotiations they suggested to the applicant that franchise fees need not be paid until such time as a sale agreement was finalised when they could be set‑off against the purchase price. Accordingly, no franchise payments were made by the applicant under the franchise agreement between about October 1997 and January 1998.
The applicant says a letter of demand dated 28 February 1998 was sent by the first respondent to it claiming outstanding franchise fees and amounts due for products purchased totalling $24,420.98 and alleging a breach of the franchise agreement in relation to the obligation to purchase all stock for the business from the second respondent. That letter was received on or about 5 March 1998 but the applicant made no response to it. On 26 March 1998, the solicitors for the second respondent served a notice of default of franchise agreement upon the applicant notifying it of its failure to pay franchise fees and failure to observe the terms of the franchise agreement in relation to the purchase of stock from it. The notice stated that if the breaches were not remedied within fourteen days after service of the notice the second respondent would be entitled to terminate the franchise agreement.
On 26 March 1998, the applicant’s solicitor wrote to the respondents’ solicitors stating, inter alia:
“We have to hand numerous documentation relating to the sale of the Schwob’s Swiss business at Rialto to your clients. We note that we have instructions to complete this matter as a matter of urgency.
In order to bring this matter to a conclusion, we suggest the convening of a round table conference next week. Please advise of suitable dates and times.”
On 31 March 1998 the respondents’ solicitors wrote to the applicant’s solicitors saying that they were instructed that all negotiations were concluded and any offers were withdrawn. They enclosed a copy of the notice of default. On 7 April 1998 the applicant’s solicitor wrote again to the respondents’ solicitors seeking to have the notice of default withdrawn or its operation suspended. There was no reference to the existence of any binding or enforceable agreement between the parties.
The respondents’ case
It is apparent from the material now filed by the respondents that subsequent to 3 September 1997 there were negotiations between the applicant and the respondents in relation to the terms upon which the third and fourth respondents would purchase the applicant’s business. I need not go into the particulars of those negotiations in any detail. Suffice it to say that it appears from the respondents’ material that there were, in total, five offers which were made in relation to the acquisition of the applicant’s business, four coming from the third and fourth respondents. The first offer was made on 21 August 1997 with a purchase price of $350,000. The respondents say there was a second offer made prior to 3 September 1997 which contained two options for the applicant. The applicant contends that this offer was made on 11 September 1997. Nothing turns on the date of this offer for present purposes. There was then the offer made on 3 September 1997 which the applicant says it accepted. This is denied by the respondents. There was a fourth offer made by the third and fourth respondents on 20 October 1997 with a purchase price of $280,000 and like earlier offers, this included a condition that there be a verification of turnover. Some time after the fourth offer there was an offer (which I will call a fifth offer) from the applicant which was its response to the first respondent’s offer of 20 October 1997 in which the purchase price was increased to $285,000. On 28 January 1998 the respondents’ solicitors sent by facsimile to the applicant’s then solicitors, a document setting out the critical terms and conditions to be incorporated into a formal agreement. A draft agreement was sent by the applicant’s then solicitors to the respondents’ solicitors on 3 February 1998. It provided for a purchase price of $285,000. The applicant refused to execute that agreement because it contained a term that the contract was conditional upon minimum turnover and the parties reached a stalement during a round table conference on 3 February 1998. The third and fourth respondents say they were only prepared to purchase the business on a verified minimum weekly turnover of $15,000.
Apart from challenging the date of what the respondents called the second offer, the applicant did not challenge that there were offers or negotiations in addition to the offer which occurred on 3 September 1997.
Should the ex parte injunction be discharged?
