Foodstuffs North Island Limited v Ravla Trading Limited
[2019] NZHC 2357
•19 September 2019
IN THE HIGH COURT OF NEW ZEALAND GISBORNE REGISTRY
I TE KŌTI MATUA O AOTEAROA TŪRANGANUI-A-KIWA ROHE
CIV-2019-416-17
[2019] NZHC 2357
BETWEEN FOODSTUFFS NORTH ISLAND LIMITED
Applicant
AND
RAVLA TRADING LIMITED
First Respondent
JITESH RAVLA
Second RespondentILABEN NATHUBHAI RAVLA
Third RespondentJITESH RAVLA, ILABEN NATHUBAHI RAVLA AND NATVARLAL MANILAL
PATEL as trustees of the RAVLA FAMILY TRUST
Fourth Respondents
Hearing: 17 September 2019 Counsel:
I Thain for Applicant
M Freeman and H A T Willis for Respondents
Judgment:
19 September 2019
JUDGMENT OF ELLIS J
[1] Foodstuffs North Island Limited (Foodstuffs), seeks injunctive relief arising from a franchise agreement it has entered with the first respondent, Ravla Trading Ltd
FOODSTUFFS NORTH ISLAND LIMITED v RAVLA TRADING LIMITED [2019] NZHC 2357 [19
September 2019]
(RTL). The agreement relates to the operation of a Four Square grocery store on the corner of Winter Street and Ormond Road in Mangapapa, Gisborne.1
[2] The respondents maintain that the agreement has come to an end or should be terminated. Mrs Ravla (the third respondent) wishes to continue to operate a grocery store from the same premises, but not under the Four Square brand.
[3] Both the very existence of the dispute, and the evidence before me, indicates that the franchise has grown over the years into a very profitable business.
Background
The parties
[4] Foodstuffs is the franchisor of the Four Square grocery store brand and system throughout the North Island. As noted earlier, RTL is a Four Square franchisee.
[5] The second and third respondents, Jitesh Ravla (Mr Ravla) and Ilaben Ravla (Mrs Ravla), are the directors of RTL. Mr and Mrs Ravla hold 80 per cent of the shares in RTL. Since 6 August 2019, the remaining 20 per cent of the shares have been held by Mr and Mrs Ravla together with Mrs Ravla’s brother in law, Natvarlal Patel (Mr Patel).
[6] Mr and Mrs Ravla and Mr Patel are the trustees of the Ravla Family Trust (the Trust). In that capacity they are the fourth respondents. Since 25 July 2019 the Trust has owned the grocery store premises at 2 Winter Street.
The 2008 franchise agreement
[7] RTL became a Four Square franchisee and “member” of the Foodstuffs Association by entering into a Four Square Franchisee Trading Membership and Group Franchise Agreement dated 29 April 2008 (the 2008 Agreement).
1 The grocery store’s address is usually given as 2 Winter Street.
[8] The other parties to the 2008 Agreement were Foodstuffs (as franchisor), Mr Ravla (as “approved operator” and guarantor), and Mrs Ravla (as guarantor).
[9]Clause 9.1 provides that Mr Ravla and FTL must ensure that:
… they do not, without the consent of Foodstuffs, become Concerned2 in any way either directly or indirectly in any other business or in any enterprise which is itself Concerned in any other business, except for passive investments where there is no significant managerial or director responsibility.
[10] Mr and Mrs Ravla are named in the agreement as Guarantors. Their obligations in that capacity are set out in cl 16, which provides:
(a)the Guarantors guarantee RTL’s obligations to Foodstuffs, whether those obligations exist now or in the future (cl 16.1);
(b)the Guarantors will, on request by Foodstuffs, perform or arrange the performance of any and all of RTL’s obligations to Foodstuffs that are not performed by RTL (cl 16.3); and
(c)the Guarantors continually indemnify Foodstuffs against any liability, loss, damage or expense incurred as a result of RTL or the Guarantors failing to perform any obligation owed to Foodstuffs under the Transaction Documents (as defined) (cl 16.4).
The 2017 franchise agreement
[11] On 15 February 2017 RTL entered into a further agreement with Foodstuffs - a Four Square Franchisee Trading Membership and Group Franchise Agreement (the 2017 Agreement). Mr Ravla is also a party to the 2017 Agreement, as the “Approved Operator”.3
[12]The preambular or background clauses in the 2017 Agreement record that:
2 The word “Concerned” is defined in the 2008 Agreement to mean, in relation to a business, “interested in any way at all in that business.”
