Narellan Franchise Pty Ltd v RBME Pty Ltd (No 2)

[2022] NSWSC 1590

Supreme Court

New South Wales

Medium Neutral Citation:

Narellan Franchise Pty Ltd v RBME Pty Ltd (No 2) [2022] NSWSC 1590

Hearing dates:

27, 31 October; 1 November 2022

Date of orders:

22 November 2022

Decision date:

22 November 2022

Jurisdiction:

Equity - Expedition List

Before:

Parker J

Decision:

See [248]-[251]

Catchwords:

RESTRAINT OF TRADE – franchise agreement – swimming pool supply and installation business- post-contractual restraint – claimed injunction against carrying on business similar to franchised business – reasonableness – whether franchisor entitled to enforce restraint in interest of incoming franchisee – whether franchisor entitled to benefit from franchisee’s accumulated skill and experience – goodwill – claimed injunction against soliciting customers with uncompleted contracts – reasonableness – hardship – injunctions refused

CONTRACT – construction – franchise agreement – restraint of trade – deed poll executed by franchisee – whether enforceable by supplier of franchised goods – reasonableness

Legislation Cited:

Corporations Act 2001, s 286

Evidence Act 1995, s 79

Restraints of Trade Act 1976

Uniform Civil Procedure Rules 2005, r 31.19

Cases Cited:

BB Australia Pty Ltd v Karioi Pty Ltd [2010] NSWCA 347

Chipsaway International Ltd v Kerr [2009] EWCA Civ 320

Cong v Sheng (No 3) [2021] NSWSC 947

Dyno-Rod Plc v Reeve [1999] FSR 148

Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296

Isaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343

Label Manufacturers Australia Pty Ltd v Chatzopoulos [2022] NSWSC 1059

Lu v Lim (1993) 30 NSWLR 332

Lyne-Pirkis v Jones [1969] 1 WLR 1293

Narellan Franchise Pty Ltd v RBME Pty Ltd [2022] NSWSC 988

Netglory Pty Ltd v Caratti [2013] WASC 364

Stenhouse Australia Ltd v Phillips [1974] AC 391

Category:

Principal judgment

Parties:

Narellan Franchise Pty Limited (First Plaintiff)
Narellan Pools Pty Limited (Second Plaintiff)
RBME Pty Limited (First Defendant)
Tim Ranieri (Second Defendant)
Matthew John Ranieri (Third Defendant)
T&M Pools Pty Limited (Fourth Defendant)

Representation:

Counsel:
PM Knowles SC (Plaintiffs)
A Fernon SC/N Kirby (Defendants)

Solicitors:
Maddocks (Plaintiffs)
Watson Webb (Defendants)

File Number(s):

2022/168564

Publication restriction:

Nil

Judgment

1. This is a restraint of trade case. The main claim in the proceedings is a claim by a franchisor to restrain a former franchisee from continuing to operate in the franchise area. The claim is principally based on a post-contractual restraint covenant in the franchise agreement.

2. The plaintiff companies are members of a corporate group which operate a franchise under which its franchisees sell and install fibreglass in-ground swimming pools and spas under the name “Narellan Pools”. I will refer to the franchise as “NP” or “Narellan”, and to the corporate group as the “Narellan Pools Group” or “NPG”. The franchise operates throughout New South Wales and in other States of Australia.

3. The first plaintiff, Narellan Franchise Pty Limited (“NFPL”), is the company within the group which enters into the franchise agreements with franchisees. NFPL is also the owner of the group’s business names and intellectual property. The second plaintiff, Narellan Pools Pty Limited (“NPPL”) manufactures and supplies the fibreglass pool “shells” that are installed for customers. This takes place under supply agreements between NPPL and the franchisees.

4. RBME Pty Limited (“RBME”) is the first defendant. It is the former franchisee. RBME is owned and controlled by Mr Tim Ranieri and Mr Matthew John Ranieri. They are brothers and are the second and third defendants.

5. There were two franchise agreements between NFPL and RBME (and two supply agreements between NPPL and RBME), each one relating to two different franchised territories in Sydney. The Ranieris were personally parties to the franchise agreements as guarantors. RBME was also obliged to execute deeds poll which contained further post-contractual restraint covenants. The plaintiffs’ contention is that the deeds poll obligations are enforceable at the suit of NPPL as well as NFPL.

6. The franchise agreements between NFPL and RBME (and the supply agreements between NPPL and RBME) came to an end on 31 May this year. Since then, the Ranieris have, through another company which they own and control, continued to operate an in-ground pool installation business. That company is called T&M Pools Pty Limited (“TMP”). It is the fourth defendant.

Claims for determination

7. The proceedings were commenced on an urgent basis in June. The plaintiffs seek injunctions to enforce the restraints on RBME and the Ranieris in the franchise agreements and the deeds poll. TMP was not a party to those agreements, but the plaintiffs seek an injunction against it also.

8. There was a contested application for interlocutory restraints against the defendants which was heard by Richmond J in late June. His Honour gave judgment on the application in late July: see Narellan Franchise Pty Ltd v RBME Pty Ltd [2022] NSWSC 988. His Honour upheld the application and made orders accordingly. Those orders did not, however, apply to completion of contracts which had been entered into with customers prior to the date of the orders. I discuss this reservation in more detail later in this judgment.

9. As well as the restraint obligations, the franchise agreements contained obligations to keep confidential any documents or other information emanating from the plaintiffs in the course of the franchise, and to return or destroy copies of them upon the termination of the franchise. The plaintiffs alleged that the defendants had failed to do so. This allegation included TMP. TMP was alleged to have come into possession of the plaintiffs’ confidential information through the other defendants; the claim against it was based on the equitable doctrine of confidence. Before Richmond J, undertakings were given by RBME and the Ranieris reflecting their contractual obligations to return or destroy any documents containing the plaintiffs’ confidential information.

10. The proceedings were entered in the Expedition List and I made orders for the urgent claims to be determined in a separate hearing in that List. The remaining monetary claims by the plaintiffs were to be dealt with later. Those monetary claims were to include claims for damages for breach of contract. They also were to include a claim against the defendants for damages under the tort of conspiracy.

11. Then, shortly before the hearing, it was alleged on the plaintiffs’ behalf that RBME and the Ranieris had failed to comply, or to comply fully, with their confidentiality undertakings. An application was made to have RBME and the Ranieris dealt with for contempt. This resulted in a cross-application by RBME and the Ranieris to vary the undertakings.

12. Originally, the claims for determination at the expedited hearing included a claim for injunctive relief against TMP concerning the confidential information. At the end of the hearing the parties agreed that that claim should be deferred. The contempt application, and the cross-application for variation of the undertakings, have also been held over. Whether they should be heard together with the monetary claims, or before them, can be considered in due course. The plaintiffs’ claims for final injunctions by way of restraint of trade are now the only remaining claims for expedited determination.

Summary and analysis of evidence

Chronology

13. The Narellan Pools Group was founded in 1972. Initially, the Group operated as a swimming pool builder and installer. From 2002 onwards, its operations have become franchised. It is now the largest franchised pool operation in Australia. It operates in New South Wales (including the Australian Capital Territory), Victoria, South Australia, and Queensland. Its areas of operation are divided into 35 franchise territories.

14. The Ranieris held two Narellan Pools franchises in the Sydney area from 2008 onwards. Those franchises were held in the name of TMP. Mr Tim Ranieri is a builder by trade. In the running of the Ranieris’ business, he deals mainly with building and operations. Mr Matthew Ranieri focusses primarily on sales and marketing.

15. In 2016, the existing franchise arrangements came to an end and were replaced by two further franchise agreements with NFPL. These are the agreements which are the subject of the current proceedings. They were signed in May 2016. Annexure B to each franchise was a deed poll. There were also supply agreements for each franchise with NPPL.

16. At the time, the Ranieris had planned to shift their operations from TMP to two new companies, one of which was RBME. In the end, only RBME was able to obtain the necessary building licence.

