Gabjet Pty Ltd v Funk Franchise Pty Ltd - [2019] SADC 37

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Interlocutory Application)
GABJET PTY LTD & ANOR v FUNK FRANCHISE PTY LTD & ORS
[2019] SADC 37
Decision of His Honour Judge O'Sullivan
26 March 2019
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - INTERLOCUTORY INJUNCTIONS - INJUNCTIONS TO PRESERVE STATUS QUO AND PROPERTY PENDING DETERMINATION OF RIGHTS
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - INTERLOCUTORY INJUNCTIONS - SERIOUS QUESTION TO BE TRIED
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - INTERLOCUTORY INJUNCTIONS - BALANCE OF CONVENIENCE
The plaintiffs and defendants entered into franchise agreements relating to Funk Coffee and Food franchises at 250 Victoria Square, Adelaide and 76 Waymouth Street, Adelaide, respectively. In November 2018 the defendants terminated the franchise agreements. The plaintiffs brought an application alleging that the breach notices and therefore the consequent terminations were invalid.
The plaintiffs allege amongst other things various breaches of the Franchising Code of Conduct.
The plaintiffs seek mandatory interlocutory injunction requiring the defendants to allow the plaintiffs to resume the conduct of Funk Victoria Square and Funk Waymouth Street from the respective premises. In the alternative, the plaintiffs seek prohibitory interlocutory injunctions prohibiting the defendants from selling the businesses pending the trial.
The matter is set for trial in November 2019.
Held:
1. The plaintiffs’ application for mandatory injunctions is dismissed; and
2. Reserve for further consideration the question of the prohibitory interlocutory injunctions sought.
Competition and Consumer Act 2010 Sch 2; Competition and Consumer (Industry Codes – Franchising) Regulation 2014 Sch 1, referred to.
Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57; Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618; American Cyanamid Co v Ethicon Ltd [1975] AC 396; JTA Le Roux Pty Ltd as trustee for the FLR Family Trust v Lawson [No 2] [2013] WASC 373; Racecourse Totalizators Pty Ltd v Totalisator Administration Board of Queensland (1995) 58 FCR 119; Businessworld Computers Pty Ltd v Australian Telecommunications Commission (1988) 82 ALR 499; Bradto Pty Ltd v State of Victoria [2006] VSCA 89; (2006) 15 VR 65; Delahunt v Swim Loops Pty Ltd [2018] VSC 269; Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148; Carlton and United Breweries (NSW) Pty Ltd v Bond Brewing New South Wales Ltd & Ors 76 ALR 633; Films Rover International Ltd v Canon Film Sales Ltd [1987] 1WLR 670; NWL Ltd v Woods [1979] 1 WLR 1294; Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533; Yara Australia Pty Ltd v Burrup Holdings Ltd [2010] FCA 1273 ; (2010) 80 ACSR 641; ACCC v Allphones Retail Pty Ltd (No2) [2009] FCA 17 ; (2009) 253 ALR 324, considered.

GABJET PTY LTD & ANOR v FUNK FRANCHISE PTY LTD & ORS
[2019] SADC 37
Introduction

This is an interlocutory application filed 18 December 2018 by the Plaintiffs in which they seek:
1…
2Orders that, until further order:
2.1The Defendants must permit, and do all things reasonably necessary to allow, the Plaintiffs to resume the conduct of the Funk Victoria Square and the Funk Waymouth Street franchise businesses from the premises respectively situated at 250 Victoria Square, Adelaide, and 76 Waymouth Street, Adelaide, and to re-enter and occupy those premises for that purpose, subject to:
2.1.1 the payment to the Second Defendant of the outstanding rental referred to in the Breach Notice dated 5 October 2018 in relation to the Victoria Square franchise, being the sum of $24,021.32, within seven days of the interim injunctions being made;
2.1.2 the payment to the Third Defendant of the outstanding rental and outgoings referred to in the Breach Notice dated 5 October 2018 in relation to the Waymouth Street franchise, being the sum of $30,121.42, within seven days of the interim inunctions being made;
2.1.3 the payment to the First Defendant of the “Royalty Fee” as defined in the Franchise Agreements for the Funk Victoria Square and Funk Waymouth Street franchises, from the date of this order and for so long as the Plaintiffs continue to operate the Funk Victoria Square franchise business and the Funk Waymouth Street franchise business, respectively; and
2.1.4 the payment to the Second Defendant and the Third Defendant respectively of the “Licence Fees” as defined in the Licences to Occupy the Premises in respect of the premises respectively situated at 250 Victoria Square and 76 Waymouth Street, from the date of this order and for so long as the Plaintiffs continue operate the Funk Victoria Square franchise business and the Funk Waymouth Street franchise business, respectively,
in all respects in accordance with the terms of those Franchise Agreements and Licences to Occupy Premises.