3 The extent to which the 2017 Agreement is substantially similar to the 2008 Agreement is a matter of dispute.
(a)the Foodstuffs Co-operative operates as a co-operative of independent grocers working together for the mutual benefit of all members;
(b)membership of the Co-operative carries a commitment by the members to support and foster the business of Foodstuffs and to uphold and promote the “Paramount Principle”, which is defined by reference to Foodstuffs’ Constitution as the principle that:
(i)[Foodstuffs] is the cornerstone and organisational heart of the mutual cooperative organisation of independent grocers (comprising Shareholders of [Foodstuffs]) owning and operating their own businesses) which has been built around [Foodstuffs] and is known collectively as ‘Foodstuffs’ or ‘Foodstuffs Members’;
(ii)[Foodstuffs] is guardian of the cooperative principles on which such organisation is based and has the responsibility to preserve, protect, perpetuate and promote the organisation and to work for the mutual benefit of all members of the organisation;
(c)Foodstuffs only grants franchises of the Four Square System if it is satisfied that the franchisee and the Approved Operator have the wherewithal to ensure that the franchise is exploited to the best mutual advantage of Foodstuffs and the franchisee.
[13]Relevantly, cl 1.1 of the Agreement defines:
(a)“Agreed Business Name” as “Four Square Mangapapa”;
(b)“Agreed Premises” as the store premises located at 262 Ormond Rd,
Gisborne 4010;4
(c)“Franchised Business” as:
… the business and workplace of the Four Square Store carried out at the Agreed Premises and at any other workplace by the Member and the Approved Operator including the Four Square Loyalty Programme (if Applicable) and the Online Shopping Programme (if applicable).
4 There is no dispute that this is the alternative address for the 2 Winter Street property.
(d)“Lease” as any deed(s) of lease or sublease for the Agreed Premises;
(e)“Manager” as the General Manager, Retail Operations of Foodstuffs, or his or her delegate.
(f)“Termination Event” as an event referred to in clause 17.1.
[14]Under cl 2:
(a)RTL holds 300 Group A shares in Foodstuffs at $1 per share (cl 2.1);
(b)RTL is a member of the Foodstuffs Co-operative and a member of the Four Square Store advertising group (at cl 2.3);
(c)RTL undertakes to Foodstuffs to uphold and promote the Paramount Principle (cl 2.4.1);5
(d)RTL will not (by virtue of cl 2.6):
(i)hold itself out as anything other than an independent owner operator grocer and a franchisee of the Four Square System; or
(ii)do, or be a party to the doing of, anything that may prejudicially affect the goodwill, trade or business of the Franchised Business, the Four Square Brand, the Four Square Store advertising group, the Foodstuffs Group or the Foodstuffs Co-operative.
[15]Under cl 4.4, Mr Ravla (as the Approved Operator) will (relevantly):
(a)principally control, operate, supervise and manage the Franchised Business on a full time basis;
(b)devote his best efforts to managing the Franchised Business; and
5 See [12(b)] above.
(c)comply with his obligations under clause 12.1 (which include acting in a way which does not give rise to a conflict of interest).
[16]Under cl 6, RTL is required:
(a)diligently and fully to exploit its rights under the Franchise Agreement to the best mutual advantage of the Foodstuffs Co-operative and RTL (cl 6.1);
(b)to perform its obligations under the Lease for the Premises and exercise any right of renewal contained in the Lease for the Premises in accordance with its terms (cl 6.3);
(c)to operate the Franchised Business as a Four Square Store in full compliance with the Transaction Documents (as defined) (cl 6.7.1);
(d)trade as a member of the Four Square Store advertising group (cl 6.7.2);
(e)conduct, manage and operate the Franchised Business under the direct full time supervision of Mr Ravla (cl 6.7.9); and
(f)at all times conduct the Franchised Business to a standard that reflects favourably on the goodwill and reputation of the Franchised Business, the Four Square Brand, the Four Square advertising group, the Foodstuffs Group or the Foodstuffs Cooperative and will not do anything which brings, or would be likely to bring, any of them into disrepute (cl 6.7.13).