17. RBME was named as the franchisee in the franchise agreements and the supply agreements. But RBME’s involvement was to prove largely nominal. Contracts with customers continued to be entered into in the name of TMP. The employees continued to be employed by TMP, and TMP continued to retain any necessary subcontractors. The office premises and computer and communications facilities were owned by TMP. TMP also paid for all of the supplies, including the pool shells purchased from NPPL.

18. The NPG management were aware that the franchise’s customers were contracting with TMP. They did not object. Formal consent was given in November 2018 to the pool shells being “on-sold” to TMP for sale to customers. In fact, TMP seems to have dealt directly with NPPL as purchaser of the shells.

19. The franchised territories which were the subject of the 2016 franchise agreements were known as “Sydney City” and “Sydney North”. They are shown in the following map (with the Sydney North franchise area labelled as “Northern Sydney”):

20. The term of the Sydney City franchise agreement was five years, running from 1 May 2016 to 30 April 2021. The Sydney North franchise agreement was for a six year term, running from 1 May 2016 to 30 April 2022. The agreements were in substantially the same terms.

21. Each agreement provided for renewal if both parties agreed. NP was obliged to give notice seven months before the end of the term as to whether or not it wished to renew. If it did, RBME as franchisee had one month to agree to the renewal. The agreement then provided for renewal to take place, subject to compliance with various conditions, which I discuss in more detail below.

22. If there were no renewal, upon formal expiry of the franchise term, there was still a procedure for a month-to-month holding over arrangement which was described as a “licence”. Again, this depended upon both parties’ agreement.

23. In October 2020, formal letters were sent from NFPL to RBME offering to renew the franchise agreement in accordance with the procedure laid down in the agreements and inviting RBME to signify acceptance by signing and returning copies of the letters. Each letter stated that if RBME accepted the “option” to renew, compliance with the relevant conditions, including execution of a new franchise agreement, would be required. As RBME would need time to consider its position, acceptance would be treated as a statement of intention only. The Ranieris signed and returned copies of the letters a few days later.

24. So far as the Sydney City franchise was concerned, the offer of renewal and its acceptance complied with the timetable laid down in the franchise agreement: the agreement was due to expire six months later, on 30 April 2021. But the Sydney North franchise agreement was not due to expire until the following year. The fact that notice was given prematurely does not appear to have affected the parties’ dealings with each other.

25. It seems that no immediate steps were taken to document the renewal of either franchise agreement. On 30 April 2021, the Sydney City franchise agreement formally expired. The franchise arrangement, however, continued under a month-to-month licence by agreement between the parties.

26. In the meantime, the relationship between the parties began to deteriorate. The Ranieris were members of a franchisee group known as the Australian Pool Builders’ Association (“APBA”). The Association raised concerns with Narellan Group. Some of these concerns related to supply difficulties and quality problems. Narellan blamed these, among other things, on the COVID-19 pandemic. But there were wider concerns about the way in which the franchise was being conducted.

27. The dispute between the APBA and NPG seems to have flared up as a result of events at a franchisee meeting which took place in October 2021. The Association, through a firm of solicitors it had retained, began correspondence with NPG. Among other things, the correspondence complained about provocative statements allegedly made by one of the NPG executives. NPG responded by denying that any such statements had in fact been made.

28. In late March 2022, the Ranieris, through solicitors, wrote to NPG advising that neither of the franchise agreements would be renewed. Notice was also given of termination of the Sydney City licence as from 30 April. On 8 April, NPG replied, indicating that the franchises would be transferred to new franchisees.

29. There was some discussion between the parties about a transitional agreement to cover the customers whose installations had not been completed, but nothing came of this. Eventually, the parties agreed to extend the Sydney North franchise term and the Sydney City licence to 31 May. The business relationship between the parties ended on that date.

Witnesses

30. Evidence on behalf of the plaintiffs was given by Mr Peter David Baily. He has been employed by NPG for a little more than seven years (since September 2015 or thereabouts). He became the NPG managing director about fifteen or sixteen months ago (i.e., in about June or July last year). Mr Baily swore affidavits in support of the interlocutory injunction application. He then swore some supplementary affidavits for the final hearing.

31. For the defendants, evidence was given by both of the Ranieris. Each of them was cross-examined.

32. Mr Baily’s credit was not challenged. Counsel for the plaintiffs did attack Mr Matthew Ranieri over the download of confidential information which took place at the end of March 2022. I shall return to that below. But, in the end, it is not necessary to reach any final conclusions about that incident. There was no challenge to the other evidence given by the Ranieris about the nature of their business and the course of their dealings with NPG.

33. The solicitors for the defendants retained Mr Spiros Dassakis as an expert witness. Mr Dassakis is employed by the Swimming Pool and Spa Association of Australia Limited as Chief Policy Officer. He annexed to his affidavit what he described as a report on the swimming pool industry in Australia.

34. Some evidence was given by Mr Baily, and also by the Ranieris, about the swimming pool industry generally, and the operation of the Ranieris’ franchises in particular. I have summarised that evidence below. Counsel for the plaintiffs objected to Mr Dassakis’ report, and it was received on a subject-to-relevance basis. In final submissions, it was not referred to by either party and I have not relied on the report for the purpose of this judgment.

NPG’s franchise business

35. In the usual way, NPG has sought to develop a distinctive identity for its franchise business. The Group has three registered trademarks which it uses as brands. The trademarks include the name “Narellan Pools” and a stylised picture of the sun. A distinctive logo is also used.

36. The Group controls the registered business name “Narellan Pools” in each jurisdiction in which it operates. Franchisees are required to conduct their businesses under the business name “Narellan Pools [Area]”, where the area is the name of the franchised territory. Franchisees are also required to “hand back” the business name when the franchise ends.

37. The Group prescribes the get-up which franchisees are to use for their premises and their business vehicles. The get-up incorporates visual elements of the trademarks and other intellectual property to which I have referred. There are similar requirements for letterheads, business cards and other documents provided by franchisees to customers.

38. The Group advertises its business extensively throughout the States where it operates. The Group has a call centre, a website, and email addresses for the customer enquiries which result. This was referred to in the evidence as “Head Office”. Enquiries are automatically forwarded to the franchisee in the relevant territory for the franchisee to follow up. These enquiries are known as “leads”. Customers can also use Head Office to make enquiries about existing orders and contracts.

39. From the customer’s point of view, the dealings appear (at least initially) to be with NPG. But any actual contract is made between the customer and the franchisee. The Narellan pool shell is supplied by NPPL and on-sold to the customer. Other pool products are likewise supplied by NPPL or suppliers approved by NPG and on-sold.

40. The customer has the benefit of statutory warranties from NPPL as manufacturer of the pool shells (as well as warranties from the franchisee about the supply and installation of the pool). But there is no contractual relationship between NPG and the customer. The terms of the customer’s contract (including, in particular, the price of the pool) are matters for negotiation between the franchisee and the customer. The cost to the franchisee of the pool supplied by NPPL would typically be only one quarter to one third of the total price charged to the customer.

41. NPG operates a customer relations management (“CRM”) computer system, known as “Zoho”, to which franchisees have access. The system records all of the dealings with customers and prospective customers. It enables not only communications with individual customers, but also group communications and marketing, and statistical analysis. Franchisees have access to allow them to retrieve this information and to enter their own dealings with customers.

42. NPG also has an intranet database, known as “Splash”, to which franchisees also have access. This database includes electronic copies of specifications and other documents made available to franchisees for use in their businesses. Documents can be downloaded by franchisees through Splash, which keeps a record of what is downloaded and when. This system has operated since late 2011.

43. NPG provides franchisees with training, and organises other events to help franchisees in establishing and developing their businesses. Induction training is provided to franchisees prior to their taking on their franchise. This training includes training on pool installation and construction (as not all franchisees have prior experience of this work). NPG organises annual conferences for franchisees all over the country. There are also franchisee forums and meetings for franchisees in different States or franchise areas. NPG also employs “coaches” who can be made available to help franchisees (the evidence did not go into this in any detail, but I assume that such assistance is provided on a fee-for-service basis).

