Fletcher, Geoffrey Ross v Foodlink Ltd

[1995] FCA 879

IN THE FEDERAL COURT OF AUSTRALIA )
QUEENSLAND DISTRICT REGISTRY     )    No. QG 164 of 1995
GENERAL DIVISION                 )

BETWEEN:    GEOFFREY ROSS FLETCHER and JANET BERYL FLETCHER personally and as trustees of the G. & J. FLETCHER FAMILY TRUST  

Applicants

AND:    FOODLINK LTD ACN 009 786 485

First Respondent

AND:    BON-IRS PTY LTD ACN 009 992 161

Second Respondent

AND:    G.C. BONNEY & CO. (DEVELOPMENTS) PTY LTD ACN 009 900 458

Third Respondent

AND:    GEOFFREY CLIVE BONNEY

Fourth Respondent

AND:    JOHN TERENCE BERRY

Fifth Respondent

AND      :    ROBERT VICTOR HARRIS
  Sixth Respondent  

CORAM:    Spender J
PLACE:    Brisbane
DATE:     27 October 1995

MINUTES OF ORDER

THE COURT ORDERS THAT:

(i)leave to appeal from the order of Drummond J of 18 October 1995 be refused;

(ii)the costs of the respondents on the motion be their costs in the principal proceedings.

Note:     Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA )
QUEENSLAND DISTRICT REGISTRY     )    No. QG 164 of 1995
GENERAL DIVISION                 )

BETWEEN:    GEOFFREY ROSS FLETCHER and JANET BERYL FLETCHER personally and as trustees of the G. & J. FLETCHER FAMILY TRUST  

Applicant

AND:    FOODLINK LTD ACN 009 786 485

First Respondent

AND:    BON-IRS PTY LTD ACN 009 992 161

Second Respondent

AND:    G.C. BONNEY & CO. (DEVELOPMENTS) PTY LTD ACN 009 900 458

Third Respondent

AND:    GEOFFREY CLIVE BONNEY

Fourth Respondent

AND:    JOHN TERENCE BERRY

Fifth Respondent

AND      :    ROBERT VICTOR HARRIS
  Sixth Respondent  

CORAM:    Spender J
PLACE:    Brisbane
DATE:     27 October 1995

REASONS FOR JUDGMENT

This is a notice of motion filed on 23 October 1995 seeking that the applicants be granted leave to appeal from the order of Drummond J made on 18 October 1995.  Further, the motion seeks that:

"...

2.Upon each of the applicants:

a.giving the usual undertaking as to damages; and

b.undertaking not to deal with the assets of their business operated at 119 Toolooa
Street Gladstone other than in the ordinary course of business,

c.undertaking to proceed with all due diligence and expedition to enable the applicants' appeal to be heard; and

d.undertaking to proceed with all due diligence and expedition to enable any further interlocutory applications in this matter for interlocutory relief to be heard by a Full Court as soon as it is able to do so.

3.that the first respondent [and] the second respondent whether by themselves, their servants or agents or any of them or otherwise, be restrained until the hearing of the appeal or earlier order, from entering into possession of the applicants' business operated at 119 Toolooa Street Gladstone and the plant and equipment and stock thereat. "

On 18 October, Drummond J ordered that:

"Upon the first respondent by its counsel undertaking to keep an accurate record identifying the stock in trade at supermarket premises at 119 Toolooa Street, Gladstone sold and the amount of the purchase moneys it receives for the stock, the application seeking interlocutory relief against the first respondent is dismissed. "

He further ordered that the application seeking interlocutory relief against the second respondent be dismissed and ordered that the costs be the respondents' costs in the proceedings. 

However, on an undertaking by Mr and Mrs Fletcher, by their counsel, which is set out in his Honour's orders, the Court granted an interim order restraining the first and second respondents, until the hearing of an application for leave to appeal, or until further order, from taking any action to enforce any of their default rights under the chattel mortgage and the operating agreement.

I heard the motion seeking leave to appeal on 25 October 1995, when I indicated that I would give my reasons today.  On 25 October I extended the interim injunction until judgment. 

The background facts are that the applicants operate a supermarket in Gladstone.  The first respondent, Foodlink Ltd, supplies stock to the applicants' business under a supply agreement.  A chattel mortgage secures to the first respondent payments by the applicants of all moneys due in respect of such supply, amongst other things.  By notice dated 2 October 1995, the first respondent demanded payment of moneys which included a sum of $36,899 which should have been paid, according to the agreement, at the end of July 1995 by way of direct debit from the applicants' account, but which was not paid.  Mr Fletcher, the male applicant, says that the applicants are not able at present to pay the sum of $36,899. 
         The operating agreement is an agreement between the applicants and the second respondent which permits the applicants to have access to the store premises which are owned by the third respondent.  It appears that the second respondent is a joint venture between the first and third respondents.  The second respondent pays rent to the third respondent from funds available to it, including the payments due to the second respondent by the applicants under the operating agreement. 

