Lanhai Pty Ltd v 7-Eleven Stores Pty Ltd
[2021] VSC 587
•16 September 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2021 02622
| LANHAI PTY LTD (ACN 605 035 603) | First Plaintiff |
| YONG LI | Second Plaintiff |
| ZHE WANG | Third Plaintiff |
| v | |
| 7-ELEVEN STORES PTY LTD (ACN 005 299 427) | Defendant |
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JUDGE: | Riordan J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 1 and 10 September 2021 | |
DATE OF JUDGMENT: | 16 September 2021 | |
CASE MAY BE CITED AS: | Lanhai Pty Ltd v 7-Eleven Stores Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2021] VSC 587 | 1st Revision: 17 September 2021 |
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INJUNCTION – Application for mandatory injunction for franchisor to maintain lease with third party and to restrain termination of franchise agreement – Principles to be applied – Balance of convenience favoured retention of status quo.
MISLEADING AND DECEPTIVE CONDUCT – Availability of interlocutory and permanent injunctive relief on alleged contravention of s 18 of the Australian Consumer Law.
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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
Background
Litigation history
Principles
Submissions
Serious question to be tried
Plaintiffs’ submissions
Defendant’s submissions
Balance of convenience, including the question of whether damages would be an adequate remedy
Conclusion
Orders
Appendix
HIS HONOUR:
By further amended summons filed 13 August 2021, the plaintiffs apply for the following interlocutory injunctions against the defendant:
1. Pursuant to:
(a) section 80 of the Competition and Consumer Act 2010 (Cth) (CCA);
(b)further or alternatively, section 232 of the Australian Consumer Law, being Schedule 2 of the CCA;
(c)rule 38.01 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic); and
(d) the inherent power of the Court,
an injunction restraining the defendant, until further or other order, from:
(e)terminating the Franchise Agreement between the defendant and the plaintiff dated 4 June 2015 by reason of the expiry of the franchise term or Lease of the Premises at 103-107 Campbell St, Heathmont, Victoria 3135;
(f)revoking the licence granted by the defendant to the plaintiff pursuant to the Franchise Agreement to occupy the Premises by reason of the expiry of the franchise term or Lease;
(g)preventing, obstructing or hindering the continued operation of the business conducted by the plaintiff pursuant to the Franchise Agreement (including by the removal or withdrawal of products and services ordinarily available for sale in the 7-Eleven system);
(h) determining the Lease; or
(i) failing to comply with its obligations under the Lease.
2.An injunction requiring the defendant to advise the landlord of the Premises in writing that the defendant wishes to overhold the Lease until the proceeding is heard and determined and will not give notice under clause 29 of the Lease before the proceeding is heard and determined.
The causes of action relied upon by the plaintiffs in support of this application for interlocutory relief are set out in their statement of claim filed 13 August 2021 and are, in summary:
(a)misleading or deceptive conduct based on an alleged representation that:
(i)should the plaintiffs enter into a franchise agreement with the defendant, that agreement would not terminate before the end of 10 years; or alternatively
(ii)the defendant would exercise its option to extend the lease until 4 July 2026 (‘the Option’),
(‘the Franchise Term Representation’);
(b)contravention of cls 6 and 6A of the Trade Practices (Industry Codes – Franchising) Regulations 1998 (Cth) (‘the Old Franchising Code’) based on an alleged failure to explain, in the disclosure document provided by the defendant pursuant to the Old Franchising Code, the effect of art 24 of the document titled ‘Store Agreement’ between the defendant and the first plaintiff dated 4 June 2015 (‘the Franchise Agreement’);
(c)misleading or deceptive conduct based on a representation that entering into a variation agreement with respect to the Franchise Agreement would not negatively impact the likelihood of the defendant exercising the Option;
(d)contravention of cl 18 of the Competition and Consumer (Industry Codes—Franchising) Regulation 2014 (Cth) (‘the New Franchising Code’) by failing to give six months’ notice before the end of the term of the Franchise Agreement;
(e)contravention of cl 6 of the New Franchising Code by a breach of the duty of good faith;
(f)breach of contract in respect of the implied duties to co-operate and act in good faith in carrying out the Franchise Agreement; and
(g)unconscionable conduct pursuant to s 21 of the Australian Consumer Law.[1]
[1]Competition and Consumer Act 2010 (Cth) sch 2.
