Knights of Video Pty Ltd v Pacific Seven Pty Ltd

I N

T H E

F E D E R A L

COURT

O F AUSTRALZA

)

V I C T O R I A	D I S T R I C T	R E G I S T R Y	)	No.	VG	158 of	1984
GENERAL	D I V I S I O N	1

BETFEECEz

KNIGHTS

O F

V I D E O

P T Y .

L T D .

Applicant

At:

PACIFIC-SEVEN

PTY.

LTD. ,

P E T E R KOON,

ZUSSELL

WITHERS

Respondents

CORAM :

Mr.

Justice

Jenkinsorr

. .

PLACE :

Melbourne

! -

DATE :

12 June. 1984

om3xs

Upon the applicant unde-xing

by %&L= counsel khat until

4.15 p.m. on 15 June 1984 it will zot offer 20 enter or enter icto

an agreement concerning the

hir5zg of vi5eo cassettes wit3 a

licensee of a 7-Eleven shop and

t'dat it will pay to the applicant

. adversely affected by this order

such compansation (if any)

as the

Court thinks just in such manner the directs

the Court Orders that the first respondent

be restrained untll the

hearing of the proceeding or further order

from -

(i) threatening to withdraw from Michael Milinkovic of 7-Zleven store Geelong West

any goods or services

he,

the said

Michael Mllinkoaxc, should use in the

course of

tine business ccneucted in the

said 7-Eleven

store the business System

referred to In

BfficZavit of

Lucizn

Anceschl sworn im this prazeeding rke 2Sth

day of May 1984 as the 'Allnite Video

System' :

(ii)

threatening to withdraw from

Brian and

Pamela McDonald

of 7-Eleven store Geelong

North

any

goods or services if they, the

said Brian and Pamela ElcDonald should use

in the course of the business conducted in

the said 7-Eleven store

the business system

referred to

in the Affidavit of Lucian

Anceschi sworn in this proceeding the 25th

day of May 1984 .as the 'Allnite Video

System':

(iii) .giving without the leave

.of the Court a

notice

to the said Michael- Milinkovic in

purported exercise of a risht conferred by

Article 25(c)

of the agrement which is

exhibit PS15 to the affidavit of Peter i4oon

sworn the 30th day of May 1984 in this

proceeding: and

(iv)

giving without the leave

of the Court a

notice to the said Brian XcDonald or

the

said Pamela McDonald in purported exercise the agreement which is exhibit PH6 to the affidavit of Peter Moon sworn the 30th day of May 1984 in this proceeding.

And the Court Further Orders that

The costs of each party of

the application for

interlocutory relief be reserved.

The directions hearing be adjourned until

15 June 1984.

IN THE FEDERAL COURT

OF AUSTRALIA

)

VICTORIA DISTRICT REGISTRY	) No. VG 158 of 1984
GENERAL DIVISION	1

BETWEEN: KNIGHTS	OF VIDEO PTY. LTD.
Applicant

AND: - PACIFIC-SEVEN PTY. LTD.,

-	PETER KOON, RUSSELL WITHERS

Respondents

C O R m :

Mr.

Justice Jenkinson

PLACE: . Melbourne

DATE :

12 June, 1984

REASONS FOR JUDGMENT

Application

for

interlocutory

injunctions

to restrain

conduct which would, as the applicant contends, contravene

s.47 of

the Trade Practices Act

1974.

_ _

Hereafter I state facts as though found and state

findings on questions of fact and opinions on questions of law.

Of course my function in determining this application is not to

reach any concluded finding, but

to see whether the applicant has

made out "a prima facie case", in the sense in which that

expresslon has been expounded In a number

of authorities binding

upon me.

(See, for example, T.W.U.

v. Leon Laldley Pty. LtB.

(1980) 2 8 A.L.R.

589).

To avoid unnecessary repetition I make it

clear that all the facts are stated hereafter only in Ynat sense,

and that the opinions expressed

questions of law have been

famed only for the purpose of resolving wizather the application

should be granted.

applicant

The name "The Allnite Video Company",

("Knights")

conducts,

b siness

under

-a	-business of the retail hiring

of material which may be utilised in

d i n a t i o n

with other

I .

appropriate equipment to screen plays and &her

entertainment in

domestic television receivers. Reference

1s zade to the material

and its cqntainer as a pre-recorded video cssette. One mode of carrying on that business is by.contracting with a retail shopkeeper, in whose shop other goods are ozfered for sale, for

display and hiring of the cassettes by the s3opkeeper as Knights'

agent to customers in the shop, and for

ernsion between Knights

and the shopkeeper of the hiring charges.

Um2er such arrangements

Knights supplies to the shopkeeper a stock of cassettes,

advertising material, hiring contract forms

a d

what was described

in evidence as

"a computer".

The shopkeeper' S rlghts in. the

chattels are those of a bailee.

The computer records each hirlno

transaction by coupling in record a number assigned to the hlrer

and another number assigned to the

cassette lnred.

The computer

may be operated

furnish information ccsccerning the recorded

hiring transactions.

The hirer is offered $chat was described In

evidence as an Allnite registration card, possession of which entitles him to take cassettes on hire on 2ayment of the amount

payable in respect

of one day's hire, but

orrly from the shopkeeper

through whom the first hiring from Knights

hss been effected.

3 .