2.2The conduct of the Funk Victoria Square and Funk Waymouth Street franchise businesses by the First and Second Plaintiff respectively be on the basis as if the terms of the Franchise Agreements for the Funk Victoria Square and Funk Waymouth Street franchises and the terms of the Licences to Occupy Premises in relation to the Funk Victoria Square and Funk Waymouth Street premises apply in full.
2.3The First Defendant be restrained taking any steps pursuant to the purported Notices of Termination dated 13 November 2018 in relation to:
2.3.1 the Franchise Agreement for Funk Victoria Square between the First Plaintiff, the First Defendant and Giovanni Emanuele;
2.3.2 the Franchise Agreement for Funk Waymouth Street between the Second Plaintiff, the First Defendant and Giovanni Emanuele,
subject to the matters set out in paragraphs 2.1.1 to 2.1.4 above.
2.4The Second Defendant be restrained from taking any steps in relation to the purported termination of the Licence to Occupy Premises between the First Plaintiff, the Second Defendant and Giovanni Emanuele in respect of the premises situated at 250 Victoria Square, Adelaide, subject to the matters set out in paragraphs 2.1.1 to 2.1.4 above.
2.5The Third Defendant be restrained from taking any steps in relation to the purported termination of the Licence to Occupy Premises between the Second Plaintiff, the Third Defendant and Giovanni Emanuele in respect of the premises situated at 76 Waymouth Street, Adelaide, subject to the matters set out in paragraphs 2.1.1 to 2.1.4 above.
…
The Plaintiffs’ application sought an urgent hearing and the matter was listed on 19 December 2018. At that time, the Defendants sought an adjournment of the application to 25 February 2019 to enable the Defendants to file affidavits in response. The adjournment was not opposed and there was no application by the Plaintiffs for interim orders, notwithstanding the Plaintiffs had sought an urgent listing.
Documents Relied Upon
The Plaintiffs rely upon the following documents:
1Affidavit of Giovanni Peter Emanuele affirmed and filed on 18 December 2018 (First Emanuele Affidavit);[1]
2Affidavit of Christopher Andrew Bruce affirmed and filed on 4 February 2019 (First Bruce Affidavit);[2]
3Second affidavit of Giovanni Peter Emanuele affirmed and filed on 19 February 2019 (Second Emanuele Affidavit);[3] and
4Second affidavit of Christopher Andrew Bruce affirmed and filed on 19 February 2019 (Second Bruce Affidavit).[4]
5Third affidavit of Christopher Andrew Bruce affirmed and filed on 15 March 2019 (Third Bruce Affidavit).[5]
[1]   FDN 2.
[2]   FDN 5.
[3]   FDN 9.
[4]   FDN 8.
[5]   FDN 12.
The Defendants rely on the following documents:
1Affidavit of Arthur Damaskos[6] sworn and filed on 8 February 2019 (Mr Damaskos Affidavit);
2Affidavit of Joanna Kakas Damaskos sworn and filed on 8 February 2019 (Ms Damaskos Affidavit);[7] and
3Affidavit of Nina Rossi sworn 18 February 2019 and filed 20 February 2019 (Rossi Affidavit).[8]
[6]   FDN 6.
[7]   FDN 7.
[8]   FDN 10.
Background
The background to the matter is set out in the First Emanuele Affidavit at paragraphs 4 – 34 and in Mr Damaskos’ affidavit at paragraphs 7-48.
Gabjet Pty Ltd (“Gabjet”) was incorporated on 17 June 2016 for the purpose of conducting a Funk Coffee and Food franchise at 250 Victoria Square, Adelaide (“Funk Victoria Square”).
Jetgab Pty Ltd (“Jetgab”) was incorporated on 9 February 2017 for the purpose of conducting a Funk Coffee and Food franchise at 76 Waymouth Street, Adelaide (“Funk Waymouth Street”).
Between 20 July 2016 – 15 November 2018, Gabjet operated Funk Victoria Square. Between 1 July 2017 – 15 November 2018, Jetgab operated Funk Waymouth Street.
