Smart Saver Franchising Pty Ltd v Ausads Local Pty Ltd

[2011] FCA 361

FEDERAL COURT OF AUSTRALIA

Smart Saver Franchising Pty Ltd v Ausads Local Pty Ltd [2011] FCA 361

Citation:	Smart Saver Franchising Pty Ltd v Ausads Local Pty Ltd [2011] FCA 361
Parties:	SMART SAVER FRANCHISING PTY LTD (ACN 110 217 760) v AUSADS LOCAL PTY LTD (ACN 118 078 032), ROBERT ARIZANOV, OSMOND HYLTON, WE SAVE YOU MONEY PTY LTD (ACN 146 797 462), COURTNEY OZMOND HYLTON-MITCHELL and KERRY MITCHELL
File number(s):	VID 256 of 2011
Judge:	RYAN J
Date of judgment:	11 April 2011
Corrigendum:	19 April 2011
Date of hearing:	11 April 2011
Place:	Melbourne
Division:	GENERAL DIVISION
Category:	No Catchwords
Number of paragraphs:	9
Counsel for the Applicant:	Mr O Bigos
Solicitor for the Applicant:	Mason Sier Turnbull
Counsel for the Respondents:	Mr R Wilson
Solicitor for the Respondents:	Macpherson & Kelley

FEDERAL COURT OF AUSTRALIA

Smart Saver Franchising Pty Ltd v Ausads Local Pty Ltd [2011] FCA 361

CORRIGENDUM

1.In line 2 of paragraph 1 of the Reasons for Judgment, the word “applicants” should read “respondents”.

I certify that the preceding one (1) numbered paragraph is a true copy of the Corrigendum to the Reasons for Judgment herein of the Honourable Justice Ryan.

Associate:

Dated:        19 April 2011

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION	VID 256 of 2011

BETWEEN:

SMART SAVER FRANCHISING PTY LTD (ACN 110 217 760)
Applicant

AND:

AUSADS LOCAL PTY LTD (ACN 118 078 032)
First Respondent

ROBERT ARIZANOV
Second Respondent

OSMOND HYLTON
Third Respondent

WE SAVE YOU MONEY PTY LTD (ACN 146 797 462)
Fourth Respondent

COURTNEY OZMOND HYLTON-MITCHELL
Fifth Respondent

KERRY MITCHELL
Sixth Respondent

JUDGE:	RYAN J
DATE OF ORDER:	11 APRIL 2011
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.There be a directions hearing on a date to be fixed being not later than 29 April 2011.

2.There be a speedy trial of the action herein to commence on a date to be fixed at the directions hearing referred to in paragraph 1 of this Order.

3.The proceedings be referred to mediation before a Registrar of the Court on a date or dates to be fixed by the Registrar who is to conduct the mediation PROVIDED HOWEVER that such mediation shall not impede the directions hearing referred to in paragraph 1 of this Order or compliance with any directions given in the cause thereof.

4.The respondents from this day until the hearing and determination of the action or further order keep a full and accurate record of all sales made by or on behalf of the respondents or any of them of advertising space in any publication similar in form to Exhibit PKLN12 to the affidavit of Patrick Kok Leong Neoh sworn 5 April 2011 and filed herein.

5.The application for interlocutory relief be otherwise refused.

6.Liberty be reserved to any party to apply on not less than 24 hours notice in writing to the other parties.

7.The costs of all parties of an incidental to the application for interlocutory relief be costs in the cause.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION	VID 256 of 2011

BETWEEN:

SMART SAVER FRANCHISING PTY LTD ACN 110 217 760
Applicant

AND:

AUSADS LOCAL PTY LTD (ACN 118 078 032)
First Respondent

ROBERT ARIZANOV
Second Respondent

OSMOND HYLTON
Third Respondent

WE SAVE YOU MONEY PTY LTD (ACN 146 797 462)
Fourth Respondent

COURTNEY OZMOND HYLTON-MITCHELL
Fifth Respondent

KERRY MITCHELL
Sixth Respondent

JUDGE:	RYAN J
DATE:	11 APRIL 2011
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

1. There is before the Court an application for an interlocutory injunction restraining the applicants from:

   (a)contacting clients or former clients whose advertisements have been published in the Smart Saver Coupon newspaper of the applicant;

   (b)using or disclosing confidential information (as defined by the Franchise Agreement between the applicant and the first to third respondents);

   (c)operating and publishing or being involved in the operation of and publication of the Wesaveyoumoney or any other publication in which local businesses can promote their products and services to consumers in a particular region and offer discounts in the form of saving coupons to be utilised by consumers who purchase those products and services;

   (d)using the Image (as defined in the Franchise Agreement), the System (as defined in the Franchise Agreement), and any intellectual property owned by the applicants;

   (e)passing off the Wesaveyoumoney or any other publication as or for the Smart Saver Coupon Newspaper of the applicant;

   and requiring the respondent to:

   (f)take all steps necessary as soon as reasonably practicable to amend the website of the URL to remove and not to redisplay any promotional material advertising or offering a publication in which local businesses can promote their products and services to consumers in a particular region and offer discounts in the form of saving coupons to be utilised by consumers who purchase those products and services; and

   (g)remove copies of the Wesaveyoumoney publication from any stands and return any copies to the applicant.