Background
By lease dated 20 September 2011 (‘the Lease’), the defendant leased the property at 103-107 Campbell Street, Heathmont, Victoria 3135 (‘the Heathmont store’) from Loder Agricultural Enterprises Pty Ltd for a period of 10 years from 5 July 2011 to 5 July 2021 with an option for one further term of five years exercisable by 4 April 2021.
At a meeting in or about June 2014 between the second plaintiff (‘Ms Li’), the third plaintiff (‘Mr Wang’) and Mr O’Hara (the defendant’s Victorian Franchise Development Manager), Mr O’Hara gave Ms Li and Mr Wang (who later became the directors and shareholders of the first plaintiff) a document entitled ‘Franchise Opportunities: VIC’ and dated June 2014. The document consisted of four pages detailing 18 different 7-Eleven franchise stores with relevant store details.
In August 2014, Mr O’Hara gave Ms Li and Mr Wang another document entitled ‘Franchise Opportunities: VIC’, in the same format as the document referred to in the preceding paragraph, but instead dated August 2014. This document provided details of 22 different 7-Eleven franchise stores. The details with respect to the Heathmont store are set out in the following table:
Store Name:
Heathmont
1045F
Store Address:
103 Campbell Street
Franchisee Name and Contact Number:
Bill Huang
[mobile number set out]
Total Retail Sales [FY 2013/14]:
$1,645,187
Franchisee Total Retail Income:
$279,925
Misc Non Retail Income:
$5,221
Fuel Commission:
Total Retail Sales [FY 2012/13]:
$1,539,020
Franchisee Total Retail Income
$250,864
Misc Non Retail Income:
$4,218
Fuel Commission:
Franchisee Goodwill:
$658,800
Franchise Fee (Inc GST):
$131,250
Application Fee (Inc GST):
$5,500
Minimum Stock Investment:
$45,000
Franchise Agreement Term:
10 years
Lease Term*:
4/7/21 + 1x5 Yr Opt
TOTAL INVESTMENT
$840,550
Towards the bottom of each page of the documents entitled ‘Franchise Opportunities: VIC’ was the following notation:
* Options are not guaranteed and lease extensions will be decided on a case by case basis at the sole discretion of 7-Eleven. Note: Franchise Agreements continue until; the earlier of: 1) the date on which the primary (current) term of the Lease expires, or 2) the expiration of any further term of the Lease (but only if the option to extend is exercised by 7-Eleven during the term of the agreement) or 3) 10 years after the effective date. * Franchisee Fees are subject to change
A copy of the relevant page is set out as an appendix to these reasons.
The plaintiffs allege that Ms Li and Mr Wang did not see the notation and it was not drawn to their attention.
On 30 March 2015, the first plaintiff was registered with Ms Li and Mr Wang as its only directors and shareholders.
In about May 2015, a representative of the defendant gave Ms Li a document entitled ‘Franchising Code Disclosure Document for Franchisee or Prospective Franchisee (2014)’ dated 22 October 2014 (‘the Disclosure Document’). Clause 17 of the Disclosure Document included a table which set out the ‘relevant conditions’ that applied with respect to certain clauses of the Franchise Agreement. By item (d) of that table, the defendant explained the effect of art 24 of the Franchise Agreement as follows:
(Extension or renewal can occur only by mutual agreement. There is no entitlement requiring that the Store Agreement be extended or renewed.)
Clause 17C of the Disclosure Document was headed ‘Arrangements to Apply at the End of the Franchise Agreement’ and relevantly stated:
17C.1The processes which will apply in determining arrangements to apply at the end of the Store Agreement are as follows:
(a)the Store Agreement does not confer, and the Franchisee does not have, any option to renew, or extend, or extend the scope of the Store Agreement or to enter into a new franchise agreement; …
On 12 May 2015, Ms Cecilia Yek of Okfair Lawyers, an Australian legal practitioner, certified that she had been provided with the unexecuted Franchise Agreement and the Disclosure Document and relevantly certified that:
1.before the Franchisee and the Client(s) executed the Agreement I reviewed the entire content thereof and outlined and explained to the Client(s) the terms and conditions thereof and in particular the nature and effect of the Agreement and the legal consequences of any breach or default thereunder.