The first respondent professes a right to grant licences

to occupy certain shops and to conduct therein retail businesses

of a particular kind. These shops are known as "7-Eleven'' shops.

They sell food and drink and other goods

by retail, they are open

for many hours

of every day, they display the same trade mark and

they look alike. In respect

of each shop the first respondent

grants to one or to several persons jointly a licence to use the

. .

shop solely for the purpose of

conducting--a

busmess of the kind

which by elaborate contractual provision

is described in the

written agreement

for the licence. The agreement expressly

declares

the

parties'

"intention

and

understanding"

that

c5e

licensee-s be "independent contractors";

the profits of the

business, after payment

o the first respondent of a percentage of

gross profit, are theirs: and they are

not required, the agreement

expressly provides, to buy their stock

in trade from persons

recommended by tfie first respondent, or to sell at prices	!
suggested by the first respondent.

On 17 May, 1984 Knights supplied to Michael Milinkovic

cassettes, advertising material, hiring contract forms and a

computer, pursuant to an agreement In writing dated 15 May, 1984

of the kind which

I have described.

Mr. Milinkovic carries on

business in a 7-Eleven shop in Geelong West under an agreement in

writing with the first respondent. That agreement is

of the kind

which I have described. That agreement includes a term (Article

4(e) ) that Mr. Milinkovic "shall not add any improvements,

fixtures or equipinent to" the

shop or to a chattel or a fixture

"installed upon" the shop

"or a f f i x to- fhe shop or "display

thereon any additional signs or identificat5on

.. . . without the

prior written consent of" the

first respankent.

Mr. Milinkovic

has not obtained that respondent'

S consent to the presence in the

shop of any of the chattels pro~ided t~ him by Knights

performance of the agreement made 2etween &.m

and Knights" ("the

agency agreement:). Having

been apprises. of the presence

Milinkovic's shop of the chattels Knights h&i

delivered to him in

pursuance of

the agency agreement, the first respondent caused

two

of its servants, Messieurs Moon	a e Filler, fl, call on 18 May 1984
at .the shop, where they gave	hirr. to unckz-stand that the first

respondent regarded him as in breach of

ths a-jreement between hin

and the first respondent ("the franchise aqrz=nent"), by reason of

the addition to the shop of "equipaent" Kn5ghts had delivered

1 .

namely the computer and advertising material

- without the first

respondent'

S prior written consent.

&ea&

of that tern of the

franchise agreement empowers the

first respadent to terminate the

franchise agreement by giving the other party "not less tinan 30

days notice of termination" (Article 25)

Although no agent of

the first respondent has explicitly threatened exerciss

of the

power, the whole

of the evidence justifies a finding that, if

M r .

Milinkovic does

not cease performance of agency agreement and

remove from the shop the computer and advertising material delivered to him by Knights, the first rcTondent will probably

give him such a notice, as well as a finning that Hilinkovlc'

conversations with Moon and Miller

on and shortly aftar 18 May

1984 induced i n h i s

mind a belief, for wFr.ich he had reasocable

grounds,

t h a t such a

no t i ce would be

iven

i f

d i d

not

cease

* performance of the

agency

agreemeat

and

r-ve

those

things

from

the

shop.

Some of those

things

were

removed

from

the

shop

Milinkovic,

w i t h the approval and physica1 zssistance

Mcon

and

Miller, on 18 May 1984.

Af te r he

learn t

thzk an interim order

had

been

made

by m e ,

i n t h i s

p r o c e e d k g

i3aY

1984,

t o

r e s t r a i n

the respondents-from

t h r e a t e n i n g

t o

withdraw

from

Michael

Mllinkovic of

7-Zlevan

s tcre Geelong West

any

goods

sexvices

i f

he ,

the

sa id

Michae l

Mi l inkovic ,

should

use

i n

t h e

course of the

business

ccmducted

i n the

sa id 7-Eleven

s5ore

the

Eus iness

syscem

re fe r r ed

t o

in the

Affu%i-vit of

Lucian

Anceschi sworn t;lis day ZLS the	'Al ln i te
Video System' :

(ii)

t h r e a t e n i n g

t o

withdraw

from

Brian

Pamela

McDonald

7 - E l e v ~ ~ s t o r e

Geelong

North

any

goods

s e r v i c s

i f

t h e y ,

t h e

said

Brian

h PL-ela

McDadd,

should

u s e

i n the course

t3e b u s k e s s conducted i n

t h e

said

7-21ev1en

s to re , .

t he

b u s i n e s s

system

re fe r r ed

t o

i n '&e

Affidavl t

Lucian

Anceschi

sworn

day

a s

t he

' A l l n i t e Video System'

(iii)

touching

danaging

goass

f ix tu re s ,

t h e

p r o p e r t y

t h e

A p p l i c a n t

t h e

premises known as 7-Elevec store Geelong

West or on the prexnses h o w n as 7-Eleven

s to re Geelong ETorxh,

restored

those

a r t i c l e s

t o

PAS shop z=d resumed,

ant!

h3s

continued i n , performance of

the aqeEcy agre=xent.

There is in Geelong another 7-Eleven shop, a licence in

relation to which was granted by the first respondent to Brian

Douglas McDonald and his wife Pamela Margaret McDonald. The shop

is at Geelong North.

Mr. and Mrs. McDonaid are payties to

agreement with the first respondent and

an agreement with

Knights,’ each of which is ‘for present pur2oses indistinguishable

in its terms from.the franchise agreement and the agency agreement

respectively to which Mr. Milinkovic is party.