On 9 April 1998 I granted an ex parte injunction restraining the first and second respondents from terminating the franchise agreement and restraining the first respondent from taking possession of the premises. The respondents contend that the injunction should be discharged on the basis that the applicant did not make full and proper disclosure to the Court of all relevant and material circumstances at the time it made its application. On that occasion the only document exhibited to the affidavit in support of the application was the offer made by the first respondent on 3 September 1997. The documents constituting the other offers were not produced and, in particular, the applicant’s offer or response to the first respondent’s offer of 20 October 1997 and the draft form of agreement sent by the applicant’s solicitors to the respondents’ solicitors on 3 February 1998 were not exhibited. They were not made known to the Court at the time that the application for the ex parte injunction was made subject to what was said by counsel to which I will refer later.
The relevant disclosure which an applicant for an ex parte injunction is required to make to the Court is to disclose all material matters and the relevant principle is conveniently set out in Tate Access Floors Inc v Boswell [1991] Ch 512 at 532 ‑ 533:
“No rule is better established, and a few more important, than the rule, ‘the golden rule’, that a plaintiff applying for ex parte relief must disclose to the court all matters relevant to the exercise of the court’s discretion whether or not to grant relief before giving the defendant an opportunity to be heard. If that duty is not observed by the plaintiffs, the court will discharge the ex parte order and may, to mark its displeasure, refuse the plaintiff further inter partes relief even though the circumstances would otherwise justify the grant of such relief: see Brink’s Mat Ltd v Elcombe [1988] 1 WLR 1350 and Behbehani v Salem (Note) [1989] 1 WLR 723.”
In Brink’s Mat Ltd v Elcombe [1988] 1 WLR 1350 at 1356 ‑ 1357 Ralph Gibson LJ set out in some detail the relevant principles which a court should take into account in considering whether there has been relevant non‑disclosure and what consequences should flow from any such non‑disclosure. As I observed in Dart Industries Inc v David Bryar & Associates Pty Ltd (1997) 38 IPR 389 at 419, material non‑disclosure does not mean that discharge of the order follows as a matter of course.
The only affidavit relied upon in support of the application for the ex parte injunction was that of the applicant’s solicitor. The only evidence which was placed before the Court in relation to the negotiations between the parties for the sale of the applicant’s business was in the following terms:
“9. I am informed by Bommarito and verily believe that:
(a)on 3 September 1997 he had a meeting with Carlo Lacota and Rex Deutscher, the Third and Fourthnamed Respondents. At the meeting the parties discussed the sale of the business by Dorissa to each of Lacota and Deutscher.
(b)the purchase price agreed was a figure of $300,000 which was made up of:
(i)an assumed amount of $50,000 representing
(w)a fee for the sale of the business,
(x)credits for franchising fee,
(y)credits for product fees to the value of $25,000;
(z)a rental rebate in respect of the monies owed by Dorissa to the Lessor.
(ii)Further it was also agreed that there would be a takeover of the business after proposed renovations had been concluded at which stage the purchasers Lacota and Deutscher, would pay the sum of $200,000.
(iii)The balance of the monies owing (namely $50,000) under the Sale of Business Agreement if a substitute purchaser, would be personally guaranteed by Lacota and Deutscher and the said sum would be paid over a 12 month period being $4,167 per month representing a total figure of $50,000. The total consideration for the purchase of the business was the figure of $300,00.
10.Now produced and shown to me marked with the letters ‘GZ7’ is a document dated 3 September 1997 signed by Deutscher and Lacota.”
The affidavit then referred to the letter sent by the respondent on 28 February 1998 demanding payment of arrears of $24,420.98 and alleging a breach of the franchise agreement. It was then said by the solicitor that the franchise agreement had been varied as a result of the agreement reached on 3 September 1997.
In the course of the hearing of the application for the ex parte injunction, counsel for the applicant in the course of describing what occurred on 3 September 1997 in relation to the offer made on that day, told me:
“There were conditions stipulated in the offer which my client advised me were satisfied - that is, finance verification, achieving a new lease and the sale price including all stock and fittings and the like.”
