Food Technologies Group Pty Ltd v Barbour and Associates Pty Ltd - [2003] FMCA 467

FEDERAL MAGISTRATES COURT OF AUSTRALIA

FOOD TECHNOLOGIES GROUP PTY LTD & ORS v BARBOUR & ASSOCIATES PTY LTD & ANOR

[2003] FMCA 467

PRACTICE AND PROCEDURE – TRADE PRACTICES – Interlocutory injunction pending trial – strict compliance required for notice of breach of lease and/or notice for assignment of lease and delivery up of possession of business premises – balance of convenience – a serious issue to be tried

Applicants:

FOOD TECHNOLOGIES GROUP PTY LTD, GIOVANNI DI FRANCESCO
and MARIA DI FRANCESCO

Respondents:

BARBOUR & ASSOCIATES PTY LTD and CHRISTOPHER LEIGH BARBOUR

File No:

MZ 306 of 2003

Delivered on:

22 October 2003

Delivered at:

Melbourne

Hearing Date:

15 October 2003

Judgment of:

McInnis FM

REPRESENTATION

Counsel for the Applicants:

Mr M Dean

Solicitors for the Applicants:

McMahon Fearnley

Counsel for the Respondents:

Mr D Gilbertson

Solicitors for the Respondents:

Mulcahy Mendelson & Round

ORDERS

UNTIL FURTHER ORDER AND UPON THE USUAL UNDERTAKINGS BEING GIVEN AS TO DAMAGES THE COURT ORDERS:

Giovanni Di Francesco and Maria Di Francesco and each of them, their servants or agents or howsoever otherwise are restrained from taking any step to re-enter the premises at 4-41 High Street Wallan (“the Wallan premises”) until the hearing and determination of proceeding no. MZ306 of 2003 or further order.
Food Technologies Group Pty Ltd its servants or agents howsoever arising is restrained from taking any step to require Barbour & Associates Pty Ltd to assign its right, title and interest in the lease of the Wallan premises to Food Technologies Group Pty Ltd and/or to require Barbour & Associates Pty Ltd to quietly yield and deliver up possession of the Wallan premises to Food Technologies Group Pty Ltd until the hearing and determination of proceeding no MZ306 of 2003 or further order.
Liberty to apply is granted to the parties in relation to any matters arising out of these orders.
Costs reserved.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MZ 306 of 2003