And in relation to

Mr. and Mrs. indistmguishable for present purposes from those which

McDonald events have occurred which are

I have

narrated in relation

>W. Milinkovic.

Some of the provisions of

s.47 of the Trade Practices Act

1974 are

“(1)	Subject to this section, a corporation shall not, in trade or commerce, engage in the practice of exclusive dealing.

( 2 )

corporatlon

engaged in the practice of

exclusive dealing if the corporation

(a) supplies,

or offers to supply, goods

or services:

(b) supplies, or offers

supply, goods

or services at a

particular price: or

(C)

gives or allows, or offers to give or allow, a discount, allowance, rebate

or credit in relation to the supply

or proposed supply of goods

services by the operation,

on the condition that the person to whom the

corporation, su2plies,

or offers or proposes to

supply, the goods

or services or,

if that person is

!-.

- -

7 .

a body corporate , a	body	co rpora t e	r e l a t ed	to	tha t
body corporate -

(a)

w i l l not,

w i l l & except

l i m i t e d

e x t e n t ,

a c q u i r e

g o o d s

o r

services , or goods 5h serv ices of

p a r t i c u l a r

X i n d

d e s c r i p t i o n ,

d i r e c t l y

i n d i r e c t l y

from

competitor of the coQoration or

from

compet i tor

o f

Body

co rpora t e

r e l a t e d t o

Eke

corpo?zznion:

........ ........ ........ ........ ....

( 3 1

A corporation

also

engages

5n t he

p rac t i ce

e x c l u s i v e

d e a l i n g

f i e

c o r p o r a t i o n

refuses -

(a)

supply

gmds

s e r v i c e s

t o

person:

(b)

supply

goods

o r

s e r v i c e s

t o

person

a t

g a r t i c u l a z p r i c e : o r

( C )

g i v e

t o

o r

a l l o w

d i s c o u n t ,

a l lowance ,

r ba t e

c r e d i t

i n

r e l a t i o n

the

SUPFEY

proposed

supply of goods o r services t o a

person,

for the reason that

the person or,

52 the person

i s

a body corporate , a	body	c o r p o r a t e r e l a t e d t o t h a t
body corporate -

(a)

has

acquired.

has

not

agreed

not

acqul re ,

goods

se rv ices ,

o r

goods

services

af a pa r t i cu la r

k i n d

o r

d e s c r i p t i o r ,

d i r e c t l y

o r

i nd i r ec t ly from a cozzpetitor

the

corpora t ion or

from rl

competitor of a

body

c o r p o r a t e

r e l a t e d

t o

the

corporation;

........ ........ ........ ........ .....

(8) A corporation

also

engages

i n

t h e

p r a c t i c e

of.

e x c l u s i v e

d e a l i n g

i f

?-?e

c o r p o r a t i o n

g ran t s o r

renews,

or makes Z t known t h a t it

w i l l

n o t

e x e r c i s e

p o w e r

o r

r i g h t

t e n i n a t e ,

l e a s e

o f ,

or a l icence i n

respec t of ,

l and or

b u i l d f z q

o r pa r t

bu i ld ing on

the condi t ion

th=* another-.party

. -

t o the lease

l icence

or,

i f

tha t

o the r

party is a body ccrporate. a body corporate

related-

to that

b&y corporate -

(a) will not,

or will not except to

limited extent -

(i) acquk-re goods 01 services, or. goods or services of a particdar kind or description,

directly or inZ5rectly fron

compeLkilior of *Ae corporation

or fron a competitor of a body

corporate

the

I . corporation; or

........ ........ ........ ........ .....

A corporation also engages in the' pracxice

. - of exclusive deaiing if t3e corporation _ . refuses to grant r3r renew, ar excercises a

power or right to termlnate, a lease of, or

a licence in resped of, land or a Suilding

-or part

'of a building for the reason that

another party to	2 s lease or licence or, if
that other party	is a body ccqorate, a body

corporate related tc that bo5y corporate	-
........ ........ ........ ........ ........ ....

(10)-

Sub-section

(1) does not apply to the

practice of exclus%xrs dealing constituted by

a corporation engashg in co-;.9uct of	a kind
referred to in sub-sections (21, ( 3 1 ,	( 4 ) or

(5) or paragraphs 48)

(a) or

(b) or

( 9 ) (a),

(b) or (c) unless

(a)

the

engaging

the

corporation

that conduct has the purpose, or has

or is likely to have '

effect, of

substantlally lessenizg competitlon:

(b) the

engaging by the

corporation

that conduct, and

the engaging by the

corporation. or by

a body corporate

related to the corparation, in other

conduct of the same or a slmilar

kind, toget3er have ~r are likely to

have the ez'fect of substantially

lessening ccmpetition.

........ ........ ........ ........ .....

