Ana Sons Limited v Foodstuffs North Island Limited
[2025] NZHC 575
•20 March 2025
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-003079
[2025] NZHC 575
IN THE MATTER OF An application for an interlocutory
injunction to restrain the cancellation of a Foodstuffs franchise
BETWEEN
ANA SONS LIMITED
First Plaintiff
MSAA & SONS LIMITED
Second PlaintiffAND
FOODSTUFFS NORTH ISLAND LIMITED
Defendant
Hearing: 10 March 2025 Appearances:
M Freeman for Plaintiffs I J Thain for Defendant
Judgment:
20 March 2025
(REDACTED) JUDGMENT OF ANDREW J
This judgment was delivered by Justice Andrew on 20 March 2025 at 4.00 pm
pursuant to r 11.5 of the High Court Rules 2016 Registrar / Deputy Registrar
Date …………………………..
ANA SONS LTD v FOODSTUFFS NORTH ISLAND LTD [2025] NZHC 575 [20 March 2025]
Introduction
[1] This is a dispute about two Four Square business franchises in Ōpunake, Taranaki (the supermarkets). Both are owned and controlled by Mr Gautam (Gary) Arora; he is the approved operator of both.1 The defendant, Foodstuffs North Island Ltd (FSNI), is the franchisor of the Four Square franchise.
[2] Both supermarkets are located on Tasman Street within very close proximity of each other. They are known as the Four Square Ōpunake and the Four Square Highway 45 respectively. The larger premises at Four Square Highway 45 are now owned by FSNI. Those premises recently underwent a major development and fit-out at significant cost. At issue is the amount of the fit-out cost that Mr Arora should pay.
[3] In the substantive proceedings, Mr Arora pleads a derogation of the grant of franchise by FSNI.2 Mr Arora says that FSNI is now denying him access to his business, having unilaterally and without consultation imposed very high fit-out expenses on him, irreparably damaging his businesses. He seeks an interim injunction restraining FSNI from terminating the franchises under the franchise agreements.
[4] The critical issue is whether the balance of convenience and/or the overall interests of justice favour the granting of the interim injunction.
Factual background
[5] In 2016, the second plaintiff, MSAA & Sons Ltd (MSAA), bought the Four Square Ōpunake business from a third party. MSAA entered into a franchise agreement with FSNI.
1 For convenience, I will refer to Mr Arora in the judgment to mean the plaintiffs, collectively, where appropriate.
2 Generally speaking, the doctrine of non-derogation as outlined by Lord Denning MR in Molten Builders Ltd v City of Westminster London Borough Council (1975) 30 P & CR 182 (EWCA) at 186: “is a general principle of law that, if one man agrees to confer a particular benefit on another, he must not do anything which substantially deprives the other of the enjoyment of that benefit: because that would be to take away with one hand what is given with the other.” See also Fleet Mobile Tyres Ltd v Stone [2006] EWCA Civ 1209, where the English Court of Appeal applied the non-derogation from grant doctrine in the franchising context.
[6] In April 2019, the first plaintiff, ANA Sons Ltd (ANA), negotiated to buy the Four Square Highway 45 business from a third party.
[7] For Mr Arora to be the “approved operator” of the two Four Square businesses at the same time was in conflict with the standard franchise terms. This was permitted by FSNI on the condition that Mr Arora use best endeavours to combine the two businesses into one, and to operate from one set of premises. The timeframe set was to be 18 months.
[8] To facilitate its purchase of the Four Square Highway 45 business, in May 2019, ANA entered into a Deed of Assignment of a lease for premises at 77–79 Tasman Street, Ōpunake (the Deed). The Deed also amended the lease to provide further rights of renewal. The lessor was an unrelated third party. The assignment took effect on 27 May 2019.
[9] On the same day, ANA entered into a franchise agreement with FSNI for the Four Square Highway 45 business. For the Four Square Ōpunake business, MSAA entered into a replacement franchise agreement. Both agreements included, at cls 2.8 and 2.9, the requirement for best endeavours to combine the two businesses as a condition of membership of the Foodstuffs Co-operative.
