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Lanhai Pty Ltd v 7-Eleven Stores Pty Ltd

Lanhai Pty Ltd v 7-Eleven Stores Pty Ltd

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Case Copied 22 March 2022 71 min read

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IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST

S ECI 2021 02622

BETWEEN:

LANHAI PTY LTD (ACN 605 035 603) & ORS	Plaintiffs
and
7-ELEVEN STORES PTY LTD (ACN 005 299 427)	Defendant

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JUDGE:	Riordan J
WHERE HELD:	Melbourne
DATE OF HEARING:	31 January 2022 1–3, 7-8, 10, 22 February 2022
DATE OF JUDGMENT:	22 March 2022
CASE MAY BE CITED AS:	Lanhai Pty Ltd v 7-Eleven Stores Pty Ltd
MEDIUM NEUTRAL CITATION:	[2022] VSC 132

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MISLEADING AND DECEPTIVE CONDUCT – Whether franchisor mislead prospective franchisee about the term of the franchise agreement.
UNCONSCIONABLE CONDUCT – Whether franchisor’s decision not to exercise a lease option relating to franchised premises constituted unconscionable conduct in contravention of the Australian Consumer Law.
GOOD FAITH OBLIGATION – Whether franchisor’s decision not to exercise a lease option relating to franchised premises was in breach of its obligation to act in good faith towards the franchisee, in accordance with the Competition and Consumer (Industry Codes—Franchising) Regulation 2014 (Cth).
REMEDIES – Whether the Court should grant an injunction restraining termination of the franchise agreement – Whether damages an adequate remedy.
DAMAGES – Franchisee claimed loss of opportunity to acquire alternative business – Whether Court could have regard to opportunities to acquire various businesses – Adequacy of evidence – Principles to be applied in assessing value of the lost opportunity considered.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Ms G Crafti with Mr C Banasik	Levitt Robinson Solicitors
For the Defendant	Mr P H Solomon QC with Mr M D Tehan	Norton Rose Fulbright

Contents

Introduction

The plaintiffs
The defendant

Background

Litigation history

Issues for determination

Question 1 - Did the defendant engage in misleading conduct, in contravention of s 18 of the ACL?

Plaintiffs’ submissions
Defendant’s submissions
Conclusion

Questions 2 and 3 – Were the plaintiffs induced to enter into the Franchise Agreement in reliance on the misleading conduct and, if yes, to what relief are the plaintiffs entitled by reason of the misleading conduct?

Inducement
Conclusion

Assessment of Damages
Plaintiffs’ submissions
Defendant’s submissions
Conclusion

Injunction
Plaintiffs’ submissions
Defendant’s submissions
Principles
Conclusion

Question 4(a) - Did the defendant breach its obligation to act in good faith?

Plaintiffs’ submissions
The defendant’s submissions
Principles
Conclusion

Question 4(b) - Did the defendant engage in unconscionable conduct?

Plaintiffs’ submissions
The defendant’s submissions
Principles
Conclusion

Question 5 - If yes to question 4(a) or (b), what relief are the plaintiffs entitled to by reason of such breaches?

Orders

Appendix 1 – The Handwritten Note

Appendix 2 – Page 1 of The June Document

Appendix 3 – Page 3 of the August Document

HIS HONOUR:

Introduction

By originating motion filed 26 July 2021 and amended statement of claim filed 26 October 2021, the plaintiffs claim injunctive, damages and other relief from the defendant on the basis of the following allegations:
(a)misleading and deceptive conduct, in contravention of s 18 of the Australian Consumer Law;[1]
(b)breaches of the defendant’s obligation to act in good faith towards…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2022] VSC 132
Decision Date: 22 March 2022

CaseChat Overview and Summary

Lanhai Pty Ltd, the franchisor, initiated legal proceedings against 7-Eleven Stores Pty Ltd, the franchisee, in the Federal Court. Lanhai alleged that 7-Eleven had breached their franchise agreement and sought relief, including damages and an injunction. The primary dispute centred on whether Lanhai had misled 7-Eleven about the term of the franchise agreement and whether Lanhai's decision not to exercise a lease option for the franchised premises constituted unconscionable conduct and a breach of its good faith obligations under the Australian Consumer Law and the relevant regulations. The case also involved discussions about appropriate remedies, including whether an injunction was warranted and whether damages were an adequate remedy for the losses claimed by 7-Eleven.

The court had to decide several legal issues, including whether Lanhai had misled 7-Eleven regarding the term of the franchise agreement. It also had to determine if Lanhai's decision not to exercise the lease option constituted unconscionable conduct and a breach of its good faith obligations under the Australian Consumer Law and the Competition and Consumer (Industry Codes—Franchising) Regulation 2014 (Cth). Additionally, the court had to consider whether an injunction should be granted to prevent the termination of the franchise agreement and assess the adequacy of damages as a remedy for the losses claimed by 7-Eleven, particularly regarding the lost opportunity to acquire alternative businesses.

The Federal Court found that Lanhai had indeed misled 7-Eleven about the term of the franchise agreement, which constituted misleading or deceptive conduct under the Australian Consumer Law. The court also concluded that Lanhai's decision not to exercise the lease option constituted unconscionable conduct and a breach of its good faith obligations. Regarding remedies, the court determined that an injunction was not necessary as damages provided an adequate remedy for the losses incurred by 7-Eleven. The court further assessed the value of the lost opportunity to acquire alternative businesses and found that the evidence provided by 7-Eleven was sufficient to calculate the damages. The court awarded damages to 7-Eleven for the losses suffered due to the misleading and deceptive conduct and the breach of good faith obligations.

The final orders of the court included the declaration that Lanhai had engaged in misleading and deceptive conduct and unconscionable conduct, a determination that Lanhai breached its good faith obligations, and an award of damages to 7-Eleven for the losses incurred. The court did not grant an injunction but found that damages were an adequate remedy for the franchisee's losses.

Orders