Kwik Fix International Pty Ltd v Garside

[2006] QDC 69

DISTRICT COURT OF QUEENSLAND

CITATION:

Kwik Fix International Pty Ltd v Garside [2006] QDC 069

PARTIES:

KWIK FIX INTERNATIONAL PTY LTD ACN 070 973 296  

Applicant

V

PAUL ALAN GARSIDE                

Respondent

FILE NO/S:

S95/06

DIVISION:

Civil

PROCEEDING:

Originating Application

ORIGINATING COURT:

District Court of Queensland, Brisbane

DELIVERED ON:

23 March 2006

DELIVERED AT:

Brisbane

HEARING DATE:

16 March 2006

JUDGE:

Alan Wilson SC, DCJ

ORDER:

Order as per amended draft

CATCHWORDS:

CONTRACT – FRANCHISE – breaches of franchise agreement – whether franchisor entitled to summary relief
CONTRACT – UNCONSCIONABILITY – whether events and circumstances before contract entitled defendant to avoid it on grounds it was unconscionable – whether defendant affirmed contract – whether affirmation estopped him from relying upon alleged unconscionable elements

Cockerill v Westpac Banking Corp [1996] FCA 1143
Hancock v VisyBoard Pty Ltd [1997] FCA 113
Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd (1991) 22 NSWLR 298
North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd, The Atlantic Baron (1979) QB 705
Peltons Supdnuts Inc v Doane 324 P.2d 852 (Utah SC 1952)

Piercing Pagoda v Hoffner 351 A.2d 207 (Pennsylvania SC 1984)

Pittorino v Meynert [2002] WASC 76

Prontaprint v Landon Litho[1987] FSR 315
Shakeys Inc v Martin 430 2d 504 (Idaho SC 1967)

Stokely Van Camp v New Generation Beverages (1998) 44 NSWLR 607

COUNSEL:

Mr D A Quayle for the Applicant
Mr P J McHugh for the Respondent

SOLICITORS:

Bywaters Timms for the Applicant
Graham & Associates for the Respondent

1. Kwik Fix franchises a business involving the mobile repair of paintwork and other veneers in and on motor vehicles and the like.  Mr Garside was one of its franchisees until early this year.  Relations deteriorated and each party claims to have terminated the franchise agreement, Mr Garside for the franchisor’s alleged unconscionable conduct, Kwik Fix for alleged breaches involving his setting up a new business closely modelled on Kwik Fix, servicing his former franchise customers. 

1. Kwik Fix seeks to permanently enforce various positive and negative covenants in the franchise agreement, the effect of which would be to stop Mr Garside pursuing his trade with those customers.  He resists summary relief and says, in short, that the matter is complex and must go to trial. 

1. In the course of the hearing it became apparent his primary contention is that the franchise agreement is tainted by conduct which preceded its execution involving the Bruckshaws, the directors of Kwik Fix, and the Doyles, who had the franchise before him.  That conduct is said to be unconscionable and to include breaches of the Trade Practices Act 1974 and the Franchising Code of Conduct, a code promulgated under the Trade Practices (Industry Codes) Regulations 1998.

1. The unconscionable conduct was said, in his solicitor’s letter purporting to terminate the agreement of 6 January 2006, to be comprised of undue influence at the beginning of the business relationship between the parties when Mr Garside was ‘pressured’ into assigning a proportion of the Kwik Fix clients in a defined geographical area to Mr Doyle from whom, he says, he thought he was purchasing the rights to the entire area.

1. The most recent franchise agreement is dated 7 October 2002.  It gives Mr Garside exclusive rights to service customers nominated by name, not location. 

1. It is uncontentious, however, that in late 2000 Mr Garside negotiated with Mr Doyle to buy the latter’s Kwik Fix franchise for a large, defined geographical area south of the Brisbane river; that when Mr Garside could not raise the asking price of $70,000 they agreed on a price of $40,000; and, that they later signed a contract, a loan agreement, and a Franchise agreement naming Mr Garside, and Mr and Mrs Doyle, as co-franchisors. 