[10]Clause 2.8 reads:
It is a condition of membership of the Foodstuffs Co-operative that on or before the date 18 months from the date on which ANA Sons Limited completes the purchase of Four Square Highway 45, ANA Sons Limited and MSAA & Sons Limited must use best endeavours to combine Four Square Highway 45 and Four Square Opunake into one business and one set of premises.
[11]Clause 2.9 reads:
If, on that date, Foodstuffs is not satisfied that adequate progress has been made with that combination, Foodstuffs may require ANA Sons Limited or MSAA & Sons Limited, as the case may be, to sell the relevant Four Square business with the lowest turn over at that time in accordance with Foodstuffs normal sale and or closure processes and the provisions of the relevant Franchisee Trading Membership and Group Franchise Agreement (as that term is defined in the Constitution).
[12] On the same day, namely 27 May 2019, FSNI, through a wholly-owned subsidiary, the National Trading Company of New Zealand Ltd (NTC), completed the purchase of land adjacent to the premises of the Four Square Highway 45 business.
[13] By November 2020, the combination of the two Four Square businesses into one had not been completed by the end of the 18-month period. COVID-19 issues had intervened. None of the parties took issue with the delay.
[14] In May 2021, the third-party owner of the premises of Four Square Highway 45 decided to sell. FSNI says that, after discussions with Mr Arora, it arranged to purchase the premises. The intention was to re-develop the whole site, including the adjacent land that had already been purchased by FSNI.
[15] By 15 July 2021, any notice to renew the term of the lease would have been due. However, ANA, as lessee, did not serve a renewal notice.
[16] In December 2021, FSNI, through its subsidiary, NTC, completed the purchase of the Four Square Highway 45 premises.
[17] By email dated 1 July 2022, Mr Arora emailed Mr David Gordon at FSNI with a query about the Ōpunake stores:
Hi David
We have a question that we would like to ask and get our head around it. We have so far spent the following buying the 2 stores:
·Opunake - $1 million
·Highway 45 - $2 million
·Equals - $3 million
We have been told the fit out costs for the new store will be $2.3m which I also would like to question based on the email that came through for Eden [T]errace today that says the cost for the Operator is around $2.8 m (for exactly the same size store as us).
So if we spend anywhere between $5.3m to $5.8m altogether and end up with a brand new box doing $150k a week will be able to sell that store for what we have spent?
We strongly believe that you guys must have done the numbers keeping all of the above in mind but we would like to understand this process a bit better.
[18]By email dated 4 July 2022, Mr Gordon responded to Mr Arora as follows:
Hey Gary,
Sorry I missed your call on Friday.
Re fitout costs. They are site specific, even if they are a similar sized floor. Generally what we are seeing is fitout of an existing building can be more expensive; more structural/utilities work to make the building fit for purpose.
Re what you have spent and what the MSP [maximum sale price3] could look like on the new store, I’ll do some digging. [I] don’t think it would be as simple as adding everything up.
[19] In May 2023, with the re-development work soon to begin, FSNI advised Mr Arora that ANA would soon need to vacate the old Four Square Highway 45 premises.
[20] On 21 June 2023, Mr Aditya Vasa, of FSNI, sent Mr Arora a text message advising him that the development cost of the new store was $[redacted] plus GST. Mr Arora replied, asking “Is that for the fit outs?” Mr Vasa responded, saying “Yes. Site acquisition, due diligence costs etc sit with FSNI.” Mr Arora then responded: “Please ring me when u get a chance. It’s urgent. Thanks.”
[21] Mr Arora subsequently asked FSNI for extra work to be done in the fit-out of the new premises. This was to include a Lotto counter. This was agreed to by FSNI.
3 The Four Square Franchisee Trading Membership and Group Franchise Agreement, dated 27 May 2019 and signed by Mr Arora and FSNI, provides at cl 14.7.2 (in relation to the sale of the franchise business): “The price specified for the Franchise Business must not, without the prior written consent of Foodstuffs, exceed any maximum sale price for the Franchised Business determined in accordance with any formula adopted by the board of directors of Foodstuffs from time to time which is intended by the board to be of general application to the sale of retail grocery businesses from time to time by members of the Foodstuffs Co-operative.”