(13) In this section

(a)	a reference to a condition shall

read as a reference-to any condition, whether direct or indirect and whether having legal or equitable force or Eot, and includes a reference to a condition the existence or nature of which is ascertainable only by inference from

the conduct. of persons or from other

relevant circumstances;

(b) a reference to competition, in

relation .to conduct to which a

provision of this sectlon other than

sub-sectlons

( 8 ) or (9) applies,

shall be read as---a

reference to

. -

competition-in any mzr’xet In whlch -

(i)	the corporation engaging in

the

conduct

or any

body

corporate related to that

corporation: or

(ii) any person whose business dealings are restricted, limited or otinerwise circumscribed 3y the conduct

or, iE that Ferson is a body corporate, any body corporate related to that body corporate,

supplies or acquired,

or is likely to

supply or acqulre, qoods or servlces

or would, but for

the conduct, supply

-or acquire,

or be likely to supply or

acquire, goods or services; and

(Cl a reference to competition, in relation to cooduct to which sub-sections ( 8 ) or ( 9 ) applies, shall be read as a reference to

competltion

in any market in which

the corporation eqgaging in the conduct or any other corporation the buslness dealings of which are restrlcred, limited or otherwise circumscrlbed by the conduct, or any

body corporate related to either of those corporations, supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the conduct, supply or

10.

or	be likely to supply or

acquire,

acquire, goods or services.

0, .

One Of the submissions advanced in support of the

application

for

interlocutory injunctive relief was that the

evidence showed that the first respondect was proposing to

exercise, in contravention of s.L7(9) (a), i ts power to terminate

the licence granted by the franchise agreement

in respect of each

of the two 7-Eleven shops in Geelong for tke reason that in each

case

the

other

party,

the

licensee,

has acquired

goods

an6

services from .a competitor of the' first respondent, namely

Knights. In

what respect, then, may

EL?ights

and

the

first

respondent be competitors?

During 1983 Knights and the first respondent engaged In negotiations with respect to the possible installation

in 7-Eleven

shops of a system

for hiring-pre-recorded video cassettes. The

system in contemplation by those parties was that which I have

already described or a similar system which Knights might devise

. .

in co-operation with the first respondent. While those

negotiations were in train such a system was installed in 11 of

the 55 7-Eleven shops which are in Victoria. The licensees of

those shops enjoy the system under contractual arrangements

y.ih.lhlCh

the evidence did

not clearly disclose, but to which it seems that

both Knights and the first respondent are parties.

hother 11

of the shops are presently utilising

a similar system installed by

the first respondent pursuant to agreements between it

and

the

l icensee

each

shop respectively.

The

negotiations

have

not

' .

r e su l t ed

in any

ccmprehensive

agreement

w i k 3 respect

t o 7-Eleven

shops and by writ issued o u t of the Supreme

Court

Vic tor ia

21 March 1984 Knights

claimed

in junc t ive

a m d

o t h e r r e l i e f a g a i n s t

the

f i rs t

respondent

and

l i censee o f

7-Eleven

shop

Bent le igh

resp-ect of

w h a t Knights

a l leges

t o have

been

wrongful

use of information

about

its system,

whtch

it claims t o have

communic2ted

t o the defendants

in confidence only

for

the

purpose

of enabling

the f i r s t respondent to decide w3ether . to

u s e Knighcs'

system i n 7-Eleven shops and t o enable

n gotiation

agreemsnt

between

Knights

and

the

f i fs t ressondent and

licensees

of.7-Eleven

shops

concerning

the

installatLon

and

ope ra t ion

i n

those

shops

that

system.

The

wrongful

ose

alleged

i s

t h e

i n s t a l l a t i o n

" i n

s e v e r a l

o f "

the 7-Eleven

of what

i s a l leged

t o be

"a colourable imi ta t ion of" Knights'

system,

which

imitation

is a l leged ac t ion is pending.

t o have

been

achieved

by use of the

information.

The first respondent d-ies

t h a t it has made

wrongful

conf ident ia l

in format ion

and

claims

that

impediment

e x i s t s

t o

its

i n s t a l l i n g ,

p u r s u m t

t o

any

contract

may

be ab le t o make wi th

the

l i censee ,

i t s

own

system

i n

7-Eleven

shop.

appl icat ion

for

i n t e r l o c u t o r y

r e l i e f

has

been

made

i n t h e

Supreme

C o u r t actlon..

It Was submirrted by Mr. Chernov Q-C., who appeared

with

Mr. G. B. Johnston

for

Knights,

that

=Tights

and

t h e

f i rs t

respondent

w e r e

compet i tors

for

the

c u s t s m

7-Eleven

shop

l icensees as

suppl ie rs of

t h e goods

and

s s r v i c e s which

may

-.--__.

-. . -,. -

, _ -_-_

_ _

- . _.

-*-I

.-..-.A-- -.----S=-

, -

12.

compendiously labelled a video hiring system. What the customer

obtains is

the

right

negotiate with members of the public

frequenting his shop contracts, in

the making of which he acts as

agent of the supplier, for the hire of video cassettes to those

members of the public by the supplier of	the service, possession	l
L

in his shop of the cassettes to be hired, possession

of materials,

such as advertising matter, contract forms and registration cards

and a "conputer", by the use of which in the shop those contracts

may. be

iiduced, recorded and made the subject of informatlve

analysis, and a commission upon each contract.

There was

uncontradicted evidence, which I accept, that

the first respondent

not presently offering a video hiricg

system to any person, but is evaluating

the systems presently

, -

installed in 7-Eleven shops, including one system, installed in

7-Eleven shop

Brisbane, which includes no "coiaputer", but

involves handwritten recording

each hiring. It may be that

upon evaluation the first respondent will offer to 7-Eleven shop

licensees a system of that latter

kind, rather than a system which

includes a computer. But it is, as I find. very probable that in

the immediate future the first respondent will offer

the

licensees of some 7-Eleven shops

in Victoria a video hiring system

of one or another of the two kinds under present evaluation. So also will Knights offer such a system, including computer, to the licensees of soine 7-Eleven shops in Victoria. It is probable that some of those licensees will receive offers from both Knights and

the first respondent. If it cannot presently be said of Kniqhts

! .