He also referred to a document, not exhibited to the affidavit, which he said was faxed by the respondents’ solicitors on 28 January 1998 and which he said purported to be a further offer which changed the purchase price from $300,000 to $285,000. I believe this is a mistaken reference to what I have called the fifth offer which emanated from the applicant. I then said to counsel:
“... the affidavit is silent as to what happened between 3 September 1997 and 28 February 1998 and I would be surprised, without having any knowledge of course that absolutely nothing happened during that period.”
Counsel responded:
“That’s why I point that document out to your Honour, that between that period there was obviously further negotiations whereby a number of different things came known. I only can put this from the bar table at this moment. We’re a bit hampered by the time because we’ve had to rely on information (and) belief given the urgency. We have not yet had our client go on affidavit himself to the directors, that is, but there were attempts to change the original agreement of 3 September 1997. The reason for that was the business at 140 King Street was then known to be operated by the franchisor who has obligations under the original franchise agreement to protect the franchise operation that had then been circulating in the same area to take the business away without having to pay for it to be blunt.”
In these circumstances I consider that the applicant did not disclose to the Court at the time it applied for the ex parte injunction all matters relevant to the exercise of the Court’s discretion whether or not to grant the relief sought. In order to establish a serious question to be tried, the applicant had to assert the existence of an agreement which included a term that there was to be, in effect, a moratorium or freeze on the payment of franchise fees under the franchise agreement pending the finalisation of settlement of the purchase agreement. It was material to that issue for the Court to be told that after 3 September 1997 there were further negotiations between the parties which included an offer and draft form of contract of sale propounded by the applicant. In this respect it is not to the point that the applicant says it was compelled by commercial necessity to enter into further negotiations after it said it had entered into a binding agreement. The point rather is that there should have been disclosure of these facts. At the ex parte hearing these matters were touched on by counsel who was acting on instructions but there was not full disclosure.
However, having regard to the material now before the court I do not consider that in all the circumstances I should discharge the ex parte order as I consider that it is appropriate to grant further interlocutory relief for a further short period to enable the issue to be litigated finally.
Is there a serious issue to be tried?
Mr Bommarito, a director of the applicant, has now sworn an affidavit in which he says that on 3 September 1997 he had a meeting with the third and fourth respondents at which they presented him with a written offer with a number of conditions. He says that he had made it clear to them in previous negotiations that he wanted the sale arrangement with no conditions attached. He then says that they told him that finance was not a problem, they were happy with the trading figure that he presented to him and that a new Rialto lease should not be a problem. The applicant relies upon this statement in support of the proposition that there were no conditions attached to the offer. Mr Bommarito says they agreed on a purchase price of $300,000 and shook hands which he says was acceptance of the signed offer. Mr Bommarito says that on the next day the third respondent, Mr Deutscher, told him that he wanted to pull out of the agreement and re‑negotiate the sale price. He says that there was then a discussion, the terms of which are denied by the respondents and that on 11 September 1997 he had a further meeting with them at which they handed him a piece of paper with two further offers labelled option 1 and option 2. This is the offer which the respondents say preceded the offer of 3 September 1997. Mr Bommarito says that there was a further meeting on 16 October 1997 when there were further attempts to re‑negotiate the terms of the 3 September 1997 agreement. He says he insisted on that agreement proceeding.
Mr Bommarito says that “there was little correspondence” from the respondents until they opened the premises at 140 King Street, Melbourne on 1 December 1997. In saying this Mr Bommarito has ignored the offer made by the first respondent on 20 October 1997 to which he later responded in writing.