44. NPG also makes available to franchisees, and regularly updates, an Operations Manual for franchisee businesses. The manual contains a standard form of contract for use with customers and other templates, together with general information on business operation and administration. The manual itself was not in evidence, so it was not clear whether it required the standard form contract to be used by franchisees.

45. For these services, NPG (through NFPL) charges fees to its franchisees. The franchisee is usually required to pay an upfront fee for the grant of the franchise. That is referred to as a “territory acquisition fee”. Franchisees are also charged a monthly franchise fee for membership (the “brand and territory fee”). They are further charged an advertising levy to cover advertising costs. For its part, NPPL derives revenue from the sale of pool shells and other products.

Franchise and supply agreements

46. The features of NPG’s franchise business which I have described were reflected in the terms of the May 2016 agreements. For convenience, in the following summary of those agreements, I will refer in the singular to the “Franchise Agreement” and the “Supplier Agreement”, as the case was presented to me on the basis that the terms of the agreements for the two franchises were effectively the same.

47. The Franchise Agreement was between NFPL as Franchisor and RBME as Franchisee. The performance of RBME’s obligations under the Agreement was guaranteed by the Ranieris (referred to in the Agreement as the Guarantors). Likewise, the Supply Agreement was between NPPL as “Group Supplier” and RBME as Franchisee, with the Franchisee’s obligations again guaranteed by the Ranieris personally as the Guarantors.

48. Franchise Agreement: Clause 2.1 of the Agreement provided that the Franchisor granted to the Franchisee, and the Franchisee accepted, “the right to operate and promote the Business in the Territory using the Intellectual Property in accordance with the terms of this Agreement”.

49. The term “Business” was defined as meaning:

… the business of selling and installing the Pools and Products … in conjunction with the Name, Trade Mark and Logo in accordance with the System and the terms and conditions of this Agreement.

50. The term “Name” was defined as meaning “the names(s) set out in Item 10 of the schedule”. Item 10 then defined Name as “Narellan Pools”.

51. The term “Trade Mark” was defined as meaning:

the trade mark(s) set out in Item 13 of the schedule and any other trade mark(s) which the Franchisor substitutes for the specified trade mark(s) and authorises the Franchisee to use from time to time during the Term.

52. Item 13 was a table that set out the relevant Trade Marks. They included the word “Narellan Pools”. The term “Logo” was separately defined as meaning the “logo the Franchisor specifies for use in the Business”.

53. The terms “Pools” and “Products” were defined as follows:

Pools means the range of in ground pools and spas that the Group Supplier [NPPL] manufactures or supplies for the Narellan Pools Franchise Network under the Name, Trade Mark and Logo from time to time.

Products means the pool installation accessories being the range of pool associated products that are required for the installation of a Pool as determined from time to time by the Franchisor and which form part of Pools sold and installed.

54. The “Intellectual Property” was defined so as to pick up all forms of intellectual property associated with the conduct of NPG’s business. It, of course, included rights associated with the Name, Trade Mark and Logo. It also included copyright in the Operations Manual and any other forms of intellectual property associated with the Narellan business system, namely, telephone numbers, computer software etc.

55. Clause 4.2 restricted the Franchisee’s operation and promotion of the Business to the Territory. The Franchisee was obliged not to supply or install pools and Products outside the Territory (clause 4.2). This was subject to consent being granted by the Franchisor (clause 4.3(a)), and, in the case of activities in a Territory licensed to another Narellan franchisee, the consent of that franchisee (clause 4.3(b)).

56. Clauses 5.1 to 5.9 dealt with the Intellectual Property. Clause 5.1 repeated that the Franchisor granted to the Franchisee the right to use the Franchisor’s IP during the term of the Agreement. Clause 5.2 obliged the Franchisee only to use the IP for the purposes of the Business and in accordance with the Agreement, and clause 5.3 reinforced that at all times ownership of it (and any developments or improvements to it) was retained by the Franchisor. Any materials containing the IP were to be turned over to the Franchisor, without payment, at the end of the Agreement (clause 5.4).

57. The Agreement expressly specified that the relationship between the parties was that of franchisor and franchisee. The Franchisee was prohibited from representing itself as being the agent, legal representative, or employee of the Franchisor (clause 2.2). This was reinforced by clause 5.6, which obliged the Franchisee to conduct the Business under its own name and to indicate clearly on all of its stationery and promotional material that it was a franchisee and the independent proprietor of the Business.

58. Clauses 6.1 to 6.8 dealt with the Operations Manual. The Manual was specified to be on loan from the Franchisor to the Franchisee, and was subject to confidentiality obligations. The Franchisee was also required to “comply with” the Manual (clause 6.2).

59. If the Franchisee wished to conduct the Business from a sales outlet in the Territory, it could only do so by obtaining the Franchisor’s consent and by complying with specified terms and conditions (clause 8B). The outlet (defined in the Agreement as the Premises) had to be approved by the Franchisor before it could be used, and it could not be used for any other business purpose without the Franchisor’s consent (clause 8B.2). The Franchisee was obliged, at its own cost, to fit out and decorate the premises, including the exterior, in accordance with the get-up specified by the Franchisor (clause 8B.3(a)). Any vehicle used by the Franchisee in the Business likewise had to be decorated, at the Franchisee’s cost, in accordance with the requirements of the Operations Manual (clause 8B.3(e)).

60. Clauses 8C.1 to 8C.4 dealt with the supply and installation by the Franchisee of pools and ancillary products. The Franchisee was obliged to sell and supply Narellan pools only, and not to sell or supply any competing brand of pool, unless the Franchisor gave written consent (clause 8C.1(iii)). The Franchisor was obliged to obtain all Pools and Products from the Group Supplier (NPPL). For this purpose, the Franchisee was to enter into a Supply Agreement with the Group Supplier. The Franchisee was, however, entitled to obtain Products from other suppliers approved by the Franchisor.

61. Clauses 8D.1 to 8D.8 dealt with the franchisee’s conduct of the Business and dealings with customers. The Franchisee was not permitted to conduct any other business without the written approval of the Franchisor (clause 8D.2; see also clause 12.5(a) referred to at [153] below). The Franchisee was subject to an obligation to devote its full time and attention to the operation and promotion of the Business (clause 8D.1).

62. This obligation was reinforced by clause 8D.6, which specified that the Franchisee, by its nominated managers, had to spend at least five days a week on marketing, sales and installation of Pools, and, in particular, maximising sales and obtaining the “goodwill” of customers. The Franchisee was obliged not to do anything which might harm the Business or might harm the “reputation or goodwill” of the Franchisor.

63. Clauses 8G.1 to 8G.4 dealt with the Franchisee’s performance. Clause 8G.1 obliged the Franchisee at all times to use its best endeavours to “achieve and maintain the highest possible level of sales and installations of the Pools and Products and growth of sales and installations of the Pools and Products”. Clause 8G.2 obliged the Franchisee to achieve certain minimum performance standards for each six month period of the Franchise Agreement.

64. Clauses 8F.1 to 8F.5 dealt with confidential information. For the purposes of the clause, the term “Confidential Information” was defined widely. It covered all documents provided to the Franchisee in the course of the franchise. Both the Franchisee and the guarantors were prohibited, without the prior written consent of the Franchisor, from disclosing the confidential information (clause 8F.1).

65. Clauses 8H.1 to 8H.7 dealt with records. The Franchisee was obliged to “maintain throughout the life of the agreement and for a period of not less than seven years afterwards, full and accurate books of account and records relating to all transactions in the course of conduct of the Business”. The Franchisor had a right to require information from the Franchisee relating to the Business (clause 8H.2) and to inspect and audit the Franchisee’s records (clause 8H.3).

66. Clauses 8J.1 to 8J.4 dealt with training and franchisee meetings. The Franchisee was required to attend training courses and franchisee meetings nominated by the Franchisor (clauses 8J.1 and 8J.2). Otherwise, the Franchisee was obliged to use best endeavours to attend regular franchisee meetings.