[17] Clause 6.8 contains a list of things that RTL may not do, which include (at 6.8.8):
Agree to sell the Franchised Business otherwise than on terms and conditions approved by Foodstuffs or as contemplated by the Transaction Documents.[6]
6 “Transaction Documents” are defined to include the 2017 Agreement itself.
[18]Pursuant to cl 12.1 RTL and Mr Ravla:
... must ensure that they do not, without the written consent of Foodstuffs, become Concerned[7] in any way either directly or indirectly in any other business. This includes any business which competes directly or indirectly with any member of the Foodstuffs Group or the Foodstuffs Co-operative and any business which supplies Groceries and Merchandise or services to other members of the Foodstuffs Co-operative. So far as [Mr Ravla] only is concerned, it excludes passive investments in businesses which do not compete with any member of the Foodstuffs Group or the Foodstuffs Co-operative and where [Mr Ravla] has no significant managerial or director responsibility.
[19] If RTL wishes to sell the Franchised Business8 or the sale process is activated by virtue of Mr Ravla’s incapacity under cl 14, cl 13 provides:
(a)RTL is required to first offer the Franchised Business to Foodstuffs for purchase, “specifying a price in accordance with clause 13.7 and any other terms and conditions” (cl 13.2).
(b)RTL is able to sell the Franchised Business to another party only if Foodstuffs declines to exercise its right of first refusal and if Foodstuffs consents (cl 13.8). Any such sale must be ‘on terms and at a price no more favourable to the purchaser than those offered to Foodstuffs’ (cl 13.5).
(c)Foodstuffs’ will consent if a number of preconditions are met, including the condition that:
13.8.4 The prospective purchaser will, on or before settlement, be entitled to a lease of the Agreed Premises …
[20] Clause 14 provides that if Mr Ravla is mentally or physically incapacitated so that, in the opinion of Foodstuffs, he is unable to principally control, supervise and manage the Franchised Business on a full time basis, RTL must:
7 ‘Concerned’ is defined in relation to a business as being ‘interested in any way at all in that business. This includes being interested on his or her own account, or as a shareholder, consultant, agent, beneficiary or trustee’.
8 Whether or not the business is being sold with the right to continue to use and operate the Four Square Brand, Intellectual Property, Distinctive Get Up, Four Square System and Format Specification.
(a)irrevocably appoint the Manager9 as manager of the Franchised Business (cl 14.1);
(b)irrevocably direct the Manager, on behalf of RTL, to offer the Franchised Business for sale as a going concern and to complete such a sale in accordance with, and subject to, cl 13 for the best available price reasonably attainable at the time of sale (cl 14.2); and
(c)pending such sale, irrevocably direct the Manager to manage the Franchised Business for the benefit of RTL (cl 14.3).
[21] Termination is dealt with in cl 17. Clause 17.1 lists the circumstances in which Foodstuffs may terminate the Agreement, including (at 17.1.1) where RTL or Mr Ravla “fails to comply with its obligations under the Transaction Documents or under the Lease and that failure is not rectifiable”. Clause 17.2 states that no party is entitled to terminate except as expressly permitted under the Agreement.
[22] By cl 20.1.2 of the Agreement, Mr Ravla again guaranteed to Foodstuffs that RTL would perform its obligations to Foodstuffs whether those obligations existed at the time of the agreement “or in the future”. Foodstuffs say that, by virtue of cl 16.1 of the 2008 Agreement and cl 22.2 of the 2017 Agreement, Mrs Ravla remains bound by her former guarantee.10
[23] Neither RTL nor Mr Ravla have express termination rights under the 2017 Agreement.11
9 Foodstuffs’ General Manager, Retail Operations or his delegate.
10 While clause 22.1 provides that the 2017 Agreement supersedes and is in substitution for the 2008 Agreement, cl 22.2 of the 2017 Agreement provide that nothing in that document discharged, prejudiced or released any guarantee provided in any “Transaction Document” (which includes any document or arrangement between RTL and Foodstuffs).
11 The respondents nonetheless say that they must have an implied right to terminate - on the giving of reasonable notice.
The events leading to the present proceedings
[24] When RTL first became a franchisee in 2008, it held a lease of the Premises from third parties, the trustees of the Jackson Family Trust. Pursuant to the Deed of Lease:
(a)the lease of the Premises commenced on 1 January 2006;
(b)RTL had a right of renewal for a further term of 6 years; and
(c)the final expiry date was 31 December 2017.
