YSC United Pty Limited v Top Juice Franchising Pty Ltd
[2019] VSC 524
•25 July 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2019 03358
| YSC UNITED PTY LIMITED (ACN 130 385 018) | Plaintiff |
| v | |
| TOP JUICE FRANCHISING PTY LTD (ACN 157 679 439) | Defendant |
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JUDGE: | McDonald J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 25 July 2019 |
DATE OF RULING: | 25 July 2019 |
CASE MAY BE CITED AS: | YSC United Pty Limited v Top Juice Franchising Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2019] VSC 524 |
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INJUNCTION – Application for mandatory injunction requiring the defendant to give the plaintiff access to the premises from which the plaintiff conducted business as franchisee – Serious question to be tried that defendant breached provisions of franchise agreement by terminating agreement without providing plaintiff a reasonable opportunity to remedy breach of franchise agreement – Balance of convenience in favour of injunction – Competition and Consumer (Industry Codes—Franchising) Regulation 2014 (Cth) cls 27, 38.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms A Hando | Livaditis & Co. Lawyers & Consultants |
| For the Defendant | Mr D K Shirrefs | Baybridge Lawyers |
HIS HONOUR:
In June 2015, the plaintiff and the defendant entered into a franchise agreement for the operation of a Top Juice outlet (‘franchise agreement’) in the Myer Emporium Shopping Centre in Melbourne (‘premises’).[1]
[1]Exhibit JW-1 to the affidavit of Shi Sheng (Jason) Wang sworn 24 July 2019.
On 19 July 2019, the defendant terminated the franchise agreement.[2] The plaintiff, by summons filed 25 July 2019, seeks a mandatory injunction requiring the defendant to deliver up possession of the premises with effect from 7.00am tomorrow morning, 26 July 2019.
[2]Affidavit of Shi Sheng (Jason) Wang sworn 24 July 2019, [25]–[26].
Ms Hando, who appeared for the plaintiff, submits that there is a serious issue to be tried that the termination of the franchise agreement contravened the terms of the franchise agreement, and that the balance of convenience favours the relief sought.
A breach notice served under the terms of the franchise agreement, although dated 16 July 2019, was served on the plaintiff on 18 July 2019 (‘breach notice’).[3] The breach identified in the breach notice was a failure by the plaintiff to comply with
cl 9.1(c) of the franchise agreement. Clause 9.1(c) requires the plaintiff to sell only approved products as defined in the franchise agreement, that is, products provided by suppliers authorised by the defendant.[4]
[3]Ibid [23]; Exhibit JW-7 to the affidavit of Shi Sheng (Jason) Wang sworn 24 July 2019.
[4]Exhibit JW-1 to the affidavit of Shi Sheng (Jason) Wang sworn 24 July 2019.
In the breach notice, under the heading ‘ACTION TO BE TAKEN’, the following appears:
In order to rectify the breaches of your Franchise Agreement we demand that you:
1.Immediately cease to sell all unapproved products from your franchise business and remove these items from the Premises;
2. Immediately remove all unapproved supplies from the premises;
3. By no later than 5pm 24 July 2019 execute and return the enclosed written undertaking that you will comply with the terms of your Franchise Agreement[5]
[5]Exhibit JW-7 to the affidavit of Shi Sheng (Jason) Wang sworn 24 July 2019 (emphasis in original).
On 19 July 2019, the defendant terminated the franchise agreement with immediate effect. It did so by way of letter dated 19 July 2019.[6] That letter includes the following:
We refer to our recent Breach Notice issued to you on 18 July 2019 and the Breach Notice issued to you on 26 October 2018.
Despite the Breach Notice and our client’s warnings you have failed to comply with the Breach Notice and have continued to breach the Franchise Agreement.
The Franchisor’s representative attended your franchise business today and yet again observed the sale of unapproved items. A photograph is enclosed.
…
Due to your failure to comply with the Breach Notice and your blatant disregard for the terms of your Franchise Agreement the Franchisor hereby terminates your Franchise Agreement effective immediately. The Franchisor shall be taking over the operation of the business from close of business 19 July 2019.[7]
[6]Exhibit JW-8 to the affidavit of Shi Sheng (Jason) Wang sworn 24 July 2019.
[7]Ibid (emphasis omitted).
It follows that the franchise agreement was terminated approximately 24 hours after notice of breach had been provided to the plaintiff on 18 July 2019.
I am satisfied that there is a serious issue to be tried as to whether the defendant afforded the plaintiff a reasonable period of time to remedy the identified breach of the franchise agreement as required by cl 14.4(a)(i) of the franchise agreement,[8] and cl 27(2)(c) of the Competition and Consumer (Industry Codes—Franchising) Regulation 2014 (Cth) (‘Franchising Code of Conduct’).