The applicants originally paid $4000 a week to the second respondent under that agreement.  In April 1995, the second respondent agreed to reduce this temporarily to $2500 per week as part of a package of assistance then offered to the applicants, but the second respondent later put the applicants on notice that it would require the $4000 to be paid in full from 4 September 1995.  The applicants ceased paying the weekly operating fee on 5 October 1995, having in writing indicated that they will not pay that operating fee to trial, although there have been proposals, to which I will refer shortly, in that regard.  The applicants have cancelled the direct debit facility. 

On 13 October 1995 the second respondent gave notice to the applicants of default under the operating agreement, based on the applicants being in default under the chattel mortgage to the first respondent, and based also on the applicants having given notice of their intention to cease payment of the operating agreement fee.

The applicants commenced these proceedings in the Federal Court on 6 October 1995.

In the light of the present application, it is important to have regard to the relief claimed by the applicants in the principal proceedings. They seek, first, an order pursuant to either s 82 or s 87 of the Trade Practices Act 1974 ('the Act') that the respondents pay to the applicants the amount of loss and damage suffered by them by reason of misleading or deceptive conduct engaged in by the respondents. Secondly, they seek orders pursuant to s 87 of the Act that the operating agreement be declared void ab initio, the chattel lease be declared void ab initio, the chattel mortgage between the applicants and the first respondent be declared void ab initio, and that the second respondent refund to the applicants all moneys paid by the applicants to the second respondent pursuant to the operating agreement.

Drummond J held that while s 23 of the Federal Court of Australia Act 1976 confers wide power on the court to grant interlocutory injunctive relief, it did not extend to the making of the interlocutory orders sought by Mr and Mrs Fletcher in the present instance. As characterised by his Honour, their case for interlocutory relief was, in essence, that even though the business was a loss-making one, if they did not have to pay to the second respondent the operating fee of $4000 per week and did not have to remedy, at least immediately, the non-payment of the $36,889 due to the first respondent in July, they hoped to be able to fund both the action and to live from what they can derive from the business until the trial.

They say that their claim for damages is of the order of half a million dollars and they contend that they ought to be permitted to continue to operate the business, albeit a loss-making one, until the determination of their claim for damages and their claim for orders under s 87.

Drummond J referred to the decision of the High Court in Jackson v Sterling Industries Limited (1987) 162 CLR 612 and to the observation by Wilson and Dawson JJ at 619:

"...it cannot be suggested that either the power to grant relief under s 23 or an implied power to prevent an abuse of process extends to the creation and enforcement of rights in addition to those for the protection or enforcement of which the jurisdiction of the Court is invoked. "

and the observations of Brennan J, as he then was, at 620-621 in two passages where he said:

"...s 23 confers on the Federal Court such powers as are necessary or incidental to the exercise of that Court's jurisdiction.  But that is not to say that the Court's discretion to mould relief is at large.  The relief which the Court is authorised to give does not extend beyond the grant of remedies appropriate to the protection and enforcement of the right or subject-matter in issue.

...

The power to grant such an injunction [i.e. an interlocutory injunction] does not support the making of an order which goes beyond what is in reasonable protection of a legal or equitable right which the court may enforce by judgment..."

Drummond J said, at pp 7-8 of his judgment:

"The avoidance claim [under s 87 of the Act] is made in conjunction with a claim for damages for
the losses they suffered as a result of entering into that agreement.  They do not seek in the action to enforce any rights with respect to the premises.  Rather do they seek an order which will establish that they have neither obligations nor rights with respect to those premises. "

His Honour concluded that:

"In my opinion, to grant an interlocutory injunction for the purpose frankly identified as that for which it is sought, would be to go beyond granting an interlocutory remedy appropriate to the protection or enforcement of any of the rights or subject matter in issue in this action.

He said, at page 9:

"There is no loss that the applicants could suffer as a result of the alleged infringing conduct of the second respondent that cannot be fully compensated by the award of the damages they seek even if the second respondent ejects the applicants from the premises now.  The injunction is not sought to ensure that the applicants will be able to obtain a full vindication of the rights they say they have against the second respondent. "

His conclusion was, at p. 10:

"There is, in my opinion, no jurisdiction under s. 23 of the Federal Court of Australia Act 1976 (Cth) to grant an interlocutory injunction in such circumstances. "

And for that reason he declined to grant the injunction sought against the second respondent. 