13..

that it is competing with the first responEnt, because the first

respondent is not presently offering what ?bights is offering, it

can, as I find, be said that in the immediaze future they will be

offering similar goods and services to the same persons and will

be competing

far the custom

of tbose F s o n s .

Although the

express reference of paragraphs ('D; and ( 3 of S .47 (13 might be said to be only to "competition", and not ko "competitor", I am inclined to think that a consideration 5E those two paragraphs leads to the conclusion that the word "czxpetitor" in s.47(9) comprehends corporations and bodies cargorate likely in the

. L

immediate future to be supplying gcods or services in a market

which at the same future time

the corporat5on to which reference

is first made

in that sub-section is likeL;?

to be supplying

t3ose

goods or services.

No prohibition of the conduct described in

s.47(9

j (a) is

effected by s.47 (1) unless the enqzging

by a corpcration in t h t

conduct "has the purpose, or has

or is 1ikeZy to have the effect,

of substantially lessening competition",

or nnless-the engaging in

that conduct and the engaging by the

s a n e corporation (or

3y a

body,corporate related

to that covoratiorrl "in other conducr

the same or similar kind together

5ave or are likely to have the

effect of substantially lessening competitfcm"

: see s.47(10).

The effect of the conduct on conpetition

can be judged only by

reference to "the market" in whicfi the conptition occurs. The

evidence did not suggest that the first resLmndent would offer a

video hiring system to any person *#J~-Io was r?ot the licensee of a

7-Eleven

shop,

or for

use

any

p lace

except a 7-Eleven

shop.

Knights,

the

other hand , of fe rs ,

a t -21

events

i s

l i k e l y i n

. the immediate

fu tu re to o f f e r ,

its video

kir

ing

system

other

shopkeepers,

as do o ther suppl ie rs -

There 5s

a market

i n re la t ion

t o which

shopkeepers

Victoria

(and,

pc-haps,

i n an

area

which Vi-ctoria Saturday and Sunday a r e

is a p a r t ) who L-ade

i n t3e evening and during

t i e

custo&rs,

a n 2 i n

r e l a t i o n

t o

which

Knights and several others a r e

t h e

cornpoking

suppl ie rs .

The

subjects

commerce

tha t

marker

a re

v5eeo

hiring

systems as

hereinbefore

d scribed.

that

market

+&e

f i r s t

respondent

of fe rs

to supply only

7-Eleven

sha2s.

VTctoria

there are

about

.potent ia l

custoners

who concirzrz 7-Elevea

shops

and i n whose

shops

video

hir ing

systems

are

cot

y e t

i m - a l l e d .

Mr.

Cherzov

submitted,

but

X r .

Uren

Q.C.,

w h o appeared

with Mr. Houghton for

the

respondents,

denied,

that

there

was

,-rket

i n r e l a t l o n

which

those

7-Eleven

shopkeepers

are

the

customers,

and

i n

r e l a t i o n t o

which

the f i r s t r e sponzen t ,

Kniqkxs

and

several cyners

a r e the

competing

suppl ie rs .

Merely

l imi t ing

supp ly

t o

c 5 z . s ~ within

tine

l a rge r

class of cus toners

for

sone

s_cecies

of goods or services a

supplier does recognised, different ia ted

not

bring

about

'&e

resu,:-t

tinat

a market is

from ot3er marke-G

r e fe rence to

t h s t

Smaller

class

customers.

B u t '&e

f a c t ->at

a suppl ier of

such

a species of

goods

or se rv ices

does so l i n k his supply may,

a s I

th ink ,

c i rcumstance

whlc3

i n

cum5ina t ion

wi th

o ther

clrcumsQnces

defines

market

3 y

r e f e r z c c e

t o

t h e

c l a s s

15.

customers

which

supply

is h m i t e d ,

or by

reference

another

c l a s s .Within which

t h a t c l a s s f a l l s .

7-Eleven

shops

f a l l w i t h i n

numerical ly

small

c lass

which

re ference

was

made

i n ev idence

t he

expres s lon

"convenience

s to re s" .

P rec i se

de f in i t i on

t h a t

c l a s s

was

not

attempted i n evidence, and would no

iioubt

be d i f f i c u l t t o achieve.

I -

But the

*cardinal

characterist

ics

the

coxvenience

store

nay

i den t i f iee .

I t i s open

seven

days

a week and f o r

a l l

nearly

a l l of the 24 hours each

day.

I t

i s

subs t an t i a l ly

l a rge r

t han

the

"milk bar of merchandise

and

mixed

business"

w i t h wh'ich .it competes.

The range

bffered

for

sale

is genera l ly more

extensive

than

the range

offered

the m i l k

bar

and

mixed

business.

Tn e

convenience store is br igh t ly

i l l umina ted ,

a t t r ac t ive ly

l a id

for

"self-serve"

shopping,

and i s kept

very

clean

and neat.

Most

convenience

s t o r e s

i n the

metropolitan

area

Meliiourne

and

I n

l a r g e c o k t r y c e n t r e s

t r a d e

under a group name,

such

7-Eleven

and Food P l u s .

