Orio Holdings Pty Ltd & Anor v Resi Mortgage Corporation Pty Ltd and Anor No. Scciv-04-469

ORIO HOLDINGS PTY LTD AND ANOR
v
RESI MORTGAGE CORPORATION PTY LTD AND ANOR
[2004] SASC 136
CIVIL

DOYLE CJ. This matter first came before me as an urgent application for an injunction on Friday 7 May. The proceedings had been instituted on 4 May. There was already a substantial volume of affidavit material on file. I was unable to hear the parties fully when the matter first came before me. I adjourned the matter to Thursday 13 May, and then heard the parties’ submissions. The submissions occupied most of the day.
On an urgent application of this kind, the Court necessarily must proceed on a provisional view of the facts and of the law. It is inevitable that affidavits will be prepared in haste, and will be less than complete.
However, in the present case I must say that the main affidavits filed for the plaintiff were in an unsatisfactory form. The affidavits of Mr Psevdos, the second plaintiff, were the basis for the application by the plaintiffs. These affidavits contain a good deal of material that is properly the subject of pleadings, not of an affidavit. They contain legal and factual argument. On a number of occasions when correspondence is exhibited, the affidavit purports to summarise the content and effect of the correspondence, in a manner that is not helpful. There is a certain amount of irrelevant history, some excessive detail and a good deal of repetition. Mr Psevdos’s most recent affidavit also repeats, as a direct quotation, parts of his earlier affidavit. The end result is that his affidavits are unduly long, are at times confusing because of the manner in which parts of them are expressed like a pleading or legal argument, and were difficult to absorb on the hearing of the application.
In an urgent matter like this, it is important that affidavits be kept as clear and as simple as they can be. That was not done in the present case.
I turn now to the application.
For present purposes it is unnecessary to distinguish between the first plaintiff and the second plaintiff, or between the first defendant and the second defendant. I will refer simply to the plaintiff and to the defendant.
By way of introduction it suffices to say that since about September 2000 the plaintiff has conducted business in South Australia as a mortgage or finance broker under the business name “Resi”. The defendant is based in New South Wales and apparently owns or controls that business name. The plaintiff used the name Resi with the defendant’s agreement, and built up a substantial business in this state under that name. The plaintiff looked to the defendant exclusively as its source of funds for lending to clients of the plaintiff’s business.
By the middle of 2003 the defendant wished to terminate the arrangement, but the plaintiff did not. The arrangement had not been reduced to a written form, although during 2002 the parties talked about doing so. It appears that they were unable to agree on the terms of the arrangement.
In October 2003 the plaintiff executed an agreement in the form of a letter, the effect of which was that the business arrangement between the plaintiff and the defendant would terminate after six months.
The six months expired on 4 May 2004, and on that day the defendant severed the business relationship. In particular, the defendant terminated the plaintiff’s access to a computerised loan system which the defendant had made available to the plaintiff, and access to which was essential if the plaintiff was to continue to trade under the name Resi and to deal with the defendant.
I am unsure just when access to the computerised loan system was terminated, but by the time the matter came before me on 7 May the termination had been effected.
The plaintiff issued these proceedings on 4 May 2004. The plaintiff does not claim enforcement of the October agreement. Indeed, the plaintiff attacks the October agreement as unenforceable and liable to be set aside as against the plaintiff. The reason for this is obvious. The October agreement is one made with a view to terminating the business relationship after six months.
The plaintiff claims that the October agreement should be set aside, and that the business arrangement as it was between the plaintiff and the defendant prior to the October agreement should be reinstated. I will refer to this as the original arrangement. The plaintiff seeks an injunction, the effect of which is to require the defendant to restore access to the computerised loan system, and to require the defendant to continue to deal with the plaintiff in accordance with the original arrangement. The plaintiff seeks an injunction with this effect pending trial, and at trial will claim an ongoing injunction to that effect.