67. Clause 12 dealt with what was to happen upon “termination or expiry” of the Agreement. The Franchisee was obliged to “cease to exercise, directly or indirectly, all of the rights granted under the Agreement”. In particular, the Franchisee was to cease to use the confidential information, and return any documents containing such information. If requested, the Franchisee was to remove and return or destroy all of the references to Narellan Pools from the Premises where the Business was being operated. The Franchisee was also to hand over the business name, and hand over or cancel the telephone number and email for the Business.

68. The Franchisor was also given a number of entitlements. The Franchisor might cancel any outstanding orders for Pools, Products, or ancillary or promotional materials which had been placed by the Franchisee with the Franchisor or with any approved suppliers (clause 12.1(b)). The Franchisor also had an option to purchase all of the Pools or Products held by the Franchisee at market value (clause 12.2). Finally, the Franchisor had an option to take over the Premises used for the Business by the Franchisee by way of transfer of the Franchisee’s lease (clause 12.3).

69. Clause 12.4 provided that any referral and enquiries by the Franchisor to the Franchisee after the termination of the Agreement was not to be construed as a renewal. Clearly, this contemplated that the Franchisor might choose to make such referrals, but there was no obligation for the Franchisor to do so.

70. Supplier Agreement: This Agreement provided for an exclusive supply agreement between the Group Supplier and the Franchisee for the Pools (that is, the pool shells manufactured by NPPL) and other nominated Products and other nominated goods (referred to collectively as the “Goods”). The Franchisee was not entitled to acquire Goods from any other source (clause 3.2).

71. The Agreement contained specific covenants so as to protect NPPL’s interests as manufacturer and supplier of the Goods. The Franchisee covenanted not to deal in any competing Goods (clause 9.1). This obligation was not limited to the Territory, and applied to the whole of Australia. The Franchisee also covenanted that it would not disclose the specifications for the Pools to “any competing pool company or brand” (clause 9.4).

72. On termination, the Franchisee was to remain liable “for all its obligations under this Agreement” (clause 8.1(a)). NPPL was entitled to complete any sale for which it had accepted an order as at the date of termination (clause 8.1(b)). But on the other hand, NPPL was authorised, if it chose, to enter upon any premises where the Goods were situated, and to take possession of them or remove them (clause 8.2).

Operation of franchises

73. Both of the Ranieris gave evidence by affidavit, supplemented orally, about the operation of the franchise business and the pool market within the franchised Territories. That evidence was not contested. In summarising it, I refer to the franchise as having been conducted by the “Franchisee” so as to avoid having to distinguish between RBME (which was the actual Franchisee under the agreement) and TMP (which actually entered into the contracts and undertook the installation work).

74. The planning requirements for the installation of swimming pools in the Territories differ from one Council area to another. In some areas, a full Development Application (“DA”) must be made to the Council, and a Building Certificate (“BC”) must be issued by the Council before the installation can take place. In other areas, it is sufficient to obtain a Complying Development Certificate (“CDC”) from a private certifier.

75. In-ground pools are of two main types: concrete and fibreglass. Pre-cast concrete and vinyl shells are also available. A concrete shell can be fabricated on site, according to the particular requirements of the site, whereas fibreglass shells come in pre-moulded shapes and sizes. Accordingly, fibreglass shells are only suitable for use on some sites. On the other hand, fibreglass shells are usually cheaper than concrete shells and take less time to install.

76. The pool-building market is a highly competitive one. All that is formally required to set up a business is a building licence. According to Mr Matthew Ranieri, there are at least eighty pool builders operating in the Sydney area. Of these, at least twenty offer fibreglass pools. Apart from Narellan, there are several other fibreglass pool manufacturers who supply the Sydney market.

77. Mr Matthew Ranieri gave evidence about marketing the franchised business. The Franchisee made use of leads generated from Narellan’s general advertising and promotional activities. But, according to Mr Ranieri, this did not generate enough business, and the Franchisee undertook its own marketing through agents engaged for that purpose.

78. That marketing was all undertaken under Narellan’s name and did not mention the Franchisee or the Ranieris personally. Enquiries were funnelled into the Head Office system, and, to the extent that they resulted in leads from customers within the franchised Territories, would then filter through to the Franchisee in the usual way. Leads for potential customers outside the franchised Territories would be directed by Head Office to the franchisees of those territories. Mr Ranieri stated that he believed that NPG management was aware of this marketing and approved of it. This evidence was not challenged.

79. The evidence from both parties was that repeat business, in the form of a customer buying a second pool, is rare. Where customer satisfaction is important is that it can lead to “word-of-mouth” recommendations from customers to friends and family who are considering getting a pool.

80. On Mr Ranieri’s evidence, word-of-mouth recommendations from former customers of the Franchise would usually be linked to the Narellan brand. Few, if any, recommendations were purely personal. Resulting leads would, therefore, pass through Head Office and reach the Franchisee (if coming from a customer in the Territory) in the usual way.

81. It was common ground between the parties that the vast majority of the Franchisee’s business came from leads passing through Head Office. According to Mr Matthew Ranieri, when Head Office generated a lead, it would email the details of the prospective customer to TMP through its CRM system. But he said he also engaged a third-party marketing agency because the leads generated by Head Office were not sufficient. An analysis annexed to one of Mr Baily’s affidavits of the outstanding pool contracts at the date of termination showed that ninety-three per cent had come from NPG leads. As Mr Baily pointed out, this was possibly an underestimate.

82. Typically, once the customer’s requirements were agreed, a formal contract would then be signed between the Franchisee and the customer, and the customer would pay a deposit. The Franchisee would then place an order for the pool shell with NPPL. At this stage, the dates for delivery of the pool shell and its installation were not fixed.

83. The next step would be to obtain the necessary planning permission, either by way of DA/BC, or CDC. If only a CDC were required, the process would be simple and would typically take as little as two weeks. Obtaining a DA/BC would be a lengthier process, which would usually take at least two months, if not considerably longer.

84. Once planning permission had been obtained, delivery of the pool from the factory and its installation would be scheduled. At any one time, there would be numerous contracts in progress. The Ranieris used special software to help with the scheduling task.

85. Installation would essentially involve digging a hole for the pool and then using a crane to lift the pool into place. The surrounds then need to be concreted or paved and a fence installed. The Franchisee’s business extended to concreting or paving the surrounds, but not the installation of a surrounding fence. This, and any associated landscaping, was left to the customer. As a result of their experience, the Ranieris have close relations with a number of fencing and landscaping contractors and can recommend such contractors to the owners if required. The actual installation would usually take two to three weeks at the most and a few days at the least.

86. According to Mr Tim Ranieri, the average period between a customer submitting an order (that is, entering into a contract with the Franchisee) was two to three months. But, from 2020 onwards, there was a time blowout, with the result that it might take seven months to complete the contract. Mr Ranieri attributed this to delays in supply from NPPL, partly as a result of COVID-19 and partly as a result of other manufacturing issues.

87. Mr Tim Ranieri stated that he recalled undergoing the initial induction training when he and his brother first acquired a Narellan franchise. He described the training as “adequate” for that purpose. Because of his building experience, he had not required any further technical training.

88. Mr Ranieri stated that the technical training offered by NPG was only generic in nature. It would not have been of any value for the Franchisee’s Territories. Those Territories, and Sydney North in particular, have different requirements for the installation of pools from those in suburban or country territories. Typically, they involve small and complicated sites with limited access, and often, building in sand. The local councils are difficult and demanding, and so, in general, are the customers. It was clear from his affidavit evidence on this point, which was not contested, that Mr Ranieri considered that the NPG staff had nothing they could teach him about building pools in his franchised Territories.

89. The Ranieris acknowledged that NPG organised annual conferences, and other forums and franchisee meetings, which one or other of them would generally attend. This enabled them to share ideas with other franchisees, but the conferences and meetings do not seem to have involved any formal training or instruction. It was not suggested that the Ranieris were actually required to undergo any training or instruction in the exercise of NFPL’s powers under the Franchise Agreement.