2.neither I nor any firm of which I am a member or employee is retained by 7-ELEVEN in relation to this matter.
3.prior to the completion of this Certificate I asked the Client(s) the following question to which I received an affirmative response:-
‘Do you understand the nature and effect of the Agreement and the possible consequences to the Franchisee and to you of a failure to fulfill [sic] the obligations under the Agreement?’
In the same document, Ms Li also certified that the contents of the certificate were accurate.
The evidence of the plaintiffs is that, at the meeting on 12 May 2015, the following occurred:
(c)… Ms Yek reviewed and summarised the Franchise Agreement, and concluded by saying words to the following effect: ‘You can’t change anything in this, this is 7-Eleven’s policy, you can only do what they say.’;
(d)Ms Yek pointed out two minor issues in the Franchise Agreement, which Mr Wang cannot recall, but which Ms Yek described to the following effect: ‘It’s not a very big impact. And you can’t change them. I pointed these out because it’s my job. This contract is not negotiable. It’s set in stone. There’s nothing you can add in, there’s nothing you can negotiate. It’s a yes or no contract.’;
(e)Ms Yek also said words to the following effect: ‘I’ve looked at the landlord’s contract. All you need to know is that all the information is correct. The lease is not between you and the landlord, it’s between 7-Eleven and the landlord. 7-Eleven is only showing it to you to prove it’s legitimate. There’s nothing wrong with the lease term. The lease concludes in 2026.’; and
(f)Ms Yek did not give any warning about the length of the franchise term being less than 10 years.
On 4 June 2015, the plaintiffs and the defendant executed the Franchise Agreement, by which the defendant franchised the Heathmont store to the first plaintiff. The relevant terms of the Franchise Agreement are, in summary, as follows:
(a)Article 2 provides that the first plaintiff’s right to occupy the Heathmont store is as a licensee.
(b)Under the heading ‘Term and expiration’, art 24 provides:
(a)The term of this Agreement shall commence on the Effective Date and continue until termination of this Agreement as provided in Article 25, or until expiration of this Agreement on the earlier of:
(i)the expiration of the primary term, or cancellation or termination of the Lease; or
(ii)the expiration of the extended term of the Lease (if an option to extend the primary term of the Lease has been exercised by [the defendant] on the Effective Date or is exercised by [the defendant] during the term of this Agreement); or
(iii) 10 years after the Effective Date; or
(iv)[the defendant’s] exercise of its Option to Purchase in accordance with Article 27 of this Agreement.
(b)The term of this Agreement may be extended or renewed only by mutual agreement in writing between the FRANCHISEE and [the defendant].
(c)‘Effective Date’ is defined in Exhibit E to the Franchise Agreement as meaning ‘the date on which the Store first opens for business under this Agreement.’
The first plaintiff paid the sum of $794,246 for the purchase of the franchise, made up as follows:
(a)$633,500 to the outgoing franchisee in respect of goodwill;
(b)$110,246 to the defendant for the franchise fee, pursuant to art 6(a) and Exhibit D to the Franchise Agreement;
(c)$45,000 to the defendant for stock, cash register, licenses, permits and bonds, pursuant to art 7 and Exhibit D to the Franchise Agreement; and
(d)$5,500 to the defendant as an application/training fee, pursuant to art 6(c) of the Franchise Agreement.
On or about 7 December 2015, the first plaintiff and the defendant executed a variation of the Franchise Agreement. The plaintiffs’ evidence was that the effect of the variation was to increase the franchisee profit share and to significantly increase the ‘Minimum Income Guarantee’ from $120,000 per year to $340,000 per year.
In August 2017, J.I.M Control Services Pty Ltd acquired the title to the Heathmont Store and became the new landlord (‘the Landlord’).
On 19 March 2021, the Landlord agreed to the defendant’s request for variations to the Lease, extending the date by which it must decide whether to exercise the Option to 24 April 2021 and setting the rent at $120,000 per year.