I have come to the conclusion that the application for the injunction should be refused. On the material before me, while it cannot be said that the plaintiff’s claim is vexatious or frivolous, the degree of probability of success is relatively low. The risk of the plaintiff suffering loss for which damages will not be an adequate remedy is low. As well, when one considers the balance of convenience or where the balance of justice lies, the balance of convenience and the interests of justice are against the grant of the injunction. This is mainly because the plaintiff will have a remedy in damages if the plaintiff is correct, and because the business arrangement is one of a kind which the Court will be cautious about enforcing by injunction. Moreover, the original arrangement is terminable on reasonable notice. The plaintiff’s claim is that termination of the original arrangement will cause the plaintiff loss not readily able to be assessed by way of damages. There may be some force in that point, but if the arrangement is terminable on notice then the plaintiff in any event faces the prospect of the arrangement coming to an end, the plaintiff suffering much the same loss as it claims it will now suffer, although the plaintiff might have more time to prepare for the termination of the business arrangement.
That is a brief summary of my reasons for refusing the injunction.
I now turn to the facts, and to explain my conclusion in a little more detail. Nevertheless, these reasons are briefer and less detailed than they would be had I more time to prepare them. I have taken the view that it is desirable that the parties should know where they stand as soon as possible.
Facts
The plaintiff carried on business as a mortgage or finance broker from about 1998. Mr Psevdos was actively involved in the business. In this business, the plaintiff found a lender of money for persons wishing to buy land on security of a mortgage, and perhaps for other transactions. The plaintiff was paid a commission by the lender. The plaintiff dealt with a number of lenders.
The defendant is a lender based in New South Wales, and trades there under the name Resi. The defendant is a lender of the kind with whom the plaintiff had dealt.
The defendant traded for a time in South Australia through an agent trading under its name. The agent was unsatisfactory.
In September 2000 the defendant invited the plaintiff to replace that agent. This involved the plaintiff operating the mortgage broking business at its own expense, but operating under the name Resi, and following procedures established by the defendant. The defendant would pay a commission to the plaintiff, and was to provide some training to the plaintiff’s staff. The intent seems to have been that the plaintiff would be the only persons trading as Resi in South Australia, and would deal exclusively with the defendant as a source of money for lending to its clients.
The plaintiff took up the offer. The plaintiff incurred expenditure in setting up the business under the name Resi, and apparently paid some of the expenses incurred by the previous representative of the defendant. The plaintiff ended its links with other lenders of money.
Accordingly, from about September 2000 the plaintiff became the sole agent for the defendant in South Australia, and the plaintiff dealt exclusively with the defendant. The plaintiff traded under the name Resi in South Australia. There is no doubt that the plaintiff conducted its own business at its own expense, although using the defendant’s business name. I accept that the plaintiff built up goodwill, much of which would attach to the name Resi. However, some of that goodwill undoubtedly would attach to the plaintiff, its staff and to Mr Psevdos.
The original arrangement was never reduced to writing, although in a letter of 19 September 2000 the plaintiff said it would “like to have either a firm contract or two year reviewable licence.”
My view is that the original arrangement was terminable on reasonable notice, under the circumstances.
The business arrangement involved the plaintiff’s staff using, and being trained to use, a computerised loan system called “LoanWorks.” This was described as a computerised diary and loan management system. I gather that the defendant had control over LoanWorks, and provided access to it to the plaintiff.
Access to LoanWorks was essential if the plaintiff was to deal with the defendant, and no doubt for the purposes of recording transactions.
As time went on the plaintiff’s business expanded, and appears to have become quite substantial.
In about April and May 2002 there were discussions about formalising the original arrangement. In a letter of 25 June 2002 from the defendant to the plaintiff reference is made to the preparation of a Master Franchise Agreement recording the business arrangement between the parties. In particular, reference was made to the basis upon which commissions would be paid. For reasons not clear to me, the agreement referred to never eventuated, although discussions continued for some time.
By July 2003 the defendant wished to end the arrangement. The reasons for this were not canvassed before me by either side. A letter of 31 July 2003 from the defendant to the plaintiff proposed termination of the plaintiff’s access to LoanWorks, and termination of the business arrangement, from 22 August 2003. The defendant proposed that it would continue to pay appropriate commissions on all existing loans.
The plaintiff opposed the termination of the business relationship, and asked the defendant to provide reasons. In a letter of 6 August 2003 the plaintiff said that if the defendant wished to terminate the arrangement, there should be satisfactory arrangements as to payment of commissions to the plaintiff, and arrangements for an orderly handover of the business. The plaintiff made it clear that it did not wish to end the business relationship, and proposed a meeting.
It is apparent that discussion and correspondence continued between the parties, but the material is not before me.