FOOD TECHNOLOGIES GROUP PTY LTD,
GIOVANNI DI FRANCESCO and MARIA DI FRANCESCO

Applicants

And

BARBOUR & ASSOCIATES PTY LTD
and CHRISTOPHER LEIGH BARBOUR

Respondents

REASONS FOR JUDGMENT

By an application filed 15 October 2003 Barbour & Associates Pty Ltd (Barbour & Associates) and Christopher Barbour (Mr Barbour) have applied for interlocutory injunctions restraining Food Technologies Group Pty Ltd (Food Technologies Group) and Giovanni and Maria Di Francesco (the landlords) from taking steps to re-enter the business premises of the applicants situated at 4-41 High Street Wallan (the business premises).
The interlocutory injunctions are sought until the hearing and determination of the substantive proceedings currently before the Court where the applicants to this interlocutory injunction are the respondents and the respondents to this application are the applicants.
The substantive application relates to a claim arising from negotiation over a franchise known as “Panic Pizza” to be operated from the business premises. There is a dispute on the pleadings and material as to the nature and extent of negotiations and indeed the precise details of the franchise agreement allegedly entered into between the parties.
As a result of orders made by the Court on 12 September 2003 an Amended Statement of Claim was filed by the applicants in the substantive proceeding. In that pleading reference is made to the franchise agreement claimed to be entered into on or about 9 December 2002 and the particulars refer to an agreement which was “partly oral, partly written and partly implied”. An Amended Defence and Cross-Claim is due to be filed on 7 November 2003. However, the current defence which is dated 22 August 2003 had denied assertions regarding discussions leading up to the alleged franchise agreement and otherwise asserted that an agreement had been reached between August 2002 and 17 December 2002. It is not necessary to set out other discrepancies in the material concerning the franchise agreements and terms and conditions other than to conclude that this is a triable issue where the parties are in dispute.
In support of the application for interlocutory relief reliance has been placed upon an affidavit of Christopher Lee Barbour sworn 15 October 2003 and an affidavit of Phillip Liberatore sworn on the same date.
It is clear from the affidavit material that the basis upon which the injunctive relief is sought arose in circumstances where two notices were served upon Mr Barbour by the respondents. The notices received by Mr Barbour include what purports to be a “notice of breach of lease” and “notice for assignment of lease and delivery up of possession” of the business premises. It is convenient to refer to the notices as a notice of breach of lease and notice for delivery up of possession. The first notice of breach of lease is sealed by Food Technologies Group Pty Ltd and dated 29 September 2003. It asserts that pursuant to a franchise agreement between the parties made “about August 2002 and 17 December 2002” there was a requirement that Food Technologies be paid a royalty of 5 per cent of gross sales of pizzas made from the business premises. Other facts are alleged where it is asserted that royalties were not paid for a period of 10 February 2003 to mid March 2003 and that this was in breach of terms and conditions of the lease agreement for the business premises which justified the notice of breach of lease. The lease agreement is included as part of the sale of business agreement. It is noteworthy that in the lease agreement the landlord is referred to as “Giovanni and Maria Di Francesco” and the tenant is referred to as “Barbour & Associates Pty Ltd”. Item 23 provides an additional provision which reads as follows:
“In the event that the Landlord and Tenant enter into a Franchise agreement in respect of a franchise operation to be run from the Premises, then a breach of that franchise agreement shall, notwithstanding any other provision of this Lease be deemed a breach of this Lease”.
Clause 7.1.2. provides that the landlord may re-enter the premises and enter the lease if, “The tenant does not meet its obligations under this lease.”
The notice of breach of lease signed by Food Technologies Group whilst referring to the written lease made between the landlords and Barbour & Associates has not been issued by the landlords. There is no issue in the present case that any franchise agreement on whatever terms and whatever date was entered into between Food Technologies Group Pty Ltd and Barbour & Associates and not entered into with the landlords. An attack was made therefore on the notice of breach of lease in the circumstances where there did not appear to be any foundation for that notice given that Item 23 to which I have referred describes an event occurring where “the landlord and tenant enter into a franchise agreement”. That clearly has not occurred. In any event the notice is not even executed by the landlords but rather by Food Technologies Group which is the alleged party to a franchise agreement.
The notice of assignment of lease and delivery up of possession of premises is again executed by Food Technologies Group seeking delivery of the premises to that company for the alleged termination of the franchise agreement. It seeks to rely upon what is described in the notice as “clause 16.2” of a franchise agreement made “between about August 2002 and 17 December 2002”. In fact reference to a copy of the franchise agreement relied upon which appears as Exhibit CB2 to the affidavit of Mr Barbour clearly indicates that “clause 16.2” is incorrect. That clause refers to removing or obliterating signs and features. The correct clause should be clause “16.3” which provides as follows:-
“16.3Lease of Premises or Physical Assets
(a)The Franchisee will, if required by the Franchisor, assign, transfer or surrender (as the case may require) all its right, title and interest in the Lease or any leases of the physical assets held by the Franchisee as part of or in the course of the Franchised Operation and in the case of the Lease will where so required by the Franchisor pursuant to this clause 16.3 quietly yield and deliver up possession of the Premises to the Franchisor in the same condition as existed immediately prior to the termination of this Agreement.”