1. That first franchise agreement only operated, on its face, until 10 December 2001.  Mr Garside and the Doyles apparently shared the customers within the area.  Mr Garside continued to service his customers after the agreement expired, until he became the sole franchisor for nominated customers under the new agreement of 7 October 2002.  He continued to work under that agreement until early this year.

1. His complaint is that neither before nor when he signed the earlier documents was it explained to him that he was entering a partnership, or that the agreement was only for a year, or that they did not reflect his true agreement with Doyle which, he says, was that he would take over the geographical franchise but permit Doyle to ‘develop his own new customers within the Moorooka franchise area’.  Nor, he says, did he receive any of the documents a franchisor must give a franchisee under the Code of Conduct.  These failings mean, he contends, that the later, 2002 agreement is ‘tainted’, and void and unenforceable against him.

1. Some other matters are relevant.  Mr Garside paid $40,000 to Doyle in consideration of the first transaction but he paid nothing, as he frankly admits, for the new agreement in 2002 although Kwik Fix usually demands $49,950 for franchise rights.  He has never taken action against the Doyles, or Kwik Fix, in respect of the matters in 2000 and 2001 about which he now complains; nor, until early this year, did he attempt to terminate the 2002 agreement, under which he operated for more than three years.

1. Moreover, in December 2005 and January 2006 Mr Garside registered the business name ‘Eze Fixed’; removed the Kwik Fix logo on his vehicle and replaced it with that name; began giving quotations for work on letterhead also bearing the new business name; and, through his new business, serviced his former franchise customers.

1. Kwik Fix refused to accept Mr Garside’s purported termination but shortly afterwards, on discovering the matters just set out, itself terminated the agreement by letter 17 January 2006 and demanded delivery up of its manuals, operational material and the like, alteration of the van, the cessation of use of the former business telephone number, and other steps ending the franchise arrangements.  It says it has another potential franchisee and wants to move quickly to set that person in place.  Mr Garside says he has returned some of the items and now wants to continue to service some of his former customers – and, that his contentions about the franchise necessitate a trial and, at least until that happens, he should be left to do that unmolested.

1. The matters raised by Mr Garside have something of the air, but not the odour, of unconscionable conduct.  The events he complains about are some years old.  There is no evidence he was placed under any special disadvantage in his initial dealings with the Doyles or Kwik Fix – nothing, for example, to indicate any features affecting his ability to read or comprehend the documents or make judgments about his own interests, nor any suggestion he was denied, or dissuaded from, taking his own professional advice; nor, for the sake of completeness, anything to suggest pressure, or unfair or unconscientious conduct on the part of the other interested parties involving the taking of advantage before the documents were signed or, indeed, anything of that ilk in the performance of the earlier agreements; nor that the terms of them were somehow unfair, or unjust.

1. Indeed, the 2002 agreement which he now seeks to attack seems on his own version to have resolved whatever confusion or disappointment he felt about the earlier arrangements.  It appears instead to be the culmination of further negotiations designed to allay his concerns and clear up whatever he found previously unsatisfactory.  It is also to be noted that, as is uncontested, the franchisor did give Mr Garside the notices required by the Code of Conduct before the new, 2002 franchise agreement was entered into.

1. Nothing in Mr Garside’s evidence, then, points in a persuasive way to circumstances or events in which unconscionable dealing of the Amadio kind could be detected. He also faces another difficulty: because a contract entered into under duress is voidable and not void, later conduct consistent with acceptance and performance of the contract with full knowledge (and absent any continuing duress, and intervening steps to set the contract aside) can constitute affirmation, and extinguish later attempts to avoid it[1].

   [1]North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd, The Atlantic Baron (1979) QB 705 at 720, per Mocatta J

1. I accept Mr Quayle’s submission that the principle is well established in Australia and applies to both common law and equitable claims, and goes to the quality of assent.  It touches situations where the doctrines of election or estoppel may arise, and will apply where a party whose conduct plainly manifests an election not to avoid a contract becomes, in the result, estopped from asserting the right to do so[2].