2. The primary basis for the application is a clause in a document called a franchise agreement (“the Franchise Agreement”) between the applicant and a franchisee, Ausads Local Proprietary Limited, Robert Arizanov and Osmond Hylton, who are collectively described in the Franchise Agreement as “the Principal” and the same respondents described also in the Franchise Agreement as “the Guarantors”.  That agreement contains a non-competition clause which recites in clauses 24.1 and 24.2:

   24.1The franchisor has developed the Image and the System and, through this, unique brand recognition.  Substantial financial and research and development investments have been made by the Franchisor in developing the image and the System to ensure that such unique brand recognition is maintained.  In order to ensure the maintenance of the unique brand recognition, the Franchisee, the Principal and the Guarantors must not:

   24.1.1during the Term of this Agreement or during the Restraint Period directly or indirectly, carry out, engage or involve itself in any Competitive Business or to finance a Competitive Business in the restraint area without the prior written consent of the Franchisor;

   24.1.2during the Term of this Agreement or during the Restraint Period employ in the Restraint Area any person who is at the time or has at any time in the previous two years been employed by the Franchisor or the Franchisee in the Network or directly induce or seek to induce any such person to leave his or her employment;

   24.1.3canvass a Customer from a Competitive Business during the Term of this Agreement or during the Restraint Period in the Restraint Area;

   24.1.4for the purpose of the application of clauses 24.1.1, 24.1.2 and 24.1.3 of this Agreement, the agreement of the Franchisees and its Principal applies to any of them acting:

   (i)as principal agent, representative, director, officer or employee;

   (ii)as member, shareholder, debenture holder, note holder or holder of any other security;

   (iii)as trustee of or as a consultant or adviser to any person (other than the Purchaser); or

   (iv)      in any other capacity.

   24.2     Reading down and severance

   This clause 24 shall be construed and take effect as if those clauses were a number of concurrent separate clauses.  Each clause shall be produced by construing each limb of that clause with each other limb of that clause, if appropriate, until all possible combinations are exhausted.  Each such clause shall be severable from each other clause.  The parties agree that a construction of each separate clause, or a part of a clause, that results in each clause, or part thereof, being enforceable is preferred to a construction that does not so result.

3. The Territory is defined in appendix 2 of the Franchise Agreement by means of a map designating an area based around Ringwood in the State of Victoria.  The restraint area is defined in item 23 of the schedule to the agreement as “the greater of:

   (a)the State or Territory in which the Franchise Business is located;

   (b)within a radius of twenty (20) kilometres of the Business Premises or twenty (20) kilometres of any other Franchised Premises in the State or any other State or Territory;

   (c)within a radius of ten (10) kilometres of the Business Premises or ten (10) kilometres of any other Franchise Premises in the State or in any other State or Territory;

   (d)within a radius of five (5) kilometres of the Business Premises or five (5) kilometres of any other Franchise Premises in the State or in any other State or Territory;

   (e)any other area in which a person seeking to enforce clause 24 is entitled at law to the benefit of protection afforded by the covenants contained in clause 24.”

4. The period of restraint is defined in item 22 of the schedule as being the greater of:

   (a)       3 years;

   (b)       2 years;

   (c)       1 year;

   (d)       6 months;

   (e)       3 months;

   (f)any other period during which a person seeking to enforce clause 24 is entitled at law to the benefit of protection afforded by the Franchisee’s covenant contained in clause 24 after the expiry or termination of this Agreement.

5. It is not in dispute that the Franchise Agreement was terminated by effluxion of time on 14 March 2011.  The primary basis for the application is that the respondents have been in breach, or are aiding and abetting a breach, of the restraint clause 24.1 of the Franchise Agreement.  Other bases for an interlocutory restraint include a breach of duty of confidence said to have been owed by the respondents or some of them to the applicant, infringement of copyright and passing off. 

6. I am not persuaded on the material presently before the Court that the applicant’s prospects of making out any of the three last-mentioned causes of action are as strong as its prospects on the action for breach of the Franchise Agreement.  However, it is undesirable in the circumstances of this interlocutory application which has come on for hearing on short notice that I say anything more about the likelihood of success in the ultimate action. 

7. I consider that the balance of convenience weighs somewhat in favour of the respondents.  That is particularly so, as I perceive the matter, because damages could adequately compensate the applicant for any loss which it may suffer if the respondents continue in business between now and a final determination after a speedy trial which I propose to order.  I am confirmed in this view by the high degree of complexity in the qualifications which Mr Bigos of Counsel for the applicant in his submissions in reply suggested should be incorporated in the formulation of the interlocutory injunction which the applicant seeks. 

8. Another factor weighing in the exercise of the Court’s discretion in this way is that no security has been proffered on behalf of the applicant for its usual undertaking as to damages.  To facilitate the calculation of the presumptive damages which I consider would be an adequate remedy, at least in the short term, I shall order that the respondent between now and the hearing and determination of the action or further order keep a full record of all sales of advertising space in any publication in a form similar to exhibit PKLN12 to the affidavit of Patrick Koch Leon Neoh sworn 5 April 2011 (the “Wesaveyoumoney” publication).  The application for interlocutory relief will be otherwise refused.  I shall reserve liberty to apply and order that the costs of all parties of and incidental to the application for interlocutory relief be costs in the cause.

9. I propose to order that there be a directions hearing on a date to be fixed, being not later than 29 April 2011.  I shall order secondly that there be a speedy trial of the action herein to commence on a date to be fixed at the directions hearing referred to in paragraph 1 of the order.  At the request of Counsel on each side I shall refer the matter for mediation by a Registrar of the Court.  When the mediation is to occur will be a matter for the Registrar to whom the mediation is assigned.  However, I do not contemplate that it should interfere with the progress towards a speedy trial, for which I propose to provide.

I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan.

Associate:

Dated:        12 April 2011