By letter of 28 August 2003 the plaintiff proposed a compromise. The compromise was that the “South Australian metropolitan territory” be divided into five parts, and that five “sub franchises” be offered for sale by the plaintiff, the sub franchises to be offered with the “portfolio” which I take to mean the existing clientele. The plaintiff was to receive the proceeds of the sale of these franchises, and the defendant was also to pay to the plaintiff a specified amount in settlement of commission claims. A period of six months was allowed for this to happen.
Thus, as I understand it, the plaintiff was proposing that the business arrangement be terminated on a basis which would enable the plaintiff to recoup the value of the goodwill that it had built up, and to receive a lump sum payment in settlement of its claims to ongoing commission payments.
By letter dated 9 September 2003 the defendant put a fairly detailed counter proposal, along the same lines as the proposal made by the plaintiff. The letter again envisaged a six month period for the sale of the franchises, and commutation of the plaintiff’s rights to commission payments according to a formula. Each letter envisaged the termination of the original arrangement and any business arrangement on the expiry of the six month period.
By letter dated 24 September 2003 the plaintiff rejected this proposal, but indicated that provided the plaintiff was given “a master franchise” for a period of six months, terminating the original arrangement, the overall proposal would be accepted. I mention here that the original business arrangement had been with the first plaintiff, and the master franchise was to be granted to Mr Psevdos, the second plaintiff.
By letter dated 8 October 2003 the defendant accepted this proposal, and sent to the plaintiff a document in the form of a letter, which set out in reasonable detail the terms of the proposal. The defendant said that it wished to avoid the substantial costs that would be involved in drafting “a formal master franchise agreement.” The defendant said it would enter into “a standard Resi franchise agreement” with the plaintiff. The new arrangement was to be for a period of six months, and contemplated the termination of any business arrangement between the plaintiff and the defendant on the expiry of the new arrangement.
A copy of the letter embodying the proposal was forwarded to the plaintiff for his signature, the defendant specifying that the new arrangement would come into effect upon the defendant signing the letter.
On Thursday 9 October 2003 the plaintiff wrote to the defendant acknowledging receipt of the letter of 8 October, indicating in principle agreement, insisting that a properly documented “master franchise” be offered to the plaintiff, and saying that the plaintiff would “examine closely the letters this weekend”, and then reply.
On about Monday 13 October the plaintiff apparently signed the letter agreement, and forwarded a signed copy to the defendant.
In an affidavit filed by the defendant, Mr Christie, an employee of the defendant, states that on about 30 October in a telephone conversation Mr Psevdos said there was no need to prepare a franchise agreement for the plaintiff, and that he was content to rely upon the letter. The franchise agreement was never prepared. There is no reference in the material before me to any protest by the plaintiff about the failure to produce a written franchise agreement for the plaintiff.
On 1 April 2004 the defendant wrote to the plaintiff referring to the letter of 8 October 2003, purporting to summarise its effect, and confirming that the business arrangement between the plaintiff and the defendant would terminate on 4 May 2004. (It is not clear to me how 4 May 2004 became the relevant date, but nothing turns on that.) Copies of relevant documents were attached, as were details of the proposal to commute the plaintiff’s right to commission. The defendant made it plain that on 4 May 2004 it intended to terminate the plaintiff’s access to LoanWorks.
No written response to that letter was put before me.
On 4 May 2004 the defendant duly terminated the plaintiff’s access to LoanWorks, and ended the business arrangement.
Submissions
As I have explained, the plaintiff now seeks an injunction the effect of which would be to restore its access to LoanWorks, and to require the defendant to continue to deal with the plaintiff as its sole and exclusive agent for South Australia, under the original arrangement. I gather that at trial the plaintiff will seek the same relief as its main relief.
The plaintiff asserts that it is the owner of the business that it has built up under the name “Resi” in South Australia, and that if the business arrangement is ended it is entitled to damages measured by the value of that business.
The plaintiff says that the agreement of October 2003, pursuant to which the defendant has terminated the business arrangement, is not valid or enforceable as against the plaintiff.