It is clear to me that a proper reading of both notices to which I have referred reveals that they are defective. The defect is one which on the face of it would appear to be fatal as I am satisfied that in circumstances of this kind notices having the dire consequences proposed should be strictly interpreted. I accept that forfeiture of a lease requires strict interpretation and that notices of this kind in any event should at the very least provide a degree of certainty given the significant consequences. It is not necessary to further refer to that matter in circumstances where it would appear from correspondence between the parties that even if the notices were found to be invalid it would appear that Food Technologies and the landlords unless restrained from doing so intend to pursue their rights. I do note in an exchange of correspondence between solicitors that the solicitors for Food Technologies and the landlords at one point when asked whether they would assist in taking steps to enforce or act upon the notices until the hearing and determination of the substantive matter reply that no steps will be taken “to enter the premises pursuant to the notices without first giving seven (7) days notice in (sic) beforehand”.
It is clear therefore that there is a dispute between the parties as to whether or not the landlords and Food Technologies will proceed to take possession of the premises prior to the determination of the substantive claim. It is noted in the affidavit material of Mr Barbour that he refers to the business as being his principal source of income and that if the lease were to be determined or assigned then he would lose his principal means of supporting his wife and child with the child having been born on 22 October 2002. His wife works in the business and has no other substantial source of income. Mr Barbour further states that all rent has been paid under the lease from the date of entering into possession on 9 December 2002 to the date of swearing his affidavit. It appears to be conceded however that the five per cent royalties have not been paid since 27 February 2003 which seems to coincide with the date when Barbour & Associates ceased trading under the name or style of “Panic Pizza” according to Mr Barbour. He otherwise alleges that substantial improvements to the business have been undertaken in recent times.
The substantive trial in this matter has been fixed for final hearing on 16 March 2004 with an agreed hearing estimate of three days. There is no doubt there is a serious issue to be tried which in part relates to the terms and conditions of the alleged franchise agreement and evidence concerning negotiations leading up to the alleged agreement.
Counsel for Barbour & Associates and Mr Barbour had relied upon an outline of submissions critical of the notices to which I have referred and in dealing with the balance of convenience relied upon the consequences of re-entry to his clients being severe hardship of the kind described in the affidavit of Mr Barbour to which I have already referred.
It was argued by Counsel for Food Technologies and the landlords that damages would be an adequate remedy for any re-entry said to have occurred inappropriately and that there are other steps which could be taken by Barbour & Associates and Mr Barbour in relation to the notices. I permitted Food Technologies and the landlords to rely upon an affidavit sworn by Stephen Graham Wright on 15 October 2003 to be relied upon in this interlocutory application. In that affidavit the deponent correctly refers to clause 16.3 of the draft franchise agreement being the relevant clause and otherwise notes the failure of Barbour & Associates to fail to pay royalties between 7 February 2003 and mid March 2003. Mr Wright further deposes that based upon the date of service of the relevant notices the time for compliance ceased at close of business on 15 October 2003 hence there was a degree of urgency in this matter. It should be noted however that the parties agreed that there would be no action taken pending the delivery of my decision in relation to this interlocutory application.
In my view the balance of convenience clearly favours Barbour & Associates and Christopher Barbour in this matter. It is clear that the current notices in any event are defective for the reasons stated but in my view there is no indication from Food Technologies or the landlords that they will desist from issuing further notices in the correct form duly executed by the correct parties at some future date. That would leave those applying for the interlocutory injunction in the somewhat precarious position in relation to the conduct of their future business pending the hearing of the substantive claim. To do so would be to unduly prejudice both Barbour & Associates and Mr Barbour by effectively taking away current capacity to earn income. If by continuing to conduct the business there is further loss suffered by Food Technologies or the landlords then that is a matter which can be easily dealt with at trial.
In my view it is therefore appropriate upon receipt of the usual undertaking as to damages that I should grant the injunction sought in this current application. I am satisfied that there is serious issue to be tried in this matter and that many of the issues which may otherwise be agitated in considering the validity or otherwise of notices will be no doubt agitated at the trial of the substantive application. To permit parties to act upon the notices between now and the final hearing date of the substantive application would be unjust and would permit what I might describe as a ‘pre-emptive strike’ against Barbour & Associates and Mr Barbour prior to the final determination of the dispute between the parties. With the protection of the injunction granted by the Court on 2 April 2003 together with the fact that rent continues to be paid to the landlords and that the issue of damages is addressed by the usual undertaking and would otherwise be dealt with in any event at trial,

I am satisfied that the Court should make the following orders:
UNTIL FURTHER ORDER AND UPON THE USUAL UNDERTAKINGS AS TO DAMAGES THE COURT ORDERS:
(1)Giovanni Di Francesco and Maria Di Francesco and each of them, their servants or agents or howsoever otherwise are restrained from taking any step to re-enter the premises at 4-41 High Street Wallan (“the Wallan premises”) until the hearing and determination of proceeding no. MZ306 of 2003 or further order.
(2)Food Technologies Group Pty Ltd its servants or agents howsoever arising is restrained from taking any step to require Barbour & Associates Pty Ltd to assign its right, title and interest in the lease of the Wallan premises to Food Technologies Group Pty Ltd and/or to require Barbour & Associates Pty Ltd to quietly yield and deliver up possession of the Wallan premises to Food Technologies Group Pty Ltd until the hearing and determination of proceeding no MZ306 of 2003 or further order.
(3)Liberty to apply is granted to the parties in relation to any matters arising out of these orders.
(4)Costs reserved.

I certify that the preceding sixteen (16) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate:

Date: 22 October 2003