However, his Honour proceeded on the basis that if he were wrong in that holding, he would nonetheless still refuse the relief against the second respondent on the ground that the balance of convenience heavily favours that course.  And he also, on that same ground, would decline to grant interlocutory relief against the first respondent, although, as he noted at page 14,

"Different considerations as to the power of the Court to grant interlocutory relief are raised by the applicants' claim for the interlocutory injunction against the first respondent...  "

I have had the benefit of very extensive argument, both orally and in writing, by counsel on the question of the grant of leave to appeal, and for that reason I can be relatively terse in stating my reasons for declining leave. 

I accept that there are serious questions to be tried, and I think it right to note, as was submitted by Mr Redmond, of counsel for the applicants, that the claim for damages for the applicants appears on the present material to be a strong one.  The primary reason I refuse leave is that, in my opinion, there are no realistic prospects of success for the applicants to obtain interlocutory relief on an appeal;  that in large measure depends on my assessment of the material, particularly in relation to the aspect of the balance of convenience between the parties.

My tentative view is that Drummond J was not in error in concluding that the power conferred on the court in s 23 of the Federal Court of Australia Act did not extend to the grant of the interlocutory relief sought in this case, having regard to the relief which was sought by way of final relief.  But it is unnecessary and probably undesirable for a judge in my position to reach any final conclusion on that point. 

Accepting, on the arguments of Mr Redmond, that it is arguable that Drummond J was wrong on that aspect of the matter, still the position is that in my view there are no realistic prospects that on appeal the applicants would be held to be entitled to the interlocutory relief which they sought before Drummond J until trial.

Leave to appeal from an interlocutory judgment is required by s 24(1A) of the Federal Court of Australia Act.  The application is brought pursuant to O 52 r 10(1) of the Federal Court Rules.  Amongst the considerable authorities which bear on the question, Murphy J, with whom McInerney J agreed, in Niemann v Electronic Industries Ltd [1978] VR 431, suggested that for such leave to be granted, the order in respect of which it is sought must be seen to be "attended with sufficient doubt" and, if wrong, to work substantial injustice.

In an important passage for my present conclusion, Burchett J in Sharp v Deputy Commissioner of Taxation (Cth) (1988) 88 ATC 4,184 at 4,186, said of the requirement of substantial injustice in Niemann's Case:

"[Whether substantial injustice would result] is of course particularly likely to work in favour of an applicant where the interlocutory decision is in effect final.  In Ex Parte Bucknell (1936) 56 C.L.R. 221 at 225-226, the joint judgment of Latham CJ, Rich, Dixon, Evatt and McTiernan JJ stated that such cases raise 'little difficulty', there being 'a prima facie case for granting leave to appeal', which, at least in some such matters, 'would be granted almost as of course'..."

The injunction sought, in my opinion, is not in any sense final.  In fact it is only ever intended by the applicants to be truly interlocutory.  In that circumstance, it is not in aid of any final relief sought, except in the unacceptable and pragmatic sense of permitting them to have access to funds until trial, without a correlative obligation in respect of those funds.

It was submitted on behalf of the applicants that the test in American Cyanamid Co v Ethicon Ltd [1975] AC 396, being to inquire whether there is a serious question or questions to be tried, and, if so, where the balance of convenience lies, was misapplied by his Honour in that he failed to give sufficient weight to the strength of the applicants' case.

In Bullock v The Federated Furnishing Trades Society of Australasia (1985) 5 FCR 464, the Full Court indicated that the two aspects of the process, namely, whether there is a serious question to be tried and where the balance of convenience lies, are not necessarily discrete categories. The process in my view is not one for a mechanistic application. What is important to recognise is that the application is interlocutory, and because of that inter- locutory character, it is neither desirable nor possible to give any final determination as to the applicants' or respondents' cases, with the consequence that it is invidious
to make an assessment of their respective ultimate strengths on the interlocutory material. 

In some applications for interlocutory relief, especially those involving industrial or intellectual property rights, it is sometimes necessary to embark on the embarrassing task of trying to assess what the ultimate conclusion might be.  This is because in a very real way the conclusion on the aplication for interlocutory relief in those sorts of cases tends to determine the matter.  However, the formulation of the test in American Cyanamid (supra) is a recognition that what is sought in an application for interlocutory relief are orders which preserve or protect the rights of the applicant pending the final determination of the issues between the parties; that is to say, the application for interlocutory relief is directed to seeing how the interests of justice can best be served between the time of the application for interlocutory relief and the trial.

