Hursle Pty Ltd v Groove Meister Pty Ltd

[2007] QDC 17

DISTRICT COURT OF QUEENSLAND

CITATION:	Hursle Pty Ltd v Groove Meister Pty Ltd & Anor [2007] QDC 017
PARTIES:	HURSLE PTY LTD ACN 098 944 720
Plaintiff V
GROOVE MEISTER PTY LTD ACN 105 056 577
First Defendant/Applicant And
KARL RICHARDSON AND GLYNN LESLIE BATEMAN
Second Defendants And
HURSLE PTY LTD ACN 098 944 720
First Defendant on Cross Claim/Respondent And
BRIAN FREDERICK SMALLWOOD
Second Defendant on Cross Claim/Respondent
FILE NO/S:	BD 1336/2006
DIVISION:	Civil
PROCEEDING:	Application for Summary Judgment on Cross Claim
ORIGINATING  COURT:	District Court of Queensland
DELIVERED ON:	2 March 2007
DELIVERED AT:	Brisbane
HEARING DATE:	27 February 2007
JUDGE:	Alan Wilson SC, DCJ
ORDER:	Application dismissed
CATCHWORDS:	SUMMARY JUDGMENT – APPLICATION FOR SUMMARY JUDGMENT – NATURE OF DISCRETION – application for summary judgment on cross claim in action involving alleged franchise agreement – allegation by franchisee that agreement void ab initio – whether summary judgment suitable remedy – whether trial necessary
Trade Practices Act 1974 Trade Practices (Industry Codes-Franchising) Regulations 1988. UCPR, r 293
Cases considered: ACCC v Global Prepaid Communications Pty Ltd [2006] FCA 146 ACCC v 4WD Systems Pty Ltd (2003) 200 ALR 491 Creative’s Landscape Design Centre v Platz (1989) ATPR 40-980 Gray v Morris [2004] 2 Qd R 118 Deputy Commissioner v Salcedo [2005] 2 Qd R 232. Johnston v Delata Pty Ltd, unreported (FCA, Einfield J, G767/88, 10 March 1993) Master Education Services v Ketchell [2006] NSWSC 28 Tenji v Henneberry & Associates Pty Ltd (2000) 98 FCR 324 The Cheesecake Shop v A&A Shah Enterprises [2004] NSWSC 625 TPC v Milreis Pty Ltd (1977) 29 FLR 144 Webb Distributors (Aust) Pty Ltd v State of Victoria (1993) 179 CLR 15
COUNSEL:	T C Somers for applicant Groove Meister Pty Ltd
P Smith for respondents Hursle Pty Ltd and Brian Frederick Smallwood
SOLICITORS:	Deacon and Milani for applicant Groove Meister Pty Ltd
McLaughlin Ivey for respondents Hursle Pty Ltd and Brian Frederick Smallwood

1. The first defendant Groove Meister Pty Ltd seeks summary judgment under UCPR r 293 on its cross-claim against the first and second defendants (on the cross-claim), Hursle Pty Ltd and Mr Smallwood. The claim and cross-claim relate to dealings between the parties concerning an alleged franchise agreement entered into in mid 2003 between Hursle Pty Ltd as franchisor, and Groove Meister Pty Ltd as franchisee.

2. The franchise involved the sale of coffee from a mobile van, and the franchise fee was $125,000. In the original action, Hursle Pty Ltd sued Groove Meister Pty Ltd for an alleged failure to pay franchise fees of $20,900.

3. Groove Meister Pty Ltd and the second defendants Messrs Richardson and Bateman cross-claimed, by defence and counterclaim, against Hursle Pty Ltd and Smallwood, alleging breaches of the Trade Practices Act 1974 (the Act) and the Trade Practices (Industry Codes-Franchising) Regulations 1988. It is alleged that the plaintiff and Mr Smallwood were guilty of unconscionable conduct, contrary to s 51AC of the Act. The particulars of the unconscionable conduct include an allegation that they failed to give the franchisee a copy of the Franchise Code (the Code) and a disclosure document required by the Regulations, in addition to other breaches of the Code. The defendants by cross-claim deny those breaches.

4. In the counterclaim, Groove Meister relies upon those breaches to claim a declaration, under s 87 of the Act, that the franchise agreement was void from its inception, entitling Groove Meister to a full refund of the franchise fee it actually paid, $118,472. In the alternative, it claims that sum for damages under ss 82 or 87 of the Act, or, for misrepresentation. These circumstances provide the basis for the present application by Groove Meister and the second defendants for a summary judgment on the cross-claim.