The maximum sale price is referred to at cl 28 of the FSNI Membership Finance Guidelines as follows: “The intention of the Maximum Sale Price (‘MSP’) is to moderate the price at which Franchised Businesses change hands and to create a consistent calculation of purchase price across time and between stores. The MSP has the benefit of ensuring that valuation metrics for Franchise Businesses stay within reasonable parameters and that they remain affordable to Approved Operators to ensure the perpetuation of the co-operative.” Mr Thain for FSNI submitted that the purpose of the MSP is to ensure that the franchise is not on-sold at a substantial unaffordable price and provides some protection for future members. The intention is that the more substantial profit is to be generated during the time the franchisee runs and owns the business.
[22] On 26 June 2023, ANA vacated the old premises and FSNI, through NTC, took possession of them for the re-development.
[23] In September 2023, with the old premises demolished, and the new premises under construction, Mr Arora wrote to FSNI and stated: “we cannot carry on in Opunake anymore.” He said this was because his wife was seriously ill. He stated: “It will really be appreciated if we can come up with a solution for us to get out of Opunake as soon as possible as I need to look after my wife, our newborn son and daughter.”
[24] In October 2023, FSNI calculated for Mr Arora the amount for which the two businesses could be sold to another operator. FSNI took into account what it says was the need for any operator to pay the as yet undepreciated costs of the new fit-out of the new premises. Mr Arora disputed the 12 per cent internal rate of return aspect of the calculation. He asked for a different approach, to increase the amount for which he could sell the businesses. FSNI did not agree. FSNI says that the internal rate of return is expressly provided for in the Foodstuffs Membership Finance Guidelines.
[25] In January and February 2024, ANA and MSAA, through their solicitors, offered to sell their businesses to FSNI under the process provided for in the two franchise agreements. The offer price took into account the fit-out costs but did not take into account the 12 per cent internal rate of return. FSNI declined the offer.
[26]In March 2024, the new premises, including the fit-out, were completed.
[27] On 23 April 2024, Mr Arora asked what would be required for his businesses to take possession of the new premises.
[28] On 7 May 2024, FSNI advised that a lease would need to be entered into for the new premises and the combined business would need to take on liability to pay for the fit-out costs, as provided for in the Foodstuffs Membership Finance Guidelines.
[29] In correspondence in May and June 2024, ANA and MSAA made it clear that they would not agree to pay the fit-out costs. Neither of those entities made an offer to enter into a lease for the new premises.
[30] On 10 September 2024, FSNI served notices of breach under the franchise agreements, giving seven days for ANA and MSAA to rectify (by agreeing to take a lease for the new premises and pay the fit-out costs). The letter from FSNI to ANA, dated 10 September 2024, stated:
11. For completeness, if, and only to the extent that, the Lease for the previous Premises remains on foot, this letter gives written notice from Foodstuffs pursuant to clause 38.1 of the Lease and/or section 210 of the Property Law Act 2007, that the Lease will terminate at the end of 13 October 2024.
[31] On 28 November 2024, the solicitors for FSNI wrote to Mr Arora’s solicitors, stating that, in the absence of agreement, FSNI intended to terminate the franchise agreements (but not before six more working days).
[32] On 2 December 2024, ANA and MSAA filed interim injunction proceedings with this Court. That was on a without notice basis, but with Pickwick service.
[33] On 6 December 2024, this Court made interim injunction orders prohibiting FSNI from terminating the franchise agreements pending a determination of the application after an on notice hearing.4
Relevant legal principles
[34] To determine whether to grant an interim injunction, the Court is to apply a three-step approach, assessing:5
(a)whether there is a serious issue to be tried;
(b)the balance of convenience; and
4 ANA Sons Ltd v Foodstuffs North Island Ltd HC Auckland CIV-2024-404-3079, 6 December 2024 (Minute of Peters J).
5 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 142, as cited in Intellihub Ltd v Genesis Energy Ltd [2020] NZCA 344 at [23].
(c)where the overall justice lies.
[35] I address each of the three limbs in turn. They are all in dispute, although I agree with the submission of Mr Thain that the central issues are the balance of convenience and overall justice.