[25] On 12 September 2016 (prior to RTL’s entry into the 2017 Agreement), however, ownership of the Premises was transferred to RTL.
[26] On 19 June 2019, Mr Ed Hunt, the lawyer for RTL and Mr Ravla wrote to Foodstuffs advising that Mr Ravla’s heath had deteriorated and had received medical advice that he should “make some serious changes in his work direction”. Then, he said:
Both Mr Ravla and his wife Ila, have made the following decisions which with your co-operation will bring the parties to mutual [sic] agree that the Agreement will be brought to an end:
(a)Under clause 17.1, Mr Ravla will no longer be able to principally control or manage the business on a full-time basis.
(b)Under clause 17.1.6, Mr Ravla will hand over the running of the business to his wife, Ila Ravla who is not an Approved Operator under the Franchise Agreement.
(c)Ila Ravla does not want to run the business in the normal Four Square franchise operation but rather will run the business in the manner of a “Corner Dairy” or “Superette”
Mr Ravla has suggested a termination date of 1 August 2019 as the date for the termination of the Agreement.
On the termination date Mr Ravla will repay Foodstuffs all outstanding fees, charges, Levies and costs for produce supplied on credit. He will cause to have removed all Four … Square advertising from the premises and comply with the other provisions of clause 17.3.2 of the Agreement.
[27] On 25 June 2019, Foodstuffs’ Senior Legal Counsel, Ms Julie Daniels, replied, advising:
(a)Foodstuffs did not wish to terminate the 2017 Agreement;
(b)RTL and Mr Ravla had no right to terminate unilaterally;
(c)If Mr Ravla was no longer able to manage the Franchise Business, Foodstuffs suggested that it be sold to a Foodstuffs’ approved purchaser in accordance with the 2017 Agreement;
(d)Alternatively:
(i)Foodstuffs would be interested in purchasing the Premises or taking a Head Lease; or
(ii)clause 14.1 of the Agreement could be invoked and a Manager appointed, with a view to preparing the business for sale.
[28] On 9 July 2019 Ms Daniels inquired whether Mr Hunt had any further instructions from his clients. She was advised Mr Hunt was about to meet with Mr Ravla and that she should hear from him shortly. On 15 July Ms Daniels made a further inquiry, to which Mr Hunt responded, saying that the Ravlas had advised him that they had been approached by “two Gisborne parties, one a small store operator and the other the operator of Pak and Save”. He said “We will contact you once my clients decide what avenue to pursue”.
[29]On 25 July 2019 Ravla Trading transferred the Premises to the Trust.
[30]On 12 August 2019, Mr Hunt wrote to Ms Daniels, saying that his clients’
position remained as in his previous letter. He said:
We note the proposals that you put forward but none of the buy back options could succeed on the basis of the ownership of the land and buildings.
The property was owned by the Jackson Family Trust and was sold on 12 September 2016. The original lease with the Jackson’s [sic] dated
6 December 20015 expired on 31 December 2017 and the Company has been in a holding over position since then.
The present owners of the property are the trustees of the Ravla Family Trust and they will not grant a lease to any other party as suggested in your letter. Neither will they sell the property.
It would appear then that under clause 17.1.7 of the franchise agreement, the landlord’s right not to renew the lease is a termination event that cannot be rectified.
In order that there is a smooth transition my client suggests a termination date of the franchise agreement of one month from today.
[31] Ms Daniels responded on 12 August 2019 saying that Foodstuffs did not wish to exercise its termination right under cl 17.1.17 and was comfortable with the “store’s lease being held over”. She asked Mr Hunt to confirm that his clients were still intending to exit the Agreement and to continue operating as a non-branded grocery store from the Premises. She reiterated her previous advice that, in that event, Foodstuffs would “seek to enforce its legal position strongly” against RTL and the Ravlas as guarantors.
[32] On 28 August 2019, Mr Hunt replied, advising that a new lease had been granted to a third party. He did not substantively engage with Foodstuffs’ legal position but made it clear that his clients were proceeding with “termination”.