90. The Ranieris acknowledged that they had received the Operations Manual, but said that, at least since early in their first franchise, they had made no real use of it. Again, the information in the manual was generic in nature and they had sufficient experience not to need it. Mr Tim Ranieri stated that, about three or four years ago, the Ranieris ceased to use the standard form contract provided in the Manual. He described it as having various deficiencies. There was no suggestion that the Ranieris had actually been obliged by NFPL to comply with any particular requirement in the Manual, whether relating to the form of the Franchisee’s customer contract or otherwise.

March 2022 document download

91. The solicitors’ letter which was sent on the Ranieris’ instructions to NPG advising that the franchise arrangements would not be renewed (see [28] above) was sent on 30 March this year. The Splash system records that, that night, there were extensive downloads from the system on RBME’s account.

92. Between 8:47 pm and 9:20 pm on 30 March, RBME’s account was used to generate and download a series of reports showing details of 2,600 customer leads and 6,700 further potential customers in the Sydney City and Sydney North Franchise Territories. This download is recorded against the IP address for Mr Matthew Ranieri’s login.

91. Between 10:13 pm and 11:20 pm, RBME’s account was used to download 244 further files. These downloads were logged to the IP address for Mr Tim Ranieri’s login. The files seemed to have covered most of the information about the conduct of the franchise in the system: they included everything from signage templates to procedure manuals.

92. Counsel for the plaintiffs cross-examined both Mr Matthew Ranieri and Mr Tim Ranieri about these downloads. Mr Matthew Ranieri said that it was actually he who undertook the second batch of downloads, which were undertaken using Mr Tim Ranieri’s access code. He suggested that he must have forgotten his own password. He maintained this evidence despite having given instructions, when the issue was first raised and the undertaking was given, that the second batch was undertaken by Mr Tim Ranieri. He said that this was simply a mistake.

93. Mr Matthew Ranieri was asked about why the downloads were undertaken. It was suggested that they were undertaken because of a desire to obtain the documents in case they proved useful to TMP’s ongoing business after termination of the franchise agreement. He denied that this was the reason, saying that he was concerned that he and his brother would be cut off from access before the end of the franchise agreement. He conceded, however, that no such threat had been made to him at any stage.

94. Mr Tim Ranieri had little to say about the downloads. It seemed from his testimony that they had indeed been undertaken by Mr Matthew Ranieri, or at least at his request. Mr Tim Ranieri at first denied that he had been told by his brother that the documents could be used afterwards, but later agreed that he thought that the information could “be useful”. Like his brother, he conceded that no threat had been made to cut the Ranieris off from access before the Franchise Agreement was to expire on 31 May.

95. As an event which post-dated the entry into the Franchise Agreements, the download can have no direct relevance for determining the reasonableness of the restraints in issue. The cross-examination about it took place before the parties agreed that the confidentiality claims would be held over to be dealt with at a later stage (see [12] above). That agreement left it unclear to me whether the download was of any remaining significance for present purposes.

96. The Ranieris, of course, had a contractual entitlement to download the information at the time they downloaded it. The Franchise Agreement was then still current. The real question from a confidentiality point of view is whether, after termination, the Ranieris retained, and made use of, the downloaded information. That is a question which will now be determined at a later stage. Suspicious as the events may be, I have found it unnecessary to reach a final conclusion who undertook the download (if that matters) or for what purpose.

TMP’s new business

99. TMP now operates under the business name “Aquify Pools”. The pool shells for the new business are made by a company called Aquatic Leisure Technologies Pty Limited (“ALT”).

100. TMP appears to have retained substantially all of its former workforce (both employees and contractors). Presumably, it has retained its business premises (after removing any Narellan get-up and signage). As will be seen shortly, its pipeline of work over the months following the termination of the franchise was dominated by incomplete contracts entered into during the Franchise Agreement.

101. In accordance with the Franchise Agreement, TMP turned over its Narellan email addresses and social media accounts to the Franchisor. There is some suggestion in the evidence that there was a delay about doing this, but that issue does not need to be addressed in this judgment.

102. TMP has established new email addresses and a new social media presence using the Aquify Pools name. For promotional purposes, TMP made use of three testimonials from customers for whom it had built Narellan pools. Those testimonials refer to the Ranieris and their staff by name, and did not refer to any Narellan connection. It seems that the testimonials were selected (or obtained in this form) for that reason. One of the customers in question was in fact a family connection of the Ranieris.

103. According to Mr Matthew Ranieri, he thought that this was legitimate. But he said that when the plaintiffs made an issue of it in these proceedings, he took advice and ceased to use the testimonials.

Incomplete Narellan customer contracts

104. From around the end of January this year, the Ranieris altered the standard form contract used between TMP and customers. The Narellan name was removed from the contract and a clause was added permitting TMP, at its discretion, to substitute any “equipment” supplied to the customer (including the pool shell) with other equipment of “similar function, quality and cost”. This clause was referred to in the evidence as the “Substitution Clause”.

105. Subject to this change, TMP’s contracting operations appear to have continued normally for the first quarter of this year. NPPL continued to accept orders placed by TMP to supply its customers for a period after formal notice was given that the Franchise Agreements would not be renewed on 30 March. According to Mr Matthew Ranieri ten pool orders were accepted by NPPL over the period from 5 to 12 April. Apparently, these were the final orders accepted.

106. As at 31 May this year, when the franchises ended, there were 188 contracts between the Franchisee and customers where the pool had not been installed. Some of these contracts contained the Substitution Clause and some did not. There were also some incomplete contracts for “sleeper pools”. Such pools are installed as part of a wider renovation or construction project. The pool is installed but is then boarded over until the rest of the project is completed. At that point, the Franchisee’s employees and contractors come back and finish the pool construction.

107. Presumably, pool orders would have been accepted by NPPL for most of the contracts which were incomplete as at 31 May. Under the Supply Agreement, it would have been open to NPPL to continue to supply Narellan pool shells so as to enable the completion of the incomplete contracts. But that has not apparently happened.

108. Since the proceedings began, the Ranieris and their staff have been trying to persuade customers to agree to the substitution of non-Narellan pool shells and completion of their contracts on that basis. It seems that the Ranieris have been asking customers to sign a written authority to substitute an ALT pool, even for contracts containing a Substitution Clause. Also, from complaints made by the Ranieris in their affidavits, it seems that NPG has contacted at least some customers to seek to dissuade them from that course.

109. But the evidence on this simply identified the number of contracts in different categories of completion (see below). There was no detailed evidence about the communications made by the Ranieris and their staff with their customers. Nor was there any evidence from the plaintiffs about communications with customers.

110. TMP appears to have entered into a handful of further contracts with customers in the weeks following the end of the franchise. As at 21 June, there were 197 incomplete contracts. Of these, 73 included the Substitution Clause. The injunction granted by Richmond J put a stop to new supply and installation contracts after 25 July.

111. The latest date for which there was information was 2 September this year. As at that date, 145 contracts remained outstanding. There were also 22 “sleeper pools”. Of the outstanding contracts, 106 customers had agreed to substitution of an ALT pool. Mr Matthew Ranieri said that he expected that 22 of the remaining customers would cancel their contract. But he expected the other 17 customers to vary their contracts.

112. Mr Baily gave evidence that NPG would be able to take over contracts with customers who wished to have a Narellan pool. Although NPG is now a fully franchised operation, and no longer conducts installation work itself, Mr Baily was confident that it could use subcontractors known to it to complete those works. But NPG seems not to have taken any action in this regard.

Recruitment of replacement franchisees by Franchisor

113. Mr Baily also gave evidence about the process of installing a new franchisee. This might happen either as a result of the termination or expiry of a franchise agreement. It might also happen where the franchisee wishes to sell the franchise to someone else.

114. The starting point is to identify builders who are prepared to take over the franchise. This may be done by advertising and also by cold-calling, as well as by using contacts in the industry or even through customers. But, once someone willing to take on the franchise is identified, there is then a formal approval process. That involves the proposed franchisee submitting information, including a business plan, so that the Managing Director of NPG (who makes the final decision) is satisfied that the proposed franchisee is suitable.