Mr Emanuele is the sole director, shareholder and guarantor of the First and Second Plaintiffs. His role was the nominated manager of Funk Victoria Square and Funk Waymouth Street which involved him supervising and controlling the activities of the two businesses.
The First Defendant, Funk Franchise Pty Ltd (“Funk Franchise”) carries on business in Australia as the franchisor in relation to a business operating under the name “Funk Coffee and Food”. It is the entity which issues and enters franchise agreements and operates, as franchisor, the Funk Coffee and Food franchise network.
The Second Defendant (Funk Leasing) is the entity which leases the property located at 250 Victoria Square, Adelaide from which Funk Victoria Square operates.
The Third Defendant (Funk Coffee and Food Pty Ltd) as trustee for the Damaskos family trust is the entity which leases the property at 76 Waymouth Street, Adelaide and which sold the Funk Coffee and Food business operating from 76 Waymouth Street Adelaide to Jetgab on 28 April 2017.
The Fourth Defendant (Funk CBD) is the entity which sold the Funk Coffee and Food business operating from Victoria Square to Gabjet on 17 June 2016.
Mr Damaskos is the director and shareholder of each of the First, Second, Third and Fourth Defendant companies.
Purchase of Funk Victoria Square
By a sale of business agreement dated 17 June 2016, Gabjet purchased Funk Victoria Square from Funk CBD for the sum of $410,000 payable on a “walk-in walk-out basis”.
The sale of business agreement for the sale of the Funk Victoria Square to Gabjet provided that the agreement was conditional upon Funk Franchise, as franchisor, entering into a franchise agreement with Gabjet.
On 28 June 2016, Mr Emanuele for Gabjet, received a disclosure document for Funk Victoria Square as well as a copy of the Franchising Code of Conduct[9] (“Code”) set out in the Australian Consumer Law,[10] a proposed franchise agreement and a licence agreement. The licence agreement was required because Funk Leasing was the tenant of the Victoria Square premises and in turn, licenced Gabjet to operate Funk Victoria Square from the Victoria Square premises.
[9] Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (Cth).
[10] Competition and Consumer Act 2010 (Cth), Schedule 2.
The Victoria Square landlord is the Catholic Church Endowment Society Inc.
Mr Emanuele was told by Mr Damaskos, shortly after receiving the Victoria Square disclosure document, that he should contact two Funk Coffee and Food franchisees. He spoke with one of those franchisees prior to purchasing Funk Victoria Square.
On 14 July 2016, on behalf of Gabjet and in his own right as guarantor, Mr Emanuele signed the Victoria Square Franchise Agreement under which Funk Franchise granted Gabjet a franchise to operate Funk Victoria Square. He personally guaranteed Gabjet’s obligations under that agreement. He also signed on behalf of Gabjet and in his own right, a licence to occupy premises for the Victoria Square premises.
The Victoria Square Franchise Agreement was for an initial term of five years from a commencement date of 18 July 2016 with an option to renew for a further five years. It had an initial franchise fee of $33,000 inclusive of GST and required the payment of an initial training fee of $11,000 inclusive of GST.
Purchase of Funk Waymouth Street
In or about December 2016, Mr Emanuele became aware that Funk Waymouth Street was available for purchase. He approached Mr Damaskos who indicated he was prepared to sell Funk Waymouth Street to Mr Damaskos for $225,000.
On 7 March 2017, Mr Emanuele received several emails from the Defendants’ solicitors, DC Strategy, attaching amongst other things, a disclosure document for the Funk Waymouth Street franchise, a copy of the Code, a proposed franchise agreement and a licence agreement.
On 29 March 2017, on behalf of Jetgab and in his own right as guarantor, Mr Emanuele signed the Waymouth Street Franchise Agreement under which Funk Franchise granted Jetgab a franchise to operate Funk Waymouth Street. At the same time, Mr Emanuele on behalf of Jetgab and in his own right as guarantor, signed a licence to occupy the premises for Funk Waymouth Street.
By sale of business agreement dated 28 April 2017, Jetgab purchased Funk Waymouth Street from Funk Coffee and Food Pty Ltd on a “walk-in, walk-out” basis. As with Funk Victoria Square, the Waymouth Street sale of business agreement provided that the agreement was conditional upon Funk Franchise as franchisor entering into a franchise agreement with Jetgab.