It is important to note that the agreement upon which Mr Bommarito is apparently relying in his affidavit is not just the agreement enshrined in the document of 3 September 1997 but an agreement which involves a variation of that document, namely the waiver or abandonment of the three conditions referred to in the document which he says in his affidavit were not proceeded with by the respondents, but rather were abandoned by them. This was not a matter which was brought to the attention of the Court on the application for the ex parte injunction except to the extent to which counsel said that his client had advised him that they were satisfied. Indeed at that hearing counsel for the applicant drew my attention to the fact that the document said to be faxed on 28 January 1998 by the respondents and being an offer for a price of $285,000 did not contain any reference to either finance approval or the sale price including all fittings, fixtures and the like. He explained the other conditions in the following way:
“Verification of the turnover we would respectfully say, that as it’s a franchise operation franchise fees are calculated on the basis of the turnover, those figures were readily available and insofar as the lease is concerned for a period of 10 years that would require best endeavours to be undertaken but your Honour in any event knows that there was options for renewal in the lease and sublease for further terms which would have been in excess of ---”
Mr Monichino who appeared for the respondents submitted that there was no serious question to be tried as to whether there was a concluded agreement on 3 September 1997. He submitted that there was an internal inconsistency in the applicant’s case as the applicant initially relied upon the document which passed between the parties on 3 September 1997 but was now apparently saying that there was a variation to the terms of that document namely the waiver of the three conditions referred to in Mr Bommarito’s affidavit.
There is merit in this submission as on a fair reading of the solicitor’s affidavit the applicant appears to be relying on that document as constituting the terms of the bargain between the parties. However, the terms of Mr Bommarito’s affidavit are such that he now appears to be saying that the conditions were waived.
It was submitted by Mr Monichino that the evidence of the agreement entered into on 3 September 1997 relied upon by the applicant was simply assertion with no condescension to details. There is substantial merit in this submission but the terms of paragraph 7 of the affidavit do disclose conversations which suggest, albeit obliquely, that there were discussions about whether or not conditions were to be attached to the agreement.
Mr Monichino submits that the agreement said to be entered into on 3 September 1997 is incomplete and not in its terms capable of specific performance. It is true that the document of 3 September 1997 is lacking in detail but I consider that there is sufficient evidence before me which raises a serious question to be tried as to whether or not an agreement was entered into on 3 September 1997. The significance of that agreement is that if it was entered into then there was a moratorium on the payment of the franchise fees.
The respondents submit that the subsequent negotiations between the parties and correspondence between them are inconsistent with there being a binding agreement entered into on 3 September 1997. The applicant’s response is that although it entered into later negotiations between the parties Mr Bommarito says he continued to insist on the 3 September 1997 agreement proceeding. The evidence in that respect is very sparse and verging on assertion but in the absence of cross‑examination of the parties, which was not appropriate in the circumstances, I do not consider that at this stage of the proceedings I can discount or reject completely Mr Bommarito’s evidence.
In determining whether an interlocutory injunction should be granted relevant principles require me to determine whether the applicant has established or made out a serious issue to be tried and whether the applicant has established that the balance of convenience is such that it tends in favour of granting an injunction: Australian Coarse Grain Pool Pty Ltd v Barley Marketing Board of Queensland (1982) 46 ALR 398; Tableland Peanuts Pty Ltd v Peanut Marketing Board (1984) 52 ALR 651, 653; Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148, 153 ‑ 154, Epitoma Pty Ltd v Australasian Meat Industry Employees’ Union (1984) 3 FCR 55, 58 ‑ 59. Mr Panna, who appeared for the applicant, submitted that rather than asking whether damages are an adequate remedy I should ask whether it is just in all the circumstances that the applicant should be confined to a remedy in damages. He relied for this formulation on State Transport Authority v Apex Quarries Ltd [1988] VR 187 at 193. However that formulation has not been adopted in other cases which have tended to consider the adequacy of damages as compensation: Castlemaine Tooheys Ltd v South Australia (supra) 153.
In the circumstances which I have to consider I doubt whether the result is different depending upon which approach is taken. The applicant seeks to preserve the goodwill of its business pending the determination of the Court as to where the rights of the parties lie. In such circumstances, damages may not be an adequate remedy and it is just that such position be preserved pending the Court’s determination.