115. Once the proposed franchisee has been identified, NPG provides training. There is a period of induction training which lasts about two weeks. Following that, an NPG employee is sent out to the franchisee’s business to supervise installations being done by the new franchisee. That employee will continue to supervise until satisfied that the franchisee has reached a suitable level of competence to operate independently. Mr Baily said that the period of supervision was variable and that there was no standard, although, on average, the total period of time between the beginning of induction training and the end of installation supervision was about three months. This implies a supervision period of ten weeks or so.

116. The plaintiffs also sought, through Mr Baily, to lead evidence that competition from TMP in its new Aquify Pools business had interfered with NPPL’s ability to let new franchise contracts for the two franchised areas. This was a critical factual element of the plaintiffs’ case (see [125] below).

117. In his initial affidavit (made on 9 June), Mr Baily stated:

The Franchisor has commenced recruitment for a new franchisee for the Sydney City Territory and the Sydney North Territory. The restraint period is critical to this process, because it provides the new franchisee with an opportunity to establish their business in the Territories and transition the Narellan Group's goodwill in the Territories to their business. Without the restraint period, I am concerned that the Franchisor will not be able to engage a new franchisee, and will therefore lose significant revenue.

118. In his affidavit sworn on 20 June for the purposes of the interlocutory injunction application, Mr Baily stated:

… we have started our recruitment process for new franchisees for the Territories. That process will be more difficult due to the proceedings and we will be forced to accept a reduced sale price for the Territories if the restraint clauses are not enforced.

119. At the final hearing, the final sentence was the subject of an objection by counsel for the defendants. Counsel for the plaintiffs recognised that the evidence was in the form of an opinion and sought to justify its inclusion under the opinion rule in s 79 of the Evidence Act 1995. As expert evidence, it should have been the subject of prior directions from the Court (see Uniform Civil Procedure Rules 2005, r 31.19) but I was prepared to overlook this. However, I considered that the evidence was inadmissible. Its conclusory form left the expert basis, if any, for Mr Baily’s opinion unclear. And there was no reasoning to show that the opinion was actually based on such expertise. I upheld that objection but permitted counsel for the plaintiffs to lead, if possible, evidence in chief from Mr Baily.

120. In his supplementary evidence in chief, Mr Baily said that, in his time with NPG the management structure had been as follows. At the head of the Group’s management was the Managing Director. Below the Managing Director were executives designated as “Director”, one of whom is responsible for franchising and another for operations. Reporting to the Director responsible for operations was a Manager with specific responsibility for “franchise development”. It was this executive who was immediately responsible for the recruitment of new franchisees. That could occur both where the existing franchisee wished to sell the franchise and also where the existing franchisee did not wish to renew the franchise.

121. Mr Baily himself joined NPG as the Chief Operating Officer. At the time he joined, he nevertheless had some direct involvement in looking for new franchisees. It seems that, at that time, the position of franchise manager may have been vacant, but Mr Baily’s evidence was somewhat vague about this. At all events, he said that when he started he was provided with a folder of names and contacts to fill franchise vacancies. It was unclear whether these vacancies arose by way of sale or recruitment of a new franchisee. It also seems that, for a period of time, Mr Baily was involved in finding new names as well.

122. It emerged from Mr Baily’s cross-examination that an approach had been made to a proposed franchisee in June. Mr Baily said that the franchisee was not willing to undertake the franchise. After that, a dedicated employee was appointed to try to fill the vacancy. As already stated, the vacancy has not yet been filled.

123. I did not find the sequence of events easy to follow, but as best I can determine it, according to Mr Baily’s evidence, it was thus. When Mr Baily started with NPG (which was in September 2015 or thereabouts) the dedicated position for franchise management was vacant (or perhaps had not yet been created). Mr Baily, who then appears to have been the Chief Operating Officer with NPG, was given the task of recruiting new franchisees. He did this for a period of between one and two years, extending until some point in 2017. At that stage, the position of Franchise Development Manager was filled (or established) and the person responsible for that assumed responsibility for the task. Mr Baily was, however, generally kept informed as a senior executive about the state of play. Later, when he became Managing Director at some point last year, it became his responsibility to sign off and approve new franchisees, but the immediate responsibility for finding the franchisees and submitting their applications remained with the Manager.

124. Mr Baily was asked to recall specific instances of recruiting new franchisees when this had been his responsibility. He mentioned two. One arose when the franchisee of the Central Coast wished to sell the franchise and a new franchisee was required. This took about eight weeks. The other was when the franchise for The Hills District of Sydney was terminated due to the lack of performance by the franchisee. Mr Baily did not specifically say how long the recruitment of a replacement transferee took in that instance, but said it happened “reasonably quickly”.

125. It seems, although Mr Baily’s evidence on this was somewhat vague, that no attempt was made to recruit a new franchisee between the letter of 30 March and the actual termination of the franchise on 31 May. Mr Baily’s evidence was that the recruitment process began in early June. In his affidavit of 20 June, Mr Baily indicated that a potential franchisee had been identified but was not prepared to make any commitment until the outcome of the interlocutory application was known. In his oral supplementary evidence in chief, Mr Baily said that the proposed franchisee had ultimately withdrawn, saying that he lacked the appetite for taking on the relevant franchise territories.

126. It seems that, at the time the franchise was terminated, and for some months afterwards, the franchise management position was vacant. Mr Baily spoke of a franchise coach being involved in the recruitment process. This franchise coach reported to the General Manager of franchising. Eventually, and perhaps because of the difficulties being experienced, the position of Franchise Development Manager was refilled and that person assumed responsibility for the search. According to Mr Baily’s oral supplementary evidence in chief, this occurred about “six to eight weeks ago”, which would place it in the first or second week of September.

127. Mr Baily ultimately gave the following evidence:

Q.   And how long was that after the conversation where this person told you that he wasn't interested? Days, weeks, months?

A.   It would've been weeks, not days. But it was really not an instruction based off that conversation, it was an instruction based off the importance of these territories to our business, and the fact that we weren't getting the traction we needed to get.

…

Q.   Have you ever been involved in a franchise recruitment effort for particular territory where you have had as much difficulty getting traction as this one?

A.   No, and especially given the value of this territory.

Q.   And why is this territory valuable?

A.   Because it's had so many pools - Narellan pools sold into it. It's a large territory.

Enforcement of restraints

128. The plaintiffs seek restraints lasting until 31 May 2023, which is the end of the restraint period specified in the Franchise Agreement and the Deed Poll. As against RBME and TMP, the plaintiffs seek four restraints, namely, restraints against:

(a)   Soliciting or enticing a person who had entered into a contract for the installation of a Narellan pool within the Franchise Territories to vary that contract to provide for the installation of any other brand or type of pool;

(b)   Entering into a contract which would involve the installation of inground pools or spas, or pool installation accessories, within the Franchise Territories;

(c)   Advertising the sale and/or installation of inground pools and/or spas within the Franchise Territories; and

(d)   Dealing with customers or potential customers for the supply and/or installation of inground pools and/or spas within the Franchise Territories.

129. As against the Ranieris personally, the plaintiffs seek the four restraints already identified, together with an additional six restraints, namely restraints against:

(e)   Managing the installation of an inground pool or spa within the Franchise Territories:

(f)   Being the Nominated Supervisor of any NSW builder licence holder, while that licence holder is engaged in the construction or installation of inground pools or spas within the Franchise Territories;

(g)   Being a director of a company whilesoever that company is engaged in any of activities detailed at paragraphs (a) to (e) above;

(h)   Being a shareholder of a company whilesoever that company is engaged in any of activities detailed at paragraphs (a) to (e) above;

(i)   Being an employee or contractor of a company whilesoever that company is engaged in any of activities detailed at paragraphs (a) to (e) above; and      

(j)   Communicating instructions or wishes to any person in relation to the business of the fourth defendant.