On or about 8 April 2021, Mr Nick Maddox (the defendant’s Victorian State Manager) and Ms Kirsten Stone (the defendant’s Retail Business Manager) attended the Heathmont store and told Ms Li and Mr Wang, in summary, that:
(a)the Heathmont store was unprofitable;
(b)the defendant had the right not to exercise the Option under the Lease;
(c)the store would be closed from 17 June 2021; and
(d)the defendant would offer compensation of 40% of the goodwill and franchise fee plus inventory, which totalled about $450,000.
By emailed letter dated 20 April 2021 (but sent at 11:03 pm on 26 April 2021) to the first plaintiff, the defendant stated as follows:
Pursuant to Article 24(a) of the Store Agreement the term of the Store Agreement continues until the earlier of 10 years from the Effective Date, or (among other things) the expiration of the Store premises lease (Lease).
As you are aware, the Lease for the Store premises (Premises) is due to expire on 4 July 2021 (Expiry Date). As confirmed at our meeting on 8 April 2021, 7-Eleven will not be taking up any further options under the Lease. Accordingly, the Store Agreement will expire on the Expiry Date. In order to enable 7-Eleven to satisfy its obligations under the Lease, the Store will be closed with effect from 17 June 2021 (Closure Date).
The purpose of this letter is to formally notify you that on the Closure Date the Store Agreement will come to an end as will your entitlement to operate a 7-Eleven business under the Store Agreement and to occupy the Premises.
For the avoidance of doubt, the licence granted to you under the Store Agreement to occupy the Premises will also cease on the Closure Date and you will be required to cease trading from and vacate the Store on the Closure Date.
The arrangements contemplated by Article 26 of the Store Agreement will apply in respect of Inventory and the finalisation of your Open Account.
Finally, we will soon provide to you a draft Deed of Termination and Release (Deed), documenting the above arrangements, for your consideration. The Deed will also include an ex-gratia payment in the amount of $313,098.96.
On or about 28 April 2021, there was a meeting between Ms Li and Mr Mark Nance of the defendant at the defendant’s head office in Richmond (Mr Maddox also attended by video link). During the meeting, Mr Nance handed Ms Li a copy of the letter from the defendant dated 20 April 2021 (referred to in the preceding paragraph) and a letter dated 23 April 2021, which enclosed the Deed of Termination and Release.
During the course of the meeting, Mr Wang collapsed while working at the Heathmont store and was taken by ambulance to hospital.
On or about 30 April 2021, Ms Li and Mr Wang telephoned Ms Stone and asked for assistance from the defendant to cover some of Mr Wang’s shifts during his period of illness. On the same day, Mr Wang collapsed again and was taken by ambulance to hospital where he remained until 4 May 2021. He was advised by his doctor not to work for the next month.
On or about 3 May 2021, Ms Stone told Ms Li that she had the opportunity to close the store on an earlier date. Ms Li refused the offer.
By letter dated 6 August 2021 to the defendant’s solicitors, the Landlord agreed not to give notice to determine the Lease until 4 July 2026.
Litigation history
By originating motion between parties filed 26 July 2021 and summons filed 27 July 2021, the first plaintiff applied for an injunction restraining the defendant, until further or other order, from:
(a)terminating the Franchise Agreement; or
(b)revoking the licence granted by the defendant to the first plaintiff under the Franchise Agreement to occupy the Heathmont store.
On 27 July 2021, Connock J adjourned the further hearing of the first plaintiff’s summons to 30 July 2021 on the defendant giving the following undertaking:
By its counsel, until the hearing of the plaintiff’s application for interlocutory relief, or further order, the defendant undertakes, unless the defendant ceases to be the lessee of the premises at 103-107 Campbell St, Heathmont, Victoria 3135 (Premises) and/or the landlord of the Premises hereafter requires the defendant to satisfy all make good obligations under the lease by 4 August 2021:
(i)not to prevent, obstruct or hinder the continued operation of the business conducted by the Plaintiff pursuant to the Franchise Agreement between the plaintiff and the defendant dated 4 June 2015; and
(ii) to continue to grant a licence to the Plaintiff to occupy the Premises.