Those within a group

look

alike.

The

l icensees of

. 7-Eleven

shops system enjoy occupancy

xiho

a re

po ten t i s l

cus tomers

for

video

hir ing

the shops

s u c h r e s t r i c t i v e terms,

the

evidence

tabl

ished,

that

the

terms of

a cont rac t

for

p rovis ion

gf the system t o such a l icensee by a suppl ier

other

than

the

f l r s t respondent

would

have

t o be

drawn

w i t 3 pa r t i cu la r r e sa rd to

the

f ranchise

agreement

be tween

the

l i censee

and

the

f i r s t

respondent.

The

evidence d id not

d i sc lose

rhe

t e rms

which

other convenience stores

were

occupied.

16.

The principal affidavit in

support

Knights'

application for interlocutory.relief includes the

followlng

paragraphs (wherein Knights is called

"the Conpany"

) :

"6. The Company has chrived

on the development

and concept of a cexputeris-d hiring system

for pre-recorded video cassetkes. The system

is so designed that it is ap2ropriate to any

retailer engaged ik the business of hirino

cassettes to the p~351ic. !The Company has to

the present time hoilever adcsced a policy of

providing its Xllnite Video System essentially to convenience stores. The system has Seen so well r-o-ived that the

Company has deliberately adopted

such a

. policy so as 'to ensure the --ximum

provision

of the system to nsn5ers a5 the public and

for this. reason tbe Company has opted to

maintain the

implaentation of

the system

into 24 hour convenience

stores.

........ ........ ........ ........ ........ .......

8. Of the franchisors of convdence stores in Victorla Pacific-Seven P ~ F - Ltd. has the

greatest number of stores in its chain. Food

Plus Pty. Ltd.

also conducts business of 24

hour convenience stsxes and

5% has a total of

approximately 34 stores in -Jictoria. The Company has contracted with Fcad Plus and has

installed the

Allnice Video System in some 24

of its said stores.

The CLTpany has been

approached by many other srTanisations who

have expressed interest

in installing the

Allnite Video System into various retail outlets.

9. . In general terms, orior to %e

introduction

of	the Allnite VFdeo Syste3, the outlets

servicing consumers were S-dcialised video

library outlets which purc3ased cassettes

from large distributing

houses and hlred them

out to members of the public. Tine Company

was responsible for '5-12 lntrceuctlon of vldeo

hiring facllitles

in converLence stores on

the basis, inter aliz, where *he hirer to the

public, i.e. the score-keeper, did not have

CO buy video cassetzes from hlring houses

at all.

Thus, t3t intrcduction of the

Allnite Video Systezz meant

-kat competition

in the hiring

of video czssettes at the

retail level has besn increased. Competition now also exists .between f i e Company and pacific-Seven Pty. Ltd. in t3e supply of a video system to coavenience stores and has

created a

new marke-; in the industry.

10. Besides

Pacific-Seven Pty. Ltd.

a further

competitor is West-Sub Video which hires a number of cassettes tcj smalE retailers such

as servlce stations and

m%%

bars. These

cassettes can, as I Ellderstand the

arrangement, be exczanged frca time to tine.

Nest-sub Video da not however provide a

.	computerised hirirg systeq nor do they provide the many mcillary ssrvlces offered

by the Company.

........ ........ ........ ........ ........ ....

12. To my knowledqe. there is no other organlsafion providing z system in competition wxth the Cornpay other than

Pacific-Seiren Pty.

Ltd. as Zescribed below

and West-Sub Video.

AlthGngh it is not

possible to provide precise anticipated

turnover which the Company max enjoy ln the

next 12 months i'L is tAoqht that the

turnover will be xeasured in hundreds of

- thousands of dollars. "

I would find that there is a market in relation to which

shopkeepers in Victoria (and, perhaps,

h an area of which

Victoria is a part) whose shops a r e conudence stores are the customers, and in relation to which Knights and the first respQndent and whatever person or persons .=re identified in tine affidavit as "West-su3 Video". and perkaps others, are the

suppliers.

The subjects of comerce in '

market are video

hiring systems. If

that findinc: be justLfied, conduct by the

first respondent of the description specified in

S . 47 ( 9 ) (a)

would

be likely to have the effecc of substantially lessening

competition in that market iE

It accurred i.3 relatlon to several

18.

7-Eleven shops. The number of potential customers in the market

thus defined

is so small that, although elimination

of Mr.

L-

Milinkovic and Mr. and Hrs. McDonald from that number might not

constitute such a lessening of competition

in that market as could

be characterised as "substantial", the elimination of a very few

more potential ccstomers would. And the evidence justified the

conclusion that the first respondent would behave towards other

7-Eleven shop licensees who sought

to acquire video hiring systems

from Knights in the same way as that respcndent is likely,

as I

have found; to -behave towards the licensees	of the two shops at
Geelong : see s.47(13)(b).

Xr.	Chernov sc3mitted that there was another markex,

competition in which was likely to

be substantially lessened by

the conduct of the first respondent which

he said was within the

description specified in

S .47 (9)

(a).

The subjects of commerce in

this suggested mar++et are video cassettes for hire to consmners.

