Robert McGill Freier v Australian Postal Corporation (No 2)

[2012] NSWSC 61

Supreme Court

New South Wales

Medium Neutral Citation:

Robert McGill Freier & Anor v Australian Postal Corporation (No 2) [2012] NSWSC 61

Hearing dates:

9 February 2012

Decision date:

17 February 2012

Before:

Ball J

Decision:

1. The plaintiffs' application for interlocutory relief be dismissed.

2. The costs of the application be the defendant's costs in the cause.

Catchwords:

PRACTICE AND PROCEDURE - Interlocutory injunction - Application for interlocutory injunction to prevent termination of licensing agreement - Whether there is arguable case - Balance of convenience. CONTRACT - Termination of contract - Interpretation of notice of termination - Termination without cause pursuant to contractual right - Interpretation of notice period. CONSUMER LAW - Unconscionable conduct - Termination of contract with indefinite term - Application of Franchising Code of Conduct - Terminating party's obligation to give reasons for termination under clause 22 of the Franchising Code of Conduct

Legislation Cited:

Competition & Consumer Act 2010 (Cth)
Trade Practices Act 1974
Trade Practices (Industry Codes - Franchising) Regulations 1998

Cases Cited:

Al Jadeed TV v United Broadcasting International Pty Ltd [2011] FCA 983; 283 ALR 205
Australian Competition and Consumer Commission v Allphones Retail Pty Ltd (No 2) [2009] FCA 17; 253 ALR 324

Category:

Interlocutory applications

Parties:

Robert McGill Freier (First Plaintiff)
Glenda Letetia Freier (Second Plaintiff)
Australian Postal Corporation (Defendant)

Representation:

A P Cheshire (Plaintiffs)
J C Giles (Defendant)
Clinch Long Letherbarrow (Plaintiffs)
Norton Rose (Defendant)

File Number(s):

2012/31603

Judgment

Background

1. This is an application for an interlocutory injunction to restrain the defendant, Australia Post, from terminating an agreement by which the plaintiffs, Mr and Mrs Freier, operate the post office in Campbell Town in Tasmania.

1. In March 2004, Mr and Mrs Freier bought the building at which the Campbell Town post office has operated since 1887and the business that the previous owners had carried on there. That business included the sale of stationery, gifts, toys and computer consumables, as well as providing advertising space on the front windows and space for a Telstra telephone exchange. At the same time, Mr and Mrs Freier entered into a licensed post office agreement dated 31 March 2004 with Australia Post (the LPO Agreement ) which enabled them to continue to operate the post office.

1. Clause 7 of the LPO Agreement deals with the agreement's term. It provides:

This Agreement shall commence on the date specified in item 3 of the Schedule and shall continue in force indefinitely or until either party terminates the Agreement in the manner provided in Clauses 20 and 22 hereof.

1. Clause 22 deals with termination without cause. It provides:

a) The Licensee may at any time terminate this Agreement without cause by giving Australia Post ninety (90) days prior written notice.

b) Notwithstanding any other provision of this Agreement, Australia Post may at any time and without cause terminate this Agreement by giving the Licensee ninety (90) days notice that it intends to terminate the Agreement. Termination is effective upon the expiration of the ninety (90) days.

c) If Australia Post terminates this Agreement pursuant to Clause 22b), Australia Post shall pay to the Licensee termination compensation calculated in accordance with Clause 22d) in full and final settlement of all entitlements of the Licensee arising from termination. Prior to or simultaneously with the receipt of the termination compensation payment the Licensee shall sign a release in a form satisfactory to Australia Post.

d) Termination compensation payable pursuant to sub-Clause c) shall be an amount agreed between Australia Post and Licensee. However such amount shall not be less than an amount equal to the Business Revenue over the period of twelve (12) months prior to the date of termination nor greater than that amount multiplied by three (3).

"Business Revenue" is defined in cl 1 to mean:

... the aggregate of the Fees and Commissions paid or payable to the Licensee by Australia Post and the Discounts received or receivable by the Licensee from Australia Post or (in the case of Complementary Products) the supplier, over a specified period.

1. Following entry into the LPO Agreement, there were a number of disagreements between Australia Post and Mr and Mrs Freier. How serious those disputes were was a matter of some debate between the parties. That is not a debate that can or should be resolved on this application. However, it is relevant to observe that on 22 May 2011, Mr Freier addressed a letter to "Australia Post Employee (from 2004 to present)" in which he said:

I am writing to advise you that due to over 5 years of neglect by Australia Post in relation to harassment (previous Mail Contractor, Peter Quail) and discrimination (Australia Post) against us, we will be taking action. This includes legal measures by presenting our substantial files (you probably have a few yourself) for scrutiny.