[8]Exhibit JW-1 to the affidavit of Shi Sheng (Jason) Wang sworn 24 July 2019.
On 11 July 2019, the plaintiff served a notice of dispute on the defendant pursuant to cl 38 of the Franchising Code of Conduct (‘notice of dispute’).[9] One of the matters in dispute is an alleged failure by the defendant to act in good faith by reason of its alleged failure to provide the plaintiff with fresh produce.[10]
[9]Exhibit JW-6 to the affidavit of Shi Sheng (Jason) Wang sworn 24 July 2019.
[10]Ibid.
Thus, in circumstances where the plaintiff puts squarely in issue the quality of the produce being provided to it by the defendant pursuant to the terms of the franchise agreement, the franchise agreement has been terminated by reason of the defendant’s contention that the plaintiff failed to comply with the approved product provisions of the franchise agreement.
There will be an issue to be determined at trial as to whether it was unreasonable for the defendant to terminate the franchise agreement within 24 hours of providing a breach notice, in circumstances where the issue of the quality of the food provided to the plaintiff by the defendant was the subject of an extant notice of dispute issued pursuant to the Franchising Code of Conduct.
In Bradto Pty Ltd v Victoria,[11] the Court of Appeal stated:
In our view, the flexibility and adaptability of the remedy of injunction as an instrument of justice will be best served by the adoption of the Hoffman approach. That is, whether the relief sought is prohibitory or mandatory, the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been “wrong”, in the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial. [12]
[11](2006) 15 VR 65.
[12]Ibid 73 [35] (Maxwell P and Charles JA).
That statement of principle has been applied subsequently by the Court of Appeal in Petros v Beru,[13] Tabet v Commonwealth Bank of Australia Ltd,[14] and Falkingham v Peninsula Kingswood Country Golf Club Ltd.[15] It has also been applied by single judges of this Court, including by Riordan J in Orora Ltd v Lindsay Australia Ltd,[16] a case in which his Honour granted a mandatory injunction in substance for the continued performance of a distribution agreement.
[13][2007] VSCA 226, [17] (Maxwell ACJ, Chernov and Kellam JJA).
[14][2008] VSCA 197, [28] (Dodds-Streeton JA, Vickery AJA agreeing).
[15][2014] VSCA 235, [6] (Garde AJA, Kyrou JA agreeing).
[16][2015] VSC 197, [22].
I am satisfied that the course which carries the lower risk of injustice is to grant the plaintiff an injunction permitting it to resume business forthwith.
I accept the evidence filed on behalf of the plaintiff that it is suffering immediate adverse financial impact from the termination of the franchise agreement. In this regard, there is evidence that it has continued to pay the wages of approximately 10 staff, notwithstanding the termination of the franchise agreement.[17] It is also suffering from a loss of revenue ranging from $2,300 to $4,200 per day.[18]
[17]Affidavit of Shi Sheng (Jason) Wang sworn 24 July 2019, [32], [36].
[18]Ibid [30].
The directors of the plaintiff, by their counsel, have proffered an undertaking to the Court, and I emphasise to the Court rather than simply an inter partes undertaking, to comply with the undertaking which was sought in the notice of default served on 18 July 2019. That is, the directors of the plaintiff proffer an undertaking as follows:
Upon Ling Chen and Zhi Sheng Wang, the directors of the plaintiff, by their counsel undertaking until the hearing and determination of the plaintiff’s claim filed 25 July 2019 to remove all unapproved products and supplies from the franchise business in accordance with the Breach Notice as extracted at exhibit ‘JW7’ to the affidavit of Zhi Sheng (Jason) Wang sworn 14 July 2019, and to only purchase the Approved Supplies from the Franchisor or the Nominated Suppliers pursuant to terms of the Franchise Agreement as extracted at exhibit ‘JW1’ to the affidavit of Zhi Sheng (Jason) Wang sworn 14 July 2019.[19]
[19]Order of McDonald J in YSC United Pty Limited v Top Juice Franchising Pty Ltd (Supreme Court of Victoria, S ECI 2019 03358, 25 July 2019).
I place considerable weight upon the fact that that undertaking has been proffered on behalf of the plaintiff. I consider it goes a long way to addressing the submission advanced by Mr Shirrefs, who appeared on behalf of the defendant, regarding the reputational risk to the defendant which flows from a franchisee not complying with the approved products provisions of the franchise agreement.
I am satisfied that, weighing the relative prejudice as between the plaintiff and the defendant, the balance of convenience clearly favours the grant of an injunction requiring the defendant to give the plaintiff possession of the premises from 7.00am on 26 July 2019.
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