The Waymouth Street Franchise Agreement was for an initial term of five years with an option to renew for a further term of five years. The initial franchise fee paid by Jetgab under the Waymouth Street Franchise Agreement was $33,000 inclusive of GST together with an initial training fee paid by Jetgab under the Waymouth Street franchise agreement of $11,000 inclusive of GST.
The Waymouth Street Franchise agreement does not specify a commencement date but there is no issue between the parties that Jetgab commenced trading as Funk Waymouth Street on 1 July 2017.
The Waymouth Street landlord is Starmaker (888) Pty Ltd.
Breach Notices
During the course of both franchises, issues arose between the parties.
Insofar as Funk Victoria Square Franchise is concerned, on 5 October 2018, Mr Emanuele received an email from Mr Damaskos attaching a notice dated 5 October 2018[11] asserting that Gabjet was in breach of the Victoria Square Franchise Agreement. That notice of breach asserts that pursuant to cl 4.2(a) of the licence to occupy between Gabjet and Funk Leasing, and cll 7.10, 9B2(c)(iii) and 9B2(c)(vii) of the Victoria Square Franchise Agreement, Funk Franchise is entitled to terminate the Victoria Square Franchise Agreement if the stated default is not rectified. The default was described in the following terms:
1. Failure during the Licence Term to comply with all covenants, terms and conditions of the Lease for the Premises.
Failure to pay the outstanding amount of $24,021.32 relating to accrued rent (per attached statement).
[11] Exhibit GPE28 to the First Emanuele Affidavit.
The notice gave 14 days to rectify the default, failing which Funk Franchise proposed to terminate the Victoria Square Franchise Agreement without further notice.
Also on 5 October 2018, Mr Emanuele received a further email from Funk Franchise attaching a notice dated 5 October 2018, asserting Jetgab was in breach of the Waymouth Street Franchise Agreement.[12]
[12] Exhibit GPE 29 to First Emanuele Affidavit.
The Waymouth Street breach notice asserts that pursuant to cl 4.2(a), of the licence to occupy between Jetgab and Funk Coffee and Food Pty Ltd, and cll 7.10, 9B2(c)(iii), 9B2(c)(vii) of the Waymouth Street Franchise Agreement, Funk Franchise is entitled to terminate the Waymouth Street Franchise Agreement if the stated default was not rectified. The default was described in the following terms:
1. Failure during the Licence Term to comply with all covenants, terms and conditions of the Lease for the Premises.
Failure to pay the outstanding amount of $24,021.32 relating to accrued rent outgoings and electricity (per attached statement).
The breach notice continued that unless the default was rectified within 14 days, Funk Franchise proposed to terminate the franchise agreement without further notice.
Termination of the Franchise Agreements
On 16 October 2018,[13] by letter from the Plaintiffs’ solicitors, Duncan Basheer Hannon to Frunk Franchise, the Plaintiffs placed Funk Franchise on notice that in its view, the breach notices failed to comply with the Code and could not be relied upon for the purpose of terminating the Victoria Square Franchise or the Waymouth Street Franchise. There then followed correspondence between the parties.
[13] Exhibit GPE 20 to First Emanuele Affidavit.
On 15 November 2018, Gabjet received an email from its accountant which attached a notice dated 13 November 2018 terminating the Victoria Square Franchise Agreement.[14]
[14] Exhibit AD16 to Arthur Damaskos Affidavit.
In the afternoon of 15 November 2018, Mr Emanuele retrieved from the Post Office nominated as the address for service of notices for Jetgab, a notice, also dated 13 November 2018, terminating the Waymouth Street Franchise Agreement.[15]
[15] Ibid.
On 19 November 2018, Mr Emanuele became aware that Funk Franchise had taken physical control of Funk Victoria Square and Funk Waymouth Street including by changing the locks of Funk Waymouth Street. Funk Victoria Square and Funk Waymouth Street recommenced trading from 21 November 2018, with both businesses operated by Funk Franchise.
There is an issue between the parties about property left on the premises however for the purposes of this application I need not deal with it.
The Plaintiffs’ Application
As I have noted, the Plaintiffs seek a number of orders.
Paragraph 2.1 seeks a mandatory interlocutory injunction requiring the Defendants to allow the Plaintiffs to resume the conduct of Funk Victoria Square and Funk Waymouth Street from the respective premises.
Paragraphs 2.3, 2.4 and 2.5 seek prohibitory interlocutory injunctions.
Under paragraph 2.1 of the interlocutory application the Plaintiffs seek an mandatory interlocutory injunction and under paragraphs 2.3, 2.4 and 2.5, the Plaintiffs seek prohibitory interlocutory injunctions.