On 30 July 2021, Connock J made directions for the filing of pleadings and listed the hearing of the first plaintiff’s summons on 1 September 2021. The defendant confirmed that its undertaking (referred to in the preceding paragraph) remained operative and further undertook, until the hearing and determination of the first plaintiff’s application for interlocutory relief, or further order, not to give notice of its intention to determine the Lease.
On 13 August 2021, I ordered by consent that the first plaintiff has leave to join Ms Li and Mr Wang as plaintiffs to the proceeding and to file and serve an amended originating motion, a statement of claim and a further amended summons.
Principles
The principles for establishing an entitlement to interlocutory injunctive relief are well established.[2] In summary:
(a)The applicant must prove prima facie a sufficient likelihood of success to justify preservation of the status quo pending trial. This requirement is to be understood as whether there is a serious question to be tried as to the applicant’s entitlement to relief and it is not necessary to establish that it is more probable than not that the applicant will succeed at trial.[3] The requisite strength of the probability the applicant must establish depends upon the nature of the rights it asserts and the consequences likely to flow from the injunction sought.[4]
(b)The balance of convenience must favour the grant of the injunction. After considering relevant matters favouring or militating against the grant of the injunction, the Court must ‘take whichever course appears to carry the lower risk of injustice if it should turn out to have been “wrong”, in the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial’.[5]
(c)The Court will also consider whether or not damages would provide an adequate remedy for the injury that the applicant is likely to suffer. In Belgrave Nominees Pty Ltd v Barlin-Scott Airconditioning (Aust) Pty Ltd, Kaye J suggested that this question would be better reformulated as:
Is it just, in all of the circumstances, that a plaintiff should be confined to his remedy in damages?[6]
[2]See Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, 68-7 [19] (Gleeson CJ and Crennan J), 81-2 [65] (Gummow and Hayne JJ), recently applied in Transonic v Tilakee [2021] VSC 413, [11] (Nichols J).
[3]A Saraya Nominees Pty Ltd v National Australia Bank Ltd [2014] VSC 524, [28] (Dixon J).
[4]Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618, 622 (Kitto, Taylor, Menzies and Owen JJ), quoted with approval in Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, 81-2 [65] (Gummow and Hayne JJ).
[5]Tymbook Pty Ltd v State of Victoria; Bradto Pty Ltd v State Of Victoria (2006) 15 VR 65, 73 [35].
[6][1984] VR 947, 955.
If the above elements are satisfied, there remains a residual discretion of the Court to refuse relief after consideration of issues such as delay and the like.
The above principles are not applied in isolation. In considering where the lower risk of injustice lies, all relevant factors are to be weighed in the balance. In particular, the strength of the applicant’s case may be a relevant matter in assessing the balance of convenience.[7]
[7]Transonic v Tilakee [2021] VSC 413, [13].
The injunction sought by the plaintiffs in this case is to restrain the defendant from treating the Franchise Agreement as at an end and to require the defendant to maintain the Lease of the Heathmont store. Such relief is in the nature of a mandatory injunction.[8]
[8]Tymbook Pty Ltd v State of Victoria; Bradto Pty Ltd v State Of Victoria (2006) 15 VR 65, 70 [22].
In Tymbook Pty Ltd v State of Victoria; Bradto v the State of Victoria, the Court of Appeal considered whether a different standard should be applied in applications for mandatory injunctions in contrast to applications for prohibitory injunctions. The Court, consisting of Maxwell P and Charles JA, concluded as follows:
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 Hoffmann J in Films Rover, the grant of a mandatory interlocutory injunction may be justified in a particular case notwithstanding that the court does not feel the requisite ‘high degree of assurance’.
As Lord Woolf MR said in Broadmoor Special Health Authority v Robinson, adopting the words of Lord Cooke in TV3 Network Ltd v Eveready New Zealand Ltd:
[T]he remedy of injunction should be available whenever required by justice.
In our view, the flexibility and adaptability of the remedy of injunction as an instrument of justice will be best served by the adoption of the Hoffman approach. That is, whether the relief sought is prohibitory or mandatory, the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been ‘wrong’, in the sense of granting the injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial.[9]
[9]Ibid 73 [33]-[35] (citations omitted).
