Era Ray White (Vic) Pty Ltd v (ACN 006 674 862) Pty Ltd

[1991] FCA 736

No. VG 3075 of 1991

IN THE Bwl"mE OF:  &2N 006674862 PTY Lpl

AUSTRALIAN COMPANY NUMBER: 006 674 862

BETWEEN:

Applicant

- and -

Respondent

J3Rl.m Heerey J.

CEIVED

EhAG6:  Melbourne

FEDERAL COURT OF

m:  6 November 1991 AUSTRAUA PRINCIPAL

as ERA Ray White (Knox) Pty Ltd.

FOR

I propose to dismiss this application for winding up. I will endeavour to summarise my reasons for reaching that conclusion. The applicant's debt is alleged to be in the sum of-$30,594.37 being amounts due in relation to franchise fees, property guides, advertising and other expenses incurred from August 1990 to April 1991. The applicant is the Victorian meanber of a large real estate chain which entered into a franchise agreement with the respondent company formerly known

It does not appear from any material before me that the applicant's debt is disputed. What is said is that there are matters which give rise to a set-off or counter-claim. The law is clear that to resist an application for a winding-up order on such grounds, the company has to show that it has a set-off or counter-claim which is bona fide based on

substantial grounds; see Conv- [l9761 VR 345 at p.350,

and also 8, 3rd Edition

by Professor 08Donovan at pp.64-65 where the learned author speaks of the burden resting on the company as being somewhat heavier than that resting upon a defendant who seeks leave to defend an action begun by a specially endorsed writ where leave is always granted unless there is clearly no real question to be decided.

The company here presented a case which was based on breaches of the .franchise agreement, that is the agreement dated l0 June 1988, or alleged misrepresentations as a result of which it was said the company entered into that agreement. The breaches or misrepresentations alleged fall into two distinct categories.

The first category concerns allegations of non-performance by the applicant of various obligations undertaken under the

franchise agreement.

I do not think I need go in detail into the various

allegations of this kind. Apart from a notable lack of particularity as to any damage suffered, they mostly seem to

-- . - be based on a misconception of the true nature of the

agreement. For example, there were complaints that the

applicant promised

(a)	higher profile with potential vendors;
(b)	perception of strength with potential vendors;
(C)	a referral base which would generate a large amount of business ;
(d)	increased "walk-ins", which refers to customers off the street.

In an affidavit sworn on its behalf the company complains

that a

Am the applicant had only recently entered the Victorian mmrket theme promimem were inaccurate as I found upon executing the franchime agr-nt that it was expected that the franchimeem, and 0.rticululy the canpany through local efforts, had to create their own market by ucemmive uponditure to make the franchisor'm

n.w known.

Similarly it was said that:

The prementation documont further repremented that buminemm generation progrmms would m a n that prompoctive clients would be eamy to find. Thim claim mounded very impremmive and produced rmmults but the franchimme paid for a11 marketing material and had to physically door knock a certain area. In simple temm it was door knocking by males people with pmphletm letting that pormon know the n.w "Ray White". Thim turned out to be a further nuthod by which the applicant would mave money by not promoting to the public itself but by uming the franchiseem to promote the "Ray White" nuno. raw of itm claimed benefitm wore realimsd and when they wore it was at the exponse and effort of the franchisoe.

It is clear from the promotional document, which was placed before the company by representatives of the applicant, that the Ray White company was one with a long and successful business history in Queensland and, to a lesser extent, in New

South Wales, but was really in the initial stages of entering	into the Victorian real estate market. Further, it seems
implicit in any such arrangement that the franchisee, that is the person in the position of the company, basically gets the right to use the franchisor's name, logo and reputation etc.,

+.- - _ but if it wants to- derive the maximum benefit from those

contractual rights it will have to do a substantial amount of
work itself.

. I turn to the second category of complaint which alleges what might be called an encroachment on the territory granted by the applicant to the company. At this point it will be

,

necessary to refer to some of the terms of the franchise
agreement. The recitals included a recital that

Tho Frurchisoo tocognising tho henofits of the Ray White 11.w and tho ERA Ray Whito Systom has roquostod tho Franchisor t o grant t o t h e Tranchisoo a non-uclusivo l i c m c o t o oporato a roal ostato businoss undor t h e namo of ERA Ray Whito and t o us0 the ERA Ray Whito Systom i n tho territory spocifiod i n I tom No. 4 of schodulo l hereto ("tho Territory").

[The territory so indicated in item no. 4 in the first

schedule ie "the City of Knox (as per attached map)"].

Clause 1.1 of the agreement providesr

Tho Franchisor horoby grants t o t h e Franchisoo for a poriod of f ive mars from t h e date s p e c i f i d i n Itrm No. 5 i n Schodule 1 o r fo r any oxtonmion thoroof a franchise o r liconco t o oporate on the promins doscribod i n I tom No. 6 i n Schodulo 1 ("the promisem") a roa l os ta te businoss ("tho franchisod businosm') incorporating t h e n m , mark and logo "ERA Ray White" i n accordanco with the t o m s

and condition. and res t r ic t ions horeinaftor sat forth.