The geographical area

of the market is

t3e Geelong area. The

potential customers are those

who are within or close to

t?le

geographical area and who have access to

t3e equipment (televialon

receiver and video cassette recorder)

by	xsans of which video

cassettes may be played. The suppliers are those who at a place

within that geographical area offer to

hire video .cassettes to

customers.

At the two 7-Eleven shops

in Geelong Knights is

presently a supplier. There are others, one in a chemist's shop, but their numbsr was no t revealed by the evidence. The evldence was hardly sufficient to enable a conclusion to be reached as 'CO

19.

whether

any

conduct

t h e

f i r s t

r e s p o n d e n t

which

might

descr ip t ion

spec i f ied

s .47(9) ( a ) would

l i k e l y

t o

have the

e f f e c t

substant ia l ly

lessening

compet i t ion

i n

t h a t

Geelong

market. I do not

further

consider

the

submission.

Notwithstanding

i n t e r e s t i n g arT,ment

the

contrary,

khink

the

ins ta l la t ion

the computer

i.;l each of

the 7-Eleven

5 -

shops

i n Geelong

cons t i tu ted a breach by

tke

l i censee of

Ar t i c l e

4 ( e ) of

the

franchise agreement.

have already s ta ted

f inding

tha t

t he

f i r s t

r e sponden t

w i l l

probably

ekercise

the

p&er

te rmina te . the l icence

i n respec t of

each

skop u n l e s s the

computer

is -removed.

(For

present

purposes

it i s umecessary t o consider

ther agency agreement.)

cha t te l s

rought

in to

each

sh‘op

i n performance

-of

the

I t is then a quest ion

whether

i f

the

l icence

were terminated,

it would be terminated

“ F o r the reason

tha t“

th2

l icensee had acquired the video

hiring

system,

which

the

l ’

computer

is a

pa r t ,

f r a -

competitor

t h e

f i r s t

responcient.

T h a t

q u e s t i o n

v o l v e s ,

a t

l e a s t ,

matter

o f

t h e

p r o p e r

construct ion

s .47 (9 )

and

matter

fact.

Evidence

was

adduced

tha t t he

first respondent “has

c l ea r po l i cy

which

is strenuously

pursued that

any

breaches

f ranchisees

A r t i c l e 4 ( e ) . ........ .

should

not

permitted.

That

policy

i s enforced

regardless

the merits

or otherwise of

any

addi t ions t o the

icensed property

made by the

franchisee

without

prior

consent

i n wr i tmg

Pacific-Seven“.

It was sworn t h a t

t h e f i r s r

r e s p o n d e n t “ t a k e s

t h e

view

t h a t

even

r e l a t ive ly

t r i f l i ng b reach o f Ar t i c l e 4 (e )

such

a s

the

in s t a l l a t ion o f

addi+-ior,al

magazine

rack

should

not

‘De

20.

t o l e ra t ed

a s

the nature and extent

the.

l icensed

proper

for

each of

the stores i s c r i t i c a l t o the proper

functioning

the

Company's unique

convenient

store

system.

Control

over

equipment

added CO the l icensed

property

is regarded as e s s e n t i a l

t o

t h e

r e l a t ionsh ip

between

t h e

Company

and

the r e s sec t ive f r anch i saes" .

M r .

Uren a l s o undertook

i n argument a

c a r e f u l comparison of

number of the terms of

the

agency

agreemet

w i t h

terms

the

f ranchise

agreement,

t o

show

t h a t

i n

some instances

observance

a provis ion of tine agency

agreemant

wouEC

involve

breach of a

provision

the

franchise

agre-aent

and

tkzt

i n o t h e r

i n s t a n c e s

, performance

obligation

the

one

c o n t r a c t would

o r might

make

d i f f i c u l t the

l icgnsee's

performance

ef the o ther

cont rac t .

The

e v i d e n c e

d i d

n o t

i n

Mr.

Uren' S

s u b x i s s i o n

j u s t l c y

a n y

i n f e r e n c e

t h a t

the conduct of Yi. Moon or Rr. Niller i n

t h e i r

deal ings

with

the

l icensees

the two shcgs a t Geelong i n May

1984 betokened

any

ln t en t ion on the par t af

the

f i r s t respondent

t o t e r m i n a t e

the

Licence

fo r

the

reason

specified

i n S .47 ( 9 ) ( a ) ,

o r any terminated, that would be done f o r thzt reason.

inference

that ,

i n

the

f u t u r e

i t h e r

l i c e n c e

were

Mr.

Uren

submit ted that

the

evidence

showed

o the r sms tan t i a l r ea sons xh lch

the

f irst respondent

had

for

efusing,

i f

2nd when

i t s consent

were sought, t o consent to

the per formance

7-Eleven

shop

such an agreement as t h e agency	agre ment.	I ,
1

I th ink it probable that

the

sonduct

t h e

f i r s t

respondent' S servants

May 1984 which wrss designed

achisire

the te rmina t ion

the

agency agreeqents wss

d i rec t ed by t h e f i r s t

21.

I .

,respondent for .the reason that the licensees were acquiring

Services, Of a kind which the first res_mndent expected to be offering to the licensees in the immediate future, from a

competitor in the supply

such services: and probable that,

unless the licensee's agency agreement

terminated, the first

respondent will terninate that licensee'

S franchise agreement for

the same reason. Such difficulties as

mzy arise by reason

inconsistent requirements

the franchise agreement and

the

qency

agreement could be obviaced by var5ation of the agency

agreement, as it seems to me. But

I do ant think that It is

concern about those dlfficulties which moved

the first respondent

to take the course which

it as.

conclusion is that a prima facis case has been made that the first respondent is proposing, cnless restrained, EO engage in conduct that would constitute a contravention of

~.47(1),

being conduct

of the description specified in s.47(9)(2),

and the engaging in which is likely

to have the effect

substantially lessening competition.