Although I have substantial reservations about the strength of the applicant’s case that a concluded binding and enforceable agreement was entered into on 3 September 1997, I consider that it is not appropriate to isolate or insulate that consideration from determination of the balance of convenience as a relatively weak case ought to be allowed to go to trial if the balance of convenience is in favour of the applicant for the injunction. This relationship between the two limbs was identified by Woodward J (which whom Smithers and Sweeney JJ agreed) in Bullock v Federated Furnishing Trades Society of Australasia (1985) 5 FCR 464 where he said at 472 that the two limbs:
“... need not be considered in isolation from each other. Thus an apparently strong claim may lead a court more readily to grant an injunction when the balance of convenience is fairly even. A more doubtful claim (which nevertheless raises ‘a serious question to be tried’) may still attract interlocutory relief if there is a marked balance of convenience in favour of it”.
As was noted by the Full Court of the Industrial Relations Court of Australia in Re Printing and Kindred Industries Union; Ex parte Nationwide News Pty Ltd (t/as Cumberland Newspaper Group) (1994) 122 ALR 303 at 316:
“This approach has often been applied by Federal Court judges: see for examples, Dallikavak v Minister for Immigration and Ethnic Affairs (1985) 61 ALR 471; 9 FCR 98 per Jenkinson J at 107; OD Transport Pty Ltd v Western Australian Government Railways Commission (1986) 13 FCR 270 at 272; 71 ALR 190; Kevlacat Pty Ltd v Trailcraft Marine Pty Ltd (1987) 79 ALR 534 at 536 and Aboriginal Development Commission v Ralkon Agricultural Co Pty Ltd (1987) 15 FCR 159 at 163‑4; 74 ALR 505. The approach was endorsed by Mason ACJ in Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 at 155; 67 ALR 553 at 559 when he said that ‘in some cases the balance of convenience may be affected by the court’s perception or evaluation of the strength of the plaintiff’s case for invalidity’. The essence of the Federal Court’s task, in determining whether or not to grant interlocutory relief under s 23 of the Federal Court of Australia Act, is to consider all aspects of the case, as they then appear, and to make a judgment whether it is appropriate for the court to intervene or not; and, if so, in what way. In undertaking that task, the court considers both the strength of the applicant’s case and matters of convenience. The weight to be given to each aspect varies from case to case and may be strongly influenced by the court’s view of the other aspect. The Full Court had this variability in mind when it said in Ralkon at FCR 163‑4; ALR 510:
‘Everything must depend upon the circumstances of the case, including the extent to which the applicant has had an opportunity to present the facts to the court and the consequences of granting or of refusing relief. This is what was meant by Woodward J when, in Bullock (5 FCR 464 at 472) and in Jungpradit v Hurford (Woodward J, 21 August 1985, unreported), he spoke of considering together the two tests of ‘serious question’ and ‘balance of convenience’. The overriding principle is that referred to by Dawson J in A v Hayden (1984) 56 ALR 73 at 79; 59 ALJR 1 at 5 ‘that a court ought not to be misled by an overstrict application of verbal formulae to depart from its primary duty to do complete justice in the cause’”.
I consider these principles applicable to the circumstances presently before the Court.
So far as the balance of convenience is concerned, Mr Monichino submitted the damages are an adequate remedy as the applicant’s only interest is in receiving the purchase price. Mr Panna acknowledged that if the applicant succeeded in its claim for specific performance then damages were an adequate remedy but said that if the applicant failed in its claim it should have the opportunity to remedy the default which it would then be found to have committed. He submitted it would be unconscionable to allow the first respondent to acquire the applicant’s business for nothing and he sought to reason by analogy by reference to principles such as are found in Legione v Hateley (1983) 152 CLR 406. Mr Monichino submitted that the applicant had acted at its peril as the amount outstanding was not in dispute and the applicant had not sought to pay the amount under protest. He submitted that if the applicant was not successful in its claim for specific performance there would a default in respect of which the second respondent would be entitled to act.