[33]On 6 September 2019 Foodstuffs’ lawyers issued proceedings seeking:
(a)injunctive relief against RTL and the Ravlas for anticipatory breach of the 2017 Agreement; or
(b)injunctive relief and damages against RTL and the Ravlas for actual breach of the 2017 Agreement; and
(c)injunctive relief or damages against the Trust for unfair interference with contractual relations.
[34] At the same time, a without notice application for interlocutory injunctions in the same terms was also filed.12 The terms of the injunctions sought at the hearing before me were significantly changed (in light of subsequent events) from those in the interlocutory application and so I do not set out them out here.
[35] At around this time, the respondents instructed a Wellington lawyer, Mr Freeman. On 6 September he wrote to DLA Piper, stating that since the expiry of the Lease on 31 December 2017 the Premises had been subject to a periodic tenancy. He said:
The owner the premises is a trust and although Jitesh is both a trustee and the director of Ravla, he does not control the trust. The collective trustee decision is to explore other options and the trust is therefore not offering a new lease for the premise to Ravla.
Jitesh’s wife, Ila, is interested in taking over the lease and operating a grocery store. She would do that through her own corporate entity separate from Ravla. The Trustees are considering that on its merits. They are yet to make a decision about that. Ila is not a party to the franchise agreement and is entitled to pursue her own business interests.
Jitesh and Ravla have responsibly raised the above with you and sought to terminate the Four Square franchise agreement. In the circumstances your response that Ravla has no right to terminate the franchise agreement and Foodstuffs does not agree to its termination is surprising. There has to be a way for Ravla to exit the franchise agreement. If there is no mechanism for this explicitly in the agreement it will be an implied term that Ravla can terminate the franchise agreement on reasonable notice. Ravla has now given reasonable notice.
However, in light of Foodstuffs position, Ravla now makes an offer to Foodstuffs to buy the business under clause 13.2 of the Franchise Agreement. There is no lease. The offer will be to purchase the fixed assets of the business at their current depreciated value and stock at value. We look forward to receiving notice one way or another within 30 days in accordance with clause 13.3.
The application for interlocutory relief
[36] Rule 7.53 of the High Court Rules 2016 confers a discretionary power to grant interlocutory injunctive relief both before and after a proceeding is commenced. The governing principles are well settled.
12 Although it was proposed that the matter be progressed on a Pickwick basis. Doogue J declined to grant the interlocutory injunctions without notice. The application was subsequently timetabled to a hearing by Cooke J.
[37] The purpose of such injunctions is to protect applicants from injury by a violation of their rights for which they could not be adequately compensated in damages, in the event of later success at trial. The need for such protection must be weighed against a respondent’s need to be protected from injury resulting from being unable to exercise legal rights for which he could not be adequately compensated by way of damages, in the event the applicant does not succeed at trial.13
[38] A two-stage approach is required. The first involves consideration of whether there is a serious question to be tried in the proceeding and, if there is, where the balance of convenience (as between the two competing needs to which I have just referred) lies. Ultimately, the discretion must be exercised in accordance with the overall justice of the case.14
This case
Serious question to be tried?
[39] By the time of the hearing before me, Foodstuffs’ position had been modified somewhat from that revealed in its pleadings. In part, that modification is the result of a better appreciation of the respondents’ position, as a consequence of Mr Freeman’s letter of 6 September, to which I have already referred. As well, the passage of time (albeit brief) has appropriately resulted in a refinement of thinking, in terms of the essence of Foodstuffs’ case.
[40] As now articulated by Mr Thain, Foodstuffs’ position is that it is seriously arguable that:15
(a)RTL is precluded by the Franchise Agreement from transferring away or selling any right of tenure it has to, or right to use, the Agreed Premises; and
13 American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL) at 408 (per Lord Diplock).
14 Harvest Bakeries Ltd v Klissers Farmhouse Bakeries Ltd [1985] 2 NZLR 129 (CA) at 142.
15 Although Mr Thain also contended that it was seriously arguable that RTL and Mr Ravla have or would become involved in a competing business in breach of cl 12 of the 2017 Agreement I consider this to be the weakest of Foodstuffs’ claims and do not take it into account here.