I feel it is my moral obligations to advise you of the possible legal ramifications, hence this letter. Because of the ABC news story about Australia Post Bullying and because Australia Post probably will not or have not advised you even though they have known for months. You will be identified as one of fourteen Australia Post senior employees or management who failed in your duty to act in regards to these allegations.

The letter goes on to identify the 14 employees and a number of other senior managers who are said to be responsible for the current position. It also states:

This whole harmful mess can be avoided and you and your colleagues could possibly prevent having your personal details aired in court and/or the media. There really is no need for your family, friends, colleagues, neighbours, associates at the soccer or football club, Rotary or social media friends to read about you.

1. Mr and Mrs Freier also distributed a circular to Campbell Town residents headed "FED UP WITH THE INEFFICIENT/INCORRECT MAIL DELIVERY IN CAMPBELL TOWN?" The circular identified a number of problems and made recommendations on what action residents could take in relation to them.

1. On 21 July 2011, Australia Post wrote to Mr and Mrs Freier complaining about the notice and threatening to serve a notice of default in the event that certain conditions were not met. It is unclear what, if anything, happened then. However, on 4 November 2011 representatives of Australia Post met with Mr and Mrs Freier and at that time handed them a letter enclosing a document headed "Notice of Intention to Terminate a Licensed Post Office Agreement". The notice records the existence of the LPO Agreement and refers to the terms of cl 22. It then states:

4. Australia Post hereby, under the provisions of clause 22 (b) of the LPO Agreement, gives notice to You of Australia Post's intention to terminate the licence to operate the Campbell Town LPO, effective, in accordance with clause 22 (b), on expiration of 90 days from the date of service of a copy of this notice upon You, namely on the 1 st day of February 2012.

5. The basis of Australia Post's decision to exercise its rights in accordance with clause 22 of the LPO Agreement is our determination that, notwithstanding our efforts over many years to resolve issues with You, a satisfactory and constructive licensee and licensor relationship has not developed.

6. Under clause 22 (c) of the LPO Agreement it is provided that an agreed amount of termination compensation (calculated according to clause 22 (d)) shall be paid by Australia Post to the licensee arising from any termination under clause 22. Australia Post will provide details of its proposal for the amount of termination compensation to You in a separate letter.

1. Subsequently, on 14 November 2011, Australia Post wrote to Mr and Mrs Freier offering termination compensation of $129,530 (exclusive of GST). The letter stated that Australia Post was prepared to reconsider the compensation offered if Mr and Mrs Freier provided information concerning the revenue and expenses of the post office. The letter also indicated that Australia Post was willing to engage in discussions through a mediator appointed by the Office of Franchise Mediation Advisor at Australia Post's expense.

1. Macpherson + Kelley, the solicitors who at that time had been engaged by Mr and Mrs Freier, responded to Australia Post's offer on 16 December 2011. Although the letter is without prejudice, it was put into evidence by Mr and Mrs Freier and no objection was taken to their doing so by Australia Post. That letter explained that, as a consequence of termination of the franchise agreement, Mr and Mrs Freier would be deprived of revenue from the associated business conducted by them at the post office and that they had lost the opportunity of selling the post office business and associated business to a third party and faced difficulties in selling the property itself. Taking those matters into account, they made a counter-offer of $275,000.

1. In the meantime, on or about 14 November 2011, Australia Post put out to tender the licence to operate the post office in Campbell Town. It received a number of responses to that tender including one from Mr Hendricks and one from IGA. Australia Post sought to enter into a licence agreement with Mr Hendricks on the basis that he would acquire the post office building and associated business from Mr and Mrs Freier. However, Mr Hendricks was unsuccessful in negotiating a contract to buy the property. It appears that Mr and Mrs Freier were not prepared to sell the property unless they could reach an agreement with Australia Post on the amount of compensation to be paid to them. As a consequence, on 13 January 2012, Mr Hendricks informed Australia Post that he did not have suitable premises at which to operate the post office and Australia Post decided to negotiate to award the licence to IGA. It appears from the evidence that those negotiations are at an advanced stage and that IGA has incurred some costs in fitting out its premises to operate a post office there. However, no licence agreement has yet been signed.

1. Australia Post made a further offer to mediate the dispute on 25 November 2011 and took steps to arrange a mediation.

1. Some time in January 2012, Mr and Mrs Freier engaged their current solicitors who wrote to Australia Post on 24 January 2012 disputing the validity of the termination notice and stating that "We accept that it is in both parties' interest to have the mediation as soon as possible". In response, Australia Post suggested the mediation take place on 6 February 2012. However, it received no response to that letter.

1. It is against that background that the current application is to be determined.

1. Mr Cheshire, who appeared for Mr and Mrs Freier, put the case for an interlocutory injunction on two grounds. First, he submitted that there was an arguable case - indeed, a strong case - that the notice of termination was invalid because it failed to give 90 days' notice. Second, he submitted that Mr and Mrs Freier had an arguable case that Australia Post had contravened s 22 (now s 21) of the Australian Consumer Law ( ACL ) and consequently they had an arguable case that they are entitled to relief under ACL s 232.