Analysis and decision
Issue –Serious issue to be tried
[36] In his statement of claim, Mr Arora pleads that FSNI derogated from the plaintiffs’ rights under the franchise agreement by:
(a)taking possession of the premises at 79 Tasman Street, Ōpunake, and demolishing the premises, contrary to the terms of ANA’s lease;
(b)imposing the development cost, and otherwise making the decisions as to how the businesses were to be combined, in contravention of cls 2.8 and 2.9 of the franchise agreement;
(c)refusing to permit the plaintiffs to take possession of the new premises and resume operating Four Square Highway 45 or the combined businesses; and
(d)taking steps to terminate the plaintiffs’ franchises without cause and in breach of the franchise agreement.
[37] Mr Arora then pleads that as a result of the breaches, the plaintiffs and/or ANA have suffered the loss of trading rights and value in Four Square Highway 45 estimated at, at least, $2 million.
[38] In terms of relief, Mr Arora seeks an injunction preventing FSNI from terminating the franchise agreement and an injunction “permitting the plaintiffs to take possession of the new premises to operate their combined business from the new premises as a Four Square supermarket.” In the alternative, damages are claimed at no less than $2 million.
[39] The substance of Mr Arora’s claim is that the agreement to merge the stores, encapsulated in cls 2.8 and 2.9 of his franchise agreement, gave him control over decisions as to how the merger took place. This included the cost of doing so. Mr Arora says he never agreed or acquiesced to FSNI re-developing the store at any cost to him. He says that the imposition of a development cost of $[redacted] plus GST, being more than he paid for both stores in the first place, is an impossible and uneconomic barrier to combining the businesses in the new store as intended.
[40] Mr Arora says this puts him in an impossible “catch-22” situation where, if he does not pay $[redacted] plus GST, he loses his right to a business that he purchased for $2 million and possibly the right to trade the smaller Four Square Ōpunake as well.
[41] Mr Arora further says that he has attempted to avoid the conflict with FSNI. In response to the imposition of a development cost, and for reasons relevant to his family situation, he has tried to sell both his franchises back to FSNI at the MSP for the businesses. The MSP has been calculated by FSNI at $2.27 million plus stock, plant and equipment. However, Mr Arora says FSNI has imposed a discount as a result of the store being redeveloped and has set a value on the goodwill for a store at
$1.377 million, being less than half of what he paid for the two stores. He says there has been no satisfactory resolution which would allow him to exit his Foodstuffs franchise at a value acceptable to him.
[42] In response to these contentions, FSNI says that there is no serious question to be tried. It purchased the land adjacent to the old Four Square Highway 45 premises, bought those premises themselves, demolished them, constructed and fitted a new (larger) grocery store building — and then required, for the plaintiffs to use the new premises, that they enter into a lease for them and also pay the fit-out costs incurred.
[43] FSNI says this is not a case where it has refused to allow the plaintiffs to use the new premises. On the contrary, it says that the plaintiffs have refused to pay the fit-out costs and take a lease for the new premises.
[44]FSNI further says:
(a)The redevelopment was done with the common intention that the new premises would be used by the plaintiffs for the combined business they were obliged to use their best endeavours to establish. The plaintiffs agreed to, or at the very least acquiesced in, the redevelopment.
(b)The requirement for the plaintiff to take a lease of the new premises in order to have possession of them cannot be seriously argued to be a derogation of rights. The franchise agreement requires the franchisee to have a lease of premises. The lease of the original premises was not renewed. It came to an end when those premises were vacated for the redevelopment.6 In any event, the new premises are not what was the subject of the original lease. The new premises are substantially larger.
(c)There is no serious question to be tried as to the requirement for the plaintiffs to pay the fit-out costs if they are to have the use and benefit of it. Payment of the fit-out costs is a requirement under the Foodstuffs Membership Guidelines and therefore a term of the franchise agreement. The plaintiffs do not dispute this, and they knew of the requirement well before the redevelopment work began. Their agreement to, or at least acquiescence in, the redevelopment was expressly on that basis.
(d)Even in relation to the amount of the fit-out costs, there is no serious question to be tried. The plaintiffs may not have been happy with the amount of the cost. However, they did not tell FSNI that they would not pay the cost – until after the redevelopment was, to their knowledge, very well under way and after the plaintiffs had said they could not carry on in business and intended to sell (so that a different operator would use the new premises).