(b)RTL’s intention to transfer its Franchise Business to Mrs Ravla or some new entity controlled by her, without Foodstuffs’ consent and without first offering it to Foodstuffs at a specified price and on equally favourable terms (including a lease of the Agreed Premises) is in anticipated breach of cls 6.8.8 and 13;
(c)RTL’s transfer of the Agreed Premises to the Trust was for the purpose of avoiding the operation of clause 13;
(d)the Trust is a sham, insofar as the transfer of the Agreed Premises is concerned;16
(e)Mr and Mrs Ravla (personally and as Trustees) were knowingly concerned in the transfer;17
(f)by transferring ownership of the Agreed Premises to the Trust, without first securing a lease for itself and with the intention of advantaging Mrs Ravla, RTL is in breach of cl 2.6 of the 2017 Agreement;
(g)by transferring ownership of the Agreed Premises to the Trust, without first securing a lease for itself and with the intention of advantaging Mrs Ravla, RTL is in breach of cl 6.1 of the 2017 Agreement;
(h)alienating the Agreed Premises in a way which is not consistent with the obligations of mutuality under the 2017 Agreement constitutes a breach of a fiduciary duty owed to Foodstuffs by RTL and Mr Ravla;
(i)Mr Ravla has breached his duties as a Director of RTL by permitting the company to transfer ownership of the Agreed Premises to the Trust, without first securing a lease for itself and with the intention of advantaging Mrs Ravla;
16 Official Assignee v Wilson [2006] 2 NZLR 841 (HC).
17 Prest v Petrodel [2013] UKSC 34, [2013] AC 415.
(j)in the absence of any evidence (so far) that the transfer to the Trust was made in exchange for any form of consideration, the Trust holds the Agreed Premises for the benefit of RTL under a resulting trust;
(k)the asserted existence of fiduciary duty seems tenable, as a matter of law;
(l)the alleged breach of Director’s duty also seems tenable on the evidence as presently disclosed;
(m)Mrs and Mrs Ravla and the Trust are tortiously liable for inducing RTL to breach the 2017 Agreement:
(n)RTL, Mrs and Mrs Ravla and the Trust are tortiously liable as parties to an unlawful means conspiracy (agreeing to take unlawful action18 with the intention of damaging Foodstuffs/advantaging Mrs Ravla).19
[41] Mr Freeman’s position was that none of these claims was seriously arguable because the 2017 Agreement does not, and cannot be reasonably interpreted to:
(a)prevent RTL from selling the Agreed Premises;
(b)prevent the Trust from doing what it likes with its own property; or
(c)require a lease of the Agreed Premises in perpetuity.
[42] He also submitted that it is not possible to have a resulting trust over an express trust and said that some of the claims made were tantamount to allegations of fraud for which there must be a solid foundation.
[43] But I have little hesitation in concluding that some, and possibly all, of the matters raise by Mr Thain are seriously arguable questions to be tried. While I do not
18 The relevant unlawful act being either ones of the alleged breaches of contract or the alleged breach of Director’s duties.
19 Diver v Loctronic Industries Ltd [2012] NZCA 131, [2012] 2 NZLR 338; Wagner v Gill [2014] NZCA 336, [2015] 3 NZLR 157.
intend to express anything other than incomplete and preliminary views, it seems to me that:
(a)interpreting the 2017 Agreement as precluding RTL from transferring away or selling any right of tenure to, or right to use, the Agreed Premises would be consistent with the nature of the franchise arrangement and obligations of mutuality to which it gives rise;
(b)there is a reasonable inference to be drawn (particularly in the absence of any evidence thus far as to consideration) that the transfer of the Agreed Premises to the Trust was for the sole purpose of avoiding the operation of the 2017 Agreement;20
(c)in light of (a), the other alleged breaches of the 2017 Agreement are also seriously arguable;
(d)in the absence of evidence as to any payment, it is difficult to see how the transfer of the Agreed Premises was in RTL’s interests (which necessarily gives rise to questions of Director’s duties); and
(e)on the basis of the evidence thus far there are grounds for the tortious claims now articulated.
[44]I find the first limb of the test is satisfied, accordingly.
Balance of convenience
[45] Again, I agree with Mr Thain that the balance of convenience favours Foodstuffs here, for the reasons that follow.
[46] First, Foodstuffs seeks only the maintenance of the status quo. I accept Mr Thain’s submission that the relevant status quo is the position as it was at the time of the “last peaceable state between the parties”, namely before the transfer of the
20 On the authority of Official Assignee v Wilson, above n 16, that is capable of rendering the Trust a sham, for limited purposes.