Relevant principles
The relevant principles concerning the granting of an interlocutory injunction are well settled.
In Australian Broadcasting Corporation v O’Neill,[16] the High Court identified the two-stage process when considering the granting of interlocutory injunctions as being a serious question to be tried and the balance of convenience.
[16] (2006) 227 CLR 57.
Gummow and Hayne JJ observed:[17]
The relevant principles in Australia are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd.[18] This Court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the court addresses itself to two main inquiries and continued:[19]
“The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief … The second inquiry is … whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted.”
By using the phrase “prima facie case”, their Honours did not mean that the plaintiff must show that it is more probably than not at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. That this was the sense in which the Court was referring to the notion of a prima facie case is apparent from an observation to that effect made by Kitto J in the course of argument.[20] With reference to the first inquiry, the Court continued, in a statement of central importance for this appeal:[21]
“How strong the probability needs to be depends, no doubt, upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks.”
[17] Ibid, [65].
[18] (1968) 118 CLR 618.
[19] (1968) 118 CLR 618, 622-623.
[20] (1968) 118 CLR 618, 620.
[21] (1968) 118 CLR 618, 622.

The Court considered the relationship between Beecham Laboratories and American Cyanamid Co v Ethicon Ltd[22] before continuing at [70]-[71]:
When Beecham and American Cyanamid are read with an understanding of the issues for determination and an appreciation of the similarity in outcome, much of the assumed disparity in principle between them loses its force. There is then no objection to the use of the phrase “serious question” if it is understood as conveying the notion that the seriousness of the question, like the strength of the probability referred to in Beecham, depends upon the considerations emphasised in Beecham.
However, a difference between this Court in Beecham and the House of Lords in American Cyanamid lies in the apparent statement by Lord Diplock that, provided the court is satisfied that the plaintiff’s claim is not frivolous or vexatious, then there will be a serious question to be tried and this will be sufficient. The critical statement by his Lordship is “[t]he court no doubt must be satisfied that the claim is not frivolous or vexatious; in other words, that there is a serious question to be tried”.[23] That was followed by a proposition which appears to reverse matters of onus:[24]
“So unless the material available to the court at the hearing of the application for an interlocutory injunction fails to disclose that the plaintiff has any real prospect of succeeding in his claim for a permanent injunction at the trial, the court should go on to consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief that is sought.”
(Emphasis added.)
Those statements do not accord with the doctrine in this Court as established by Beecham and should not be followed. They obscure the governing consideration that the requisite strength of the probability of ultimate success depends upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory order sought.
[22] [1975] AC 396.
[23] [1975] AC 396, 407.
[24] [1975] AC 396, 408.
Mandatory Injunction
In JTA Le Roux Pty Ltd as trustee for the FLR Family Trust v Lawson [No 2],[25] Edelman J identified a conflict in the authorities concerning the test to be applied to a case involving a mandatory interlocutory injunction. After discussing the issue, his Honour held that the test to be met in an application for a mandatory interlocutory injunction is no different from the test to be met in applications for prohibitory interlocutory injunctions, identifying that view as the “dominant view”. His Honour referred to the observations of Kiefel J (as she then was), in Racecourse Totalizators Pty Ltd v Totalisator Administration Board of Queensland[26] that a mandatory injunction should not automatically attract a requirement that the court should have further confidence in the correctness of the order.
[25] JTA Le Roux Pty Ltd as trustee for the FLR Family Trust v Lawson [No 2] [2013] WASC 373.
[26] Racecourse Totalizators Pty Ltd v Totalisator Administration Board of Queensland (1995) 58 FCR 119, 123.
His Honour noted that Gummow J in Businessworld Computers Pty Ltd v Australian Telecommunications Commission[27] explained that mandatory interlocutory injunctions are more likely to issue when the order requires a defendant to revert to a course of conduct which is pursued before the occurrence of the acts or omissions which provoke the litigation such that the risk of injustice is diminished.
[27] Businessworld Computers Pty Ltd v Australian Telecommunications Commission (1988) 82 ALR 499, 503.
In Bradto Pty Ltd v State of Victoria,[28] the Victorian Court of Appeal observed:[29]
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 subcategory of such injunction applications, namely, those where mandatory relief is sought. On the contrary, as pointed out convincingly by Hoffman J in Films Rover,[30] the grant of a mandatory interlocutory injunction may be justified in a particular case notwithstanding that the court does not fill the requisite “high degree of assurance”.