Mr.

Chernov submitted, and

Mr. Uren denied, that conduct

of a description specified

s.47(2)(a) and

(d) and conduct

of a description speclfied in

s.47(3)(a) and

(d) had been and would

be engaged In by the flrst

respondent in its deaIings with the licensees

of the t w o Geelong

shops.

It is unnecessary to deal with

those submissions.

should also indicate that

have dealt with the

application on the assumption that the

onus of proof in relation

! ,

22.

to the facts specified in paragraphs (a) and

(b) of 5.47 (13) lay

on the applicant. But I express no opinion as to the correctness

I	assumption.	the	of
I I

Mr. Moon gave evidence

of concern that, if Knights' video

hiring system were operating in the Geelong shops for any

substantial period and were then removed, t3e disappointment of

customers' expectations that they could	hire cassettes in thse
shops would seriously damage goodwill.	-Fzrther, the grant of

interlocutory injunctive relief msy prove, if in this proceeding

the

applicant ultimately fails,

have

constltuted a gross

interference with the exercise by the first respondent Gf

contractual rights deriving from the franc'kise agreements -and

interference with whatever proprietary

or crntractual rights in

respect of the shops the first respondent derives from other

scurces. On the other

hand, refusal of interlocutory relief may

result, if the applicant ultimately succeeds

io the proceeding, in

serious damage to Knights which might be very difficult to assass.

If interlocutory relief is refused the licensees

the Geelona

shops will be faced with a cholce between several courses

I	action,	all	of	them	fraught	with	a risk that breach	of	one	or	, -
!

other -of their contracrs with the principal parties to this

proceeding might involve them in substantial loss. If

contravention of

s.47(1) is involved In

the course

which the first

respondent is pursuing, those licensees

are members of one of the

classes for whose protection

ths sectlon was

enacted, and their

interests may in my opinion be weighed

exercise of the

discret ion conferred

by S .SO ( 2 ) of

t h e T r a e Practices Act

1974-

The

a p p l i c a n t

o f f e r s ,

i n

c o n s i d e r a t i o n

t he

g r a n t

i n t e r l o c u t o r y

r e l i e f ,

a n

u n d e r t a k i n g

mat

w h i l e

t h e

f i r s t

respondent

i s

r e s t r a ined

w i l l

n o r o f f e r t o e n c e r o r e n t e r i n t o

.an

aqreement

concerning

the

hiring

+de0

cas se t t e s

with

l i censee of a 7-Eleven

shop.

a l l

t he

cz rcums tances

the bec te r

c o u r s e ,

i n

m y

opinion,

i s

t h a t

upon

the

a p p l i c a n t ' s

u s u a l

undertaking

t o danages and a

f u r t h e r uzTdertaking of Yne kind

offered, the the proceeding or fur ther order

first respondent be

r e s t r a i n e d u n t i l

the hsaring

from -

(i)

t h rea t en ing

w thdraw

t o

f rom

Xichae l

Milinkovic of 7-Eleven

store Geelong West anx

goods or services i f he, f i e said

Nichael

Milinkovlc,

should

u s e i n *e

course of

t h e

business conducted i n t h e

sa%Z 7-Eleven

s t o r e

the

b u s i n e s s

y s t e m

r e f e r z e d

t o

i n

t h e

Affidavit of Lucian Anceschk sworn i n this

proceeding

che

25th

day

I k y 1984 a s

t h e

'Al ln i te

Viideo

System':

(ii) th rea t en ing to

withdraw f.rom Ezian and Pamela

McDonald of 7-Eleven

s t o r e C+elong Xort3 any

goods or serv ices i f they, tEE said Brian

and

Pamela NcDonald should use i? the

course

the

business

conducted

f5e

s a i d 7-Eleven

s t o r e <?e

business

system

r&erred

t o

i n

t h e

Aff idavi t of

Lucian Ancescx sworn I n

t h i s

proceeding

the

25 th

day o f Xay 198* as the

'Al lnizs Video System':

!	.	(iii) giving	without	the	l ave	a? the	Court	a
!

no t i ce

t o

the

s a id

XlchaeL

Milinkovic

i n

purported

exercise

of a rigkt conferred

o f

A r t i c l e

2 5 ( c )

t'ne

agreement

which

i s

exh ib i t P115

t he

a f f idav f ' c

Peter

Moon

sworn the 30th day of EIS?	1984 i n	t h i s
proceeding:

(iv)

giving

without

the

l ave

sf the

Court

nor ice to the sa id Br ian

McDc=ald

t h e s a i d

Pamela McDonald in

purport&

exercise

right

c o n f e r r e d

Art ic ls

25( c )

t h e

24 -

agreement

which

i s

e x h i b i t

PM6

t o

t h e

a f f i d a v i t of

Peter Moon

sworn the 30th day of

May 1984 i n this proceeding.

I w i l l hear counsel on the terms of the order .

-- -

_ _ _ _ . -_

- . _ ___..I--

P+-’--

[1984] FCA 154

12 Jun 1984