5. Section 87 of the Act involves, however, the exercise of a discretion, and a choice of remedial orders. Certainly, breaches of the regulations with which s 51AC of the Act deals may lead to a finding that the respondents were guilty of unconscionable conduct but not, necessarily, to the conclusion that the franchise agreement itself was always bad. As Selway J said in ACCC v 4WD Systems Pty Ltd (2003) 200 ALR 491, the provisions of the Code are to be read literally,[1] but that does not mean the appropriate relief under s 87, which remains within the discretion of the court, must necessarily be a declaration negating the alleged contract.

   [1]            And, see the judgment of Gyles J in ACCC v Global Prepaid Communications Pty Ltd [2006] FCA 146 at [55]

6. The provision which permits relief of the kind the applicant seeks has been given a narrow reading[2], and is discretionary. As French J said in Tenji v Henneberry & Associates Pty Ltd (2000) 98 FCR 324 (FC) at 333:

   The grant of such relief is discretionary. The exercise of that discretion and the choice of order may be affected by other considerations. The making of an order under s 87(2)(a) declaring a contract to be void may be based upon a number of factors including those which would affect the grant of analogous relief in equity… the question whether there has been a disaffirmation or a commitment to the performance of the contract by the party suffering loss will generally be relevant.

   …

   S 87(1) conditions the power of the court to make orders under the section upon the court considering that the orders concerned will compensate the party who has suffered or is likely to suffer loss by reason of the contravention.

   [2]            TPC v Milreis Pty Ltd (1977) 29 FLR 144 per Brennan J at 160-1, Deane J at 168; and, see Webb Distributors (Aust) Pty Ltd v State of Victoria (1993) 179 CLR 15

7. The fact the alleged breach involves the Code does not inhibit that discretion. Master Education Services v Ketchell [2006] NSWSC 28 at para [20] is authority for the proposition that non-compliance with the provisions of the Code does not render franchise agreements illegal – and would not, therefore, mean that non-compliance renders the receipt of non-refundable payments illegal. In The Cheesecake Shop v A&A Shah Enterprises [2004] NSWSC 625, Windeyer J explained, at para [6], that while the Franchising Code of Conduct is a mandatory industry code, failure to comply with it is neither more nor less than a breach of the Trade Practices Act, giving rise to relief under ss 82, or 87; at para [41]:

   Section 51AD does not make contracts made in contravention of the Code illegal. The section, like s 51AC, is addressed to conduct … s 51AC prohibits certain conduct … for all breaches Part VI remedies are available, including a power to declare a contract void. If it is void as illegal, there is no need for this, the argument must fail.

8. As this case is pleaded, there remains the question whether the agreement should be declared void ab initio or, for example, whether damages are a sufficient and appropriate remedy. In the course of this exercise, the court will need to consider the breadth of the relevant evidence and look at the remedies available under s 87. If persuaded relief of some kind is proper, the court will then exercise a discretion about which remedy (or combination of them) is appropriate – for example, whether restitutio in integram is possible[3]. When, as here, the parties apparently continued in a contractual relationship for over two years after the purported agreement was entered into, it is presently unclear whether declaratory relief akin to rescission would be ordered, or is an appropriate remedy[4].

   [3]            Creative’s Landscape Design Centre v Platz (1989) ATPR 40-980

   [4]            In Johnston v Delata Pty Ltd, unreported (FCA, Einfield J, G767/88, 10 March 1993) it was said that the court, in exercising its discretion under s 87, will be reluctant to find a contract rescinded (in the absence of fraud) and it should only be granted on the very strictest evidence.

9. The test for summary judgment has been variously expressed. I was referred to Gray v Morris [2004] 2 Qd R 118 but the principles suggested there have been strongly disavowed by the Court of Appeal in Deputy Commissioner v Salcedo [2005] 2 Qd R 232. While the evidence suggests something approaching a degree of probability that technical breaches of the relevant Code occurred, that does not mean the remedy sought by the applicants on summary judgment is that which is necessary or appropriate, or right and proper within the discretionary parameters of s 87.

10. It may be that, at the end of the day, the applicants are entitled to the relief they seek but that is a matter involving the discretion under s 87 which it would be precipitate to exercise in a summary way.

11. For these reasons, the application is dismissed. I will hear further submissions about costs.