[28] Bradto Pty Ltd v State of Victoria (2006) 15 VR 65
[29] Bradto Pty Ltd v State of Victoria (2006) 15 VR 65, [33].
[30] Films Rover International Ltd v Canon Film Sales Ltd [1987] 1WLR 670.
In Delahunt v Swim Loops Pty Ltd,[31] Digby J considered the question of a mandatory injunction, citing Bradto and the passage set out above.
[31] [2018] VSC 269.
Accordingly, I approach the issue of whether the test for the first limb to be met in applications for mandatory interlocutory injunctions as no different from the test to be met in applications for prohibitory interlocutory injunctions.
Serious Question to be Tried
The Plaintiffs allege a number of matters against one or more of the Defendants.
1First, an alleged misrepresentation in the Victoria Square disclosure document whereby it is alleged that the disclosure document represented that Funk Victoria Square had not previously been franchised when in fact it had been; a fact admitted by the Defendants.
2Second, the Victoria Square disclosure document and the Waymouth Street disclosure document are alleged to be in contravention of the Code. In so far as the Victoria Square disclosure document is concerned, the alleged non-compliance with the Code is the failure to identify a previous franchisee. It is further alleged that the Victoria Square disclosure document breached item 6.4 of Annexure 1 to the Code by not including the Funk Waymouth Street franchise as a franchise that had been bought back by Funk Franchise.
As to the Waymouth Street disclosure document, it is alleged that the document breaches the Code because it does not include details of the Waymouth Street franchise other than it having commenced in April 2010 and being bought back by Funk Franchise in November 2012.
3Third, the extent to which the Funk Marketing Fund has been administered in contravention of the Code. This allegation concerns the non-monetary contribution by Funk Franchise to the Marketing Fund in contravention of cl. 31(2) of the Code. There is an allied allegation that the financial statements for the Marketing Fund contained “manifestly” insufficient detail of the funds receipted in the expenses.
4Fourth, the effect of the non-compliance with the Code is alleged by the Plaintiffs to be that Funk Franchise did not discharge its obligations under the provisions of the Code such that the Franchise Agreements should be set aside.
5Fifth, it is alleged the termination notices are invalid by reason of cl. 21.2(b) of each of the respective Franchise Agreements. Clause 21 of each Franchise Agreement[32] provides that a party may not commence court proceedings or arbitration relating to any dispute arising from the agreement unless it undertakes certain steps. Clause 21.2(b) provides that the Clause does not apply if “(b) either party has the right to immediately terminate the agreement, that right is clearly specified in this agreement, and there is no bona fide dispute to the interpretation of their meaning or factors giving rise to such dispute.”
As I understand the Plaintiffs’ argument, there is a bona fide dispute as to the interpretation of the right to immediately terminate the agreement or factors giving rise to such a dispute such that the termination was invalid.
6Sixth, the breach and termination notices are otherwise invalid because the breach notices did not give reasonable notice nor tell the respective Plaintiffs what was required to be done nor allow each of the Plaintiffs a reasonable time to remedy the breach contrary to cl. 27(2) of the Code.
7Seventh, the Defendants were in breach of their obligation to act in good faith. The Plaintiffs allege that Funk Franchise is in breach of its obligation under cl. 6 of the Code, alternatively at common law to act in good faith towards the Plaintiffs by reason of:
7.1 The alleged misrepresentation in the Victoria Square disclosure document;
7.2 The alleged failure by Funk Franchise to follow the dispute resolution process;
7.3 The alleged defects in the breach notice which render the determination notices invalid; and
7.4 A number of complaints raised against Funk Franchises in relation to the Marketing Fund and electricity invoices.
8The eighth and final matter is whether the Plaintiffs are entitled to the relief sought which is the setting aside of the respective sale and purchase agreements and the respective Franchise Agreements. That is, as a result of the matters about which complaint is made, the First Plaintiff’s case at trial will be that the discovery of the information concerning the non-disclosure or misrepresentation in the Victoria Square and Waymouth Street Franchise Agreements,
…would have resulted in it being unlikely that Mr Emanuele and the first plaintiff would have proceeded with the purchase and franchise of Funk Victoria Square (and therefore unlikely that Mr Emanuele and the second plaintiff would have proceeded with the purchase and franchise of Funk Waymouth Street).[33]
[32] See for example Exhibit GPE12 to the First Emanuele Affidavit.