Accepting as I do that in this case there is a strong case for the applicants for a contravention of s 52 of the Trade Practices Act, still, in my view, there is no realistic prospect that on appeal the applicants would be held entitled to the interlocutory relief which they seek.

The reasons for that are numerous, but primarily they are these.  First of all, the application is not in aid of any final relief sought in the principal proceedings: that is a formidable objection to the grant of interlocutory relief. But, on a much more practical level, and dealing almost exclusively with the question of balance of convenience, on Mr Fletcher's own evidence the business is a loss-making one, and it would be very difficult in such a case to permit a person to continue in such a business pending the trial of a hearing, where there is no intention in the applicants to continue to operate the business after the trial if they should be successful.

It seems to me that considerations of justice to all the parties have to recognise the fact that where, as here, the business is a loss-making one, the prejudice to the respondents by the grant of any interlocutory relief is almost certainly irremediable.  The matter, however, goes further than that.  The applicants have failed to pay the $36,899 which was due on 24 July 1995.  Mr Fletcher admits default in respect of that sum when he admits that that sum is due and owing.  He disputes any right in the respondents to accelerate, but, in the second of his affidavits he admits that nearly $140,000 is now owing to the first respondent for stock purchases.

The financial situation of the applicants is far from sanguine.  Their solicitors advised one of the respondents that their trade creditors in April 1995 were $150,000, but by 9 September 1995 their trade creditors were more than $400,000.  Mr Fletcher says that without taking into account any payments or moneys due under the operating agreement, the business is achieving a net profit at the moment of $2335.  Even if the concessional rate of payment under the agreement of $2500 were to be met between now and trial, there would be a net loss of $165 per week and, it follows, no accumulation of funds with which to fight any proceedings or to live on.

While it appears that the respondents are the only creditors presently going to the lengths that they have against the applicants, there are a number of other creditors in the wings who have been, it seems, kinder in their approach to the difficulties that the applicants undoubtedly face. 

Mr Redmond disputed the approach by the trial judge in dismissing or having serious reservations about the value of the undertaking offered by the applicants. 

It was contended by Mr Redmond that, in a sense, he was denied an opportunity of making submissions concerning that aspect of the applicant's case.  I think, on a reading of the transcript of what happened, that claim is not made out.  The transcript does show that Drummond J did indicate that the question of the undertaking was a matter to be raised by counsel for the respondents, but it seems to me that that was taken by Mr Jackson QC who then appeared for the respondents.  It is incorrect to say that there had been a denial given to the applicants concerning the value of the undertaking and that therefore any findings in relation to it amounted to a denial of natural justice.

On any view of the evidence, the position of the applicants is parlous, and it seems to me that the question of the value of the undertaking is a very relevant matter in the conclusion as to where the balance of convenience lies. 

The other matter to which I should make specific reference is the contention that Drummond J was in error in concluding that the applicants were impecunious.  While impecuniosity is not the same as insolvency, it is no doubt the case, on Mr Fletcher's own concession, that they are presently unable to meet their debts and that inability extends to quite considerable sums. 

I hope it will be apparent that I have a degree of sympathy for the position of the applicants in the present case. So far as any findings that I have made, they are based on the material before me and are not meant to be in any way at all final determinations. I have indicated that on the present material the applicants seem to have a strong case for relief based on a contravention of s 52.

Those considerations do not permit them to entertain any realistic prospects of success on an appeal for the interlocutory relief which was refused them by Drummond J, for the reasons which I have given .  It is therefore in their interests, as well as in the interests of the respondents, that leave to appeal from the refusal to grant that interlocutory relief be denied.  For these reasons I decline to grant leave to appeal. 

While I can see that there are arguments which might be made for an order that the respondents on the application or the motion for leave for appeal should have their costs, my present intention is to order that the costs of the respondents on the motion be their costs in the principal proceedings.

[There were submissions on costs.]

The costs order that I make is as I have indicated.  I am conscious of the matters that raised by Mr Fraser, but where one is dealing with the question of leave to appeal from a refusal for an interlocutory order, there are reasons the other way, and I prefer to give recognition to those factors in making the order that the costs of the motion for leave to appeal be the respondents' costs in the principal proceedings.

I certify that this and the preceding fourteen (14) pages are a true copy of the reasons for judgment herein of the Honourable Justice Spender.

Associate

Date: 27 October 1995

Counsel for the applicants   :        Mr F. W. Redmond

instructed by               :        Hyland & Co., Town Agents for Kenny & Partners

Counsel for the respondents  :        Mr H. Fraser
instructed by               :        Phillips Fox

Date of Hearing             :        27 October 1995