The plaintiff says that it signed the letter because the defendant was withholding payment of commissions of the order of $75,000. Apart from a passing reference to this in one or two letters, no material protesting about non-payment was put before me. The plaintiff says that it signed the letter under circumstances amounting to economic duress, coercion or unconscionable conduct, and the plaintiff claims relief at common law and under the provisions of the Trade Practices Act. Mr Psevdos adds that at the time he signed the letter he was under pressure because his marriage had come to an end in November 2002, and his father had died in July 2003. The plaintiff also says that the letter of 8 October is not sufficiently certain to be enforceable.
Finally, the plaintiff asserts that the letter is a franchise agreement for the purposes of the Trade Practices (Industry Codes-Franchising) Regulations (1998), and that in numerous respects the defendant has failed to comply with the requirements of that Code. In particular, the plaintiff says that the defendant failed to comply with its obligations as to the provision of information to the plaintiff and as to disclosure.
For those reasons the plaintiff says that it is not bound by the letter of 8 October 2003, can have it set aside and can revert to the original arrangement that the letter replaced.
The plaintiff says that if an injunction is not granted it will suffer substantial injury or prejudice, because the business that it has built up will be destroyed, and that an award of damages will not adequately compensate it for this loss.
I have already made the point that prima facie the original arrangement is one that is terminable on reasonable notice. If the defendant were to give that notice (assuming the original arrangement were to be reinstated), it seems to me that much of the loss of which the plaintiff now complains would probably occur. I put that to one side for the moment.
As I have said, the plaintiff says that unless an injunction is granted, the business and the goodwill that it has built up will be irretrievably damaged. I accept that contention, subject to the point just made. However, if the plaintiff is correct in its contentions the plaintiff will be entitled to damages. Those damages would be assessed by reference to the value of the goodwill established by the plaintiff and damaged by the defendant, and by reference to the consequential losses suffered by the plaintiff. While there may be some difficulties of assessment, at this stage it is not apparent to me that damages would not be an adequate remedy for the plaintiff. And, as I have already mentioned, if the original arrangement is terminable on reasonable notice, it follows that the asset represented by the plaintiff’s business is one that is liable to be devalued in any event by the giving of reasonable notice by the defendant. Accordingly, while I cannot rule out the possibility that the plaintiff will suffer irreparable harm if an injunction is not granted, my view is that the prospect of this occurring is low.
The plaintiff raises a number of other matters, which in my opinion are merely aspects of the claim already referred to. The plaintiff refers to money that it has sunk into the establishment of the business. To the extent that that has given rise to goodwill, it is compensable. The plaintiff refers to the fact that it has severed its links with other lenders of money. As to that, I see no reason why those links could not be restored were the plaintiff to set up its own business, as it apparently contemplates. The plaintiff refers to the goodwill that it has built up and that will attach to the name “Resi”. But the value of that goodwill would be the subject of an award of damages, should the plaintiff succeed at trial. The plaintiff refers to ongoing liabilities connected with the business that it has established, such as rent and the payment of wages. As to that, the plaintiff would again have an entitlement to damages for consequential losses if its claims are correct, and in my opinion this aspect of the plaintiff’s damages should be readily provable.

The plaintiff refers to the fact that it may well set up its own business, taking with it its own staff and many of the existing clients of the Resi business. The plaintiff asserts that it is in the interests of both parties to maintain the existing business. I consider that this point does not advance the plaintiff’s claim in any way, and if anything indicates that the plaintiff has the capacity to take with it a not insignificant part of the goodwill attaching to the business that it has established.
The plaintiff complains of damage to the plaintiff’s reputation, but it is not obvious why that would occur. It seems to me in any event if it is to occur it could occur were the business to be terminated on reasonable notice.
The plaintiff refers to the risk of inconvenience to clients whose loan applications are presently being processed, and to loss and inconvenience to staff and agents used by the plaintiff. This is a matter to be considered, but on the evidence before me I am not able to say that it is a matter of any great substance. The defendant asserts that it is capable of processing satisfactorily all transactions that are currently under way.
As I have said, the plaintiff asserts that damages will not be an adequate remedy for the loss that it will suffer. I acknowledge the possibility of this, but, as I have already said, consider the possibility to be relatively low.
The plaintiff claims that the defendant is unable to satisfy an award of damages, but that is a completely unsubstantiated assertion.