[33] Plaintiffs’ written submissions, FDN 11, [86].
I have considered all the material that has been filed and in all the circumstances I am satisfied that there is a serious question to be tried.
Balance of Convenience
Although I have considered the issue of serious question to be tried in relation to both mandatory and prohibitory interlocutory injunctions together, I deal with the balance of convenience for the mandatory interlocutory injunction separately from the balance of convenience for the prohibitory interlocutory injunctions.
Mandatory Interlocutory Injunction
In JTA Le Roux Pty Ltd v Lawson [No 2],[34] Edelman J observed as follows:
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.[35] But these matters can, and should be, assessed as part of the balance of convenience.
[34] JTA Le Roux Pty Ltd as trustee for the FLR Family Trust v Lawson [No 2] [2013] WASC 373, [23].
[35] NWL Ltd v Woods [1979] 1 WLR 1294, 1305 (Lord Diplock); Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533, 536 (McLelland J); Australian Broadcasting Corporation v O’Neill [2006] HCA 46 ; (2006) 227 CLR 57, 84 [57] (Gummow & Hayne JJ); Yara Australia Pty Ltd v Burrup Holdings Ltd [2010] FCA 1273 ; (2010) 80 ACSR 641 [79] – [85] (Barker J); ACCC v Allphones Retail Pty Ltd (No2) [2009] FCA 17 ; (2009) 253 ALR 324, 329 [27] – [31] (Foster J).
There are number of factors in determining where the balance of convenience lies. In essence the court must consider, in the circumstances of the case, the consequences of granting or declining the injunction sought. In this matter, the Defendants have taken possession of the two franchises and are continuing to operate them.
Damages not an adequate remedy
In Castlemaine Tooheys Ltd v South Australia, Mason ACJ observed[36] that to secure an interlocutory injunction, amongst other things the plaintiff must show that it will suffer irreparable injury for which damages will not be adequate compensation unless an injunction is granted.
[36] (1986) 161 CLR 148, 153.
During argument Mr Munt of counsel, who appeared for the Plaintiffs, submitted that the Plaintiffs are seeking to go back into the respective premises now in order to preserve their position in relation the two businesses and that they seek to mitigate their loss.[37]
[37] T41.8-13.
He expanded on that submission by confirming that if successful his clients would be seeking a refund of the amounts they have paid for the businesses and an order declaring that the Franchise Agreements are void from the date of judgment.[38]
[38] T41.30-33.
Further, Mr Munt submitted that if the Plaintiffs were in possession then they would have the ability to try to attempt to realise the value of their business.[39]
[39] T43.1-3.
In essence, the Plaintiffs want to remain in control of the ability to sell their asset rather than being limited to a claim for damages.
As I understand the Plaintiffs’ position, it is likely, although not certain, that irrespective of the final judgment in this matter, the Plaintiffs will not seek to go back into possession. Rather, if allowed back in now then they may attempt to sell the businesses and mitigate their loss or on the other hand if not allowed back in then they will be limited to a claim for damages. I note that in the Plaintiffs’ statement of claim filed on 20 March 2019, after the argument in this mater, the Plaintiffs claim, amongst other things, a mandatory injunction in similar terms to that sought in this application.
Nonetheless there is no reason shown why absent the granting of an injunction the Plaintiffs will suffer irreparable damage. If successful, the Plaintiffs claim will sound, amongst other things, in damages. In my view, damages are an adequate remedy.
Delay
In this matter, the notices of termination were served on 15 November 2018 with Funk Franchise taking possession on or about 18 November 2018.
Nonetheless there was no application for injunctive relief until 18 December 2018. When that application was called on there was no application for interim orders.
In Carlton and United Breweries (NSW) Pty Ltd v Bond Brewing New South Wales Ltd & Ors, the Full Court of the Federal Court of Australia, in refusing an application for an interlocutory injunction on the grounds of delay held that:[40]
The grant of injunctive relief, interim or final, is, of course, discretionary. Delay by an applicant in instituting or in prosecuting a claim for an injunction may be a ground for refusing relief, even at a final hearing. Where an interim injunction is sought…delay in seeking that relief is an important discretionary consideration (references omitted).
[40] (1987) 76 ALR 633, 638.