Submissions
Serious question to be tried
Plaintiffs’ submissions
The plaintiffs submitted that there is a serious question to be tried with respect to the allegation of misleading or deceptive conduct based on the Franchise Term Representation, for the following reasons:
(a)The Franchise Opportunities documents misrepresented that the Franchise Agreement had a 10 year term, without informing the plaintiffs that the term would expire if the defendant did not exercise the Option to renew the Lease.
(b)The Franchise Agreement was written in legalese in circumstances where the defendant knew, or ought to have known, that Ms Li and Mr Wang’s comprehension of written and spoken English was poor and that they were inexperienced and unsophisticated in respect of legal documents.
(c)The explanation in the ‘fine print’ in the Franchise Opportunities documents was not sufficient to remediate the misleading nature of the representation.
The plaintiffs further submitted that there was a serious question to be tried with respect to the allegation that the defendant’s decision not to exercise the Option was not made in good faith in breach of the Franchise Agreement and was unconscionable in contravention of ss 20 and 21 of the Australian Consumer Law. The plaintiffs relied on the matters pleaded and in particular:
(a)In contravention of cl 18 of the New Franchising Code, the defendant only gave 52 days’ notice of its intention to terminate the Franchise Agreement.
(b)The defendant refused to provide assistance to the plaintiffs after the collapse and illness of Mr Wang.
(c)The defendant proposed that the plaintiffs could close the Heathmont store earlier than 17 June 2021.
(d)The defendant refused to accept an offer from the Landlord for a discounted rent.
(e)The defendant failed to warn the plaintiffs of its concerns about the profitability of the business.
Defendant’s submissions
The defendant submitted that the pleaded case with respect to the Franchise Term Representation relied upon the provision of the written Franchise Opportunities documents alone and that there was no pleaded oral or other positive representation in support of the Franchise Term Representation.
However, the defendant conceded that the plaintiffs’ misleading or deceptive conduct claim was arguable, although only ‘tenuously so’. It was submitted that the claim was made more tenuous by the fact that the plaintiffs’ solicitor’s failure to give proper advice would break any causative link between any misleading conduct and the plaintiffs’ decision to enter in the Franchise Agreement.
The defendant further submitted that there was no serious question to be tried with respect to the issues of a lack of good faith and unconscionability. The matters relied upon by the plaintiffs could not support an allegation that the defendant, in making the decision not to exercise the Option, was motivated by a purpose unconnected with the financial position of the business and was actuated by some exterior or collateral purpose.
Balance of convenience, including the question of whether damages would be an adequate remedy
The plaintiffs submitted that the balance of convenience favoured the grant of the injunction, for the following reasons:
(a)The closure of the business would have the following detrimental effects:
(i)the plaintiffs’ employees would be terminated;
(ii)it might cause losses to other third parties, including the Landlord and customers;
(iii)the plaintiffs would lose the value of their business and ongoing revenue;
(iv)the plaintiffs would lose the opportunity to re-establish the business; and
(v)the plaintiffs’ losses would be difficult to quantify.
(b)The grant of the injunction would not significantly inconvenience the defendant because:
(i)the plaintiffs have given an undertaking as to damages secured by the setting aside of $100,000 from the first plaintiff’s settlement monies following the settlement of the class action proceeding VID180/2018 in the Federal Court of Australia;
(ii)the defendant does not have alternative plans for the Heathmont store; and
(iii)the Landlord has unequivocally stated that it is prepared to maintain the tenancy on an overholding basis under the Lease until 4 July 2026.
The defendant submitted that the balance of convenience favoured refusal of the injunction, for the following reasons:
(a)Damages would be an adequate remedy. If the plaintiffs were ultimately successful, the loss of profits over the five year period would be easily calculated on the basis of the first plaintiff’s performance since the commencement of the franchise.
(b)The defendant will continue to lose money during any further period of the operation of the Heathmont store and it is very unlikely that the first plaintiff will be able to ‘turn around’ its poor performance.
(c)The effect on the employees should not be given significant weight because, to the extent they can be identified, each of them either works only part-time or has an alternative source of income.
(d)The Landlord is a necessary party and the Court should not effectively attempt to regulate a tripartite agreement, particularly in circumstances where the Landlord is not a party.