   [2]See Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd (1991) 22 NSWLR 298 at 304-6; Cockerill v Westpac Banking Corp [1996] FCA 1143; Hancock v VisyBoard Pty Ltd [1997] FCA 113; and, Pittorino v Meynert [2002] WASC 76

1. The want of complaint about the earlier dealings and the long period of operation of, and compliance with the 2002 Franchise agreement (and the absence of any later event alerting him to some undiscovered equitable rights) can only, reasonably, be categorised as affirmation on Mr Garside’s part, in the sense these circumstances plainly signify that he accepted the terms of 2002 agreement, and waived any right to complain.

1. It is also appropriate to record that, even if some unconscionable elements could be discerned in respect of the earlier dealings and documents, it is not apparent how that would vitiate the 2002 agreement.  Mr Garside relates some of the history preceding that new franchise contract from which it may be inferred he was dissatisfied with arrangements then in place, but makes no complaint about the circumstances of its execution or, in particular, any assertion that he did not understand it, or lacked advice – or, was under duress or some disability.

1. Mr Garside’s affidavit, and the submissions of his Counsel, did not contest the termination by Kwik Fix.  In the circumstances, his conduct was plainly in breach of the Franchise agreement which, unsurprisingly, requires him to conduct the franchise business and refrain from working in competition with it.  Kwik Fix seeks, in particular, to restrain him from servicing his former franchise customers and competing with it. 

1. The restraint clause (cl 23) is of the modern, ‘cascading’ type and, while Mr Garside’s Counsel submitted it was incomprehensible, it is in similar terms to those considered in other franchise cases, and accepted[3].  It contains separate, severable covenants to be selected according to reasonableness, and is to be construed and applied with reference to the particular circumstances arising here.  Mr Garside did not argue a restraint is unreasonable, having regard to the interests of the public.

   [3]Prontaprint v Landon Litho[1987] FSR 315, per Witford J at 324; Shakeys Inc v Martin 430 2d 504 (Idaho SC 1967); and Piercing Pagoda v Hoffner 351 A.2d 207 (Pennsylvania SC 1984)

1. The relevant circumstances include the undisputed facts that Kwik Fix commenced operations in 1995 and has 53 franchisees and a substantial and valuable business[4], Australia wide; it has a distinctive get-up; that Mr Garside, consequent upon the findings made earlier, freely consented to the terms of the restraint; that he has (initially, in secret) adopted a similar name for his new business; and, he has openly admitted an intention to continue to service his former franchise customers.

   [4]As cl 23.2 of the Franchise agreement expressly acknowledges

1. He is also, as is again uncontested, using his ‘franchise’ phone number in his new business; trading under a ‘get-up’ quite like the that of the franchise, and from the same vehicle; is providing precisely the same services; has the advantage of the systems and intellectual property which attached to the franchise; and, enjoys the goodwill generated over the term of the franchise and the benefits he took during it.

1. The applicant has a legitimate interest in the protection of the trade connection with its customers and in preventing them being enticed away so they cannot be allotted to an approved successor franchisee[5].  It is also entitled to a period of restraint which will enable the incoming operator to ‘bed down’[6].

   [5]See Stokely Van Camp v New Generation Beverages (1998) 44 NSWLR 607, per Young J at 613

   [6]Peltons Supdnuts Inc v Doane 324 P.2d 852 (Utah SC 1952); Shakeys Inc v Martin (supra)

1. I am satisfied the relief sought by the applicant is, in those circumstances, reasonable.  Nothing was offered by way of evidence to the contrary although Mr McHugh, for Mr Garside, pressed the prospect of hardship.  The evidence is sparse but I accept, nevertheless, that Mr Garside is a spray painter and has dependants and relies on his work for support for them, and himself.  The relief sought does not, however, seek to deny him his trade, or the right to pursue it in the area he has worked, but only that he cease servicing former franchise customers for three years from termination; that he stops trading from a vehicle having a guise so similar to that to the Franchise; and, that he stops trading under his new business name and relinquishes his former telephone number.

1. Kwik Fix also wants some documents and stationary returned but Mr Garside says he has attended to some of this, and I will hear further submissions about that aspect of the matter, and costs.