1. In relation to the balance of convenience, Mr Cheshire submitted that, if an interlocutory injunction is not granted, Mr and Mrs Freier will have lost the opportunity to sell the post office building and business together.

Termination notice

1. Mr Cheshire submits that there is at least an arguable case that the termination notice is invalid because, although it purported to give 90 days' notice of termination, it did not do so because it was expressed to take effect on 1 February 2012.

1. I do not accept that submission.

1. The question whether the notice dated 4 November 2011 was effective is to be answered by asking whether a reasonable person in the position of Mr and Mrs Freier would understand by the notice that Australia Post was exercising its right under cl 22 of the LPO Agreement to terminate the agreement by giving 90 days' notice: see Al Jadeed TV v United Broadcasting International Pty Ltd [2011] FCA 983; 283 ALR 205 at [68]. If the answer to that question is in the affirmative, then the notice is effective to terminate the agreement after 90 days. Here, the notice was expressed to be a notice of intention to terminate. Clause 4 of the notice expressly states that Australia Post, in exercise of its rights under cl 22 b) of the LPO Agreement, gave notice of its intention to terminate the licence "effective, in accordance with cl 22 b), on expiration of 90 days from the date of service of a copy of this notice upon You". It is true that the notice goes on to identify that date as "the 1 st day of February 2012". However, the reference to 1 February 2012 appears to me to be no more than a misstatement of the effect of the notice. Properly construed, I do not think there is a reasonable argument that the notice was claiming an entitlement to terminate in fewer than 90 days. Rather, it wrongly identified when those 90 days expired. The reference to cl 22 b) and the reference to 90 days, in my opinion, makes that clear.

1. Mr and Mrs Freier proceeded on the basis that the notice was effective. They began to advertise the building for lease on the basis that it was available "from 2 February 2012". Mr Freier wrote to Australia Post on 6 January 2012 in which he said:

In view of our termination under Clause 22 of our Licensee Agreement and subsequently Clause 23 we will be complying as per the Agreement.

We request Australia Post fulfil their obligations as well by collecting and removing all their property including reinstatement, e.g. making safe any electrical termination.

However, in late January 2012 Mr and Mrs Freier changed solicitors to their current ones and those solicitors wrote to Australia Post on 30 January 2012 asserting that the 90 days did not expire until midnight on 3 February 2012 (although the correct position is that it expired on midnight on 2 February 2012). After some correspondence between the parties Australia Post, on 31 January 2012, agreed to treat the agreement as terminating at midnight on 3 January 2012. In doing so, it was seeking to give effect to the notice it had given. Having regard to these matters, I do not think that there is a serious question to be tried that Australia Post failed to give Mr and Mrs Freier 90 days' notice of termination of the agreement.

Section 22 of the Australian Consumer Law

1. Section 22(1) of the ACL (which is now s 21) provides:

A person must not, in trade or commerce, in connection with:

(a) the supply or possible supply of goods or services to another person, (other than a listed public company); or

(b) the acquisition or possible acquisition of goods or services from another person (other than a listed public company

engage in conduct that is, in all the circumstances, unconscionable.

1. In Australian Competition and Consumer Commission v Allphones Retail Pty Ltd (No 2) [2009] FCA 17; 253 ALR 324, Foster J relevantly said (at [113]) in discussing the meaning of the word "unconscionable" in the context of s 51AC of the Trade Practices Act 1974 (the predecessor provision to ACL s 22):

(a) ... The meaning of unconscionable for the purposes of s 51AC is not limited to the meaning of the word according to established principles of common law and equity ...

(b) The ordinary or dictionary meaning of unconscionable , which involves notions of serious misconduct or something which is clearly unfair or unreasonable, is picked up by the use of the word in s 51AC. When used in that section, the expression requires that the actions of the alleged contravenor show no regard for conscience, and be irreconcilable with what is right or reasonable. Inevitably the expression imports a pejorative moral judgment: per Heerey, Drummond and Emmett JJ in Hurley v McDonalds Australia Ltd ( 2000) 22 ATPR 41-741 (p 40,578) at [22] (p 40,585). This helpful articulation of the meaning of the word when used in s 51AC was followed by Selway J in ACCC v 4WD Systems Pty Ltd (2003) 59 IPR 435 at [183]-[185] (pp 487-488) and by Sundberg J in ACCC v Simply No-Knead Franchising Pty Ltd (2000) 104 FCR 253 at [30] (p 264); and

(c) Normally, some moral fault or moral responsibility would be involved. This would not ordinarily be present if the critical actions are merely negligent. There would ordinarily need to be a deliberate (in the sense of intentional) act or at least a reckless act: per Selway J in ACCC v 4WD Systems Pty Ltd (2003) 59 IPR 435 at [185] (p 488).