Conclusion
In my opinion, the defendant’s concession that there is a serious question to be tried with respect to the plaintiffs’ misleading or deceptive conduct claim was properly made. I do not consider, at this stage, that it is appropriate to express any view about the strength of the plaintiffs’ claim generally or, as suggested by the defendant, whether the serious question to be tried is ‘tenuous’. It will be appropriate for the trial judge to consider all of the circumstances prevailing prior to the parties entering into the Franchise Agreement, including:
(a)the effect of the ‘fine print’;
(b)whether the plaintiffs were in fact misled; and
(c)the effect of the certificate from the plaintiffs’ solicitor, including the verification provided by Ms Li within that certificate that its contents were accurate.
In the circumstances, viewed as a whole, there is a serious question to be tried about whether the defendant’s conduct, relied on by the plaintiffs, was misleading in the sense that it had ‘a sufficient tendency to lead a person exposed to the conduct into error (that is, to form an erroneous assumption or conclusion about some fact or matter)’.[10]
[10]Australian Securities and Investments Commission (ASIC) v Dover Financial Advisers Pty Ltd (2019) 140 ACSR 561, 586 [98] (O’Bryan J) (citations omitted).
The principal relief sought by the plaintiffs is an injunction. An injunction is an available remedy to prevent damage arising from a contravention of s 18 of the Australian Consumer Law, particularly in a case such as the present where no damage has yet been suffered by reason of the alleged contravening conduct.[11]
[11]Lyschrome Pty Ltd v Swire Cold Storage Pty Ltd [2009] QSC 187, [62]-[63] (Dutney J), quoting Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388, 409 [52] (Gleeson CJ, McHugh, Gummow, Kirby, Hayne, Callinan and Heydon JJ).
There may be force in the defendant’s submissions with respect to the issues of a lack of good faith and unconscionability. However, as a result of my finding that there is a serious question to be tried with respect to the misleading or deceptive conduct claim, it is not necessary for me to determine whether or not there is a serious question to be tried with respect to the allegations of a lack of good faith and unconscionability.
In my opinion, the balance of convenience favours the grant of the injunction for the reasons submitted by the plaintiffs. In particular, I have had regard to the fact that:
(a)the continuation of the business represents the status quo and the refusal of the injunction would bring the plaintiffs’ business to an end; and
(b)the defendant does not submit that the plaintiffs’ proposed undertaking would not be adequate to allow it to recover any losses it may suffer.
Further, I do not consider that, in the circumstances, it would be just that the plaintiffs should be confined to a remedy in damages, for the following reasons:
(a)The termination of the plaintiffs’ business would stop the plaintiffs’ sole source of income.
(b)Compensation for that loss, after the completion of the litigation, may not be available until quite sometime in the future.
(c)The loss of the plaintiffs’ business and employment is likely to have significant consequences on, at least the plaintiffs, beyond the financial impact.
I do not accept the proposition that the Landlord is a necessary party to the proceeding. No relief could be sought from the Landlord and the injunction will only require the defendant to maintain the Lease in accordance with the Landlord’s commitment with respect to the overholding of the Lease.
Orders
With respect to the form of the orders, I note that:
(a)The plaintiffs propose the following undertaking:
By its counsel, until further or other order, the first plaintiff, Lanhai, undertakes:
a.To register to participate in the settlement of the 7-Eleven Class Action, being Federal Court of Australia proceeding VID180/2018, prior to the registration deadline set by the Federal Court following the Federal Court’s approval of the settlement;
b.Upon receipt of any settlement monies from the 7-Eleven Class Action following the Federal Court’s approval of deductions, to direct Lanhai’s solicitor to deposit $100,000 out of those settlement monies into its trust account; and
c.Not to access such amount in the trust account of Lanhai’s solicitor without the written agreement of 7-Eleven Stores Pty Ltd or Court order.
(b)I am currently minded to accept the defendant’s submission that any injunction should relate only to the maintenance of the Lease and the Franchise Agreement, and should not extend, as the existing undertaking does,[12] to generally restraining the defendant from preventing, obstructing or hindering the continued operation of the business.
[12]See paragraphs 27 and 28 above.
I will hear the parties on the appropriate form of orders, including further directions for the conduct of this proceeding to advance it to an expedited trial.
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Appendix
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