130. I will deal first with the claims under the Franchise Agreement by NFPL for injunctions against RBME and the Ranieris personally. Next, I will deal with the claims under the Deed Poll by NFPL and NPPL for injunctions against RBME. The claim for an injunction against TMP is not based on contract but is presented as being ancillary to the contractual claims. I will deal with that last.

Injunctions under Franchise Agreements

131. The relevant restraint covenant is found in clause 12.5(b) of the Franchise Agreement, which provides:

After termination or expiration

For a period of 12 months, or if such period is unenforceable then 6 months, from the date of termination or expiration of this agreement, the Franchisee and the Guarantor(s) … jointly and severally covenant and agree with the Franchisor … that any of the Franchisee or the Guarantor(s) … shall not either directly or indirectly, either alone or in partnership, or as a director or shareholder of any company, or as an employee, consultant, lender, representative, agent, advisor or otherwise:

205. Counsel recognised that this would require the Franchisee, if it wished to reap the reward of customer contracts which it had entered into during the franchise, to complete those contracts before the end of the Franchise Agreement. But counsel submitted that the solution to this would simply be for the Franchisee to extend the Agreement under clause 3.4 as a run-off period until the contracts were finished.

206. Counsel for the defendants argued for a contrary interpretation of clause 15.2(b). The term “business” normally denotes an ongoing flow of commercial activity in which new contracts are regularly being entered into. Counsel submitted that that term did not, in the context of the Franchise Agreement, cover the mere completion of existing contracts within the Territories, if that was not accompanied by taking on new work for customers in those Territories.

207. This might be a somewhat strained construction, but it could be justified by the commercial considerations to which I refer below. There is, however, another analysis available. That analysis focusses on the parties’ obligation of mutual co-operation under the Franchise Agreement.

208. It might be argued that where NPPL declines to accept an order or supply a Narellan pool for a customer contract, the Franchisor cannot properly object to the Franchisee completing the contract by substituting a non-Narellan pool, at least where the Franchisor does not approach the customer to take over the contract itself. In such circumstances, there might be an obligation, acting reasonably, to consent to the Franchisee completing the contract with a non-Narellan pool for the purposes of clause 8C.1(iii) (see [60] above). Alternatively, the failure by NFPL to approach the customer could be a deemed referral for the purposes of clause 12.4 (see [69] above). Clause 15.2 does not, in terms, contain a carve-out for transactions authorised by NFPL under the Agreement, but that would be a very ready implication.

209. But I have some reservations about reaching any conclusion about these issues now, given the circumstances. As I have stated, there was little evidence on the actual steps taken by the parties in the period up to and immediately following 31 May in their dealings with customers. There may be a complaint about the inclusion of the Substitution Clause as well.

210. I think that the construction issues, which were not debated at great length before me, are better determined in the context of specific factual findings. Given the conclusions which I have reached, it is not necessary to deal with those issues in this judgment. I will therefore pass over them, and deal with the reasonableness and enforcement issues on the assumption that clause 15.2(b) applies.

211. Counsel for the plaintiffs sought to justify the restraint by reference to the Franchisor’s “goodwill” under the Franchise Agreement. The contention was that that goodwill included the benefit of the uncompleted customer contracts. This was said to be part of the “local goodwill” to which the Franchisor was entitled at the end of the Agreement under clause 5.8.

212. As already noted, the Franchise Agreement did not contain any provision dealing with what was to happen with customer contracts which were incomplete at the end of the Agreement. Under clause 12.1(b) of the Agreement the Franchisor was entitled to terminate any outstanding orders for Pools or Products. How this would work as a matter of contract law in cases where the Franchisor was not a party to the relevant contract (most obviously, in the case of the pool shells ordered from NPPL under the Supply Agreement) is not clear, although NPPL had its own entitlement under the Supply Agreement to withhold supply. The Franchisor was, however, entitled to compulsorily acquire the Franchisee’s stock. For practical purposes, therefore, the Franchisor could, if it chose, prevent the Franchisee from completing any customer contract which required supply of such a shell.

213. But if the Agreement allowed the Franchisor to frustrate the completion of customer contracts with a Narellan pool shell, it did not contain any entitlement to transfer incomplete contracts to itself, nor to an incoming franchisee. That was a rather glaring omission. And it is significant that the Franchise Agreement went out of its way to require the Franchisee to trade, and contract with, customers in its own name and not on behalf of the Franchisor (see clause 5.6 referred to at [57] above).

214. I am inclined to agree with counsel for the defendants, who submitted that goodwill, in its usual sense, refers to the attraction of customers rather than the completion of contracts once signed. In any event, I have already indicated why I think that the reference to “local goodwill” in clause 5.8 is a reference to Narellan brand goodwill in the Territories. I do not think that the clause, understood in the context of the Agreement, has anything to say about completion of uncompleted contracts.

215. I also think that commercial considerations militate against the reasonableness of the Franchisor’s claimed entitlement. The idea that the “goodwill” of the Franchisor would be enhanced if, following the refusal by NFG to supply a pool to complete a contract, the Franchisee could be prevented from completing the contract with a substitute pool, is a strange one. It is hard to think of anything more poisonous to the parties’ commercial reputations than to tell customers that their pools cannot be built in accordance with their contracts because of a falling-out between the Franchisor and the Franchisee.

216. Moreover, the Franchisor is hardly in a vulnerable position. Nothing in the Agreement prevents the Franchisor from negotiating with the customer once the Franchise Agreement has expired. NFPL would be in a strong position to do this if it wished to. NFPL would be able to offer a Narellan pool shell, installed by a Narellan franchisee, in accordance with the original contract terms.

217. What the Franchisor contends for is also highly unreasonable from the Franchisee’s point of view. It comes down to saying that the Franchisee should not have the ability to avoid, or at least, mitigate the damages for which it will otherwise be contractually liable by negotiating a variation to the contract which would allow the pool to be installed in accordance with the customer’s wishes.

218. The suggestion of a “run-off” period under clause 3.4 is not an adequate solution. In the first place, it would require agreement from the Franchisor, which cannot be compelled Secondly, as already noted, the parties’ “appropriate” obligations continue during the clause 3.4 licence period. This would include the Franchisee’s obligation to maximise sales (clause 8D.6; see at [62] above). And entry into new contracts during the term of the Agreement is not only an obligation, it is an entitlement: the leads which the Franchisee receives are a critical part of what it is paying for under the Agreement.

219. None of this is to say that the Franchisee was necessarily entitled to insert the Substitution Clause in customer contracts before the end of the Agreement. But whether that involved a breach of the Agreement is for later. In my view, the claimed restraint cannot be supported by some sort of interest in the nature of goodwill.

220. There was some suggestion in the course of argument that the customer contracts might be confidential information for the purposes of the Agreement. In the end, I was not sure whether this was being put as an alternative justification for the claimed restraint. But if it was, I think that is unsound.

221. There was no evidence that the contract itself was included in the CRM database. And there would obviously be a problem if the Franchisee, as the party to a contract under which it was potentially liable to the customer, were obliged to turn that contract over to the Franchisor. That would be contrary to the Franchisee’s statutory obligation to retain records of its contracts and other transactions (Corporations Act 2001 (Cth), s 286).

222. In fact, the definition of “confidential information” in the Agreement required that the information originate with the Franchisor. The Agreement itself recognises a clear distinction between such documents and documents generated by the Franchisee, which may in some circumstances be inspected by the Franchisor (clause 8H.3, see [65] above).

223. For these reasons, I consider that the claimed restraint is unreasonable. But, for completeness, I will briefly consider whether an injunction to enforce the restraint would have been refused anyway.

224. Richmond J excluded from the ambit of the interlocutory injunction which he granted the completion of contracts for the supply and installation of a pool and/or spa entered into by TMP with a customer prior to 25 July 2022. His Honour did so because of the hardship to customers with incomplete contracts.