(e)It is clear that the plaintiffs have not complied with their obligation under the two franchise agreements to use best endeavours to combine
6 FSNI says that the plaintiffs’ argument that the entry into the Deed of Assignment amounted to the exercise of a right of renewal is contrary to the express terms of the Deed itself and the lease.
the two businesses into one, to operate from one single set of premises. That was the condition of the plaintiffs’ membership of the FSNI Co-operative. Such membership was in turn a condition of each franchise agreement. Ceasing to fulfil the condition was a ground for termination.
[45] In my view, there is substantial merit to the contentions put forward by FSNI. However, I find that for the purposes of the present application, there is a serious question to be tried, albeit, in my view, the plaintiffs’ claims are not particularly strong. I find that there is an arguable case that FSNI was not contractually entitled, nor entitled on an equitable basis, to impose the development costs on Mr Arora, and that arguably he has a right to continue to own and operate his Four Square franchise businesses. The disputed steps taken by FSNI arguably derogated from those rights.
[46] FSNI does not suggest that at any stage was there an express agreement between FSNI and Mr Arora around the development or the development costs. I accept that it asserts “acquiescence” by Mr Arora, but it is reasonably arguable that that is not enough to justify the termination. Regrettably, matters were not documented as perhaps they should have been. As Mr Freeman, for Mr Arora, submitted, the only agreement in respect of the businesses and how they are to be combined is, arguably, provided in cls 2.8 and 2.9 of the franchise agreement. These clauses do not include a contractual right to impose a development cost. Naturally, there is competing evidence of what the parties knew and agreed and what their expectations were. I am obviously not in a position to resolve those issues at this interim stage. They are serious issues for trial.
Issues – balance of convenience and interests of justice
[47]This is the decisive issue in this case.
[48] In considering where the balance of convenience lies, the task for the Court is to balance the risk of doing an injustice.7 That is, to assess the injustice that would be
Cayne v Global Natural Resources plc [1984] 1 All ER 225 (CA) at 237 per May LJ, as cited in
Top Ten Group New Zealand Ltd v Tasman Tourism New Zealand Ltd [2024] NZHC 1508 at [69].
caused to the plaintiff if an interim injunction were refused but the plaintiff was successful, as against the injustice that would be caused to the defendant if the interim injunction were granted but later discharged. As Jagose J noted in Roman Catholic Bishop of the Diocese of Auckland v Poynton,8 this assessment is undertaken by reference to the adequacy of damages, preservation of the status quo, the uncompensable disadvantages to either party, and the relative strengths of their cases.
[49] I reject the submissions of Mr Arora that damages would not be an adequate remedy. In addressing that issue, the question is whether an award of damages is adequate, not perfect.9
[50] It is not difficult to have sympathy for Mr Arora’s predicament; he has obviously invested considerable sums of money into the businesses and, after no doubt exerting considerable hard work and effort, would wish to exit with a reasonable return on his investment. However, assuming he would be successful with his derogation of grant claim, any damages or loss would, in my view, be readily quantifiable and adequate to address his loss.
[51] Although the plaintiffs chose not to put the businesses up for sale to a new operator (they did offer them to FSNI), it is clear that they do still wish to sell the businesses. It seems clear that they only seek to trade for a period in order to depreciate the fit-out and therefore mitigate the effect on the sale price of the 12 per cent internal rate of return requirement. In the absence of an interim injunction, the new premises would be used by a new operator. In my view, the loss to the plaintiffs would clearly be able to be quantified. Furthermore, there is no suggestion that FSNI will not be able to meet any award of damages.
[52] It is also difficult to see that there would be any utility in maintaining the interim injunction. As Mr Thain submitted, there has been a substantial and
8 Roman Catholic Bishop of the Diocese of Auckland v Poynton [2018] NZHC 2636 at [14], citing Wellington International Airport Ltd v Air New Zealand Ltd HC Wellington CIV-2007-485-1756, 30 July 2008 at [6]–[14].