The delay between Funk Franchise entering into possession of the two properties and the application being issued one month later remains unexplained. Taken by itself, the delay in commencing these proceedings of one month, particularly in view of the mandatory injunction sought, is a matter that requires explanation. The delay is sufficient to raise a serious doubt as to whether the discretion should be exercised in favour of the Plaintiffs.
Further, Funk Franchise has now been operating the business since on or about 19 November 2018. It seems to me that having the franchisor running the business will ensure, to the extent that it is possible, that the businesses will continue to operate in accordance with the franchise system and maximise the opportunity to at least maintain the value of the businesses absent a mandatory injunction.
The Plaintiffs can proceed with the litigation
There is no credible suggestion and no evidence that a refusal to grant a mandatory injunction will result in the Plaintiffs being placed in a situation whereby they will not be able to proceed with the litigation.
Landlord Consent
One of the issues in the matter when considering the balance of convenience is whether the landlord in each case is prepared to consent to the respective tenants granting a new licence to the relevant Plaintiff. I raised this matter during argument and on 15 March 2019, the Plaintiff filed the Third Bruce Affidavit. Mr Bruce deposes in his third affidavit that the Catholic Church Endowment Society Inc is prepared to allow Gabjet to occupy the Victoria Square premises subject to various conditions whereas Starmaker (888) Pty Ltd has reserved its position. The position of Starmaker (888) Pty Ltd does not influence my decision and I note the position of the Catholic Church Endowment Society Inc.
Urgent Trial
A further matter that I take into account on the balance of convenience but which by itself is not determinative is that this matter has now been listed for trial in November this year and so the Court is able to accommodate an urgent hearing.
Conclusion
Having considered all the materials and the parties’ submissions, in my view the balance of convenience favours not granting the mandatory interlocutory injunction sought and accordingly I dismiss that application.
Prohibitory Injunctions
The prohibitory interlocutory injunctions sought are set out in paragraphs 2.3, 2.4 and 2.5 of the application.
The first prohibitory injunction is directed at the First Defendant and is in these terms:
2.3 The First Defendant be restrained taking any steps pursuant to the purported Notices of Termination dated 13 November 2018 in relation to:
2.3.1 the Franchise Agreement for Funk Victoria Square between the First Plaintiff, the First Defendant and Giovanni Emanuele;
2.3.2 the Franchise Agreement for Funk Waymouth Street between the Second Plaintiff, the First Defendant and Giovanni Emanuele,
subject to the matters set out in paragraphs 2.1.1 to 2.1.4 above.
The prohibitory injunction sought in paragraph 2.4 of the application is directed at the Second Defendant and is in the following terms:
2.4 The Second Defendant be restrained from taking any steps in relation to the purported termination of the Licence to Occupy Premises between the First Plaintiff, the Second Defendant and Giovanni Emanuele in respect of the premises situated at 250 Victoria Square, Adelaide, subject to the matters set out in paragraphs 2.1.1 to 2.1.4 above.
The prohibitory injunction against the Third Defendant is in paragraph 2.5 of the application and is in the following terms:
2.5 The Third Defendant be restrained from taking any steps in relation to the purported termination of the Licence to Occupy Premises between the Second Plaintiff, the Third Defendant and Giovanni Emanuele in respect of the premises situated at 76 Waymouth Street, Adelaide, subject to the matters set out in paragraphs 2.1.1 to 2.1.4 above.
It is not clear to me precisely what is meant by “taking any steps” in relation to each of these paragraphs but as the argument evolved, the “steps” are directed at prohibiting the Defendants or any of them from selling the businesses pending the trial.
During argument, Mr Belperio for the Defendants indicated that he would obtain instructions from the Defendants in circumstances where I am not prepared to make a mandatory injunction.
Rather than make a prohibitory injunction in relation to Funk Victoria Square and Funk Waymouth Street at this stage, I indicate that I am prepared to do so because in my view, the balance of convenience on the prohibitory injunctions favours the retention of the businesses pending the resolution of this dispute. Further, if the Plaintiffs are successful, should the business be sold it will remove from the Plaintiffs the option of going back into the businesses.
Accordingly, it is appropriate that absent undertakings to the contrary from the Defendants or such of them as may be appropriate not to sell or otherwise dispose of the respective businesses I am inclined to make an order however I will hear the Defendants on that further.
Accordingly, the orders are as follows:
1The Plaintiffs’ application for mandatory injunctions is dismissed;
2Reserve for further consideration the question of the prohibitory injunctions sought; and
3I will hear the parties on the precise terms of the orders and on the question of costs.