The respondents contend that the balance of convenience is weighted against the grant of an interlocutory injunction. They point to the fact that the applicant is a trustee of a family trust and that it is not known whether the trustee has a right of indemnity against the assets of the trust or whether the trust has sufficient assets to make the indemnity worthwhile. That issue can be met by requiring, as I do, the two directors of the applicant to provide the undertaking as to damages as well as the applicant. The respondents also point out, correctly, that as the applicant is seeking specific performance of the agreement on which it relies, it is seeking the payment of money so that damages are an adequate remedy and an award of which the respondents are able to meet.
However it is necessary to consider what the consequences are for the applicant if it fails in its claim for specific performance. Absent an injunction, the second respondent can terminate the franchise agreement and effectively take over the business. The applicant says it should have the opportunity if it fails in its claim to remedy its default as it would, in all the circumstances be unconscionable for the second respondent to insist upon its strict legal rights in a way which would cause hardship to the applicant. I express no view at this stage as to whether the applicant has that opportunity, as a matter of law, or should be given that opportunity. Nevertheless, having regard to the consequences of an adverse decision upon the applicant I consider that the status quo should be preserved to enable that issue to be considered.
The issue is the extent to which the doctrine of relief against forfeiture of property extends to circumstances such as exist in this case. Although a number of the cases suggest the need to establish the existence of unconscionable conduct before the jurisdiction will be enlivened, there is, underlying the decisions, the principle that intervention may be necessary to avoid injustice: Legione v Hateley (supra); Stern v McArthur (1988) 165 CLR 489; Federal Airports Corporation v Makucha Developments Pty Ltd (1993) 115 ALR 679, 696 ‑ 699.
As against that the respondents say that if the injunction is granted they will suffer substantial damage because there is doubt as to whether the applicant can pay the amount presently outstanding and no security is offered in respect of it. If no injunction is granted that position is not improved. If that amount increases, as it will whilst the applicant remains in possession of the premises and continues to run the business, by the accruing of franchise fees and the cost of stock purchased, the respondents can be protected by it being a condition of any injunction granted that the applicant continue to perform its financial obligations under the franchise agreement, particularly the payment of franchise fees and the payment for stock purchased. If the applicant defaults in any of these payments, then the second respondent will be entitled to move the Court to dissolve the injunction.
The respondents also say they are concerned about the damage to the Schwob’s Swiss name by reason of the operation of a sub‑standard business which will continue whilst any injunction is in place. However the second respondent has not sought to terminate the franchise agreement on the basis that the applicant has not been running the business properly.
In all the circumstances I consider that it is appropriate to grant the applicant interlocutory relief restraining the first and second respondents for a relatively short time from taking steps to act upon the notice of default or enter into possession of the premises, subject to the usual undertaking as to damages being given by the applicant and its two directors and subject to it continuing to perform its obligations under the franchise agreement in relation to the payment of franchise fees and the payment for products purchased. I will reserve liberty to apply in the event that the applicant fails to discharge these obligations in which case I would consider an application to discharge the interlocutory injunction. The costs of the application should be reserved.
It is undesirable in the interests of all the parties that there be continuing doubt about the status of the applicant’s occupancy of the premises and right to the franchise and I consider that there should be a final hearing of the proceeding on all issues as soon as possible. I am prepared to fix the proceeding for hearing on 6 and 7 May next on the basis that the trial be by affidavit. I propose to give directions in relation to pleadings, discovery, affidavits and other interlocutory matters designed to ensure that the hearing can proceed on those days.
I certify that this and the preceding fourteen (14) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Goldberg
Associate:
Dated: 23 April 1998
Counsel for the Applicant: Mr A Panna Solicitor for the Applicant: Zolis Solicitors Counsel for the Respondent: Mr A A Monichino Solicitor for the Respondent: Russo, Pellicano & Carlei Date of Hearing: 15 April 1988 Date of Judgment: 17 April 1998
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