225. Although counsel for the plaintiffs invited me to take a different view, nothing has happened to alleviate that hardship. The commercial considerations which I have mentioned point in the same direction. So does the fact that a further period of sixteen weeks has elapsed without any injunction being in place and without (it seems) NFPL making any attempt to take over and complete the contracts itself.

Injunction under Deed Poll

234. Enforcement of deed poll by NPPL: Counsel for the plaintiffs accepted that the deed poll could not be enforced by just anyone. The relevant test here is whether, as a matter of construction of the deed poll, NPPL, notwithstanding that it is not named therein, is sufficiently identified in the deed poll as a person able to sue upon it: see Netglory Pty Ltd v Caratti [2013] WASC 364 at [79] per Edelman J; Cong v Sheng (No 3) [2021] NSWSC 947 at [1249] per Ward CJ in Eq.

235. As already mentioned, the Deed Poll is an annexure to the Franchise Agreement. The obligation to execute the Deed Poll is found in clause 8F of the Franchise Agreement, which deals with confidential information. Clause 8F.3 provides:

The Franchisee agrees that the Deed Poll at Annexure B is formed on the formation of this Agreement and the Franchisee must duly execute that Deed Poll upon the execution of this Agreement.

236. Clause 8F.4 requires that, if requested, the Franchisee must ensure that each Nominated Manager executes a Deed Poll in the same form and provides that Deed Poll to the Franchisor.

237. The Deed Poll itself records undertakings and covenants by the “covenantor”, which undertakings and covenants are given in consideration of “the grant by the Franchisor to the Franchisee of the Franchise, of which this undertaking and covenant forms part”.

238. Clause 1 is headed “Confidentiality”. It contains a covenant in similar terms to the covenant protecting the Intellectual Property of the Franchisor and applies to information provided to the Franchisee “or the covenantor” pursuant to the performance of the Franchisee’s responsibilities under the Franchise Agreement.

239. Clause 2 has no heading and therefore appears at first glance to fall under the Confidentiality heading of clause 2. It provides:

The covenantor must not during the term of the Franchise Agreement, or for a period of 12 months thereafter (or if unenforceable, 6 months) in the Restraint Area, either directly or indirectly, either alone or in partnership, or as a director or shareholder of any company, or as an employee, consultant, lender, representative, agent, advisor or otherwise:

(a)   be engaged in, carry on any business or obtain a direct or indirect benefit from a business which is similar to the Business or offers Products, Pools or products or services similar to the Products and/or the Pools and/or associated with them (such as pool fencing, solar heating or above ground pools);

(b)   solicit the custom of any client of the Business (including those listed on     the Database) or the Narellan Pools Franchise Network; or

(c)   otherwise market the Products or Pools or similar products or pools within the Restraint Area.

except as permitted by the Franchise Agreement or agreed by the Franchisor.

240. Clause 3 contains a non-disparagement covenant by the “covenantor” preventing the covenantor taking any action which might harm the Business, the Franchisor and its officers, or might lead to unwanted or unfavourable publicity for the Business or the Franchisor. Clause 4 deals with interpretation and provides that all terms in the Deed Poll bear the meanings defined in the Franchise Agreement.

241. The non-competition covenant is in similar terms to the covenant imposed by the Franchise Agreement itself, although it covers both pre-termination and post-termination restraints, whereas the Franchise Agreement deals with those subjects in two separate clauses. The purposes of obtaining a covenant in this form from the nominated managers is clear, as they would not necessarily be parties to the Franchise Agreement itself. It is less clear what point the Deed Poll had so far as the Franchisee is concerned, when the confidentiality and non-competition clauses were already provided for in the Franchise Agreement itself.

242. The Deed Poll is closely linked to the Franchise Agreement. The confidentiality and non-competition covenants are closely modelled on those in the Franchise Agreement and do not refer to any other party apart from the Franchisor. In particular, the non-competition clause is closely modelled on the non-competition clause in favour of the Franchisee in the Agreement itself.

243. The Deed Poll does not refer at all to NPPL (the Group Supplier) or to the Supply Agreement. It is notable that the provisions dealing with confidentiality and competition do not follow the covenants contained in the Supply Agreement, which were designed to protect NPPL’s interest as Group Supplier, though in quite different form from the covenants in the Franchise Agreement which were designed to protect NFPL. In my view, the non-competition covenant in the Deed Poll is not, on any view, enforceable by NPPL.

244. Reasonableness: If I am wrong in my conclusion that NPPL has no contractual right under the Deed Poll to enforce the restraints in it, then I consider that it would not be reasonable for NPPL (as distinct from NFPL) to enforce those obligations. NPPL’s interests are not the same as NFPL’s. No interest of a supplier was identified in argument. In any event, NPPL could, if it wished to avoid any prejudice, simply proceed with the contracts as it was professionally entitled to do. It cannot complain if it, or its related company chooses to bring those contracts to an end.

Injunction against TMP

245. Counsel for the plaintiffs acknowledged that there was no contractual basis for an injunction against TMP. Nevertheless, it was submitted that the Court should grant an injunction against TMP so as to make the other injunctions effective. When I asked counsel for the doctrinal basis for such an injunction, counsel relied on what he termed as the “alter ego doctrine” described by the Full Federal Court in Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 at [243].

246. This is no basis for making an order against TMP in the present case. If injunctions were available against the Ranieris personally, those injunctions would prevent the Ranieris from carrying on business through TMP. Should such an injunction be granted and TMP, as a corporate entity, assist the Ranieris in a breach, then it could be prosecuted for contempt of the injunction as a third party facilitating the breach. What would be the justification for granting a direct order, independently of any order against the Ranieris, especially where the evidence does not establish that TMP is a mere alter ego of theirs?

247. In the present case, I am dealing with an application for an injunction in the auxiliary jurisdiction, that is, in aid of contractual rights. There is no analogy, either factual or legal, with claims against accessories who receive property from trustees in breach of trust or assist trustees to breach their trust. The claim for an injunction against TMP fails.

Conclusions and orders

248. I have concluded that:

1. as a matter of construction of the Franchise Agreement, the post-contractual period of restraint on RBME and the Ranieris under the Agreement for both the Sydney City and the Sydney North franchises began on 1 June 2022;

2. but the competition restraints on RBME and the Ranieris in the Franchise Agreement, are, at least to the extent that they apply generally to the conduct of a similar business for the future, invalid and unenforceable as unreasonable restraints of trade;

3. to the extent that the competition restraints may prevent RBME and the Ranieris from soliciting customers to complete uncompleted customer contracts, they are invalid and unenforceable as unreasonable restraints of trade;

4. the same conclusions follow for the competition restraint on RBME in the Deed Poll;

5. in any event, NPPL has no contractual entitlement to enforce the restraints on RBME in the Deed Poll;

6. any such contractual entitlement to enforce the competition restraint in the Deed Poll by NPPL would in any event be invalid and unenforceable as an unreasonable restraint of trade;

7. neither plaintiff is entitled to an injunction enforcing the competition restraints in the Franchise Agreement or the Deed Poll against TMP.

249. So far as NFPL’s claims are concerned, there should be a declaration reflecting conclusion (1) (about the term of the Sydney City Franchise Agreement) in case that becomes relevant for the future. The claim for injunctions against each of the defendants should be dismissed and the interlocutory orders discharged. The proceedings should be returned for further directions before me to determine how the remainder of NFPL’s claims (and any claim the defendants may have under the undertaking as to damages) are to be heard. It follows from conclusion (5) that the claims by NPPL as second plaintiff in the proceedings are wholly unsustainable and should be dismissed.

250. I will adjourn the proceedings for a short period to allow the parties to bring in a minute of order to give effect to this judgment. If agreement cannot be reached, I will hear argument.

251. The orders of the Court are:

1. Adjourn the proceedings to 9:30 am on 25 November 2022 or such other time or date as may be arranged with my Associate.

2. Direct that the parties confer on the form of orders to be made to give effect to this judgment and to deal with the remaining claims in the proceedings, and, no later than 24 hours before the adjourned hearing, submit proposed orders for this purpose.

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Decision last updated: 22 November 2022