Reasons for declining to grant the injunction
An injunction is usually granted to preserve the state of affairs as it was immediately prior to the grant of the injunction. Here, the plaintiff wants to preserve or reinstate the business arrangement as it was prior to October 2003. That is an unusual feature of the case, but is not of itself a reason to decline to grant relief. In essence what the plaintiff seeks is the reinstatement of its access to LoanWorks, and the resumption of business dealings with the defendant, both of which continued until about 4 May 2004.
The plaintiff must establish that there is a serious question to be tried, or a real possibility of ultimate success.
On the information before me, the claim to set aside the arrangement of October 2003 has only a limited probability of ultimate success, although it is not possible nor appropriate to make an actual forecast of the outcome. The claim of duress or coercion or unconscionable conduct rests on a bald assertion that the defendant applied inappropriate pressure to the plaintiff. There is nothing in the correspondence to support the claim. There is nothing before me that indicates that the plaintiff raised this complaint between October 2003 and the institution of the proceedings. The claim for relief on this basis appears to be speculative. As to the claim that the October arrangement is a franchise agreement for the purpose of the code, I reach much the same conclusion. Clause 4 of the Code defines “franchise agreement”. To be a franchise agreement as defined, the agreement must be one under which a payment of an identified kind is to be made by the franchisee to the franchiser. On the information before me it is not obvious that such a payment was to be made, and accordingly the claim that the agreement of October 2003 is a franchise agreement faces an apparent obstacle. However, at this stage I go no further than that. The plaintiff also claims that the defendant breached the October agreement by not providing assistance for the sale of franchises that it agreed to provide, but at this stage that claim is also unsubstantiated.
For those reasons,while not suggesting that the plaintiff’s claim will fail, or has no prospects of success, I am of the opinion that the probability of ultimate success is low. At this stage I can be no more precise than that. However, that is a significant point when considering whether an injunction is to be granted.
I have already explained why I consider that the risk of the plaintiff suffering loss or damage which cannot be adequately compensated for by damages is relatively low.
The protection available to the plaintiff may be supplemented by an order for the keeping of accounts by the defendant pending trial, in the event that the defendant conducts business in South Australia. The possibility of the making of such an order is another factor pointing against the grant of an injunction.
I come finally to the balance of convenience. Some matters that have already been considered are again relevant here. First, the fact that the original arrangement is likely to be terminable on reasonable notice. For the reasons indicated, that makes it less appropriate to grant an injunction that will have the effect of restoring the original arrangement. Second, if an injunction is granted the Court might find it difficult to enforce compliance, and may become involved in the supervision of the business arrangement, but that I regard as a minor factor. Third, there is the fact that the plaintiff has premises, staff and clients and is in a position to set up its own business if it wishes. Fourth, there is the fact that the plaintiff had six months warning of the defendant’s intention to terminate the business arrangement. The correspondence indicates to me that the defendant made clear its wish to end the arrangement. The plaintiff delayed bringing these proceedings until the very last minute. Once again, that is by no means decisive, but it is a matter to take into account. Another factor is that the grant of an injunction will require the defendant to continue to deal with the plaintiff, the plaintiff being entitled to continue business under the name of the defendant, without the existence of a detailed agreement by which the defendant can regulate the plaintiff’s business conduct and avoid conduct by the plaintiff prejudicial to the defendant’s interests. Of course, the point can be made that the defendant accepted such a situation until it sought to terminate the business arrangement, but I consider that this remains a factor to take into account.
Conclusion
My conclusion is that, on the information available to me, the probability of a successful claim by the plaintiff to set aside the agreement of October 2003, providing for the termination of the original arrangement, is relatively low. By the grant of an injunction the plaintiff does not seek to restore arrangements as they were prior to the making of the application, but arrangements as they were prior to October 2003. There is a risk of the plaintiff suffering loss which cannot be adequately assessed and compensated for by way of damages, but the risk of that happening is not high. The loss that the plaintiff will suffer, the destruction of or damage to the goodwill of the business and consequential losses, is a loss of a kind that ordinarily should be capable of appropriate assessment. The grant of the injunction would not prevent the defendant giving reasonable notice to terminate the original arrangement, and as things stand the plaintiff has had at least six months warning that the defendant wished to do so. All of this points against the grant of an interlocutory injunction, and although matters considered under the head of the balance of convenience do not point strongly one way or the other, my conclusion is that the grant of an injunction is not required in the interests of justice.
For those reasons I dismiss the application made by the plaintiff.

[2004] SASC 136

21 May 2004