Agreed Premises in July 2019.21 If that is so, then concerns about how the injunctions sought might affect the Trust’s ability to do as it likes with its own property (which was understandably the focus of Mr Freeman’s submissions) can only be given limited weight, at best. In any event, there is nothing before the Court to suggest that the beneficiaries of the Trust might suffer any loss if the interlocutory injunctions are granted.
[47] Secondly, it is difficult to see how the interests of the other respondents will be unduly prejudiced in the short term, if interim injunctive relief is granted. RTL’s business would simply continue either with Mr Ravla as the Approved Operator (if his health permits) or under a Manager appointed by Foodstuffs, in accordance with the 2017 Agreement. Mr Thain said, and I accept, that it would not be necessary for any such Manager to move to sell the Franchise Business immediately, and cl 14.3 makes it clear that, in the event of such an appointment, the business must be managed for the benefit of RTL. No doubt Mrs Ravla could and would continue to fulfil the same function as she has historically. And any loss suffered (and it is difficult to imagine what exactly this might be other than (perhaps) a loss of salary for Mr Ravla) would be compensable by an award of damages.
[48] By contrast, in the event that interim injunctive relief is denied, but Foodstuffs later prevails at trial, damages is unlikely to be an adequate remedy:
(a)If the respondents are permitted to avoid compliance with cl 13 and so to operate a “new” grocery store from the Agreed Premises, Foodstuffs will suffer damage to the goodwill in its Four Square franchise brand and system, and its goodwill at the Premises.
(b)This would not be a “simple” case of Foodstuffs having (wrongly) lost its goodwill in the Franchise Business (which could, perhaps, be quantified) but of Mrs Ravla effectively having misappropriated that goodwill for the Ravlas’ own benefit. There is force in the submission that if the respondents are permitted to travel down their intended
21 Wellington International Airport Ltd v Air New Zealand Ltd HC Wellington CIV-2007-485-1756, 30 July 2008 at [10].
course, Mrs Ravla will not only end up operating a grocery store from the same premises but potentially under the banner of one of Foodstuffs’ competitors.22
(c)The loss flowing from a misappropriation of goodwill is not limited to the direct loss of market share related to the Mangapapa store. There is likely to be a broader deleterious effect on other Foodstuffs’ franchisees and on the Foodstuffs’ franchise system itself. The potential for wider damage of this kind in franchising cases has been recognised in decisions of the New Zealand Courts.23
[49] And lastly, I also record that counsel were agreed that a trial of the substantive claims (at least as to liability) could potentially be expedited, as there is unlikely to be significant discovery or further evidence required.24
[50] The following (modified) orders by way of interim injunction were proposed by Mr Thain at the hearing and I make them now:25
(a)until further order of the Court, the respondents are prohibited from entering, or taking steps under, any contract, agreement or understanding for the sale, transfer or encumbrance of any part of the grocery store business carried out at 2 Winter Street, Mangapapa (the Premises), including the sale, transfer or encumbrance of any interest or right of possession or use in respect of the Premises other than to the plaintiff or its nominee or with the plaintiff’s consent;
(b)the order in (a) does not apply to the sale of items of stock at retail in the ordinary course of the grocery store business;
22 The evidence before me was that, in order to come even close to the store’s current turnover, Mrs Ravla would need to align herself with (obtain a franchise from) one of Foodstuffs’ competitors.
23 Skids Programme Management Ltd v McNeil [2012] NZCA 314, [2013] 1 NZLR 1 (CA) and
Supatreats Asia PTE Ltd v Grace & Glory Ltd [2018] NZHC 1612, [2019] NZCCLR 3.
24 Except, possibly, in relation to the quantification of damages.
25 I have altered the proposed wording slightly.
(c)leave is reserved to the parties to apply for a variation or discharge of the order at (a) above and, in particular, to apply for discharge at any time when the respondents consider that clause 13 of the 2017 Agreement permits a sale to a party other than the plaintiff or its nominee.
[51]Costs are reserved.
[52] The substantive proceeding should be placed in the next available Chambers List in order that further timetable orders can be made.
Rebecca Ellis J
Solicitors:
DLA Piper, Auckland for Applicant
Thomas Dewar Sziranyi Letts, Lower Hutt for Respondents
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