1. Mr Cheshire submitted that it was arguable that the termination in this case was unconscionable because the reason given for the termination - namely, that "notwithstanding our efforts over many years to resolve issues with You, a satisfactory and constructive licensee and licensor relationship has not developed" - was not supported by the evidence. The evidence suggested that, although there may have been disputes between the parties, the fact was that Mr and Mrs Freier had operated the post office for a period of 8 years without any real difficulties and, in those circumstances, it was submitted that it was difficult to see how it could be asserted that a relationship had not developed.

1. I do not accept this submission. The right conferred by clause 22 must be understood in the context of the agreement. Under clause 7, the agreement was for an indefinite period of time. Both parties were given a right to terminate it on notice. Australia Post was obliged to pay compensation in the event that it exercised that right. It was not suggested that Australia Post engaged in any unconscionable conduct at the time the parties entered into the agreement. It is difficult to see how the right itself could be regarded as unconscionable in the context of an agreement for an indefinite term and in a context where it provided for Australia Post to pay compensation on termination. There is no suggestion that Australia Post acted unreasonably in seeking to determine the amount of that compensation. It made what appears to be a reasonable offer to pay compensation. More importantly, it made it clear that it was prepared to reconsider its offer and, on a number of occasions, it offered to engage the services of a mediator at its own expense.

1. The only complaint is that Australia Post gave a reason for termination that it is said was not plausible. However, I do not accept that that there is a reasonable argument that that conduct was unconscionable in the context of this case. Australia Post was entitled to terminate the agreement for any reason; and, for the reasons I have given, I do not think that it is arguable that the exercise of that right was unconscionable in the sense described by Foster J. Australia Post gave a reason because it was required to do so by clause 22 of the Franchising Code of Conduct. That code is an "applicable industry code" for the purposes of ACL s 22, since it is declared by the Trade Practices (Industry Codes - Franchising) Regulations 1998 reg 3 to be a mandatory code under s 51AE of the Australian Competition and Consumer Act 2010: see s 51ACA. The failure to comply with an applicable industry code is one matter the court may take into account in determining whether conduct is unconscionable: ACL, s 22(3)(g). However, where the agreement is for an indefinite term and permits termination for any reason and provides for the payment of compensation in the event of termination, I doubt that the mere failure to give an accurate reason for termination is unconscionable. In any event, a fair reading of the reason given by Australia Post is that Australia Post was terminating the agreement because of the poor relationship between it and Mr and Mrs Freier. Having regard to the letter and circular sent by Mr and Mrs Freier, I do not think that it is reasonably arguable that that reason was not the real reason that Australia Post decided to exercise its rights under cl 22.

Discretionary factors

1. Even if I am wrong in the conclusions I have reached, in my opinion, the court should not, in the exercise of its discretion, grant an injunction in this case.

1. I say that for two reasons.

1. First, in my opinion, Mr and Mrs Freier have delayed excessively in seeking an injunction. They proceeded on the basis that the termination notice was effective and permitted Australia Post to do so. Australia Post went to the trouble and expense of putting a new contract to operate the Campbell Town post office out to tender. It originally proposed to award the tender to a person who was willing to acquire the post office building so as to assist Mr and Mrs Freier to sell the building. When that sale fell through, it entered into negotiations with IGA. Although it appears that Australia Post has not entered into a contract with IGA, the evidence suggests that IGA has taken some steps to alter its premises so as to accommodate the post office. It is only after all that happened, and 3 days before the termination was to take effect, that Mr and Mrs Freier sought an injunction to restrain the Post Office from terminating the agreement.

1. Secondly, in my opinion, the balance of convenience is not in favour of granting an injunction. It is clear that Mr and Mrs Freier wish to sell the business and building. The issue for them is whether they achieve an adequate price and are adequately compensated by Australia Post. It seems to me that there are no particular difficulties in determining the value of the building and business assuming that the LPO Agreement was in place compared to their value if that agreement is terminated, although that may need to be the subject of expert evidence. On the other hand, if an injunction is granted, but Mr and Mrs Freier ultimately fail, it is likely to be difficult to assess Australia Post's loss. There is a risk that Australia Post will lose the benefit of entering into a franchise agreement with IGA and it is unclear whether it will find another franchisee who is acceptable. I also accept that there is a risk that Australia Post's reputation could be damaged if Mr and Mrs Freier continue to operate the post office pending the resolution of the dispute. They are clearly dissatisfied with Australia Post's conduct and, in those circumstances, they are unlikely to promote its business in a positive way. Those damages would be difficult to quantify.

Orders

1. The plaintiffs' application for interlocutory relief should be dismissed. The costs of the application should be the defendant's costs in the cause.

1. I will hear the parties on what ancillary orders and directions should be made.

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