9 Air New Zealand Ltd v Wellington International Airport Ltd, above n 8, at [6]; see also Shell (Petroleum Mining) Co Ltd v Todd Petroleum Mining Co Ltd [2007] NZCA 586, [2008] 2 NZLR 418 (CA) at [131]. See also Top Ten Group New Zealand Ltd v Tasman Tourism New Zealand Ltd, above n 7, at [78], citing Andrew Barker “Interim Injunctions” in Peter Blanchard (ed) Civil Remedies in New Zealand (2nd ed, Brookers Ltd, Wellington, 2011) at [6.3.1].
irreversible change in the status quo; a brand new store is ready to be opened, with the extensive development work now complete. No injunction could repair any derogation of rights due to the irreversible steps FSNI has already taken. No mandatory injunction is sought, and to continue the interim injunction on the terms sought could not return the original premises to the plaintiffs.
[53] The plaintiffs claim they have a right to operate, on the old Four Square Highway 45 site, cheaper premises than the one built by FSNI. However, as I have noted, no injunction can put the plaintiffs in such cheaper premises; they no longer exist. Furthermore, there is no obvious way that a Court could determine and impose commercial terms as to a lease or any payments for the use of the actual fit-out. Moreover, any injunction prohibiting termination of the franchise agreements would have to be limited in its terms. There could be no basis for a permanent injunction prohibiting termination for any reason. That is because the plaintiffs could not simply be released from their contractual obligations to trade in accordance with FSNI’s required systems and policies.
[54] I acknowledge the plaintiffs’ concern that with the application of the 12 per cent internal rate of return requirement, the current sale value of their businesses would likely be less than if the fit-out cost had not been incurred. However, that is a financial claim. Again, the appropriate remedy is an award of damages and would be possible to quantify.
[55] I find it is not in the interests of justice for the interim injunction to continue. The status quo is that the new premises sit ready to operate. However, they are currently not open. Maintaining that status quo is not in any party’s legitimate interests.
[56] I note also that the termination of the franchise agreements will not prevent Mr Arora and his companies from continuing to trade. They have the right to the premises of Four Square Ōpunake and will be entitled to continue to operate from there. I acknowledge that might be challenging, but again, the losses, if there are actionable ones to be established, are quantifiable. Damages will again be an adequate remedy.
[57] I also agree with the FSNI submission that the allegation of a derogation of rights is a weak one. The plaintiffs at the very least acquiesced in the conduct they now complain about. It seems clear that the real issue is the amount of the development cost and that Mr Arora appears to accept that he has to pay some of it. I agree with the submission of FSNI that the plaintiffs’ real concern appears not to be ending their time as Four Square franchisees. Rather, their claim is really for an alleged loss in the sale value of their businesses, due to the application of the 12 per cent internal rate of return requirement and the plaintiffs’ own (albeit regrettable and unfortunate) timing of their decision to sell.
[58] I also reject Mr Freeman’s submission that the lease issue is a subsidiary matter of no real consequence. The only way that Mr Arora will be able to continue trading from the re-fitted premises at 79 Tasman Street is if he enters into a lease with the new landlord, FSNI/NTC. As noted, the Court cannot confer such a lease on him.
[59] I also note that the franchise agreements require the franchisee to have a lease of premises. Mr Thain appears to be on sound legal grounds when he contends that the lease of the original premises was not renewed; it came to an end when those premises were vacated for the redevelopment. The plaintiffs’ argument that the entry into the Deed amounted to the exercise of a right of renewal appears to be contrary to the express terms of the Deed itself, and the lease. In any event, as Mr Thain submitted, the new premises are not what was the subject of the original lease. The new premises are substantially larger.
[60] For all these reasons, I conclude that the balance of convenience and interests of justice favour the defendant and provide sound grounds for declining the application for an interim injunction.
[61] In the circumstances it is not necessary for me to address the issue of an undertaking for damages. I would note, however, that there appears to be substantial merit to Mr Thain’s submission that there is no evidence as to the worth of the undertaking.
Result
[62]The application for an interim injunction is declined.
As to costs, having succeeded, I am of the preliminary view that the defendant, FSNI, is entitled to costs on a 2B basis plus disbursements. If costs cannot be agreed, then memoranda (no more than three pages) are to be filed by 16 April 2025.
Andrew J
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