It- no. 6 in the schedule identifies the premises as Shop 1,

5 Lynton Place, Scoresby, Vic., 3179. Clause 6 of the

agreement includes the following:

6.1:  The Franchimoo mhall conduct a franchisod buminems basically within tho Torritory doscribod in I t o m No. 4 of Schodule l heroto.

6.4:  Tho Franchisor absolutely remorves tho r ight t o review the boundaries and area of t h e Torritory from timo t o timo t o t ~ k o account of prevailing market conditions t o roduco o r incroaso t h e Torritory o r t o cause the Franchisoo t o share tho Torritory w i t h the Franchisor o r other Franchisoos i n accordanco with tho non-uclusivo liconco horoby grantod, [and tho follouing is a typod addition initialled by tho

.-- ..- . parties] but in any ovmnt not to k within boundaries apocifiod on attachod map.

There is a map attached to the agreement which takes the form

1. of a photocopy from the Melways street directory. There is an area outlined in blue bounded on the north by Mountain Highway

   and Boronia Road, on the east by Dorset Road, on the south by Wellington Road, and on the west by the Dandenong Creek up to the Burwood Highway and then along Mountain Road to the intersection with Boronia Road. This seems to be an area substantially less than the municipal district of the City of Knox .

   The meaning to be attributed to clause 6.4 is not at all clear to me, but it seems at least arguable that it is intended to cut across the provisions elsewhere in the agreement which indicate that the franchise rights granted are of a non- exclusive nature. If there is any conflict within the terms of the agreement, typed or handwritten additions to a printed document will usually prevail. This being a document prepared by the applicant, I think I should apply the usual rule of contra proferentem and construe it against the applicant's interest.

   In any event, for present purposes, I am concerned with the question whether there is in substance an arguable case available to the company, and if there is some reasonable argument open as to a matter of construction as part of that case, at the present stage I think the company ought to have the benefit of it. In the affidavits sworn in support of the company's opposition to the application, the deponent

   Mr Jeffrey Thornas Quinn, deposes:

That t e r r i t o r i a l 1Laitm dofined i n the mecond par t of tho

franchiso qroawnt . . . war0 proscribed i n a map annexod t o t h a t

d-nt.	But tho franchisor granted a franchise a t Ferntrm Gully
i n o r .bout Jun.	1990 and t h a t franchise was onablo and allowod t o
obtain businmss within tho t e r r i t o r y of	tho cuapany contrary t o
clause 6.4 of tho franchise agr-nt.....	In addition t h e

Boronia of f ice wam all- t o encroach the said t o r r i t o r y from

- -. .bout Octobmr. -1990.. Both of those oncroachnmnts s ignif icant

roducod tho p r o f i t s of t h e company ta an oxtont which would -11
amd tho quantum claimod duo and owing by the applicant.

The lack of particularity in the drafting of this paragraph is equalled only by the slovenly grammar and spelling. U an exercise in professional drafting it reflects little credit on whoever was responsible for it. However, given that this is an affidavit sworn by a man who operated a business within that area, and accepting that I am not, as I have said, trying this as a final issue, I think I can infer that there is sufficient to make out a case that there may have been a breach of clause 6.4 in relation to what, on the construction that may arguably be open, was an exclusive right to operate in that area.

There is no attempt to quantify the amount of the loss sustained, but it may be that a proper case needs to depend on dimcovery and interrogation of such documents as the applicant has in relation to this territory and the businesses of the

other two allegedly wrongfully competing f ranchiseeb .

The company comrmenced proceedings in the Supreme Court by

.

proceeding number 12,245 of 1991 issued on 18 October 1991. It was said that if I were to dismiss the application, I should make directions which would enable the speedy process of that proceeding. I think however, as a proceeding has been ccmunenced by the company in the Supreme Court, it is really a matter for the applicant as to whether it would prefer to proceed with the matter in the Supreme Court and presumably counter claim for the amount of its debt, or apply to have the matter removed to thie Court under the cross vesting legislation. In any case events may be overtaken by the

morning when the matter came on before Ryan J., and indicated	action of another creditor who I am told appeared earlier this
it would withdraw its application to be a supporting creditor but would issue a demand under s.460(2)(a) of the
m. I think therefore it is best that I leave the further

-proceedings in relation to this dispute -up-to the parties.

So, for those reasons, I shall dismiss the application.

I order that the applicant pay the company's costs to be taxed.

I certify that this and the preceding six (6) pages aqe. a true copy of the Reasons for Judgment of the Honourable Mr Justice Heerey

-

Counsel for the Applicant:	Mr P J Booth
Solicitors for the Applicant:	J M Smith & Emmerton
Counsel for the Respondent:	Mr G J Grabau
Solicitor for the Respondent:	Paul P Seddon